The Motley Fool: A Money Mouse

The Motley Fool Take

Walt Disney (NYSE: DIS) is the undisputed global entertainment king, with enormously valuable brands such as Disney itself, ESPN, ABC, Pixar and Marvel. In addition, it has the intellectual rights to many of the most valuable fictional characters and franchises in the world.

The company has a fairly unique business model, with the ability to monetize its assets via multiple platforms. For example, a massively successful movie such as “Frozen” or “Star Wars: The Force Awakens” presents opportunities in areas such as toys and merchandising, home entertainment, live shows and theme park attractions.

Many consumers are shifting from cable TV toward online streaming alternatives, and this is putting some pressure on Disney’s networks division. To offset this, Disney has taken a 33 percent stake in the video-streaming service BAMTech, a leader in sports streaming. Meanwhile, its other segments such as movie studios and parks continue to perform well.

Disney produced almost $13 billion in revenue during the quarter ended on April 2, up 4 percent over the year-ago quarter, while adjusted earnings per share, up 11 percent, posted the 11th consecutive quarter of double-digit growth.

Disney’s stock was recently trading 20 percent below its peak, with its price-to-earnings (P/E) ratio of 17.4 below its five-year average. The stock recently yielded 1.5 percent and is worth considering as a long-term holding. (The Motley Fool owns shares of and has recommended Disney.)

Ask the Fool

Q: Are capital gains taxes the same no matter how much I earn? - C.R., La Crosse, Wisconsin

A: Nope. For many folks, the long-term capital gains tax rate is 15 percent. It can be zero, though, if you’re in the 15- or 10-percent tax bracket, and if you’re in the highest tax bracket, it’s 20 percent. Some high earners will also face a 3.8 percent Medicare surtax on their net investment income. Short-term gains (from assets held for a year or less) are taxed at your ordinary income tax rate.

If you have capital losses, you can use them to offset your gains and reduce your tax bill.

Q: Can you have too many shares of one stock in your portfolio? - T.S., Philadelphia

A: It’s not the number of shares that matters, but their total value. You might have 1,000 shares of one stock, worth a total of $5,000, and 100 shares of another stock, worth $10,000. Focus on the percentage of your portfolio that each stock represents - and don’t let any one stock’s percentage get too high.

For instance, if one holding represents, say, 25 percent of your entire portfolio, that’s rather risky. If the stock plunges, your portfolio will take a big hit. Thus, if one holding grows into too big a chunk of your portfolio, consider selling some shares of it.

On the other hand, if you hold gobs of stocks, and your biggest holding represents just 2 percent of your portfolio, that’s not ideal, either. If that stock doubles or triples, its overall effect will be small.

For many people, roughly 10 to 20 stocks is a good number of holdings - enough for diversification, but not more than you can keep up with.

My Dumbest Investment

In 2007 I bought 100 shares of Evergreen Solar on the recommendation of someone I trusted. At one point my investment was up 92 percent, but, thinking the company was solid, I neglected to place a trailing stop order to lock in my gains. I went on a sailing trip with no internet access for a while. When I returned, Evergreen had dropped by more than 90 percent. The company went bankrupt, and my shares are now worthless. This was probably my dumbest investment. - N.V.W., Jamaica

The Fool responds: Ouch. A trailing stop order would likely have helped you, but it doesn’t always do what you want it to. It permits you to leave an order in place to sell your holding if the price drops by a specified percentage or dollar value. Thus, if the stock creeps up, you don’t need to keep resetting your stop order. If you set it at 10 percent and your holding drops by 11 percent one day, the order will be triggered and your shares sold.

The order can fail you, though, if a stock drops gradually over time, never by enough to trigger the sale. It can also not work well if a stock plunges very quickly, when there may not be time for your order to be fulfilled at your desired price. It’s best to keep an eye on any holdings that may be volatile.