Motley Fool: An entertaining investment

Fans worldwide continue to pay premium prices for the Walt Disney (NYSE: DIS) experience. Trips to its theme parks and cruises on its ships are far from cheap. The largest individual channel cost on any basic cable bill is ESPN. And recently, Disney opened a Star Wars-themed lodging experience at Disney World for which couples will pay nearly $5,000 for a two-night stay.

Investors love companies that can charge more for their products than their competitors without sending customers fleeing, and Disney has earned its ability to do that by being the undisputed ruler of content. Its Marvel empire, for example, was responsible for the four highest-grossing movies in the country last year. And Disney operates the world’s most-visited theme parks.

We’re now more than two years removed from the start of the COVID-19 pandemic, and Disney is poised to profit as the world gradually reopens and people head out to be entertained again. It dominates at the box office and at the theme-park turnstile. There’s no bigger brand in sports broadcasting than ESPN. Disney+ has been around for just 2½ years and has already passed 137 million paying subscribers. Despite these rosy prospects for further growth, the stock was recently trading at more than 40% below the all-time high it set last year. (The Motley Fool owns shares of Walt Disney and has recommended its stock and options.)

Ask the Fool

Q. Is it a problem that I’ve filled my IRA account with individual stocks? Should I have mutual funds instead? – C.G., Arlington, Virginia

A. It’s not a problem as long as you’ve studied the companies, are confident in their likelihood to grow in value over time, and plan to keep up with their progress and news regularly. If so, and if you’ve chosen well, then you might outperform many mutual funds – though there’s no guarantee, and lots of stocks never live up to their expectations.

Many people don’t have the time, skills or interest to be active investors, though. For them, mutual funds make sense, offering convenience and diversification, ideally for a low or reasonable fee. Consider focusing your mutual fund dollars on index funds, which are passively managed and simply buy the securities that are in the index they track. They aim to deliver roughly the same return as the index – fewer fees. If you purchase shares in an S&P 500 index fund, for example, you’ll be invested in 500 of America’s biggest companies.

Q. How can a stock be “trading below cash”? – M.V., Issaquah, Washington

A. That means that the company’s net cash (its cash reserves with debt subtracted) is more than its entire market value – in other words, its net cash per share exceeds its share price. Some interpret that to mean that a company is greatly undervalued, but others see a red flag. Either way, some research is warranted. The company might have plenty of cash but be burning through it rapidly, for example.

For best investing results, just focus on healthy and growing companies with reasonable or attractive valuations, and, ideally, lots of cash and little to no debt.

My dumbest investment

My dumbest investment? Well, it was a Friday night, and I had gone to a bar after work “for one beer.” Later that night, I logged on to my brokerage account – I was a total newbie to investing – and decided to get adventurous. I was looking for a good stock at a low price. With beer in hand, I decided to be a captain of industry, and invested a couple of hundred dollars into an all-American steel manufacturing and shipbuilding company – Bethlehem Steel. About a week later, I realized they were days away from filing for bankruptcy. D’oh! – J., online

This must have happened in 2001, when Bethlehem Steel filed for bankruptcy. Around that time, the company had more than 12,000 active employees and nearly 130,000 retirees and dependents. That was part of its problem – it owed significant pension and health care benefits to its retirees, and it hadn’t socked away enough money to cover them. Meanwhile, it had taken on substantial debt and was facing competition from abroad. Many investors lost a lot on Bethlehem Steel, but in many cases, the fate of retirees was worse, as they didn’t receive what the company had promised them.

It’s smart to study a company’s financial health before investing in it – and, as you know, best to avoid buying and selling stocks while not quite sober.