An upside of inflation

Q. I know inflation makes money worth less over time. Is there any upside to that? -- S.L., Kankakee, Illinois

A. Here's one: Imagine that you're earning $80,000 per year and making monthly $1,800 payments on your fixed-rate mortgage. Over time, your income will presumably grow along with inflation, and that $1,800 will represent a smaller and smaller portion of your income.

Q. I bought a stock. It tripled, then fell in price so that I only doubled my money. Should I have sold after it tripled and bought it again after it dropped? Or is it best to just wait and hold, hoping for more gains? -- M.M., Ocala, Florida

A. Selling at a top and then buying again at a bottom sounds great, but there's one little problem: You can't know when a stock has reached a top or a bottom. Indeed, you can't even know if it's going to rise or fall from day to day.

Focusing on your gain (or loss) so far when thinking about whether to sell or hang on means you're looking backward. Instead, look forward: Consider the stock's current price and what you expect the price to be in the future. Ideally, you'll buy stocks when they seem undervalued -- priced less than what you think they should be worth -- and you might sell when they seem overvalued. Or, if you're planning to hang on for many years, if not decades, hold on through thick and thin as long as the company is performing well and maintaining great potential.

When a company is healthy and growing, its intrinsic value will increase over time. Looking at measures such as price-to-earnings (P/E) ratios can give you a rough idea of valuation.

Fool's School

Books To Improve Your Investing

No matter how experienced or inexperienced an investor you are, you can probably get savvier and improve your results by reading more. Here are a bunch of well-regarded books you might check out.

These are particularly good for beginners: "The Only Investment Guide You'll Ever Need" by Andrew Tobias (Harper Business, $20), "One Up On Wall Street: How To Use What You Already Know To Make Money in the Market" by Peter Lynch with John Rothchild (Simon & Schuster, $19), "The Little Book of Common Sense Investing: The Only Way To Guarantee Your Fair Share of Stock Market Returns" by John Bogle (Wiley, $25), "Common Sense on Mutual Funds" by John Bogle (Wiley, $35) and "The Psychology of Money: Timeless Lessons on Wealth, Greed and Happiness" by Morgan Housel (Harriman House, $20).

These can help you hone your investing style: "Investing: The Last Liberal Art" by Robert Hagstrom (Columbia University Press, $28), "The Little Book of Value Investing" by Christopher H. Browne (Wiley, $25), "Common Stocks and Uncommon Profits" by Philip A. Fisher (Wiley, $25), "The Little Book That Builds Wealth: The Knockout Formula for Finding Great Investments" by Pat Dorsey (Wiley, $25) and "The Little Book That Still Beats the Market" by Joel Greenblatt (Wiley, $25). There are lots of other great reads in the "The Little Book ..." series, including books on dividends, valuation and behavioral investing.

More experienced investors might read "You Can Be a Stock Market Genius: Uncover the Secret Hiding Places of Stock Market Profits" by Joel Greenblatt (Touchstone, $19), and a newly updated seventh edition of "Security Analysis: Principles and Techniques" by Warren Buffett's mentor, Benjamin Graham (McGraw-Hill, $85).

We at The Motley Fool have also published some investing books, such as "The Motley Fool Investment Guide" by David and Tom Gardner (Simon & Schuster, $22) and "The Motley Fool Investment Guide for Teens: 8 Steps To Having More Money Than Your Parents Ever Dreamed Of" by David and Tom Gardner with Selena Maranjian (Touchstone, $17).

My Dumbest Investment

Didn't Do Nothing

My worst investment move was selling my shares of Netflix way too soon. I had invested in the company very early, when it was still a DVD-by-mail business. I sold my shares when it announced it was separating its DVD and streaming businesses, spinning off the former as "Qwixter." Had I hung on, those shares would be worth around $900,000. All I would have had to do to make that money was ... nothing. -- S., online

The Fool responds: You weren't the only one who lost faith in Netflix after that announcement in July 2011 -- which was accompanied by news of a price increase. The spinoff was received so poorly that the company reversed its decision in October. Meanwhile -- as shown in the quarterly results it reported shortly after the reversal -- it had lost about 800,000 subscribers.

You couldn't have known back then how well Netflix would turn its fortunes around, so selling was not so unreasonable. If you'd been on the fence, you might have sold only a portion of your shares.

It's worth remembering that many times in your investing life, the right thing to do will be nothing. Even Warren Buffett agrees, writing in his 1998 letter to shareholders: "... my decision to sell McDonald's was a very big mistake. Overall, you would have been better off last year if I had regularly snuck off to the movies during market hours."

Foolish Trivia

Name That Company

I was born in 1913 as America's first commercial liquid bleach maker, the Electro-Alkaline Company. My sales totaled $7,996 in my first year. I introduced household bleach to farmers and others at the 1917 California State Fair, and made it through the Great Depression with solid sales and no layoffs. My bleach was rationed during World War II because it could disinfect wounds, neutralize gas attacks and purify water. Today, with a recent market value of over $19 billion, I'm home to brands such as Brita, Burt's Bees, Fresh Step, Glad, Hidden Valley, Kingsford, Liquid-Plumr and Pine-Sol. Who am I?

Last Week's Trivia Answer

I trace my roots back to my 1985 founding as the Rock Financial mortgage company. I simplified the home loan process in 1996 with my "Mortgage in a Box" application. I was bought by Intuit in 1999 and renamed Quicken Loans -- but became independent again in 2003. Meanwhile, in 2002, I debuted the first fully electronic mortgage application process. Today, based in Detroit and with a recent market value topping $17 billion, I'm the top originator of Federal Housing Administration (FHA) mortgages. I'm also involved in personal loans, auto loans, home sales and solar energy. Who am I? (Answer: Rocket Companies)

The Motley Fool Take

CVS Healthy

Serving over 100 million people in the United States annually through its Caremark prescription management business and Aetna health insurance business, CVS Health (NYSE: CVS) is a major health solutions company. These businesses support the company's near-$90 billion market value, making it the third-largest health care plan provider in the country. Its network features more than 40,000 physicians, pharmacists, nurses and nurse practitioners.

As the U.S. population continues to age, demand for Caremark and Aetna's services should increase. Meanwhile, CVS has been expanding further via more acquisitions, including its $10.6 billion purchase of primary care operator Oak Street Health and an $8 billion deal for home-health company Signify Health.

That's a lot to digest, so CVS has said it will pause mergers and acquisitions as it works on integration for the time being.

Meanwhile, its dividend recently yielded 3.5% and remains sustainable; the company was recently paying out about 75% of its income in dividends.

CVS Health was already a top name in pharmacy retail, and now has health insurance and pharmacy benefits businesses; together, those areas should provide long-term stability for investors. CVS Health's forward price-to-earnings (P/E) ratio of 8 is far lower than the health care plan industry's average of 13. (The Motley Fool has recommended CVS Health.)

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