As I have written previously, when it comes to equity purchases I am primarily an index investor, with some dividend focused holdings and a small percentage of my stock purchases in individual stocks, see my previous writeup here:
Today however I am going to discuss why I also enjoy buying stocks more than I enjoy buying things. Buying products on Amazon, or buying a new Tesla automobile will always produce the same result. Yes, you will temporarily be happy and experience the endorphin rush of excitement about the new product. However, after the endorphin rush fades, you will typically be faced with the feeling of "loss of cash" or the creation of "new debt blues."
Benefit of buying stocks instead of things:
Buying stocks, especially buying the types of stocks that you believe will continue to grow can leave you with a completely different type of financial emotion. One that says, hey, you just added to your net worth! This company stock you just purchased will grow and pay you a dividend into your later years.
In addition, right or wrong, there is no doubt that we live in a consumer driven society. So understanding the underlying basis of the equity markets and learning how companies manage their cashflow just seems like a smart thing to do. You may also be able to apply this learning to your career regardless of your profession, as every business must contend with cash flow, expenditures, profit, loss and taxes.
Owning the stock versus the products
I mentioned Tesla and Amazon above. These are examples of stocks that I also hold in my portfolio. Tesla automobiles are incredible machines that simply put have jumped ahead of all auto manufacturers. However, if I ever think about buying a new Tesla model S P100D at a price of $150k, I only need to look at my portfolio to remind myself that owning Tesla stock is a better option for someone interested in building wealth- for now that is!
The same logic applies to Amazon.
The total dominance of Amazon as a consumer products delivery platform continues to surprise me. I never anticipated Amazon's dominance, as they were one of many technology/dot.com businesses in downtown Seattle where I started my software career back in in the mid 1990's. Today it appears that everyone uses Amazon to buy everything, from paper towels to sandals. Although expensive, owning Amazon stock is just a better option for me increasing my volume of stuff.
Importance of Budgeting
Obviously, you need to have the extra income to buy stocks. I understand that not everyone can do this every month. This is where monthly budgeting comes into play. If you spend money on things, monthly extra channel cable bills, thirteen pairs of shoes and monthly storage fee's to store your shoes for example, then you may not be in a position to buy any stock. However if you can budget and reduce your expenses and begin to buy stocks, then these same stocks will pay for those things you need over time.
Personal Capital tool for Budgeting
I use personal capital's Cashflow and Budgeting features to keep track of my expenses and planning. If you haven't already, make sure to check out Personal Capital. It's a free tool that you can use to help you decide if you want to spend or invest your money by seeing all of your accounts in one place.
My Stock Purchase Home Runs
Here is a recent individual stock purchase of mine that performed well. To be clear, each of these performed very well, and their performance solidifies my plan to always maintain some level of individual stock purchases, no matter how small. The two stocks that have outperformed the S&P 500 in my portfolio are:
Starbucks (SBUX) and WesterDigital (WDC).
Ticker SBUX Stock Price and Gain:
In September of 2018, Starbucks stock could be purchased for $55 dollars per share, today it sits at $90 dollars per share . This individual stock investment grew 66% in twelve months. The only question now is this, should I sell this stock now that capital gains won't apply, or I am better off holding this stock for a few more years, or longer. My answer to this question is typically the same. I will keep this stock for future growth and continue building wealth.
Why I bought Starbucks stock.:
If you look at any suburban community in the U.S. you will find a Starbucks location providing a product that keeps people coming back. Long lines in the drive through, and plenty of entrepreneurs inside typing on their MacBooks wearing Beats headphones. In the outside sitting areas you'll find people talking, sharing ideas, holding job interviews and the like.
Why I sometimes buy the Starbucks products.
I simply like having someone make a good IcedGreenTea for me once in a while, yes it's a splurge, and I may be creating my own micro-latte factor in terms of my spending, but I understand where I spend my money, and I am ok with it once in a while as long as I don't pair this splurge with daily avocado toast!
In my opinion, when you find a product or service that you really enjoy, once you calculate the actual value and price of that company you should consider purchasing the stock. I did this with Starbucks and will more than likely buying additional shares in the future.
Western Digital builds computer storage hardware. I've used their products for many years. Recently, when I need to upgrade the drive on my ThinkPad laptop I found a great deal on a Western Digital SSD drive. Again, buying products and researching the company stock is something I enjoy doing. See my writeup on the MacBook vs ThinkPad purchasing decision,
Ticker WD Stock Price and Gain:
In June of 2019 when the stock price of Western Digital was $36 dollars per share, today it sits at $63 dollars per share. This investment yielded a 75% gain. I have no intention to sell these positions for some time. I am also very happy with the purchase of my western digital Solid State Drive for my laptop.
The benchmark for most investments in the equities markets is always, "how did it perform against the S&P500?" In this case, my average gain of approximately 70% for these two stocks did well against the S&P, which from the year (2019) gained to September 2019 gained 22%. Yes, one investment focused on only two publicly traded companies is very risky compared to another index investment focused on 500 companies in the S&P. For this reason I would never put more than just a few percentage points of my portfolio into one company stock.
Investing Strategy References- Index Investing
To learn about index investing, I recommend the following two books:
1-"The new coffeehouse investor" by Bill Schultheis.
2-"Bogle on Mutual Funds" by John C. Bogle (The inventor of the index fund).
Warren Buffet reference
To learn a simply summary on Warren Buffet's stock purchase strategy I recommend the book "Warren Buffet and the interpretation of financial statements" by Mary Buffet and David Clark.
Building Wealth Knowledge Every Day
Note that I am not a financial or legal professional, nor am I licensed to sell securities, or any other financial instruments. Given this statement, I strongly recommend that you consider this blog as entertainment value. Although, I sincerely hope that I can motivate you to learn to build your own financial knowledge and wealth.
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