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In my book The Confident Investor I frequently discuss GOPM (Grow on Other People’s Money). This is a key concept in building your stock portfolio while reducing your financial risk.

Let me show you a quick example of how this works.

You buy 100 shares of company A (perhaps one that is on the Watch List on this site) at $40 with $10 in stock broker commission, so you have invested $4,010. Over the course of a few months, the stock rises to $44. Your investment is now worth $4,400. The technical indicators make you think that this great company will have a short-term pullback in its stock price, so you want to sit back while the market moves against the stock price. However, you still want your money to work for you at this great company. You sell just your initial investment ($4,010) plus the selling commission of $10. $4020 divided by $44 means 92 shares (or a net of $4,048). Your principle is safe (plus $28) and you still have 8 shares of this great company. These 8 shares were bought with Other People’s Money. You have not invested one cent of your own cash in these 8 shares of stock.  They are free!

Perhaps while the market is moving against company A, you buy shares in company B that is experiencing bullish action. This allows you to not have your money sit idle but rather continue to grow while you wait for company A to rebound.

Eventually, the indicators confirm that you should buy in again with company A. Perhaps this new position is $43. You reinvest your $4,048 minus $10 commission and buy 93 shares with $39 left over. You now own 101 shares for your original $4,000 investment with $39 left in your money market account. This $39 is earning interest in your money market account or could be applied to a different stock.

With this technique on a great company, over time your investment will increase and your downside risk will be minimized. However, it is important to remember that, with any investment, there will always be some degree of risk. By bouncing between several well-run companies, you can constantly keep your original investment capital growing even though some stocks are experiencing a bull market.

This is the just the first aspect of the techniques that are taught in my book. The real power lies in learning which companies are worthy of using GOPM. You could just trust my analysis on this site or you can buy my book and understand how you find truly excellent companies to consider for investment. The next tactic after finding the great companies is to anticipate the market and my book will help you with that as well.

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Company name Western Digital Corp.
Stock ticker WDC
Live stock price [stckqut]WDC[/stckqut]
P/E compared to competitors Good

MANAGEMENT EXECUTION

Employee productivity Poor
Sales growth Good
EPS growth Good
P/E growth Poor
EBIT growth Good

ANALYSIS

Confident Investor Rating Fair
Target stock price (TWCA growth scenario) $64.89
Target stock price (averages with growth) $83.98
Target stock price (averages with no growth) $66.59
Target stock price (manual assumptions) $47.19

The following company description is from Google Finance: http://www.google.com/finance?q=wdc

Western Digital Corporation (WD) is a provider of solutions for the collection, storage, management, protection and use of digital content, including audio and video. Its principal products are hard drives, which are devices that use one or more rotating magnetic disks (magnetic media) to store and allow access to data. Its hard drives are used in desktop and notebook computers, corporate and cloud computing data centers, home entertainment equipment and stand-alone consumer storage devices. In addition to hard drives, its other products include solid-state drives and home entertainment and networking products. Effective March 8, 2012, it acquired Viviti Technologies Ltd. In May 2012, the Company completed the divestiture of certain 3.5-inch hard drive assets to Toshiba Corporation. As part of its deal with Toshiba, WD also completed its purchase of Toshiba Storage Device (Thailand) Company Limited (TSDT), which manufactured hard drives.

 

 

Confident Investor comments: At this time, I think that a Confident Investor can cautiously invest in this stock as long as the price is correct. Most of the fundamentals of this company are good but there are some concerns.

If you would like to understand how to evaluate companies like I do on this site, please read my book, The Confident Investor.