Think Like An Owner – Part 2

thinkingI wrote an article last month about thinking like an owner. It was a piece that I’ve been meaning to write for a while now, but finally had some time to put my thoughts down. I was pretty happy with how it turned out, but I think there’s still some additional points I wanted to cover. So I’m going to expand a bit on that original piece with some further ideas on how and why you should think like an owner, even when you’re buying little slivers of ownership in gigantic companies.

Are You A Long-Term Partner?

I basically compared owning common stock in publicly traded companies to owning your own business outright – I used a local pizza shop for illustration. And this illustration is valuable and apt, because when you own common stock in a business you are in fact a part-owner in that company. You and potentially millions of other people are all business partners, with generally common ground between you. I mean we’re all after the same thing, right? When you invest in The Procter & Gamble Company (PG) alongside me, we’re most likely both after Procter & Gamble selling more high-quality products, increasing profitability, and paying us more income in the form of dividends.

As such, I look at every investment as a partnership. And I approach every investment with a long-term time horizon. In fact, I don’t plan on ever selling any of the partnerships I buy into. After all, what would be the point of doing hours of research on a company, putting my hard-earned capital to work, watching that company succeed and my thesis realized, only to sell a little while later for a small profit? That’s nonsensical.

If I invest $1,500 in a business, I’m not real excited when that $1,500 investment rises to $2,000. I expect my partnership to do well, and as such expect the business I own a piece of to be worth more in the public market over time. This is natural. I would of course prefer shares in this business to be cheaper so that any new capital I can invest buys a bigger share of the overall company, but I don’t expect this to be realistic over the long haul.

As such, I’m not after turning $1,500 into $2,000. I’m after the percentage of the business my $1,500 buys to do increasingly well over time and pay me more income. Furthermore, I would expect that $1,500 to eventually turn into a $5,000 or $10,000 stake, if given enough time. Taking a quick profit on what could be a wonderful partnership for the rest of my life is awfully shortsighted, in my view.

Be Proud Of Your Business(es)

How would you feel if you took out a $20,000 loan and turned it into a happening pizza joint in your hometown? You’d probably feel pretty good, right? You’d very likely feel fantastic every time a customer came in through the front door to order up dinner. And you might be elated if a local business orders up 20 pizzas to cater a lunch. Your restaurant would be an extension of all of your hard work, and to know that people appreciate that hard work and enjoy your finished product must make one pretty proud.

Equally so, I feel the same exact way whenever I’m at the grocery store and someone buys a product from The Coca-Cola Company (KO). This might sound corny, but my heart flutters just a little bit when I see a grocery cart stocked up with Coca-Cola, Dasani, Powerade, or Simply Orange Juice.

A real-life anecdote: My aunt had to get rid of some mold in her home just the other day. So she ran up to the store to buy some bleach (she was out). You can’t imagine how proud I was when I noticed she had a bottle of Clorox in her hand. As a part-owner in The Clorox Co. (CLX) I feel great that she trusts in a product that my company produces.

I’m a proud business owner, and that’s true even for some of the companies in my portfolio that produce products that could be construed as morally wrong. For instance, I have a small ownership stake in Raytheon Company (RTN). Sure, some of their products are used to cause bodily injury and/or death. But these products are also used to protect the freedom I so thoroughly enjoy in this country. Furthermore, these products are also used to reduce bodily injury and/or death by protecting the US soldiers that use them. And I’m proud to know Raytheon is protecting the US from foreign missile attacks through a number of radar systems they’ve been contracted to build and deploy.

Take Competition Seriously

If I owned a local pizza shop – call it Papa Jason’s Pizza – you can be absolutely sure I wouldn’t be buying pizza from a local competitor. If I had any pride at all in my own product then why in the world would I go and buy pizza from the competition? Every dollar in their pocket is one less dollar in my own.

Likewise, I always make a reasonable attempt to buy products and/or services from the businesses that I own a stake in. After all, every dollar I contribute to their bottom line is partially contributing to my own.

For instance, every time I buy a bag of chips it’s Baked Lay’s. Manufactured and marketed by PepsiCo, Inc. (PEP), I’m pleased to know that I’m contributing (in a very small way) to my own company’s profit. And that profit eventually trickles down to me in the form a dividend check. If I instead buy a bag of chips from another manufacturer, that provides them financial resources to grow and potentially compete more effectively with the company that is paying me dividend income. Why in the world would I want that?

If I need to fill up my Toyota Corolla’s gas tank, you can bet your bottom dollar I’m trying to visit a local BP Plc (BP) gas station, or a station owned by any other of the companies I own a stake in. I’ll buy gas from the competition if I’m running on empty and I have no other choice, but you’d better believe that I won’t be very happy about it.

Know Your Management, But Be Confident They Can Be Replaced

I discussed in the last article how important it is to know what you own. But another important point is to know your management, and also make sure that the team in place isn’t irreplaceable.

If I own my own pizza shop, that’s a pretty easy business to run. It doesn’t take any kind of specialized skill that only one out of a billion people can possibly acquire, right? You just make sure the raw ingredients come in on schedule, have an appropriate staff for the demand, market your product effectively, and make great pizza. I might be simplifying it there a bit, but you get the gist.

And, as an owner, I might choose to hire a general manager to run the day-to-day operations for me. Maybe I want to check in a few times per week, but otherwise have a plate full of other hobbies and passions I want to pursue. So I’m going to do my best to pick an extremely competent general manager who I feel has my best interests at heart. I want someone who can both get the job done effectively and communicate about how that job is getting done effectively.

But I also have to know in the back of my mind that this general manager can be replaced, if necessary. I don’t want someone that’s irreplaceable, because then what do I do if this person wants to leave or has to be replaced for any number of reasons?

When looking at the management teams that are currently in place in a business I’m considering for investment or perhaps a business I’m already invested in, I often remember Peter Lynch’s immortal words, as published in his 1989 book “One Up On Wall Street”:

 Getting the story on a company is a lot easier if you understand the basic business. That’s why I’d rather invest in panty hose than in communications satellites, or in motel chains than in fiber optics. The simpler it is, the better I like it. When somebody says, “Any idiot could run this joint,” that’s a plus as far as I’m concerned, because sooner or later any idiot probably is going to be running it.

So I love great management teams. That’s always a big plus in my book. For instance, I admire Richard Kinder who has a massive stake in his masterminded pipeline and energy business – Kinder Morgan Inc. (KMI). I also have a relatively big stake in that company, and I love Kinder’s passion and pride. I hope he continues running the company for a very long time. However, if Kinder were to all of the sudden no longer be able to run the company, I don’t think he’s completely irreplaceable. The pipeline model isn’t specific to that company, and the assets are already in place to profit shareholders for many years to come.

You might make a comparison to Apple Inc. (AAPL), which has been beleaguered by media and major investors alike for their lack of major innovation since the company’s founder, Steve Jobs, died. They’ve mostly come out with some smaller and larger versions of products that were already in place with Jobs died, but most of the life-changing innovation the company became extremely popular for has largely been absent.

The company just recently announced the first really new product since Jobs died back in 2011, in their new Apple Watch. Will this change lives and the entire watch industry like the original iPhone did back in 2007? Time will tell. Now, they’re still massively profitable. And they may very well continue to be such for many, many years to come. But was Jobs irreplaceable? I don’t know if one can answer that question with an unequivocal answer.

Conclusion

I always think like an owner. Adding on to the points made in the original article, I consider every investment to be a lifetime investment. When I buy shares in a company, it is my anticipation that I will own those same shares 50 years from now. And it is my expectation that these shares will be worth much more money, so short-term profits (or losses) don’t tempt me to sell, assuming the business is still doing operating correctly.

Furthermore, you should express pride in your business(es) and take competitors seriously. Every competing business out there can be thought of marauders waiting to cross your business’s economic moat and tear the castle down. So buying products and/or services from these competitors gives them just a little more ammunition with which to accomplish that mission. I’d rather choose to fortify my castle by contributing to the bottom line of companies I own a stake in when reasonable, which provides them a small slice of the ongoing profitability which is necessary to pay me increasing dividends.

Lastly, management should always be considered. You don’t want an idiot running your company. But you should try to avoid investing in businesses that an idiot cannot run, just in the off case that one ends up in that position. Great management teams can turn a good company into a wonderful one, and these teams should be thought highly of and pursued. But you don’t want to put all of your eggs in one management’s basket, because management teams occasionally change.

Full Disclosure: Long PG, KO, CLX, PEP, RTN, BP, KMI.

What do you think? Do these points add to the original discussion on thinking like an owner? 

Photo Credit: iaodesign/FreeDigitalPhotos.net

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94 Comments

  1. Very good points Jason, and I agree that if you are investing in a company… you should definitely be willing to buy their products if it is something you would purchase. Neither you or I are in the market for tractors, but if we were, you could bet a John Deere would be our first product to checkout.

    That and even the consumer products you mention and where you shop. You bet that I would actually choose to shop at Walmart if I become an investor, whereas before, I would actively avoid them (not at all costs though).

    Also, are you going to open that Papa Jason’s? You keep talking about it in your blog, and I’m making pizza tonight… maybe I’m just hungry for pizza 😀

  2. Being proud of your companies is part of why I’ll never own tobacco stocks no matter how much they pay in dividends.

  3. DM,

    The eight stocks you mention in your article above, are great pillars for ones portfolio. All companies with rising dividend payouts as well as diversification.

    Keep up the good work,

  4. Good article DM.. I recently sold Tim Horton’s after the huge run up. I recently read the Burger King approached Warren Buffett about acquiring Tim Horton’s before they even approached Tim Horton’s. The CEO of Tim Horton’s said the price was too low twice before, until they accepted the current offer on the table.

    I ate and bought more coffee at Tim Horton’s when I was an owner that is for sure. To see the longs lineups every morning whether it was a drive thru or walk in store was awesome. I didn’t mind the long line ups when I was a partial owner.

  5. Great points. I try to buy products from companies that I already own in our dividend portfolio. It’s like supporting your own business. I also like to occasionally go to Apple store or McDonald’s to see how the business is doing. The other day I drove by a McDonald’s store and the line up was almost out to the door! Although McDonald’s seem to be doing poorly lately, it’s good to know that some stores are still doing great sales.

  6. Kipp,

    Haha. I think I secretly want to own my own pizza shop. That might just be my love of pizza speaking. 🙂

    And I hear you there on the shopping aspect. I do almost all of my shopping at WMT these days. I may end up owning a chunk of Costco at some point, which would open that up for me. I looked at Costco a while ago and passed due to the low yield, but that’s been a great investment for shareholders. Wonderful business.

    Thanks for stopping by.

    Cheers!

  7. j-harr,

    I agree. The stocks listed in the above article would probably make a pretty good (albeit small) portfolio all by themselves. 🙂

    Thanks for the support!

    Best wishes.

  8. IP,

    Haha. I bet you didn’t mind those long lines at all once you were looking through the lens of an owner’s perspective.

    I always think the same about MCD. I don’t eat fast food too often, but on the occasion I do it’s always at McDonald’s. And I might not like waiting in line as a customer, but I LOVE waiting in line as an owner. 🙂

    Thanks for that viewpoint.

    Best regards.

  9. I think it’s a great to remember that buying stocks is buying a small piece of the business and you do become their partner in investment. I especially like walking through the town centre and seeing all my ‘customers’ buying my products all day!

    Its also the reason I wont buy into some companies with policies or ethics I disagree with. They’re my partners, I want to be proud to own a small piece of the business.

  10. Taking a quick profit is something I have had to overcome. I often write about knowing ones self, and your own weaknesses……well this was probably my biggest. I go into each investment with a plan now. Most companies aren’t good enough to be long term holdings in my opinion, but those that are…..I don’t let myself sell for years. I may not reinvest the dividends, but i don’t sell the shares. I also make some deep value investments, which are of a much shorter duration. These aren’t the type of companies I believe in holding for a long time. The case could be argued that anything that isn’t worth being a long term investment, isn’t worth investing in……which is a reasonable argument. I continue to split our portfolio this way, and view long term investments as partnerships.
    -Bryan

  11. Tawcan,

    I agree. When I do buy products and/or services from a company I own, it’s just as much getting something I need as a general “check” on how business is doing. It’s nice to see Coca-Cola products stocked neatly in the aisles and it’s nice to see the local McDonald’s busy with customers. Makes me feel great! 🙂

    Thanks for dropping by.

    Best wishes.

  12. There’s 3 types of people. One who works there, one who eats there. And of course one who owns the business in regards to MCD. I’m the latter!!!!!

  13. ERG,

    Absolutely. Fellow neighbors become customers of your products. It’s a great transition. 🙂

    And I agree with you. If I can’t stand behind a company’s policies or ethics I won’t invest. Although, if I were to take a firm line on that and extrapolate it out to the nth degree I literally wouldn’t ever be able to invest in any company. If I were pressed to I could find something I didn’t agree with with every company in my portfolio. By extension, that would then work the same with index funds and pretty much every other investment out there.

    Cheers!

  14. Bryan,

    That’s a great point there. One definitely must know thyself. And you should have a plan for every investment. If it’s not a long-term investment, so be it. But have an entry plan and exit plan in that case. Nothing wrong with following a Ben Graham strategy where you buy a stock for far under value and then sell it when the value is recognized. But know what you’re getting into and have a plan for it. 🙂

    Thanks for stopping by.

    Cheers!

  15. I think this is a timely article given all the silly hype around the Alibabba IPO. The other day my wife and I were listening to AM radio on our way home and heard all sorts of silly discussions about that company. 99% of people have no clue whatsoever about it, but all they care about is whether or not they should jump on the IPO.

    We stand very much apart from the crowd precisely because of the reasons you’ve outlined above. I take comfort in my pride of being an owner of many great dividend-paying companies because I can easily tune out the noise surrounding these silly IPOs.

    I like the quote about hoping any idiot can run a company! That’s brilliant! I think people love magnetic and famous personalities to run companies because they -appear- to know what they’re doing.

  16. Hey Jason,

    I do the same thing when I own part of a company. I try to buy from them regularly, but I do find that other companies sometimes have better products available and I go with the product regardless of my stock ownership. Lowes is my choice for stock ownership, but I mostly shop at HD because they have better hours and are more helpful in the will call department. Same with Autozone and Oreilly. Even though I own Oreilly, if the part is not there yet, or I need a Moog or something better than whats available, I have to go with the Autozone part.

    Keep cranking,

    Robert

  17. To be honest, I wondered if people were extreme like me when it came to putting your money back into your positions. I’m the exact same, as I’m always looking to buy from or support the companies I’m a part owner in. I find myself even pushing products more to others now, such as the new iPhones with AAPL. It’s good to hear other shareholders are in a similar mindset. I guess I’m not crazy! Haha

  18. Yet another good article, thank you! I’m much like you in that I try to only purchase products of companies that I own. I even go as far to make sure my parents and girlfriend are doing their part but I still have to remind them occasionally to “help support the team.” I, too, would have a John Deere combine in my driveway if I could afford it.

  19. Jason – Another good article. I like your stocks referenced, and own some of them. It follows to some degree the point Buffett mentions that you need to be able to explain why you own a stock, and obviously if you don’t purchase the products you will not be able to fully do this. However, that brings into perspective foreign stocks that may not have US market. For example, I own STO and bought more today, and they have US production, but no consumer market. What do you think of STO and foreign holdings in general?

  20. Spoonman,

    I hear you. The Alibaba fiasco is kind of what scares people about the stock market. They hear all this hype and want to get in, and then wonder why they experience poor results. Following sheep around will naturally lead you to slaughter sometimes.

    You and I are tuning out the noise right now. Leads to less headaches. Of course, then we’re buying less Tylenol, which means less profits for JNJ! 🙂

    Cheers.

  21. Robert,

    Oh, I hear you. I don’t always buy from the companies I own. But I do try to do so when and where reasonable. I won’t go out of my way to do so if it’s economically unfeasible. For instance, I won’t buy gas from a BP station if it’s $0.10 more than the Marathon station across the street.

    Thanks for the support! I hope you keep cranking as well. 🙂

    Best wishes.

  22. Mcarbaugh,

    Haha. “Help support the team.” I like that! Couldn’t agree more. And it’s even better when supporting the team ends up supporting the family. 🙂

    Take care.

  23. Keith,

    I don’t personally follow STO, so I probably couldn’t give you a very good informed opinion.

    However, I do own equity in a few foreign companies. I try to make sure that any foreign companies I invest in are based in stable countries with shareholder-friendly governments – you don’t want to worry about losing your entire investment to a dictator. I also make sure the dividend policy is attractive, sustainable, and progressive, just like I would with a US-based company. I also try to invest where currency/taxation isn’t a big deal. Beyond that, my due diligence is no different than it would be for a domestic company.

    I currently hold equity in Canadian companies and UK-based companies. I like Canadian companies because we’re on extremely friendly terms, and it’s close to home. And many of the UK-based companies I invest in and track are very shareholder-friendly, with solid and progressive dividend payouts. Furthermore, the US and the UK have a tax treaty, whereby you’re not taxed by the local government. So that makes it very easy. I own all of these foreign shares in ADR versions – American Depository Receipts. That means they trade on US exchanges.

    I hope that helps. 🙂

    Cheers.

  24. Completely agree with taking pride in and using the the companies that we have shares in. My day to day banking account is with a bank that i have shares in, although I also have shares in some of their competitors as well. Thats just good old diversification though. I also recently switched my phone plan to the company I have shares in from one of their competitors. Its nice to think that my shares now pay about a fifth of my wireless plan 🙂 Perhaps I should buy more….

  25. Good article again. Thinking like an owner requires long term patience, anyone can satisfy themselves with short term profit – and it is as you say short sighted.

    I have a position and AAPL and MSFT, so I can have the best of both worlds. The loss of Jobs hurt them a little, but those two companies along with GOOGL hire the best and brightest. They will be fine in the long run, because those companies structure themselves to push innovation and technology. One person should not be the undoing of any of those engines. Also innovation tends to go in cycles, every few years a new summit is reached. I would hope the next plateau ends soon.

    Also this pizza place, any preferred toppings? Because I am jonesing for 2 slices, 1 with sausage and green peppers and 1 white pizza with tomatoes after my soccer game tonight.

    – gremlin

  26. Great post as usual! I find it funny how people say they’re investors. But all they talk about is the stock price and market. They rarely cite the underlying business, or even worst, they can’t explain how the company even makes money! Because in the end, you’re owning a piece of a business. So it would make sense to at least know that much.

  27. Interesting point about AAPL. They’ve been one of my largest positions since mid last year, when the price seemed ridiculously low once you backed out the cash, and the yield was up over 3%. Is it something you have looked at? My biggest concern in initiating a position was that I wasn’t sure how long their profits could last. I’m still not sure, but if you back out the cash, it still doesn’t seem like you need to believe the profits will last forever in order to justify the price.

  28. Papa Jason’s! I always hear that in my head with an Italian accent.

    Warren Buffett (according to Schroeder, at least) once said that Coca-Cola was a company that could be run by a ham sandwich. Hilarious, but also quite true. Those are the best kinds of companies to invest in, because in just about any situation, they will still be profitable years down the line.

    However, there are certain industries (i.e. tobacco) that I refuse to touch with a 10-foot pole, regardless of how great the business is or how much they pay out in dividends.

  29. I was the same way with gas stations. Why buy from a competitor? But now I have BP, XOM, RSDB and CVX, so I can pretty much stop anywhere these days.

  30. I’m going to prepare some popcorn for tonight and see how this Alibaba IPO unfolds. My broker is advertising they won’t currently charge any commissions for BABA transactions. This will no doubt suck in a bunch of idiots following the hype. Will be a great show!

  31. I checked out Costco and for the two of us (the wife and I) I don’t see enough value in the membership due to traveling to the store and the fact that we buy a quarter of a cow which greatly reduces our meat purchases to basically just chicken and pork (which I stock up on during sales). When our family eventually grows, I plan on checking it out again. Could always to Sam’s Club as a Walmart owner too – you already own that stock! (and they are a bit closer to us so that is an advantage).

  32. Great article DM, But I don’t agree with your points in the section about competitors. I agree that by buying products from company whose stock we own, we are indirectly contributing to the company’s bottom line and in turn our dividends and growth of dividends. But I don’t think this should come at the expense of my own household’s budget.

    I had discussed the exact same issue a while back in my post whether being a stockholder affect the purchase decisions.

    http://dividendgrowthjourney.wordpress.com/2014/06/11/does-being-a-stockholder-affect-your-purchase-decisions/

    You mentioned the example of buying a bag of Lays chips (PEP) and filling gas from BP stations. I hold shares in both companies and would love to buy these products myself. But if Lays bag of chips is priced $3.00 and another brand is priced $2.00, I would definitely buy the other brand (assuming the quality is same). By buying the other brand, I am saving $1.00 to my budget right away instead of giving the extra dollar to PEP and hope that I get a tiny tiny fraction of a penny as dividends.

    Similarly, I have a BP gas station and Speedway right next to each other. I always go to BP because I own the stock and price is almost same as Speedway. But if the price at Speedway is less by even few cents, I am going to Speedway since it is going to save be a dollar or two for the fill up.

    DGJ

  33. I agree – I find myself in the grocery store, making sure “my” KO products are looking good and neat -if they aren’t, I may take 30 seconds to realign them ..haha…

    Also, MCD is about 1 mile from my office and the double drive thru lines are always packed – makes us owners happy!

  34. I am so glad you wrote this. I live in the Northeast and Dunkin Donuts is seriously entrenched in our culture. I have owned the stock for about a year and a half now. Every morning when people come in to the office I grin because all but one of them is holding a cup or bag from Dunkin. The funny thing is – I don’t even drink coffee. But I always thought it was weird of me to be a little excited at seeing how popular it is. Now I don’t feel weird at all. It’s not just me!

  35. Wisp,

    Yeah, I did the same thing with my phone not long ago when I switched from Metro PCS to Aio Wireless. Not only did I switch to a service that a company I own a piece of provides, but I also saved money. That’s called a win-win right there, my friend. 🙂

    Great job over there. Keep up the good work!

    Take care.

  36. Gremlin,

    Thanks! Glad you enjoyed it.

    Couldn’t agree more. Patience is definitely a great personality trait to have when you’re thinking like an owner. If I were to own my own pizza shop, it’s not like I’d be trying to actively get a quote for what someone would pay me for my business every day. Funny how it’s different when people own slivers of businesses.

    As far as pizza goes, I like a plain pepperoni pizza. It’s just a nice, clean, spicy and sweet taste. I also like a good BBQ chicken pizza here and there. You’d better get a pizza tonight! 🙂

    Best wishes.

  37. Henry,

    I’m totally with you. Nothing wrong with being a trader, but don’t pretend you’re an investor when you’re not. An investor approaches stock investing like a businessman, where a trader is more concerned with stock prices and stock trends. Very different approaches.

    Thanks for dropping in!

    Best wishes.

  38. Tad,

    My take on Apple is that I just don’t know. There’s a lot of uncertainty there. Can I say with any kind of confidence that I know which consumer tech products will be all the rage 10 or 20 years from now? Definitely not. Thus, what kind of confidence can I have that Apple will be a viable investment over that time frame? It might be a great investment, but it’s just not a risk I really need to take. Just my $0.02 on it.

    I’m confident that Norfolk Southern’s railroads will still be used in that time frame. I’m confident that people are still going to be drinking Coke in the future. And I’m sure people will still be brushing their teeth and washing their clothes. So those are the long-term trends I bet on, because investing, at its core, is making a long-term bet. I wouldn’t want to bet on cell phones and tablets, so I don’t. I’m not saying I’ll always feel that way. Maybe I’ll bring Apple into the fold at some point, but not right now.

    Cheers!

  39. Seraph,

    Haha. Maybe I could give Papa John’s a run for their money? Nah, probably not. 🙂

    Yeah, I remember reading about Buffett’s ham sandwich quote. He’s also paraphrased Lynch from time to time. It’s obviously tongue-in-cheek, but there’s a lot of truth there. If the business is too complicated and you need a specialized expert to run it, I’m probably just not interested. Buffett has a bin on his desk labeled “Too Hard”, and that’s my thought process there.

    I hear you on tobacco companies. There are a lot of investors that avoid those stocks. And I think that might have something to do with why they’re perennially undervalued and make such great long-term investments. If everyone wanted these stocks, they wouldn’t offer the kinds of yield they do. So I’m actually not unhappy or offended when others don’t want to buy these stocks. That actually works out to my partnership’s benefit, because the company can also buy back its own stock at a cheaper price.

    Thanks for stopping by!

    Cheers.

  40. Justin,

    I’m in the same position there. It’s not often that I find myself in a position where I need to buy gas from a competitor. I like that! 🙂

    Glad to have you on board as a fellow shareholder.

    Take care.

  41. Kostaja,

    Sounds like a good show!

    I honestly don’t even have the time to watch it. I read a quick snippet on Google Finance that it’s up like 35% today. However, it’s anyone’s guess where it goes from here. Could be a great investment, but it’s just not in my wheelhouse. I’ll stick to my circle of competence. 🙂

    Cheers.

  42. Kipp,

    I don’t personally shop at Costco, but my girlfriend has a membership there and shops there. After we get married, I’ll be guilty by association. 🙂

    Unfortunately, we didn’t have a Sam’s Club anywhere near us down in Florida. But a Costco was literally across the street. She just walks over once or twice per week.

    I may end up investing in the company. They continue to do quite well.

    But I wouldn’t go there if there is no advantage for you. Especially if it’s even further away.

    Best wishes!

  43. Your concern about the long-term horizon on Apple makes a lot of sense. It was one of the things that made me hesitate about buying it. Tech has a long track record of invincible companies falling. Recognizing that a 10-year outlook was impossible, the calculation for me was “how many years do they have to keep up current profits until my entire purchase price is represented by cash? After that point, it’s only upside.” I realize this is not the most sophisticated analysis, as failing companies tend not to blow out all remaining cash in massive dividends, but it didn’t seem totally crazy either.

    I thought it was interesting you mentioned Coke, as the long term outlook is exactly the same thing that has prevented me from pulling the trigger there. How do you look at the risk that health concerns are not going to erode volume? The latest research (albeit very early and inconclusive) I saw yesterday is that even artificial sweeteners can create a pre-diabetic symptoms in a large number of individuals, which would threaten Diet Coke the same way regular Coke is hit by obesity concerns.

  44. DGJ,

    Well, I did mention the word “reasonable” in the article specifically for that reason.

    However, there’s a quality/personal taste aspect there as well. Not so much for gas, but certainly the stuff I eat. I could easily buy store brand cola for much less than Coca-Cola or Pepsi. But I don’t because, to me, it tastes like crap.

    Anecdotally, I just bought some store brand granola the other day because it was a lot cheaper than Quaker. And I love to save a buck. However, it was horrible. Had this funky aftertaste that made me want to throw it away or drive back to get a refund. So it’s back to Quaker.

    The gas is a good example, but it would be uncommon for a competitor to charge a radially different price if they’re nearby or next to each other. So I’ll always pick the one I’m a part-owner in.

    Best wishes!

  45. SR,

    You’re definitely not alone. I don’t know how one could own stock in a company at NOT get excited when they’re doing well or other people are buying their products. 🙂

    Keep up that enthusiasm!

    Best regards.

  46. Tad,

    A company is ultimately worth all the cash it can generate from now to infinity. I value stocks using a dividend discount model analysis which is basically a play on that DCF belief, but adds in the kicker of receiving that cash as a shareholder. Cash on the balance sheet is wonderful. Cash generated by a business is even more wonderful. But receiving it in my hand is the best of all. Whether or not that massive cash pile gets paid out to shareholders or not is anyone’s guess. And whether or not it can be otherwise invested to produce more cash flow and more dividends is another big guess. The thing that makes that particular bet different from others, in my view, is the technology aspect. Nobody saw the iPhone coming before it came. And nobody will see the next big thing coming until it does. Whether or not Apple manufactures that next big thing is a bet I just don’t feel real comfortable with.

    As far as Coca-Cola goes, people are going to drink something, right? Maybe they develop these new artificial sweeteners that aren’t as harmful as what’s currently out there. Maybe they don’t. But people are going to drink something. Tea, juice, water, coffee, energy drinks, sports drinks, etc. They might be drinking Coca-Cola or Diet Coke 20 years from now, but the odds are pretty good that whatever it is they’ll be drinking will be manufactured by Coca-Cola or Pepsi.

    I’d personally rather bet on people drinking liquids than trends in smartphones and computers. But you could make an argument either way for it. Ultimately, you have to find your comfort zone and circle of competence, and then stick within that.

    Cheers!

  47. Great points, Jason. I agree with Kipp here. Owning a company makes me much more likely to shop at that particular company. Even though I know my dollar spent at Wal-Mart won’t make much of a difference to their bottom line, it does bring me joy to see the lines backed up to kingdom come and the shopping carts full. A co-worker of mine asked me the other day, “Why on earth would you buy WMT? I hate Wal-mart because the lines are so long.” I say, “That’s exactly why I bought them…” 🙂

  48. Awesome post Jason, I like the way you think. Sometimes when I get asked about my investing ventures, i just tell them that i am a co-business owner just to see their response. Funny thing is most people don’t see it that way. however I’m sure if other people viewed dividend growth investing like us we would probably have a much bigger community than what we have right now. Owning a business is awesome!!!

  49. Although I do not drink liquor, I have no problems watching others help to line my pockets as they party the night away.

    Good article Jason,

    Robert the DividendDreamer

  50. Ha, I’ve noticed happiness when people buy “my” products too, especially with my investment in tobacco. It used to be a mild disgust of smoking; now I feel happy to see smokers, since they’re most likely paying for my retirement! I’ve also seen that in oil, consumer products; no matter what, it’s a lovely feeling!

  51. Jason,

    Really do enjoy reading about your adventures. I have been a DGI’er ever since reading about you journey in 2013. I hold a lot of the same stocks you do but today I had to buy some BABA. I believe Alibaba will continue to grow for the next several years. Currently, I’m holding Dividend Champions, contenders, 31 different stocks to be exact. I bought 200+ shares of Alibaba today and feel really confident about the future with Alibaba. How do you feel about a DGI’er buying into a Great Company that does not pay a dividend, do you agree with my opinion?

    Brittney

  52. I guess there’s a reason pizza from local hole in the wall shops are usually better than the big boys. They have a lot more pride in their work. I like the perspective of supporting the companies that you own. It adds a sense of ownership and pride. Great post.

  53. Nate,

    Haha. That’s a great story there. I like your way of thinking. You sound like a business owner, which is exactly what you are. 🙂

    And I know that my piddly little purchases don’t do much for a company’s bottom line. I mean I’m only one guy, and a frugal one at that. But I’ve also realized the power of pennies. They add up one by one by one until you have more money than you ever thought you would. So spending $5 or whatever on a case of Powerade might not mean much today, but over the course of my lifetime I know that’s a lot of money for Coca-Cola… a lot of money that if not spent with them would allow their competitor just that extra little it.

    Thanks for adding that!

    Cheers.

  54. Ace,

    Owning part of a business is awesome, my friend. Owning a piece of 20, 30, or 50 of them is even awesomer (if that were a word!). 🙂

    It’s a shame more people don’t see stocks for what they really are. Would make investing a lot more approachable. I’m doing my best to spread the message!

    Best wishes.

  55. Robert,

    Yep. I’m totally with you. There’s a lot of products out there that I don’t personally use, but that doesn’t mean I begrudge other adults from purchasing legal products and enjoying them. And as long as they are buying and enjoying these products, I also see no reason I can’t profit. 🙂

    Thanks for stopping by!

    Cheers.

  56. Developer,

    Couldn’t agree more! I’m not a smoker, but that doesn’t mean I begrudge other adults from buying a legal product and using it. And profiting from that certainly eliminates whatever irritation I might have otherwise experienced. 🙂

    Thanks for dropping in.

    Take care!

  57. Brittney,

    It’s really hard to say what’s going to happen there with Alibaba. Setting aside the lack of a dividend, I’d have to ask myself a number of questions before investing:

    1. Do I trust management?
    2. Do I know what I’m getting into?
    3. Do I mind the Chinese government being the primary oversight for this company?
    4. Is anyone looking at the books?
    5. Am I paying an appropriate price?
    6. What’s my plan for this investment since there is no cash flow?

    I don’t personally invest in a company if they’re not paying me. I touched on those reasons in Part 1 of this series and other articles. But that’s not to say Alibaba won’t be the investment of a generation. However, there’s too much uncertainty there for me personally.

    Best of luck! 🙂

    Cheers.

  58. Syed,

    Haha. Pride in your work is huge, right? I know I personally take a lot of pride (and put a lot of effort into) my writing. I generally think working hard leads to great results, no matter what it is you’re doing. I’ve heard that success is where hard work and luck meet, and I believe that’s true.

    Have a great weekend!

    Best wishes.

  59. I like the idea of being an owner in a big company – I’ll keep that in mind. I’m also wary of Apple – although their products are good (I have an iPhone) there’s been nothing particularly groundbreaking in recent years. Perhaps Jobs was irreplaceable? Lots of people I talk to don’t like the idea of the smart watch, so only time will tell if that takes off.

    I also like the sound of Papa Jasons! Sounds like a place I’d visit 🙂

    Have a good weekend!

  60. I actually think that being a consumer is a different thing than being an investor. I never make a consumer decision only because I own a particular stock. I don’t think I need to “support” my own business at all. If I have to, that stock is bad…

    If a company I own manufactures good products at good price I will buy from them. If a competitor delivers better price/better value, I will buy from the competitor – I think that is a better way to “inform” that my own company also has to observe competition more.

    And the bottom line is my own economy. Buying a cheaper product (of same quality) helps my economy a lot more than buying a more expensive that is produced by my own company.

    But I don’t mind at all if you want to support companies I own 😉

    PS. Of course this is not always that strict. It really doesn’t matter in products to which I spend very little money every year. Few extra dollars here and there don’t matter at all in the big picture.

  61. I do not entirely agree with this post. What is best for the consumer is not always best for the owner. 2 easy examples come to mind: energy companies and banks. You own stock in Shell. If you are going to get gas and you see that Shell is selling it for $3.50 but the BP across the street is selling it for $3.40 the better financial decision is to buy your fuel from BP. With a bank if you are a partial owner in a bank with a savings interest rate of 0.05% but a nearby bank is offering 1.05% I think you would be making a mistake to not have an account with the bank across the street.

    Having skimmed through a few other comments it seems I am not the only one who disagrees with how you worded this post. I am going to write this off as you have a particular crowd which you are trying to cater to and you are willing to write certain things which you know are not entirely honest about in order to continue to cater to this crowd of people, which is a shame. Example being you replied to someone else that you bought an off-brand of quaker oats in order to save some money which is utterly against what you stated in the post.

  62. Not sure if “groundbreaking” is necessary.

    One of the consumer hardware tech companies with consistently high margins, what’s not to love?

    An Apple with slower growth and maintaining market share and margins in core businesses = growing dividends, no?

  63. Paapaa,

    “Buying a cheaper product (of same quality)”

    Well, that’s exactly it. Is the cheaper product of the same quality? I think it depends on what we’re talking about.

    I used Coca-Cola in an earlier example. Is the generic soda the same? I think only an individual can answer that question, but I much prefer Coca-Cola or Pepsi products over generic alternatives. This was true even before I was a shareholder. Is that marketing? I’m not sure, because my taste buds prefer those products. But if it is just marketing, then that’s very effective, which makes my investment thesis even more powerful.

    Sometimes in life you get what you pay for, other times that’s not true. It really all depends on what you’re talking about. But I do generally try to support the companies that I’m invested in for the reasons I stated in the post.

    Cheers!

  64. Nicola,

    Yeah, I’m not sure what the watch will do that the phone can’t already do. Time will tell, I suppose, how popular that device becomes. There are certain fans of their products that will buy anything they produce, so that might bode well for them.

    Appreciate the support. If I ever put together a Papa Jason’s I’ll be sure to let you know! 🙂

    Best regards.

  65. dumbvestor,

    “Example being you replied to someone else that you bought an off-brand of quaker oats in order to save some money which is utterly against what you stated in the post.”

    Perhaps you didn’t read the article? I’ll do it for you and quote myself:

    “Likewise, I always make a reasonable attempt to buy products and/or services from the businesses that I own a stake in.”

    Emphasis mine. A definition of the word reasonable:

    Fair and sensible (per Merriam-Webster).

    So I do make a fair and sensible attempt to purchase products from the companies I own. When that attempt doesn’t make sense, then I don’t. If a product that is pretty much the same thing is available for significantly less (like your gas example) then that’s what I’ll buy. However, I find it rare, in my experience, that two gas stations right across the street are selling gas for that much of a difference. Same goes for banks and that kind of interest rate spread. Furthermore, the granola experience just goes to show that cheaper isn’t always better.

    However, if I find myself consistently avoiding the product and/or service that a company I’m invested in provides, and the same can be said for many other people, then what does that say about the company? So these are questions I always ask myself as a consumer first, which sometimes makes me a better investor.

    Best regards.

  66. Every day I haul my arse into work. I do what the man says.
    I get paid well, but I bet my boss gets paid really well.
    If I work hard, maybe someday I can be the boss.
    Actually I bet his boss gets paid even better.
    And his boss even better than that.
    If I work really really hard maybe some day, I can become the bosses bosses boss.
    Maybe i can rise to the top. Who is at the top? The owner. But how do I get to be owner?
    Hmmm. If I could only figure out a way ….

  67. Alex,

    I use Google Drive to track my portfolio:

    drive.google.com/

    And most brokerages provide a number of tools to track your portfolio, income, sector diversification, etc.

    I hope that helps!

    Take care.

  68. Hi Jason,

    Just curious – how big would the price differential have to be on gas too make you buy from a competitor you didn’t have stock in? We watch our gas prices closely and use an app called Gas Buddy to find the best rate. Luckily our local Esso is usually the lowest and we have a points card with them. But we will forgo them if we find it a few cents per litre cheaper down the road.

  69. Your good ! It seems like companies should give their owners some product benefits of owning the company. IE McDonald’s could give out fee coffee to shareholders between 10 – 11 am or an airline or hotel chain could give shareholders an upgrade to a nicer seat or room. I think there should be more of a direct connection between owning the company ( although a small silver) and discounts on products. After all, the owner of the pizza store doesn’t charge himself for a slice !

  70. Here’s an extract from Margin of Safety by Seth Klarman that resume my thinking:
    “Trading Sardines and Eating Sardines:
    The Essence of Speculation

    There is the old story about the market craze in sardine trading when the sardines disappeared
    from their traditional waters in Monterey, California. The commodity traders bid them up and the
    price of a can of sardines soared. One day a buyer decided to treat himself to an expensive meal
    and actually opened a can and started eating. He immediately became ill and told the seller the
    sardines were no good. The seller said, “You don’t understand. These are not eating sardines, they
    are trading sardines.” “

  71. Debs,

    Hmm, that’s a good question. I don’t know if I have a certain number in mind, but if I find a competitor is charging $0.07 or $0.08 less right across the street or just down the block I’m likely going to visit the competitor. In that case, there is some kind of inefficiency at play there that I’m not interested in paying for. I find a scenario like this pretty difficult to come upon very often in real life, but that’s probably where I’m at with it. My Corolla takes about 10 gallons or so to fill up, so at that price difference we’re getting pretty close to $1. I fill up maybe twice per month when I’m driving a lot, which is about $24/year. I hope to drive substantially less once I get a permanent housing situation figured out.

    I don’t use Gas Buddy because I don’t have a data plan on my phone. I might notice cheaper prices more often if I did, but a data plan would cost me an extra $15/month, which isn’t worth it to me.

    Best regards!

  72. farcodev,

    Speculation is indeed dangerous. A lot of money can be made, but a lot can be lost as well. I’ll stick with investing in high-quality assets. 🙂

    Thanks for sharing that story. I still haven’t read that book. Gotta get around to it someday if I can find a free/cheap copy.

    Best regards!

  73. I am sorry. I must have read through it too quickly and misunderstood what it is you were saying. In terms of the gas stations it is actually very common in my area to see a $0.10 difference just from crossing the street and using something like “GasBuddy” (an app for finding cheap gas) it is not uncommon to see $0.30 difference if you drive half a mile away. For the bank the example I gave is actually slightly based on my experience: the bank I use is not publicly traded so I cannot invest in it whereas many banks I can invest in have pitiful interest rates on savings accounts.

    I did agree with the other points you had made in the post. However when I was typing the “Post Comment” button was moving down as I added text and was actually impossible to push as it had moved off of the screen and the website could not scroll down to press it. So I deleted the positive comments I was going to have made originally…

  74. Pingback: Weekend studying: The worth of excessive home costs | Posts
  75. Obviously you need to buy some TM if you’re gonna keep that Corolla! Nice dividend company as well, just sayin.

  76. I used to receive customer appreciation coupons from CBUK back in the early 2000’s. It was great to go and buy 50% off merchandise and then tack on the 25% coupon. I did it quite a few times.

    Keep cranking,

    Robert the DividendDreamer

  77. Etraitor,

    Haha. Good point. 🙂

    I don’t personally have any desire to ever invest in auto manufacturers, but if I were interested then I think Toyota would be among my first choices.

    Cheers.

  78. weenie,

    Yes! That’s exactly what I’m talking about. 🙂

    I spent the summer this year up in Michigan, and some people in my family were purposely trying to find cans with their name(s) published, only to keep them forever once they found them. It was awesome to see something like that in action. Gave me a lot of pride as an owner.

    Thanks for sharing!

    Best regards.

  79. Great post! I always find it interesting that, in the media, stocks are talked about as if they are some random financial instruments that can either make you rich or cause you to lose everything you have. Great way to remind everyone that stocks are ownership in real businesses, with real customers, and real profits to be made. I think that if more people took the same approach you have, valuations of businesses wouldn’t fluctuate as much or be as overvalued as they have been.

  80. mhamlettjr,

    Thanks for stopping by!

    I agree that the talking heads act as if stocks are just numbers on a screen or something. But these represent real portions of ownership in real businesses. It’s unfortunate that this line of thinking isn’t more pervasive, but I’m doing my best to spread the word. Thinking like an owner is extremely beneficial, as it allows you to weather all the ups and downs with minimal emotional stress. Making rational decisions is supremely important as an investor, and it’s easiest to do so when you’re thinking like a businessperson.

    Best regards!

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