Buy a Coke — or the Company

Do you buy things that disappear or reproduce?

That's the question that first prompted me to think hard about my financial future, way back in the mid-1990s. It came from a radio call-in program years ago when I was an elementary school teacher making $18,000 a year. The host explained how a caller could improve her finances. “The next time you want to buy something, instead consider buying stock in the company that makes it. Rather than buy a Coke, buy a share of Coke stock.”

I didn't think much about money back then, other than being aware that I didn't have much. I didn't know much about stocks, IRAs, or the Fed. But the host explained how most of what we buy depreciates and eventually disappears forever. That also means, it then occurred to me, that the time I spent working to make the money that bought those items was essentially wasted; I worked so I could buy what amounted to nothing.

Contrast that, the host continued, with spending money on an asset, which has the potential to increase in value and, in most cases, can't be consumed. (Well, sure, you could eat a share of stock, but check the carb count first.) You are spending your money on something that eventually can return the favor by paying you money. Do that enough, and you won't need to work since your money will be doing all the work for you.

The sum of thousands of decisions
The crossroads of your financial future is your spending. It is the determinant of how much you keep, and how much someone else gets. For many, the flip side of spending is saving — but “saving” sounds so boring. It smacks of self-denial, which is why people have trouble doing it. Yet saving is spending, just on something that ideally appreciates rather than depreciates — something that reproduces instead of disappears. This is important before retirement (“I could buy that item, or I could buy the stock”) and in retirement (“To buy that item, I'll have to sell stock”).

There are certainly great uses of money that can't be put in a portfolio. A vacation, a great bed, Handerpants (the underpants for your hands!) — they all have their “appreciating” aspects that provide lifelong value. But if you spend the next few weeks observing where you're inclined to spend money, I suspect you'll find yourself spending money on goods or services that may not be worth the long-term price you'll pay.

Go ahead, buy a company — or a few
Of course, you don't have buy stocks with the money you put away for the future. But the point I'm making here is this: You can buy a product, or a piece of the company that makes it. Because that's what a share of stock is: a real-life, honest-to-goodness ownership stake in a company. You're not just buying a piece of paper; you're buying a business.

So the next time you're tempted to spend money on something you don't absolutely need, you could consider buying the stock instead — or consider a “match” by investing as much in a company as you spend. Of course, you have to take commissions into account. We at The Motley Fool recommend that you don't buy a stock unless you can keep the transaction cost at or below 2% of the trade. If your discount broker charges $10 a trade, then you should invest at least $500. Thus, it makes sense to deposit the cash somewhere first — perhaps a “stock jar” — until you've accumulated enough to ensure that most of you money goes to buying the business and not paying the broker.

Of course, basing your investment decisions on where you spend your money is not exactly the optimal strategy (though it's better than spending rather than investing). As always, buying the right asset at the right price is important. Investors who bought shares of Coke when they were at their high of $88 in 1998 probably aren't too happy that, 14 years later, it sits at $70. But they're still better off than anyone who bought $88 worth of fizzy sugar water in 1998. Plus, if they reinvested their dividends along the way, they still have realized a positive total return, and have accumulated more shares that pay even bigger dividends. In 1998, Coke paid $0.60 a share in dividends; in 2011, the company paid $1.88 a share — more than three times as much — which can be used to buy even more shares, which pay more dividends, which buy more shares, and so on.

If you're not comfortable with buying an individual company, buy a broad-market index fund, exchange-traded fund (ETF), or mutual fund. In fact, that is the best strategy for many people. You'll be buying little pieces of hundreds of companies that provide goods and services all over the world.

So spend like mad — on assets. Maybe you can replace the “buyer's high” you get from making a purchase with an “investor's high” that will keep your net worth growing.

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lanjha
lanjha
8 years ago

If you had bought Apple stock instead of apple products, here is how much you would have made…. (the figures in the link below were for when apple stock quote was at 270.83, today it stands at 605.96, a gain of 125%)

http://kyleconroy.com/2010/04/apple-stock

I will take that on any given day over standing in line for a week for the new ipad.

Elizabeth
Elizabeth
8 years ago
Reply to  lanjha

Hindsight is 20/20 though. I’m sure RIM investors aren’t so happy. 😉

SB @ One cent at a time
SB @ One cent at a time
8 years ago
Reply to  Elizabeth

Oh yeah, hindsight, huh? ask me..bought thousand of WaMu shares, thinking what Buffet said, buy when everyone’s selling. Ended up with such a loss that I still claim $3000 stock market loss in my tax return. Sock market is not always as rosy as depicted in this post. Caution friends!

KSR
KSR
8 years ago

Exactly SB. I own stocks, I love buying them and watching them and reading about them. But, the stock market is not the stock market of old. Day traders and their high tech manipulation of speed has made the art of stock picking and buy and hold an antique. The stock market is the devil’s casino. Ya gotta pay to play and know that the little guy is never gonna beat the house or outscore the pros. If you can grab a few bucks here and there, consider yourself a winner. I bought apple a couple years ago…instead of an… Read more »

Matt at Healthy N' Wealthy
Matt at Healthy N' Wealthy
8 years ago
Reply to  lanjha

I heard on CNBC the other day that had you bought a $288,000 house 10 years ago, it would be worth roughly the same today. If you had bought $288,000 worth of AAPL, it would be worth $9,000,000 today.

If everyone could see that it wouldn’t be possible, though. It’s like people from the 60’s talking about their baseball cards. If all those people had hung onto them, they wouldn’t be worth as much.

Still very interesting though.

Elizabeth
Elizabeth
8 years ago

Never mind the interest paid on the mortgage 😉 Those numbers are scary if you’re treating your home as an investment – which many people are in lieu of saving for retirement.

At the same time, if a person hadn’t purchased a home, it’s not like that entire sum would be freed up to buy stock. (I’d wager most people would be paying rent instead?)

Ah, if only we could predict the future 😉

Matt at Healthy N' Wealthy
Matt at Healthy N' Wealthy
8 years ago
Reply to  Elizabeth

My dream was to buy my own home/condo (preferably both). but, I’ve been reading a lot about renting vs. owning. While owning certainly makes you feel great, there are so many non-equity costs that now I’m really confused. I know everyone’s situation is different, and some people may prefer to own than rent. In my situation, I crunched some numbers, and the non-equity costs in owning are nearly what I pay now in rent, with no risk of drops in value, leaky roof, broken furnace, etc. In studying all of this, I feel like I’m coming to the conclusion that… Read more »

Cybrgeezer
Cybrgeezer
8 years ago
Reply to  Elizabeth

OK, someone had to say it:

Hindsight is always 20/20.

David
David
8 years ago

Good advice, but for excellent advice I would say practice a little more reflection. Consider those products that you use and find insanely fun/useful/time-saving/etc. If you find this product great, chances are good others might. Look into investing in the company that makes it. (be careful doing so, for example, make sure that this product is a good portion of the company’s income, that you haven’t “missed the boat” already, etc.) Using this advice I bought (on speculation) shares of Apple (after the first iPod came out, stocks were <$50 a share, selling now at $600), Nintendo (when they first… Read more »

Matt at Healthy N' Wealthy
Matt at Healthy N' Wealthy
8 years ago
Reply to  David

Those are some pretty impressive buys. Got any similar companies in mind today?

El Nerdo
El Nerdo
8 years ago

I’ve been using Square for my business and it’s awesome. The ability to charge credit cards on your tablet or smartphone is hugely liberating for merch peddlers, service people, restaurants, a number of businesses i can’t even imagine, and even civilians who need to setttle tabs. They charge 2.75% of every transaction, and I don’t know how much they actually keep, but it’s an awesome business idea. The execution is also simple and very elegant. http://squareup.com It seems to be privately held right now but I’d keep an eye on a possible IPO if I wanted to buy stocks in… Read more »

Angela
Angela
8 years ago

This is a great post. I found this line particularly apt for my current situation: “The crossroads of your financial future is your spending.” I’ve been focusing on saving enough, but the way I’m spending money could use a little course correction too.

And okay, I admit it: I clicked the Handerpants link. Of course they would be tighty-whiteys! Suggested uses: cooking, cruising, night blogging! Ha. How long have you been waiting to find an appropriate place to drop this in a post? 🙂

Marianne
Marianne
8 years ago

Great post! I’ve heard of buying companies that you spend money at but have never quite heard if put this way! I love the idea of investing instead of spending or matching your spending in a fun jar. I’ll be investing in Tim Hortons for sure. 🙂

My University Money
My University Money
8 years ago
Reply to  Marianne

I love the Tim Hortons Franchise model. It guarantees a certain level of personal responsibility. I think it is interesting that the patron saint of “common sense investing” – Warren Buffet, wasn’t mentioned in the article. He has owned Coke since way back in the day. Might as well own a brand that specializes in the most widely used drug on Earth – Caffeine – right?

Dee
Dee
8 years ago

I am an older reader and years ago I wanted to teach my teenager about investing but the subject was booooooring so I had to make a game of it. Given a $500 windfall, my daughter and I selected a product we both liked (beverages) and split the funds. We each invested $250 in drips (dividend reinvestment plan) her for Coca-Cola (her favorite brand) and me for Pepsico (my favorite brand). Each stock has done well and we both enjoy drinking each as we are supporting our investments. (Yes, I know they aren’t healthy but a little evil in one’s… Read more »

Elizabeth
Elizabeth
8 years ago

I love this idea! Right now, everything I consider buying gets weighed against another goal: my down payment fund. (Shoes? No, condo!) Perhaps there isn’t the same growth potential with buying a condo as there is buying stocks, but I find it helpful to think every $100 saves me $40-$50 interest in the long run.

Rosa
Rosa
8 years ago
Reply to  Elizabeth

At our first-time homeowners’ class, one of the teachers said to take a photo of your dream home and put it in your wallet in front of your credit card, to give you something to consider every time you were getting out the card.

Get Rich Point
Get Rich Point
8 years ago

A clear understanding of the post brings forth a revolutionary concept:

“You will never lose in the stock market if you invest the money that was otherwise allotted for instant gratification.”

The worst thing that can happen is that you lose part of your initial investment. However, the good thing is that you still have an asset instead of used coke cans.

Robert! You made my day.
I am going to implement it.

Matt at Healthy N' Wealthy
Matt at Healthy N' Wealthy
8 years ago
Reply to  Get Rich Point

“You will never lose in the stock market if you invest the money that was otherwise allotted for instant gratification.”

What a fantastic way of looking at it. It would be really hard to lose 100% of your investment in anything (except derivatives/options). But it’s really easy to lose 100% of your investment in a Blu-ray player.

Wilson
Wilson
8 years ago

The good people who had invested in GM,Enron, Blockbuster, United, Chrysler, KMart, before that Woolworth’s, US Steel etc. that saw those once titans of industry go bankrupt or tank precipitously might disagree with your risk assesment of stock investing. Sure Bank of America is paying a dividend, but what’s its percentage and how much has that stock tanked since Warren Buffett made a huge play 4 to 5 years ago? (And myself in siginifcantly smaller quantity) Those are the exceptions, but just because you choose a stock doesn’t mean that company has drunk from the Holy Grail. It too may/will… Read more »

Elizabeth
Elizabeth
8 years ago
Reply to  Wilson

I think it’s interesting to weigh the choices, but life factors in here too. I could buy a $100 blu ray player and get many hours of enjoyment out of it. Does that mean I have “lost” all the money I put into it? It certainly won’t appreciate in value, but on a cost-per-use basis it’s pretty cheap entertainment.

It isn’t just a numbers game. It’s life.

Matt at Healthy N' Wealthy
Matt at Healthy N' Wealthy
8 years ago
Reply to  Wilson

The point of that comment is that if you were going to spend the money on something with little possible return on investment (like a new TV or rims for your car), then you didn’t actually lose anything you wouldn’t have lost anyway. Can you lose your money in “big, stable” stocks? Sure! Happens all the time. But not too often. And that’s why you diversify. Also, if you’re referring to Buffett’s $5 billion investment in BofA, that was less than a year ago. The point is that at least there’s the possibility of a return when you invest in… Read more »

Matt at Healthy N' Wealthy
Matt at Healthy N' Wealthy
8 years ago
Reply to  Wilson

Elizabeth,

Agreed. I’d rather “lose” money on a Blu-ray player (while gaining in terms of entertainment) than lose money on a stock that did nothing for me.

mike
mike
8 years ago

I haven’t bought a blu-ray, my one friend gives me a hard time. I stop playing the upgrade game 10 years ago. I had a bunch vhs and dvds in 2002 and just flat stopped buying. I have 720p plasma with progressive dvd player, so I wouldn’t get the blu-ray 1080p anyway, already get 1080i. The big thing is I stopped buying content and now just rent from redbox or library.

Kevin
Kevin
8 years ago
Reply to  mike

You know a Blu-Ray player will play all your DVD’s, right? It’s not like all your DVD’s become useless and you have to upgrade them all to Blu-Rays (until the next standard forces another upgrade). If that were the case, I could see your frustration, but like I said, all your old DVD’s will still work in a Blu-Ray player.

Mom of five
Mom of five
8 years ago

We’re relatively new to investing, having started after becoming readers of GRS. We’ve been buying individual stocks based on the Peter Lynch theory of buying what we know. We’ve been doing quite well with a relatively small amount <$5000. Our best bet so far? Cal-Maine company who make the Eggland's Best Eggs.

Ideally, we'd like to start investing $500 a month, but before we can do that, we want to get our car replacement fund where it needs to be so this year will likely be somewhat less.

fantasma
fantasma
8 years ago

What is better buying individual stocks through driPS or buying individual stocks in a Roth IRA?

DB
DB
8 years ago
Reply to  fantasma

I see any individual stock as quite risky – why not buy an index fund? It is less risky, especially if you are investing on a longer time horizon, and the transaction fees are way less.

Marius
Marius
8 years ago
Reply to  DB

I dont think you quite know what you are talking about. A index fund will charge you a fee of, say 0,2% of your investment EVERY YEAR. Individual stocks have an initaial fee that a bit higher, say 10$ but that the only time you pay. If you have 100.000$ in an index fund they will charge you 200 dollars a year(given the 0.2% example) That quite a high price to pay for underperforming the marked.(an indexfund will underperform by the sum of the fees charged every year if the fund behaves the way it is supposed too) The beta(measurement… Read more »

Bogle
Bogle
8 years ago
Reply to  Marius

Too bad AT&T and other high dividend stocks won’t grow as much as the S&P index over a period of time. FYI Vanguard’s VOO S&P 500 ETF has an expense ratio of .06%, much less than your claimed .2% and with no transaction fees. It’s a wise choice to invest in an index fund that trails the market by only .06% every year as opposed to betting that one stock will do better than the index for any period of time.

Well Heeled Blog
Well Heeled Blog
8 years ago

I love shoes (ahem, see blog name). But a few years ago I started investing, and I realized that instead of just buying a pair of shoes, I can buy a little piece of the shoemakers. Instead of a meal, the restaurant. Instead of a car, the auto company.

mike
mike
8 years ago

So you have barefeet or socks, you eat at home, and ride a bike?

El Nerdo
El Nerdo
8 years ago
Reply to  mike

I think you miss the point. It’s just a gentle nudge. It’s not about extremism.

Matt at Healthy N' Wealthy
Matt at Healthy N' Wealthy
8 years ago

Instead of GRS, this site could be called SIWIRTYA, or Stuff I Wish I Read Ten Years Ago. I’ve become obsessed with investing in the last couple of years. Unlike most people my age, I don’t dream about buying a fancy car or a slick TV, but about buying stocks, like Philip Morris, Hain Celestial, United Natural Foods, ConocoPhillips, etc. I like to think that I save money to buy more money in the future. I love the idea of owning assets that will tend to appreciate (especially dividend-paying ones), rather than a TV that will be outdated in 3… Read more »

Sharon
Sharon
8 years ago

I will never, never “invest” in death. Tobacco stocks are immoral, and any money you make that way is literally blood money.

There are tons of ethical companies whose products don’t caused long, slow, agonizing death when used as intended. Buy those stocks.

Matt at Healthy N' Wealthy
Matt at Healthy N' Wealthy
8 years ago
Reply to  Sharon

Sharon, I agree. I think it’s immoral, but I invest completely unemotionally. Would it bother me to own a stock with which whose business I don’t agree? Yes. But I separate that part of myself form the investing part. If people are willing to pay for it, then I’m willing to have them pay me for it. I rationalize my unemotional investing by seeing it as buying profits, not selling cigarettes. You could make the argument that by buying their stock, I’m supporting the business that kills people. But hey, people are willing to pay for it. Might as well… Read more »

El Nerdo
El Nerdo
8 years ago

I agree with you in good part (I even gave you a thumbs up for “partial credit”), but I strongly disagree with the implication that having a conscience (the capacity to discern the morality of an action) is a matter of “emotion”. Having a conscience is not about being a big irrational softie, or claiming to suffer internally about what we choose do in the world (that last is just hypocrisy). Having a conscience is knowing right from wrong according to your system of values regardless of emotion (often emotion pushes you to do the “immoral” thing). Yes, said conscience… Read more »

Matt at Healthy N' Wealthy
Matt at Healthy N' Wealthy
8 years ago

El Nerdo, Without getting in a semantic discussion, I guess, by your definition, I’m using the terms emotion and conscience interchangeably (how can you have a conscience without having emotion?) Yes, I dispose of my moral conscience at will. It’s not always easy, but I do it when I need to. I have no shame in that either. I sleep fine at night, even though I own stock in companies with which whose business practice I don’t agree. My rationalization isn’t absurd: I’m buying the profits which others willingly exchanged for a service from one of my companies. I think… Read more »

Sharon
Sharon
8 years ago

General Mills does not sell products that, when used as intended, kill people. There is a world of difference between selling tobacco and other areas where you might think they should adjust their pricing.

But if you can sleep well at night, well, I have no idea how.

El Nerdo
El Nerdo
8 years ago

@Matt – Funny thing, I was reading a bit of “The Sociopath Next Door” after posting and the author actually says that recognizing the difference without right and wrong is not what makes conscience– it’s that having this recognition limits your behavior though emotional mechanisms– you “feel bad” when you’re “bad”. So emotion does play a part and I was not seeing the whole of “conscience”. However–my impression is that you define so many things as “immoral” that it’s impossible to make any practical decision without feeling like a criminal… hence you end up throwing the towel and acting a… Read more »

Matt at Healthy N' Wealthy
Matt at Healthy N' Wealthy
8 years ago

Sharon, Not to get off topic, but if you look at what gluten can do to people, you’d rethink your opinion on General Mills (though they are coming out with more gluten-free choices). I sleep fine. I’ve thought about it a lot. Do you own anything that was made in China? Do you shop at Walmart? Do you own any Apple products? Did you wear Nike? Do you use oil (ie own a car, or enjoy heat)? Do you have any diamonds or jewelry? Those companies (reportedly, at least) subject their workers to conditions comparable to smoking. The people who… Read more »

DOT
DOT
8 years ago

Off topic subject that I thought about while reading this comment:
My husband has melanoma cancer and we were at the oncologist yesterday and speaking of random cancer facts. One very interesting subject that his doctor brought up was smoking/tobacco.
Fact: 80+% of all smokers never develop lung cancer… That is millions upon millions of people who smoke daily never develop cancer or die from smoking tobacco.
I don’t smoke or advocate smoking but this blew me away.

Matt at Healthy N' Wealthy
Matt at Healthy N' Wealthy
8 years ago

El Nerdo, You pretty much proved my point. Morality can be so complex if you want it to be that it could consume all of one’s efforts. I don’t worry about morality as an investor. It would defeat the purpose of investing because all of my time would go into researching which companies are the most “moral,” rather than which companies are best for investment. Warren Buffett also does the same thing: he invests completely unemotionally and without a conscience, and he’s not a sociopath. He loves cigarette companies because “you make em for a penny, sell em for a… Read more »

Matt at Healthy N' Wealthy
Matt at Healthy N' Wealthy
8 years ago

DOT,

They smoke much more in European countries and have lower rates of heart attacks, heart disease, cancer, etc. I think it’s all in the diet (and lifestyle). Their mediterranean diet is lower in carbs and higher in good fats, like olive oil.

Kevin
Kevin
8 years ago
Reply to  Sharon

This is absurd. Ethics have nothing to do with investing. Make your ethical statements with your spending, not your investing. Investing is about one thing and one thing only: Making a profit. The only thing that matters is whether or not it is legal (that is, I won’t invest in outright illegal things, such as slave labour or heroin importation). So-called “ethical funds” are nothing more than feel-good marketing products with outrageous fees, designed to milk money from granola-chewing tree huggers who care more about panda bears than their own family’s financial well-being. They will never be as profitable as… Read more »

Slccom
Slccom
8 years ago

Rationalize blood money any way you want. It remains blood money. Cereals provide nutrition. Nicotine gives you a high, poisoning not only the tobacco addict but everyone around them at the same time.

If you draw no line, I guess you can justify anything. Whatever.

DOT
DOT
8 years ago
Reply to  Slccom

general mills cereal is not much more than sugar, artificial flavors and fortified vitamins with some “whole grain” so they can add that in big bold letter on the front of the box.
You could get almost the same nutrition from a snickers and Geritol.
At least the candy makers aren’t trying to pull the wool over eyes and call there product healthy.
Morally, I would feel better investing in Mars or Hershey rather than General Mills.

Kevin
Kevin
8 years ago
Reply to  Slccom

Cereals provide nutrition. Really? All cereals? How much of your daily recommended allowance of vitamin C is in a serving of “Baron von Redberry?” Or “Cookie Crisp?” or “Ice Cream Cones” (an actual cereal!)? Sure, General Mills makes some good cereals too (“Total”, “Wheeties”), but they also make pure corn-and-sugar garbage, with no redeeming nutritional value whatsoever. One could easily even argue that such insulin-spiking sugar-bombs are even “bad for you”, and can cause diabetes and obesity. Maybe they’re not so different from a tobacco company after all? Well, I can think of at least one difference: Tobacco companies don’t… Read more »

Matt at Healthy N' Wealthy
Matt at Healthy N' Wealthy
8 years ago
Reply to  Kevin

Don’t forget gluten

Matt at Healthy N' Wealthy
Matt at Healthy N' Wealthy
8 years ago
Reply to  Slccom

Slccom, First of all, cereal being nutritious is a completely different argument, so I won’t go there, except to say that it’s dead wrong. Again, how many products of yours were made “ethically,” or without “blood money?” People willingly pay for cigarettes knowing the risks. There is nothing unethical about providing people what they want. It’s addictive, I know, but plenty of people quit. How about sugar, as some other commenters have pointed out? Sugar is addictive, that’s fact. And with type 2 diabetes correlating with most diseases (including Alzheimer’s, aka type 3 diabetes), I’d rather smoke a cigarette than… Read more »

J Marie
J Marie
8 years ago

I love this idea! If there is a product that you love, chances are that many other people love it too. Its a great way to make investment choices.

Jacq
Jacq
8 years ago

Doesn’t pepsi have a better dividend than coke? 🙂

I do get an investor’s buying high just like I used to get from shopping. Watching your net worth ticking up is such fun.

Here’s a pretty good site for budding or seasoned investors:
http://seekingalpha.com/

Divyesh Dave
Divyesh Dave
8 years ago

This article has good points. However, I would like to emphasize that we buy assets when prices are depressed. That would be when there is pessimism in the world market. There is a big difference in buying Coca Cola (ticker symbol : KO) at 40$ 4 years ago versus paying 70$ which is the current stock price.

Marina K. Villatoro
Marina K. Villatoro
8 years ago

I’m sold:)

I live in Central America, where Coke is god! I don’t really need to see all the figures to know it’s a keeper.

Mexico is said to drink more coke than pure water because coke sells it slightly cheaper than a bottle of water.

These are facts that are in my face. But that the fact that they are great with dividends, makes is even more worthwhile.

Poor Student
Poor Student
8 years ago

For me buying stocks does provide instant gratification as well as knowing I am improving my future exponentially. This makes it easy to decide to invest my money. I know that the best thing I can do with $1,500 is use it to buy a stock or index fund that will pay me for buying it and then increase in value to the point where I can sell it for a profit if I choose. It is a little different when you are talking about spending $2 on a Coke vs $70 plus commission to buy a share of stock.… Read more »

mike
mike
8 years ago

But that ice cold coke tastes so good, but it has to be straight from the fountain, none of that can stuff. Actually although I prefer coke over pepsi, my favorite is the the throw-back or mexican Pepsi with sugar, delicious.

WWII Kid
WWII Kid
8 years ago

When I was a little kid, my uncle owned a pet store. My dream job at that time. He had a conversation with my father once about how, if the economy died, his store would be the first thing to go but supermarkets and the like would survive. People would always need food but not canaries. That conversation has always stuck in my mind. And that’s why I have DRIPs in MacDonalds, Pepsi (sorry Coke), Home Depot, Kelloggs, and every other consumer goods and services company I can get into. Of course, nowadays people spend billions on their pets and… Read more »

Andrew
Andrew
8 years ago
Reply to  WWII Kid

Actually, your take on pets at the end of your post is correct. Spending on pet food and supplies held steady throughout the recession and pet-related stocks are doing well. There have been cases (too many!) of people having to turn their dogs and cats over to shelters but on the whole Americans will not cut back on pet stuff unless they are truly desperate.

Milk-Bones for all!

Tania
Tania
8 years ago
Reply to  WWII Kid

But then again, once the supermarkets ran out of food….. I think he might get quite a few customers.

Boglian
Boglian
8 years ago

How about the hours spent on P/E ratios and the like to figure out if the stock you want is properly priced? Buy a no-commission ETF instead and save the commission and the time and heartburn competing with quants on Wall Street. If it’s a US broad market one, there’s some Coke in there.

rageon
rageon
8 years ago

Mr. Brokamp very briefly touches on what I would consider to be the biggest drawback from a “go ahead, buy a company” plan. It’s that for most middle-class investors, tranaction fees are a killer.

Using his example, $500 is a not-insignificant amount of money to invest for many people. And even then, if the stock goes up at a modest expected rate, I would be looking a few months before I’d even break even. I believe my own investment strategies would be dramatically different if I did not have to account for these costs.

wetfloor
wetfloor
8 years ago
Reply to  rageon

Doesn’t purchasing through a DRIP help alleviate these costs?

Nicole
Nicole
8 years ago
Reply to  rageon

Index funds for the win!

I was listening to the radio yesterday wishing I’d invested in Apple before its big gain… then I realized that by investing in a Nasdaq index or ETF many moons ago, I actually had invested in Apple. WooT.

WWII Kid
WWII Kid
8 years ago
Reply to  rageon

Get into DRIPs. Most require only one share, and you can do it through websites like The Money Paper for a small fee. You don’t even have to join, they periodically have free or low-cost offers to non-members.

Drew
Drew
8 years ago

Rich people buy assets, poor people buy liabilities… I think that’s from Rich Dad isn’t it? It’s funny to apply this to the article here, does that mean drinking Coke is a liability?!

fantasma
fantasma
8 years ago
Reply to  Drew

Reason why people like coke so much is because of sugar.

We are addicted to sugar. Studies have cited addiction to sugar is similar to addiction to herion or cocaine.

Sugar is in alot of the products we eat today.

What is coke without sugar?

Invest in sugar, fake or real.

Sugar is sugar.

Matt at Healthy N' Wealthy
Matt at Healthy N' Wealthy
8 years ago
Reply to  fantasma

The sugar pathway is connected to the opioid receptor pathway. If you’re interested, shoot me an email: [email protected].

It’s fascinating to me. Any opiate addict will tell you that they crave sweets when they withdraw. It’s because they’re regulated by the same biochemical pathway. The addicts brain is trying to get more sugar in order to get the same amount of opioid receptor activation now that the influx of opium is gone.

Andrew
Andrew
8 years ago

And, weirdly enough, if you’ve been off sugar for a while, and then try some, it tastes strange and kind of unpleasant. It doesn’t take long to get re-hooked, though.

Matt at Healthy N' Wealthy
Matt at Healthy N' Wealthy
8 years ago
Reply to  fantasma

Andrew,

I totally agree. Giving up excessive carbs/sugar sucks for like 2 weeks, but then it seems gross. I’m not a big eater, never had a sweet tooth. But I craved sweets for those 2 weeks after giving up bagels and pasta etc (went paleo). Now, it doesn’t tempt me at all. My body adjusted (higher insulin sensitivity). If I need a carb fix I’ll have an apple. Drinking a coke–gross (gave up soda when i was like 12)…unless there’s some rum in it.

Sarah
Sarah
8 years ago

Great article! Of course, a lot of work can go into investment decisions, but the essential idea of this essay is about moving from being a consumer to being an investor. With that in mind, I found the idea of each $10 trade should be made with at least $500 very helpful. I’ve made some tiny little investments in an effort to start getting my feet wet, but this $10/$500 idea makes more sense. I’d love to see the numbers pulled apart on this idea.
Thanks!

El Nerdo
El Nerdo
8 years ago
Reply to  Sarah

Same here. The 2% limit on transaction costs sounds pretty good. Thanks, Robert!

frugalportland
frugalportland
8 years ago

This was one of the best explanations of investing I have read. Thank you! It’s a fun game, too — how many times do I need to skip buying a latte to invest $500 in Starbucks?

Krantcents
Krantcents
8 years ago

I save/invest 35% of my annual income. I live a somewhat low profile lifestyle. I try to buy as many assets that will increase in value as I can. For example, we bought a number of antique pieces of furniture to inter mix in our home.

Eric
Eric
8 years ago

Interesting article.

I found myself thinking about the “allowance” money I’ve been socking away (my wife and I get separate “allowances” which we can use to spend on anything we want, no questions asked) to outfit a home gym. The items I would purchase would certainly, on the surface, fit the description of consumable items that depreciate in value. But the use of these items, consistently and long enough, results in a noticeable increase in the value of perhaps my most valuable asset, my health (physical and mental).

Staying out of Debt
Staying out of Debt
8 years ago

I would rather have the stock, one can only picture how many stocks would be bough for all the times I’ve spent money on sodas. I am curious how that would work for other companies who build the electronics (think Foxconn) to buy their stocks vs the middle man (Apple or Dell in this case).

Rosa
Rosa
8 years ago

Depends on where the company is – China doesn’t have very good disclosure rules and buying individual Chinese stocks is difficult. A nice international ETF or index fund would be easy, though.

Angelique
Angelique
8 years ago

Great article, Robert. I hadn’t heard that 2% rule before. I learn something new everyday! Thanks!

PB @ Economically Humble
PB @ Economically Humble
8 years ago

TOTALLY! I buy stock in what I use… Netflix, Apple, Johnson and Johnson (and wow I wish I had saved enough to buy stick when I wanted to but it after my first stock). I invest very little (since I’m now a smart student, not just a student, and don’t have a job yet) but someday I’m gonna rock out!

Don’t buy coke, no matter how good it looks. If you do that you are investing in a future of diabetes (which is already 50% a chance for kids).

The Stoic
The Stoic
8 years ago

Great article! I think if more people thought of consuming the production versus the product we would have a lot more people much better off.

I came to this way of thinking only recently, but now that I have it has changed my life remarkably.

Kelly
Kelly
8 years ago

Great idea! Robert, the asides in your articles are always entertaining. I’m adding handerpants to my Christmas wish list, by the way.

Long-Term Returns
Long-Term Returns
8 years ago

Not really the best advice. I do agree with saving instead of donating money to vending machines. But buying Coke (or Pepsi or any one other company), especially through a broker that charges $10+ commission is not much better. First, you need to buy all companies, not one. Risk for any one company going south is much higher than for the economy as a whole while the expected growth is the same in both cases. You don’t gain any reward for taking on additional risk with an individual stock. So Buy something like Vanguard Total Stock Market Index fund (VTSMX).… Read more »

Linda
Linda
8 years ago

Back in ’92 my husband was a heavy equipment operator where we lived in Seattle. One day, he happened to be putting in a new parking lot for a company called Starbucks. He heard they sold coffee and were growing really fast. More than anything, I wanted to buy stock in that company. Sadly, at the time we didn’t have 2 dimes to rub together. You probably can guess the rest of the story. From that painful experience I realized that I needed to have some “mad money” (as my grandma called it) set aside to purchase interesting prospects. It… Read more »

jmv
jmv
8 years ago

This has always been my investment philosophy. I currently am buying my local utility stock through their DRIP plan and am getting a great return (goal is to have the dividends pay my utility bill). I don’t have chunks of cash to invest so the DRIP works well for me. Slowly but surely. I’m looking for other companies whose products I use everyday to invest in. I try to invest my retirement funds in industries that I think Americans view as ‘needs & rights’ such as healthcare and utilities. I feel like they will pay any price for these things… Read more »

Carl Lassegue
Carl Lassegue
8 years ago

I like the advice given in this article. I might not buy stocks instead of buying soda but I like the idea he’s trying to convey in the article.

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