Work with me here.
It makes sense if you let it sink in for a minute.
Yes, I’m aware that most people will fail at picking stocks to build long term wealth versus an index. That’s not the argument I’m trying to make with this post – so let’s allow that sleeping dog to stay put for a minute here, please.
The glorious US of A is a consumer based economy and society, nobody will attempt to argue that fact and we aren’t going to change it. But what if you mentally required yourself to buy shares in the companies that you support daily. How would that change your long term wealth, say…. 30 years from now? I’ll give some real-world examples below if you used this basic guiding premise and how it would have served you.
Let’s say you choose to purchase a new car, for around 30k – and you said to yourself “clearly I believe in this company, maybe I should invest $3,000 in buying shares of this company as well”. Then you actually executed on that belief and purchased the stock. Yes you may have bought at a high PE ratio, yes many other things could go wrong, but I’ll wager in most cases you were better served than not investing at all or blowing that other 3k on nonsense that doesn’t hold it’s value.
The same could be said for luxury goods, eyeglasses, housing, etc… Find yourself doing a massive kitchen renovation and spending $10k at home depot? Buy at least $1,000 of home depot stock. Don’t do it for the short term, but buy companies you use – understand the premise of – believe in – and will be willing to hold for the long run.
Yes, you would be better served in most instances buying the same amount of index funds or hiring a highly qualified RIA to make these purchases on your behalf, but the human psyche doesn’t work that way as well from a behavioral standpoint historically. You would likely feel true ownership from buying those shares of Ford along with your truck. Or those shares of Apple along with your iPhone.
So how does this math play out in the real world? I was curious as well, so we have the below examples for your viewing pleasure.
Let’s say you bought a nice new Ford truck in 1989, 30 years ago – and to accompany that purchase you bought $3,000 worth of Ford stock. You would have paid around $3 per share, and today it’s worth about $9. Not exactly a home run. But if you factor the unusually high dividend you would have received through that time period your actual return looks pretty good. We are sitting around $19,000 – and I chose an underperforming stock with a decent dividend for the purpose of this example.
Now let’s say you bought a nice Mac in 1989, and decided to also buy $3,000 worth of Apple stock. You paid $1.22 per share for Apple in that year, and now it’s sitting around $150 as of this writing (which is down substantially from the recent year’s peak). How does that return look? How does $450,000 sound? Not bad for buying a company you love, believe in, and want to be part of the future with.
Those are extreme examples, of course, for the sake of illustrating how this strategy could work for you. Don’t worry, by the way, PC guys, you did pretty stellar with Microsoft as well running the same example and time period.
But I don’t drive a car or use a computer, I’m a sneakers fan and buy those. Your return was stellar as well sneakerhead. If you just bought half the shoes and spend the other half of that consumer money on Nike stock….. well, how does 14,000% sound as a return? I would take it, hopefully, you would as well.
So maybe this is the ultimate mental hack for those who don’t want to get into investing any other way. It’s simple, after all.
Buy companies that you believe in and hold them for the long term, through thick and thin.
I know another guy who used that strategy to make a few bucks.
Just not in as simple of terms was it laid out or executed of course….
Warren Buffet ring a bell?
Let’s do the math
Calculate your mortgage or work with the compound interest to see what it can do to expedite your wealth building.