Stock in MCDonalds.

[fruitbowlk]

ok my husband has close to $6,000 in a McDonalds stock (he had since 19 years old he's 32 now). he stop contributing to this stock a few years back. His uncle want to place his money that he has in his McDonalds stock into a mutual fund not sure which one he's looking at but since I'm learning and getting advise from the wise I will make sure it a good one. My husband is unsure what he should do do know nothing about MF and I guess he contant with is money seating there. He's had no interest in money and letting it grown and things of that nature. What do you all think I should suggest to him. I don't want him to blame me for any lose of his money and in the market that could happen. He do have a 401K with just 12 k which is very low considering he been at his job 10 years. What do you'll think. He's in cc debt and has no EF. But like I said he has no interest in any of this finance talk.

[humandraydel]

A mutual fund is less risky than an individual stock since your money is divided among a lot of companies. That way, even if one of the companies goes bankrupt you don't lose all of your money. Remember Enron? Now, I'm not saying that McDonald's has a high chance of failure, but it's possible that MickeyD's doesn't do as well as other companies in the future.

Bottom line: I would sell McDonald's and purchase a diversified index fund such as Vanguard Total Stock Market Index (ticker is VTI and VTSMX)

[Broken Arrow]

But like I said he has no interest in any of this finance talk.

In that case, I agree with a mutual fund.

If it's going to be just one fund, I'm tempted to say Target Retirement again, but it really depends on what he is planning to do with this money.

[disneysteve]

His uncle want to place his money that he has in his McDonalds stock into a mutual fund

He's in cc debt and has no EF. But like I said he has no interest in any of this finance talk.

What does the uncle have to do with this?

If you guys have CC debt and no EF, I might consider selling the stock and using the money to pay off the debt. If there is money remaining, use it to start your EF.

I agree that there is much less risk in a mutual fund than in a single stock. No, McDonald's isn't going away anytime soon (unfortunately), but they could have an off year, not meet earnings estimates, etc. and see the stock value drop.

[jc3900]

Yeah, if you want something with less risk, go with the mutal fund hands down. However, I think Mcdonalds needs to have some props given to them for their incredible performance recently. I would be willing to bet that they are the best of breed as far as fast food goes. With high commodity cost though, it could be hard for them to keep giving blowout earnings.

[Broken Arrow]

McDonalds is a very interesting company indeed....

It used to enjoy a huge competitive advantage. It still does today but... not so much.

McDonalds had at least the following:

1. It revolutionized fast food.

2. It revolutionized marketing towards children. (Ronald McDonald and Happy Meals.)

3. It revolutionized drive-thru breakfast.

4. It continued to innovate. (Created a first-class kitchen in their headquarters to develop and test specialty items such as the McRib, BLT, McSalad Shaker, and chicken wraps.)

5. It revolutionized the Dollar Menu.

I left the Dollar Menu last for a reason: If you look at the list, what used to be innovative is the standard today. Every franchise does it now, but with the last one, McDonald's still has teeth.

The decrease in consumer spending money has made the Dollar menus an increasingly popular item, but at the same time, the increase in commodity costs is wearing into an already razor thin margin. As such, McDonald's hold the upper hand due to its sheer economy of scale.

However, I can't say that I'd purchase McDonald's, if given the choice. Again, it has lost much of its competitive advantage and innovation....

Instead, another possibility is the YUM corporation. (The stock ticker is literally "YUM".) Yum owns several franchises which includes Pizza Hut, Taco Bell, and Kentucky Fried Chicken. Long story short, unlike McDonald's monolithic business model, this corporation has a diversified product line, the fundamentals look good, and is actually resisting the down market well enough.... Well, I've certainly had my share of Taco Bell for work lunch anyway.

But that's my personal, rambling take on it. I would HOLD on McDonalds, but YUM is on my watchlist as a future buy....

[jc3900]

However, I can't say that I'd purchase McDonald's, if given the choice. Again, it has lost much of its competitive advantage and innovation....

I wouldn't say that it has lost its ability to innovate. Just look at the mcdonalds coffee. That boosted profits big time and there is even plans for mcdonalds to start barista bars. Bye Bye Starbucks. There was actually a few annalyst a couple of months ago saying mcdonalds would buy out starbucks.

[Broken Arrow]

I wouldn't say that it has lost its ability to innovate. Just look at the mcdonalds coffee. That boosted profits big time and there is even plans for mcdonalds to start barista bars. Bye Bye Starbucks. There was actually a few annalyst a couple of months ago saying mcdonalds would buy out starbucks.

Possibly. McCafes are a strange combination, and I can't say I'd agree that it's an innovation.... To me, it's nothing more than a competing product with Starbucks. Plus, starting cost for McCafes are much higher than anything they've tried to do in the past.

Contrast this with Starbucks, which is already established, and are actually looking at cutting back the number of stores (again, due to decreasing consumer spending). Instead, they're re-focusing back to creating a "great Starbucks experience".

So, in this case, I don't think McDonald's has much of a competitive advantage at all.... In fact, I believe Starbucks has the upper hand. A buyout would make more sense, but... Starbucks is pretty big. Even if Starbucks wanted to sell, it isn't like McDonalds to make such a play.... After all, why McCafes then?

Again, it's possible, but I just don't see it....

[Gruntina]

So, in this case, I don't think McDonald's has much of a competitive advantage at all.... In fact, I believe Starbucks has the upper hand. A buyout would make more sense, but... Starbucks is pretty big. Even if Starbucks wanted to sell, it isn't like McDonalds to make such a play.... After all, why McCafes then?

Again, it's possible, but I just don't see it....

Part of the reason Starbuck is successful is because the menu is simple. Those little cafe shops with more than 100 flavor syrup didn't pan out as well(What happened with Gloria Jean Coffee?)

Also with my observation, a lot of adult hangs out at a Starbuck to chat with friends during the late evening hours as well as the day.

McDonald would not have the same appeal for those who want to enjoy coffee and chatting in an adult atmospheres.

[disneysteve]

Part of the reason Starbuck is successful is because the menu is simple.

Actually, there is a big article in Time this week about what Starbucks is doing to get back on track. One main thing is they will cut back on all the stuff they started selling that didn't really have anything to do with their core business, like teddy bears and other nonsense. Also, the breakfast sandwiches are going because customers complained that instead of smelling coffee when they walked in, the place smelled like McDonald's.

[sweeps]

Very interesting, Steve.

I totally agree -- keep it simple. Management sometimes gets fancy trying to cross-sell other items, but it usually hurts business in the long run.

I would argue that the mutual fund companies (including Vanguard) are starting to get scope creep too. If they keep opening these funds that are just small tweaks from each other, people will get confused, and business will suffer from paralysis by analysis.

[jc3900]

Yes, starbucks is trying to keep it simple and focused on the high profit margin products. But, after seeing the coffee industry through a local shop where my girlfriend works at, I would definately say that starbucks is going to take a big hit. Firstly, what they are charging is a rip off. With more local and specialty coffee shops coming in, it won't be possible anymore to charge those type of prices. Seriously, they are charging about 5 dollars for 12 ounces of a latte. It is kind of similar to my experience at seattles best. At SB, you can get an iced blended coffee for about $5. However, they have a rule that they can only fill up the 12 ounce cup to an inch beneath the lid making you lose about 1/5 of the drink. The rest is just filled up with a small amount of whip cream. Large Coffee shop chains, esspecially with added commoditty pressure, are trying to give less and charge more. Sorry, but that is not going to be able to happen much longer. The most expensive product where my girlfriend works at is $3.75 and that is for a 24 ounce carmel chocolate iced blended coffee. And guess what the shop just opened two years ago and is allready starting to pay off debts. The only reason that starbucks was able to charge the high prices that led to their great profits was because they were introducing espresso to the united states. Now that the United States has been introduced, they don't have near the appeal that they use too and will be an easy target for competition. You want to know why mcdonalds can take on starbucks, because starbucks rips its customers off whereas mcdonalds tries to make a great an affordable product.

Oh and if you want to make your own iced blended coffee just go to bigtrain.com and you will see how you can save 75% on what a cheap coffee shop will charge you.

[Ima saver]

I agree, he should sell and open an Index mutual fund. I would go with vangard. (btw, i don't drink coffee or go to MickyD's)