Getting up in the morning I brush my teeth with Colgate(CL) toothpaste, wash with Procter and Gamble(PG) shampoo and soap, and shave with Gillette(PG) razors, shaving cream, and aftershave. As I head out the door on the way to work I fill my coffee mug to the brim with Folgers(SJM) coffee and look at my Fossil (FOSL) watch and realize I’m running late. I run to my Ford(F) and drive the the BP station, fill up and then speed off to work. I’m only two hours into my day and I’ve used countless products from publicly traded companies. How many companies do you own stock in that you use everyday?
A majority of people will not know the answer to the question. If you ask someone to list the companies that make up the mutual fund their invested in you’ll likely be met with a blank stare. Most people’s experience with investing is having someone tell them they need to put $X.XX away from their salary, put the money in XXX funds because of their risk tolerance, and they could have $X.XX when they retire. Do you think people are interested and excited about their portfolios when they invest like this? How about when they own shares of companies whose products they use and tell people about everyday? The next time you balk at a companies record earnings ask yourself why don’t you own any of it, especially if its a product you use everyday. Personally I want to be rewarded for the product choices I make, so I’ve come up with a fairly simple way to pick a few good companies.
1. Make a list of products you use every single day
Pick 50 products or services for this list, consisting of name brand items that are most likely publicly traded. Next you’ll want to look up the ticker symbol associated with each item. You may find that one company owns several different brands of products in our house. If you need help coming up with 50 you can refer to my personal list as an example.
2. Pick 5 Products that you cannot see yourself living without
To help you pick out your 5 products here are some questions to ask.
How often do you talk about this product to other people?
If it went up in price would you still be willing to buy it?
Do a lot of people you know use this product?
Do you try and convince other people they should use this product?
One of my top examples is Netflix (NFLX). I love it. The monthly subscription is inexpensive, it offers viewing flexibility, an extensive online movie selection, and new movies only take two days to get to my mailbox. I have successfully referred 10 people and I talk about this company all the time. The stock has gone from under $4.00 a share in 2002 to over $220 a share at the time this is being written. If you love a product, other people do too!
3. Buy It
Once you’ve narrowed down you top 5 you need to buy some shares. If you are new to trading and investing, I would suggest taking time and learning everything you can about the basics. The knowledge will give you a better idea about when to buy, what type of order to use, how to read the fundamentals, and give you confidence in your decisions. Once you own it, tell all your friends. Stock shares are supply and demand. If everyone wants a piece of that company the share price is going to go up. If you suddenly find your loyalty switching to another product it is time to consider selling. A quick example would be going to Blockbuster every week to get your movies. Then you hear about Netflix, try it, and love it. If you are willing to break a weekly tradition, so are a lot of other people. (That was my last Netflix plug, I promise)
Hopefully by taking this approach you develop a better connection between the money you invest and the money you spend everyday. You will definitely be more active in managing your own investments and will gain a sense of pride and accomplishment. You may also find yourself willing to pay a few dollars more for a product because you know you’ll be getting a dividend check back every quarter for your loyalty.