Ford gets back up to speed

Automakers reported a 13.9 percent jump in U.S. sales (year over year) in November. Ford’s (NYSE: F) overall gain lagged that a bit, at 13 percent.

But Ford’s increase in retail sales was 20 percent, its largest such increase in nine months. And its retail market share in the U.S. stands at about 15 percent, a five-year high.

The distinction between retail and overall sales matters. For years, the Detroit automakers have been dependent on sales to fleets – think rental-car companies, government agencies and the like – to boost their sales numbers and keep factories humming, particularly with less-competitive models. That’s not necessarily bad, but retail sales are more profitable.

Higher retail sales are also a good sign for shareholders because they reflect the competitiveness of an automaker’s products, and thus its ability to get good prices and profit margins.

Boding well for automakers is the fact that many consumers have postponed new-car purchases in recent years, and the average age of cars on American roads has gone way up. With unemployment numbers finally ticking down a bit, it’s possible that more households will be shifting into car-buying mode in coming months.

Continued strong execution on Ford’s part should serve its stock price well. In the meantime, it just reinstituted its dividend. (The Motley Fool owns shares of Ford, and its newsletters have recommended it.)

Ask the Fool

Q: When the stock market falls due to lots of selling, who’s buying? – J.F., Salinas, Calif.

A: Generally, for every seller, there’s a buyer. The stock market is like an auction, where shares trade at prices that buyers are willing to pay and sellers are willing to take.

Thus, if it’s revealed that the Free Range Onion Co. engaged in fraudulent accounting, buyers will immediately decide that its shares are worth a lot less and sellers will only be able to unload at lower prices. You might want to sell your shares, but at their new low price, there’s probably someone who thinks they’re a bargain.

Q: What does “OTC” refer to in the stock market? – L.N., Victoria, Texas

A: It officially stands for “over the counter,” but today it should really be “over the computer.” Long ago, to buy or sell a stock that didn’t trade on an exchange, you would call your broker, who would then call another broker and make the trade over the phone. Then, in 1971, the Nasdaq stock market was established, offering an automated trading system. Suddenly, it was much easier to get the best price on your transaction, and trading activity could be monitored, too.

The Nasdaq stock market is the main OTC system in the U.S., and it lists thousands of companies – from young, relatively unknown firms to many enterprises you’re probably familiar with, such as Apple, Microsoft, Intel, Starbucks and eBay.

Thousands of more obscure OTC companies that don’t meet Nasdaq’s requirements trade separately, often with their prices listed only once daily, on “pink sheets.” There’s usually little information available about them, and many are volatile, speculative “penny stocks,” best avoided.

My dumbest investment

What messed up my retirement the most was believing the prime minister of Canada. When he was seeking re-election, he promised not to change the tax laws on income trusts. Well, the laws were changed. I had been investing on margin at a very conservative level, but I still ended up forced to sell at the very lowest point and lost almost 70 percent of my whole portfolio. – C.B., Peterborough, Ontario

The Fool responds: First off, when you invest on margin (by borrowing money from your brokerage), that will amplify your gains – or losses. The more margin you employ, the more risk you take on. It’s good to remember, also, that despite what politicians may promise, laws do change on occasion.

Here in the U.S., we’re enjoying very low tax rates on most dividend income, but that could easily change. Even the rules for Roth IRAs might change. When the Canadian income-trust tax changes were first announced, there was a big overreaction. Those who could wait it out didn’t suffer as much. In the U.S., master limited partnerships (MLPs) are similar to income trusts.