Investing is sometimes portrayed as a solemn activity, carried out by the financial elite and accompanied by a strange, forbidding vocabulary.
The truth, however, is that investing is open to everyone. In fact, it can grow quite naturally out of your pre-existing habits and preferences.
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Let’s illustrate this by imagining a typical beginner investor. We’ll call him Tim.
Tim has just turned thirty and, thanks to a modest promotion at work, he enjoys some extra disposable income every month. Always on the lookout for new opportunities and challenges, Tim has decided he wants to use this money to invest in the stock market.
A natural self-educator, Tim has just read an excellent primer on the principles of investing (it may even have been MyWallSt’s Get Started Infographic) and he feels pretty confident about the basic concepts involved. He has become quite knowledgeable about the likes of dollar-cost averaging, compound interest, and dividends. He knows the difference between the Nasdaq and the NYSE. He understands the importance of diversification and long-term thinking.
But now the time has come for Tim to put his newfound knowledge into action — he has decided to buy his first stock.
Tim is about to take the first step in what he hopes will be a lifelong journey towards financial freedom.
Where do you find stocks?
So, where should he start? Which stock will be his first purchase?
As it happens, he doesn’t need to look very far. There are plenty of great companies Tim engages with on a regular basis. In fact, a typical working day might involve consuming the products and services of literally dozens of publicly-traded companies.
For instance, he might wake up in the morning to the sound of his iPhone’s alarm. He’ll drive to work in his beloved Ford (NYSE:F) F150. On the way, he might stop for a skinny latte at Starbucks (NYSE:SBUX), which he’ll pay for with his MasterCard (NYSE:MA). At work, he’ll power up his desktop and open a Windows Excel spreadsheet. He’ll interact with Trello, and — briefly, guiltily — check for likes on his new Instagram profile.
In just one morning, Tim has made use of seven different companies: Apple (NASDAQ:AAPL), Ford, Starbucks, MasterCard, Microsoft (NASDAQ:MSFT), Atlassian (NASDAQ:TEAM), and Facebook (NASDAQ:FB).
Of these companies, the one Tim loves best is the one whose core product he uses at the beginning and the end of each day — Apple. He has considered himself a fan of the company since he bought his first iPhone way back in June 2007.
By the way… Had Tim chosen to invest in the company that month, his shares would have risen eleven-fold in value.
Since then, he has upgraded his iPhone many times. He has bought a MacBook Air and is even thinking of getting the latest Mac Mini. He is, by his own admission, a little obsessed. This year, he finally got around to reading Walter Isaacson’s famous biography of Steve Jobs. Now his love for Apple’s devices has expanded into a deeper admiration for the company’s overall vision.
But Tim understands that there’s a fundamental difference between consuming and investing. As a pure consumer, his only interest in Apple was the value for money its devices held, but as a potential shareholder, he finds himself asking a range of new questions he’d never really considered before.
He knows that he loves Apple’s output, but what about its input? What about its business plan, its culture, its plans for future growth, its competitive advantages, its drawbacks? He was very impressed when, earlier in the year, Apple became the first company to exceed a $1 trillion market cap, but what in what shape will it be fifteen or twenty years down the line?
For an investor, believing in a company means a whole lot more than simply liking what it offers. It means entering into a sort of business relationship in which both of you stand to profit and in which greater knowledge equals greater power. But it always helps to begin with what you understand to be valuable and to work from there. Each of us has a “circle of competence,” as Warren Buffett put it, and at MyWallSt we believe it’s best to start here.
If you’re addicted to social media, then perhaps Twitter (NYSE:TWTR) and Facebook lie inside that circle. If you’re something of a fan of cinema, then how about Disney (NYSE:DIS), Netflix (NASDAQ:NFLX), or IMAX (NYSE:IMAX)? And if you know all there is to know about cars and renewable energy (and eccentric billionaires), then Tesla (NASDAQ:TSLA) sounds right up your alley.
When it comes to the businesses you love, the transition from being a consumer to being a part-owner is, and should be, exciting. Let’s go back to Tim. Let’s say he has finally taken the leap and purchased a few shares of Apple.
Next time he decides to buy himself an iPhone, it will be a different kind of experience, a better one. It will come from knowing that some of what he’s spent, however small the amount, has gone towards helping his favorite company grow, and with it, the shares in his portfolio.
Tim might just think it’s the start of a beautiful relationship.
MyWallSt operates a full disclosure policy. MyWallSt staff may hold long positions in some of the companies mentioned above.
Contributing Writer at MyWallSt
Jamie is a contributing writer for MyWallSt.