Today we’re going to take a look at one of the most common ways beginner investors get started picking stocks. I’m not advocating for picking stocks over using mutual funds and ETFs, nor am I advocating for the opposite. Each has its own advantages and disadvantages, and both can help you achieve your financial goals. A strategy somewhere in the middle is probably a good place to start if you haven’t decided yet. Personally, I have all of my retirement contributions allocated to various mutual funds and ETFs, so I like to experiment with stock picking in my after-tax brokerage account. While on the topic, one of the questions I often get asked by people looking to get started is “which companies should I invest my money in?” Unfortunately, the answer is “it depends,” as it so often is. There are a number of ways that people can get started including subscribing to stock picking blogs like Seeking Alpha or The Motley Fool, listening to the advice of friends, or working with an experienced broker. These can all yield solid results, but today I want to examine one of the most common approaches people take – investing in yourself! This doesn’t mean going out and splurging on your favorite brands, or at your favorite shops and restaurants. Rather consider investing in those same brands, shops and restaurants. After all, you’re trendy and fashionable, right?! So out of curiosity, let’s travel back 5 years or so ago to January first, 2012. Imagine that we have a portfolio of $50,000 (any number will do, really; we’re more concerned about the percent change in our portfolio), to invest among some of our favorite things. Let’s also imagine that we start deploying our capital immediately, just as if we were pulling items off of the racks at our favorite stores. How would our portfolio of investments have done over the 5 year period? That will depend on how trendy and fashion forward you truly were 5 years ago…
Going back 5 years ago most of us were still pretty attached to our screens, and the one that likely held our attention most was our cell phones. At the time, our phones were as much a part of our fashion as were the clothes and hairstyles that we wore. Companies jockeyed for market dominance, attempting to differentiate themselves from competitors via style, processing speed, and screen size. Remember that in 2012 the cell phone market was much more fragmented than it is now, and had more viable players. Below you’ll find 5 of the most popular phones at the time, and the returns of the parent company that made the device.
iPhone 5: Apple (NASDAQ:AAPL) debuted the iPhone 5 in September of 2012, and it became the fastest selling phone in history, almost overnight. 5 years later, Apple continues to rely on the strength of the iPhone series, its largest revenue generator, as it struggles to diversify its income streams. Despite this, business has been booming for the Cupertino, CA based company, which has generated an approximate 138% over the last 5 years
Galaxy S III: In 2012 the Korean device maker was having another stellar year, as it dethroned Nokia, becoming both the largest smartphone maker and most popular mobile phone company in the world, based on units sold. At the time Samsung (LON:BC94) was continuing to execute upon its large screen strategy, debuting the Galaxy S III, which was slightly larger than its best selling Galaxy S II predecessor. Over the last 5 years, Samsung has generated an approximate return of about 3.64%
Nexus 4: Before the Google (NASDAQ:GOOGL) Pixel, there was the Nexus – this is where it all started for Google phones, back in 2010 with the Nexus One. Fast forward two years and the Nexus 4 boasted a Qualcomm (NASDAQ: QCOM) 1.5 GHz Snapdragon processor, an 8-megapixel front-facing camera, and an enlarged screen, all of which helped woo users, new and old. The company seemingly set for world domination has seen its shares grow in value by about 205% since January of 2012.
Service Providers: Verizon (NYSE:VZ) +19.3%, AT&T (NYSE:T) +7.12% , Sprint (NYSE:S) -13.2%, T-Mobile (NYSE:TMUS) +259.8%.
Other notable players included: Nokia Lumia 920 (difficult to track due to acquisitions. It was acquired by Microsoft in 2014, and then sold to a subsidiary of Foxconn in 2016 ), Blackberry Bold & Torch (up 1.77% since 2013; previously traded under RIM) and HTC (TPE:2498) One X+ (down about 74% since 2012).
In 2012 the big box retailers were still king, although e-tailers were gaining popularity. Just as they are today, physical locations were being used as showrooms to touch, feel, and try on items, that would later be purchased online at a discount. Subscription delivery services like “Prime” from Amazon, and Shoprunner, were picking up steam and making express shipping more affordable. No longer did we have to wait in line in crowded department stores, as we could quickly fill carts and check out with the click of a button from anywhere that we had wifi. Below, you’ll find some of the most popular retailers at the time.
Amazon: Founded as an online bookstore, by 2012 Amazon (NASDAQ:AMZN) had diversified to the point of selling just about everything. Often credited with causing the early demise of firms like Barnes and Noble, and Borders, Amazon has seen its share value increase by about 378% since 2012.
Walmart: The largest retailer at the time, Wal-Mart (NYSE:WMT) has seen its share value grow by about 47% over the last 5 years.The increase in value has been far from steady however as the retailer has had to fight off fierce competition from scrappy startups like Amazon and more recently, Jet which Wal-Mart eventually gobbled up.
Target: Minneapolis based Target (NYSE:TGT) had an experience similar to that of Walmart, but was also hit hard by a huge “Black Friday” credit card hack that affected nearly 40 million accounts back in 2013. Still, the company has seen its stock price increase from about $60 to about $77 or about 25%, today. The company’s shares actually hit an all-time high of about $85 per share in July of 2015 but has struggled to reach this peak since.
Other Notable Players: Kroger (NYSE:KR) +119.8%, Costco (NASDAQ:COST) +91.0%, The Home Depot (NYSE:HD) +208.2%, CVS (NYSE:CVS) +54.9% , Lowe’s (NYSE:LOW) +181%, Safeway (NYSE:SWY) +101.6%, Sears (NYSE:SHLD) -91.4%, Macy’s (NYSE:M) -29.8%, Kohl’s (NYSE:KSS) +50.9%, J.C. Penney (NYSE:JCP) -78.9%, Marshall’s/T.J. Maxx (NYSE:TJX) +74.2%, Nordstrom (NYSE:JWN) -6.8%, Best Buy (NYSE:BBY) +408.8%, eBay (NASDAQ:EBAY) -29.8%.
The car market is tough to disrupt, given the extremely high fixed start-up costs which serve as a great barrier to entry. This hasn’t stopped some visionaries like Elon Musk, or tech giants like Google and Apple, from trying. You’ll find the stock performance of the companies that made the best selling cars in the US in 2012, below.
Toyota Camry: Boasting over 400,000 sales annually in the US alone, the Camry can once again tout being the best selling car in the US. Over the last 5 years, Toyota (NYSE:TM) shares have climbed about 43.5%
Honda Accord: Forever in a battle with the Camry for the top spot in the US, in 2012 Honda (NYSE:HMC) moved about 332,000 units – good enough for second place that year. Despite its most popular model moving the second most units in the US and its Civic model coming in third, shares of Honda have been down about 6.4% since 2012.
Nissan Altima: With 302,934 units moved, the Nissan (OTCMKTS:NSANY) Altima was the fourth most popular vehicle that year. Nissan shares are up about 4.6% since January 2012.
Ford Focus: Also the maker of the popular “F-Series” truck line, Ford (NYSE:F) saw 245,922 units of its Focus model roll off dealer lots. Despite the Focus’s 6th place finish, and its Fusion model finishing 7th, Ford’s stock price has fallen about 6.4% over the last 5 years.
Chevy Cruze: Rounding out the top 8 is the Cruze, which sold 237,758 units. General Motors (NYSE:GM), owner of the Chevy, Buick, Cadillac, and GMC brands, has seen its share value increase by about 45.6% since 2012.
Other Vehicle Manufacturers: Mercedes-Benz (FRA:DAI) +72.1%, BMW (FRA:BMW) +25.9% , Volkswagen (FRA:VOW) +12.8%.
Other Popular Brands:
Nike (NYSE:NKE): +138.8%
Adidas (OTCMKTS:ADDYY): +130.1%
Michael Kors (NYSE:KORS): +20.6%
Coach (NYSE:TPR): -22.0%
LVMH (OTCMKTS:LVMUY): +61.27%
Sony (NYSE:SNE): +341.4%
Facebook (NASDAQ:FB): +462.4%
Twitter (NYSE:TWTR): -40.8%
Netflix: +2,624% (Not a typo!!)
The Portfolio and its Performance
Now that we’ve examined some of the most popular brands that we’ve engaged with, let’s consider how we’ll build a portfolio from these companies. One way people consider constructing portfolios is by looking to diversify holdings across industries. That way a downturn in a single sector won’t completely tank the portfolio. But let’s assume that we didn’t know any of that, and instead we opted to choose 10 of our favorite brands and allocate $5,000 to invest in each. Since most people are loyalists when it comes to which phone they use, select just one brand from this category. Also, select the service provider that you used at the time. From the retailer category, select the 4 that you frequented most in 2012. Next, select the manufacturer of the car that you drove then. Select two “other brands” and a wildcard from any of the groups. If you didn’t own a car, cell phone, etc. just select an additional wildcard from any of the groups, though it should be a brand that you interacted with. Feel free to select brands not on the list as well. You can see the results of my portfolio below:
Wish I had $50,000 to invest with back then, I could have more than doubled my investment! How did your portfolio fare? Not as trendy as you thought you were? Leave a comment below and compare your results to those of other readers.