Sometimes buying shares in your favorite companies is reasonable, and sometimes not. If you are thinking about investing in a brand that is close to your heart, you should be careful.
Warren Buffett drinks Cokes at least five times a day, and investing in Coca-Cola at the right time helped make Buffett a fortune. In 1988, he invested about $ 1 billion in a giant soft drink market. According to Forbes, these investments increased by 18.4 times by February 2018.
We decided to present you for six reasons the pros and cons of investing in a brand that you like..
1. Pros: Company values match your personal
Supporting brands that share your values and morality is right and fair. And buying their shares is the best way to demonstrate this support. You may be delighted with the company’s attitude to the environment or with what policies it adheres to when working with employees. Whatever the reason, switching to a company that shares your views brings satisfaction.
For example, Starbucks offers all employees a free college education program – even those who work part-time. Therefore, if education is a priority for you, then investing in the brand of the ubiquitous coffee houses is a good choice. Just think about what your money is at stake and make sure the brand’s business model is reliable..
2. Cons: This is a fleeting hobby.
Some companies are stable and durable, while others capitalize on a trend that could quickly wane. If you want to buy shares of your favorite brand, make sure that this is a company whose demand for services will be relevant in a year, five, ten.
Here is an example. Snap Inc. Is the parent company of Snapchat instant messaging applications. She debuted on the New York Stock Exchange on March 2, 2017 and closed the day at + 44% at $ 24.48 per share. However, in the first quarter after the publication of the company, the company reported a loss of $ 2.2 billion. In March 2018, according to the SEC, it reduced 7% of its working staff.
13 months after its excellent IPO, Snap’s stock price fell more than 40% to close at $ 14.11 on April 3. Only time will tell if the company will recover. These are the things you should think about before investing in fashion projects..
3. Pros: You checked the financial performance of the company
You can learn a lot about the products and services of your favorite brand, but it’s more important to delve into the financial indicators before making an investment decision. View revenue, profit, and debt load metrics to make sure you don’t board a sinking ship.
According to the rules of the US Securities and Exchange Commission, if a company declares bankruptcy, its assets will first be used to pay secured and unsecured creditors, and then ordinary shareholders. And even if you get paid, it is likely to be reduced.
4. Cons: The brand covers a narrow niche
You want to buy shares in a company with high growth potential. A business focused on a narrow niche that is close to you, of course, is interesting, but this is not the best option for managing money.
Instead of investing in a brand of this orientation, it is better to support it with the purchase of products and services. If in the end the company expands and begins to cover the market more broadly, it will be possible to revise its investment plans, but caution is also necessary in this case.
For example, GoPro is a manufacturer of high-quality, narrow-purpose camcorders. The brand tried its best to create high-quality cameras for the mass market with an affordable price. Leo Sun from The Motley Fool recommended abandoning the purchase of GoPro shares when the company introduced a new camera worth $ 200. In an April 2018 article, he stated that releasing a cheap camera is an unsuccessful strategy that has already been tested by GoPro with “catastrophic” consequences, which could ultimately lead to a GoPro price drop to zero.
5. Pros: Are you ready for possible losses
There are no guarantees in the stock market. Bad things can happen even if you invest in strong companies, so you should always be prepared for potential loss of funds..
Accordingly, any shares purchased from your favorite brands should be purchased with money that is not really needed. You should not invest funds that were stored for an initial contribution to the house or education of children.
6. Cons: You want quick money
Good goes to the one who knows how to wait. If you think that the stock market is a fast enrichment scheme, then you are very mistaken. Of course, some people manage to grab luck by the tail, but these are exceptions to the rule..
Take a look at Warren Buffett’s attachment to Coca-Cola. Yes, he turned $ 1 billion into $ 18 billion, but it took more than 30 years to do this..
It is impossible to predict when your stock will peak, so you have to accept market volatility and wait for natural growth.
7. Pros: The brand has a strong name.
A strong name is very important for the company. If one of your favorite companies has earned a reputation as an industry leader, it’s probably built on a solid business model. In addition, the loyalty that the brand has already established with customers provides additional development potential. This, in turn, makes investing more reliable..
For example, companies like Johnson & Johnson, McDonald’s and Procter & Gamble have such strong names that investing in them is a safe bet and almost risk-free operation.
8. Cons: Wrong price
When a favorite brand offers its products at a special discount, you may need to be in the forefront of customers. However, buying stocks at a reduced rate is not always reasonable..
Sometimes cheap promotions can really turn out to be a gift not to be missed. But, on the other hand, they can talk about the inhibited growth of the company. Similarly, expensive stocks seem to be the result of the brand’s confident work, but with them you can become a victim of revaluation and lose money.
Measure the true value of stocks by conducting your own research to understand the current price potential for future earnings.
9. Pros: Industry is growing
The decision to invest in a brand that appeals to you should also be based on the state of the industry to which it belongs. If the market is thriving and not saturated with competition, there is a high probability of high returns on investment.
For example, global sales of sportswear have grown by 61% since 2007. It is expected that sales in the industry will increase from $ 290 billion in 2017 to $ 355 billion in 2021. This means that companies in this area are very reliable..
According to The Motley Fool, one of these brands – Lululemon – received 21% share growth in 2017 amid a strong increase in earnings and profits..
Read: 9 fastest growing industries to invest in
10. Cons: You do not want to fully understand investment
Stock investing is very different from storing money in a bank. There are no guarantees in the stock market.
If you do not pursue the best rates, then you do not need to do anything while the money is in the account. You know exactly how many there will be at a certain moment.
But the same cannot be said for the stock market. A shift in the wrong direction can greatly shake or completely destroy your capital. Holding stocks of your favorite companies should not be unpleasant or time consuming, but it requires regular checking of the current state of affairs in order to avoid losses.
11. Pros: Correct timing
The moment to invest in a brand can be extremely important. If the business is growing rapidly, the stock price is likely to behave accordingly..
For example, when Amazon entered the New York Stock Exchange in May 1997, the initial stock price was $ 18. Nearly 21 years later – April 3, 2018 – Amazon shares closed above $ 1.392.
12. Cons: Investor status is important to you.
The right to boast in itself should not encourage investment in the most popular brands. Ownership of shares in a company is, of course, something to be proud of, but you should not do this to improve your social position.
Investing money is an opportunity to gain and lose real money. Therefore, the decision to invest should be made with emphasis on your needs or plans, for example, on the desire to increase your capital or expand the investment package, and not on the desire to impress your friends.
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What are some other potential drawbacks, besides the 12 reasons mentioned, that may arise when investing in a brand you love?
Some other potential drawbacks of investing in a brand you love include emotional bias, neglecting diversification, and potential financial losses. Emotional attachment may cloud judgment and prevent objective decision-making. Focusing solely on one brand can lead to overconcentration and increased risk, as diversification is crucial to mitigate volatility. Moreover, a brand’s performance may decline due to various factors, such as market changes or mismanagement, resulting in financial losses for investors. It is essential to consider these potential drawbacks before investing in a brand solely based on personal attachment.