Low P/Es and High Yields

Q: Is it smart to seek stocks with low P/ Es and high dividend yields?

- J.M., Kansas City, Mo.

A: Those are promising factors, but they're not fail-safe. For one thing, you'll miss outstanding investments that pay little or no dividends. For example, Apple pays no dividend, and Microsoft introduced one only in 2003. Companies also sometimes sport high yields and low price-to-earnings ratios only because their stock price has tumbled due to some major trouble.

Consider The New York Times Co. Over the past decade, its P/E has usually been in the 20s. A year ago, it was near 30 and its dividend yield was less than 3 percent. Today, its yield is near 5 percent and its P/E near 13. Is it a screaming bargain right now? Perhaps, but it's also a floundering company, with declining revenues and not-so-stable earnings. You can't tell enough from just the P/E or the dividend yield.

Never make a purchase decision based on very few numbers. You'll find stockpicking guidance at www.fool.com and www.morningstar.com.

Q: What's a mock portfolio? - D.S., Batavia, N.Y.

A: Mock portfolios are terrific for new investors and those who want to test investing methods. You simply go through the motions of investing, stopping short of actually plunking down your hardearned cash. Research companies that interest you, decide which ones you'd buy, and then set up a pretend portfolio, either on paper or online (at sites such as http:// finance.yahoo.com and http://money.aol. com). Record details such as when you "bought" the shares and at what price. Then track your performance and see if you beat the market. An online portfolio is also a good way to keep track of your watch list of promising stocks.

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