Investment Inquiry with Tobin Smith

Bulls & Bears contributing editor Tobin Smith knows investing inside and out.  He’s the author of ChangeWave Investing 2.0 and is the founder and CEO of ChangeWave.com.

Last week, the Balance Sheet asked you to submit your investment questions to Tobin, and as promised — here are your answers.

Want to subscribe to The Balance Sheet?  Become a Fox Fan for inside access to the world of FNC.

Disclaimer : The following “Investment Inquiry with Tobin Smith” contains strong opinions which are not a reflection of the opinions of Fox News and should not be relied upon as investment advice when making personal investment decisions.  It is Fox News’ policy that contributors disclose positions they hold in stocks they discuss, though positions may change.  Readers of “Investment Inquiry with Tobin Smith” must take responsibility for their own investment decisions.

How do you rate Microsoft for a ten-year investment?
— Rick

Rick,

Ten years in today's world is just not forecastable. Microsoft for a long-term investment should slightly outperform the overall Nasdaq since it represents 11% of the index. $100-$120 or so by 2005 is likely, if their new net initiatives start to take hold and Windows XP sales start to take off next year.

If your cost basis is lower than $30-$40 then you get a fair return with little downside risk from here. But Microsoft is NOT a growth stock anymore — that is, it is not very likely to enjoy earnings growth significantly in excess of the overall Nasdaq.

If your cost basis is over $70, their are much more profitable stocks to hold for the long term like Pfizer (PFE) or Checkpoint Systems (CHKP) that have locked in growth significantly higher than MSFT which sell at much lower valuations.

Hope this helps.
 
What should I now do with my GX? I tried to average down and bought equal shares starting at $22. Then at $6 and finally at $.90.
— Corky

Corky,

GX is a disaster and getting worse. First they have to fire Gary Winnick the chairman — he has no credibility left.  The value of their network is very hard to value in that, until we come up some killer application that sucks down billions of megabytes of bandwidth, they are selling bandwidth services in a market with 90% more bandwidth than it can use. 

Price discounts is the only way to get business, which cuts their revenue opportunity every year. The only hope for the company is a buyout, but who is going to pay much for them beyond their cash in the bank: about $2 a share?

Sorry to deliver the bad news.

Where is the best place to put one’s retirement money?
— Ken

Ken,

A 401K where your employer matches some or all of your contributions.  You are getting free money, and you can't beat that.

Second best is a self-employed retirement fund where you can contribute over $30,000 a year or more — the tax savings is like free money as well.

Is it worthwhile to buy stocks if you are not buying round lots? Do you think I will make money buying 10-20 shares of various stocks on E*TRADE?
— Becky

Becky,

It used to be that buying odd lots cost you significantly more than 100 share lots. But no longer. The cost is no different and the execution is lumped together with other odd lots so you get no haircut by market makers executing your trade.

I have left 2 companies and I left my 401K in these two companies. I have about $20,000 in each account.  Presently, they have been moved to a Money Market accounts without my permission.  What should I do with these assets?
— Ed

Ed,

Go smaller cap (market capitalization) growth unless you plan on taking the money out in the next 2-3 years. At rebirth of an expanding economy ahead, small cap growth stocks kick butt on every other kind of stock for years.

Good Luck.

My employer offers a ‘simple IRA’.  I also have a Roth IRA with a major brokerage. Over the last year, I have been putting $300 a month in pre-tax dollars toward the simple IRA, but neglecting my Roth. Should I reduce my simple deposits to what my employer is willing to match, and put the rest into the Roth or continue my present pace?
— MJK

MJK,

If you can max out the SEP, do it. You can put up $24,000 a year into a SEP if you are making enough dough. If your income is such where you can have a tax deductible IRA, your SEP and a Roth, you win the triple crown — do them all.

The only advantage of doing your Roth IRA is if you can put money into stuff that is restricted by your SEP Plan.

I would like to get into healthcare. Would I be better off buying Ishares index or a managed mutual fund?
— Dan, Silverdale WA 

Dan,

Buying Ishares is very tax efficient, low fees and not actively managed. I'd look at the Fidelity or Invesco managed funds.  Their long term records even with fees etc. beats the IShares hands down.

Peace and Prosperity

Toby