Picking up Nickels

Friday, October 13, 2006

Procter & Gamble (PG): My best stock pick ever

Yesterday I came clean about the worst stock pick I have ever made. Today, I'd like to try and redeem myself with the best stock pick I have ever made: Procter & Gamble (PG).

In early March 2000, the PG stock price dropped by about 30% in one day due to a disappointing earnings announcement. I immediately sensed a buying opportunity since this was a pretty dramatic plunge for a company with such widespread market share and brand recognition in the consumer staples area (Pampers diapers, Crest toothpaste, Tide detergent, Bounty paper towels, etc.).

Two days after the price collapse, I bought 60 (split adjusted) shares of PG. I then bought 60 more (split adjusted) shares of PG in late June 2000 when the share price dropped about another 7%. Today, when I look at the 10 year chart (courtesy of nasdaq.com), I can see that I bought PG at its two lowest price points since January 1997!

I still hold PG to this day, and I am up 134% (including dividend reinvestment) since my original purchases over six years ago. In this case, I believe that two critical factors contributed to my stock picking success:

  • The market can be irrational: I bought the stock of a quality company at a steep discount after the market overreacted to a poor earnings announcement.
  • I bought stock in a best of breed company that I believed would rebound due to a strong product line and brand recognition.

The ironic part of this stock pick was that I made a good decision for the right reasons when I bought PG in the first half of 2000, but I seemed to forget this when I blundered and bought Lucent Technologies for the wrong reasons in the second half of 2000.

4 Comments:

  • This was one of our best picks ever, as well -- but for enitrely different reasons. We started investing in PG in late 96/early 97 and we end up selling our position in 200 before the big fall. That being said, it wasn't any great insight on our part that led us to sell -- rather, we needed to re-shuffle money at that point and it just happened to coincide with what was (in retrospect) the best time to sell.

    By Anonymous fivecentnickel.com, at 10/14/06, 10:22 AM  

  • Hey boss, just came across your blog and liked it. I had seen your blog name floating around but hadn't really taken the time to read it!

    In any event, I noticed I was on your link list and I'm going to add you to mine. Happy blogging!

    By Blogger Daniel, at 10/14/06, 6:44 PM  

  • P&G also appears in MSN's "The 5 best stocks for 2007" (Jubak's Journal) :)

    By Blogger GolbGuru, at 10/16/06, 4:42 AM  

  • Right now, my plan is to continue to hold PG and reinvest the dividends. It could end up being a nice chunk of change some day.

    On the other hand, I'm also looking forward to getting my youngest out of Pampers. Sometimes I feel like I've been personally responsible for boosting the PG stock price with all of the diapers I've bought over the years. :)

    By Blogger Frugal Frugalson, at 10/16/06, 9:14 AM  

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