A Journey of Investing in Company Stocks – From Childhood to Adulthood

————————————————————————————————————————
Welcome to My Personal Finance Journey! If you are new here, please read the “About” or “First-Time Visitor” pages to find out more about us. If you would like to receive free updates on articles like this by email, then sign up here or you can subscribe to the RSS feed. Also, check us out on Twitter or Facebook. Thanks for visiting! Keep on learning!
————————————————————————————————————————

The following is a guest post from Jon Taylor. Jon and I have been friends since elementary school, and it’s truly an honor to have him do a post for my site! Enjoy.

A Journey of Investing in Company Stocks – From Childhood to Adulthood

Well recently, my childhood friend, Jacob, reached out to me and asked if I could write a guest article on his financial blog. He asked me to discuss my experiences as a company stock owner and specifically my role with owning Apple stock. Especially with the recent departure of Steve Jobs, I felt such an article would be appropriate.

How I Got Started Investing in Stocks

Getting into stocks really came to me by accident. While I was young, I was privileged to have my grandparents purchase some Wal-Mart company stock for me. Since I was too young to be interested in stocks, it was a non issue, and I never paid any attention to it.

My Experiences Investing in Apple

It wasn’t until 2005, my first year of college, that I started getting back into stocks. Due to my job being an Apple Specialist, I was always familiar with Apple’s products and how well they were doing as a company. For nothing other than an emotional attachment to the company, I had decided I wanted to purchase some Apple stock.

After looking at my Wal-Mart history it was evident that the stock had only devalued since it was given to me when I was young. I decided to cut my losses, sell all my Wal-Mart stock and put it towards Apple.

At this time, I started getting more into stocks and testing the waters about what other gems might be out there. Unfortunately, there was no industry that I understood better than Apple’s so any new stock purchases were a gamble for me. I invested in companies like Starbucks, Heely’s, Divx, which all proved to be losers in my portfolio. There’s a quote in the stock world, “invest in what you know” and I had decided it was time to do that.

Apple was riding the success of the iPod and a booming Mac business when I decided to stop buying any other stocks and stick to Apple. Investing in a company that I had full faith in allowed my conscience to be at ease and not feel like I’m gambling with companies.

Apple’s Stock Takes Off

Two years later it was 2007 and Apple had risen 280% and I finally made my second buy in. While Wall St. was clamoring that Apple is over valued and it can’t possibly go any higher, I was fully confident with my buy in. Knowing that Apple had a new product in the pipeline, the iPhone, it was a no brainer that Apple would continue its success. I knew that when Apple enters a new market, they do it because they can do it better than existing competition. With the successful launch of the iPhone later that year, I ended up buying back two more times over the passing year.

It wasn’t until 2009 that I decided to take my first profits off the table. My current investment was up 435% and I sold off about 19%. My stock broker always cringed at my lack of diversification but the results couldn’t be ignored. I had stuck to what I knew and it treated me well. With all my buy ins and sales thus far, my Apple stock currently stands at a 280% overall return.

The iPad has proven to be one of their best creations. With being in the sales industry, I have never seen a product that has produced as many smiles amongst all walks of life then the iPad. It has truly become a game changer in the electronics world and people who disagree with that just aren’t paying attention. While Apple does have good competition from Android in the phone industry, I don’t think anyone will come close to Apple in the tablet market. I predict the iPad will be much like the iPod market in which Apple dominated. Even with the stock floating around $400 I still feel it’s a good buy. While people might think it is too high, it will continue to go higher and iPhone, iPad and Mac sales are all on the rise and out performing their peers.

How Will Apple Do Without Steve Jobs?

As for Apple currently, I think they will be just fine. Tim Cook (the new CEO) has had a very significant role in Apple’s recent success, especially since Job has been ill. Tim has helped Apple secure high profit margins and has streamlined logistics. Steve Jobs is wise enough to have surrounded himself with excellent people whom his vision has been instilled. As Jon Gruber said, Jobs best creation was not Apple’s products, but Apple itself. Companies road maps are usually five years out and Apple will continue its success with Cook at the helm.

Unfortunately it is impossible to replace someone like Steve Jobs. It’s sad to think of Apple without him but it’s hard to ignore. While Steve is chairman of the board, things won’t change too much. Either way we will all have to sit back and see how Apple performs with the new CEO.

Jacob, it’s been great to talk with you and thanks for having me for this discussion. If you have any questions let me know, and I can answer them in the comments section.

How about you all? How do you feel Apple will fair without Steve Jobs at the helm? What age did you start investing in stocks? Do you feel that your parents (or grandparents) gave you a good financial head start to life? 


Share your experiences by commenting below!

Jacob’s Thoughts – Listed below are my random thoughts as I was reading this article.


First off, I just want to say “thanks” to Jon for sharing his experiences with us! Very interesting stuff!

  • @ Giving your children (or grandchildren) a financial head start in life by purchasing shares of stock for them –
    • As I’ve mentioned before in several posts, there are many things parents can do to give their children a financial head start in life
    • One of my favorite ways that I’ve discussed in these past posts is for parents to buy a single share of stock for their children in a company in which they would likely be interested. For example, a parent could buy a share of stock in a company such as Disney, Mattel, or even Kellogg (for their favorite cereal; who doesn’t love Fruit Loops, after all!?). Parents can then use this share of stock as a way to capture their childrens’ interest and teach them about financial skills and concepts.
    • In Jon’s case, his grandparents bought him a share of Wal-Mart stock. While this might not have been the best choice to “attract” Jon’s interest as a young child, it probably was chosen because Wal-Mart is a very strong company, and they were hoping it would make him some money by the time he was an adult.
    • While this is a great thing to do, I would propose that as a child, it is probably more important to begin to learn financial skills than to simply have money accumulated for them once they are older. For this reason, I suggest that parents buy company stocks that children would have an interest in learning about finances with, in addition (or prior) to simply saving money for them to use later in life.
    • One quick question for Jon before I get on to my other comments – What age did your grandparents purchase the first share of Wal-Mart stock? I’d be interested in hearing your thoughts about if you think they should have waited or bought the share of stock sooner?
  • @ Investing in individual companies you know vs. investing in a passive investing portfolio of index mutual funds – 
    • As I was reading this article, I began to think about a possible issue/question that could arise.
    • On one hand, there’s no denying that some individuals, such as Jon here, have had great success in investing in individual stocks of companies with which they are very familiar. 
    • So, this might beg the question – should everyone simply invest in individual stocks of companies they are intimately familiar with? 
    • While there probably would be much debate as to how this question should be answered, given what I have experienced thus far in investing, I would say that the answer is, “no.”
    • There are several reasons that I answer in this way. 
      • First, I believe that stellar performances such as the one Jon experienced here are exceptions, not the rule/norm. What I mean by this is that for every single experience such as the one Jon detailed here, there are likely hundreds (maybe even thousands) of losses in equal magnitude experienced by other individual investors in other stocks.
      • Second, I feel that the majority of people should not invest only in individual company stocks because they lack the self-discipline to resist selling in times when the financial media claims the stock is highly overvalued.
      • Third, I would argue that even if person knows a company inside and out and is aware of the superiority of the products in the pipeline, the company’s long term stock performance can still suffer from factors that are somewhat outside your realm of knowledge. For example, the industry I am most familiar with is the biotech/pharmaceutical industry, having worked in it for several years now. However, I would not invest only in individual companies in this industry because even if I knew that a company had a great pipeline of drugs, a lawsuit on a product’s safety profile or unfavorable FDA inspection could result in instant devaluation of the company’s stock and could last for many years.
      • Fourth, in the finance books I have read over the past 5 years or so, multiple studies have indicated that the occurrence of active management (so employing an investing strategy of buying/selling individual stocks) outperforming the market indices decreases drastically over the long term (20 years or more). What this means is that while it might be possible for someone to outperform the market by selecting individual stocks over a 5-6 year period, the odds become increasingly less favorable for creating a long-term investing strategy for retirement using this method.
    • Because of these factors, I simply don’t believe normal individuals should invest significant amounts of money in individual stocks. Instead, I prefer to employ a passive investing strategy using low-cost index mutual funds to maintain a target asset allocation.
    • However, I think that it is perfectly acceptable to invest what I call “play money” in individual stocks (or an amount that you are OK with losing and are not dependent on for retirement).
  • @ How Apple Will Do Without Steve Jobs –
    • It’s truly amazing to look at Apple’s (Nasdaq symbol – AAPL) stock performance over the past 6 years or so. According to Google Finance, since 2005, the stock has risen 971%! Pretty amazing if you ask me! 
    • Personally, I am not sure how Apple will do without Steve Jobs. 
    • Part of my uncertainty lies in that I don’t know if Steve was the “vision” that was responsible for all of the new products that came out.
    • I feel that if he was merely the one that created the Apple organization and culture of innovation, the company will do just fine. However, if Steve was directed tied to the invention of the iPod, iPad, iTouch, iPhone, etc., Apple’s future success will be greatly hindered since it has depended on new products coming out in order to fuel its rapid growth.

***Photo courtesy of http://www.flickr.com/photos/davidgsteadman/3197461036/sizes/l/in/photostream/

Comments

  1. Apple's transition from underdog to richest company in the world (for a time it surpassed Exxon Mobil) is truly astounding. I think their success is largely about timing. Technology like the touch screen existed years before the iPhone, but Apple spotted when the market was ripe for it and released a product that incorporated it beautifully.

    While I have reservations about Apple's walled garden approach to their products (I prefer to curate my own experience), I respect Apple's progress as a company.

  2. Jacob,

    From looking at records it looks like my Wal-Mart stock was purchased in 2000. We had the luck of buying a stock at its peak and it never went higher after I owned it. It was a great dividend stock and was a company that wasn't going out of business anytime soon but just really lacked the growth of other stocks.

    I'm not sure if they should have done it sooner or later. My grandpa always wanted me to pick out a good stock and learn to make money. About the time I purchased Apple I really started following the stock market. I started watching Jim Cramer more (whom I don't pay any attention to anymore) and I started reading daily stock sites like SeekingAlpha.com (great site).

    I definitely consider my success a unique situation and wouldn't necessarily recommend my strategy. I made an emotional choice with a company I love and it rewarded me beyond my expectations. With all emotions aside though, Apple is firing on all cylinders these days and are making products that the world loves. It's hard for me to invest in any other company when I see how successful Apple is.

    Holding onto Apple might bite me sooner than later but I am confident Apple has much room for growth and I feel safe with my current investment. I am never afraid to sell the stock so when the time is right I will do what is necessary.

    I have been toying with the idea of investing a bit more more, mainly recapturing those shares I parted with in 2009. The stock is around $400 and I think Apple will be pushing $500 by Christmas next year. Apple's growth in China is enough to get excited about.

    The iPhone 5 will more than likely be out next month and I feel it will be the most significant product release to date. They are looking at adding additional US carriers as well as China's largest telecom company, which is also the world's largest.

    Great things are ahead for Apple and it will be fun to see how they continue to outperform their peers in this recession market.

    If you have any other questions Jacob or your readers then don't hesitate to ask.

    • Thanks for sharing your story and insight Jon. Seekingalpha is a great site. It's one of the first ones I started following way back when as well.
      My recent post Was The “Lost Decade” Really Lost For Investors?

  3. Apple will do fine without Steve Jobs! I think he will still be involved, although not on a daily basis.
    My recent post Things You Need to Know To Attain Financial Freedom

  4. He is still Chairman of the Board and will be involved in strategic decisions. How Apple does after his passing will be the true testament but we'll see.

    I think they will do fine with and without him in the future.

  5. Simply Investing says:

    Great post!
    I started investing in stocks when I was 26, I wish I started sooner. I've stuck with blue-chip dividend paying stocks, especially stocks with a history of dividend increases.

    Apple's rise has been incredible, but I don't know where it will go from here. Just like Warren Buffett I don't invest in high technology companies, and this has worked out just fine for me.

    • Do you still invest in individual stocks? Ever considered index mutual funds? That's the investing medium I'm partial too.
      My recent post Was The “Lost Decade” Really Lost For Investors?

  6. Nice guest post! Well done by Jon, and nice follow-up comments by Jacob.

    As for Apple – it just seems like it's hard to be in a better position than they have been in. They should be fine, I would think, for the short term. Over the long term, that remains to be seen. I'm curious how they will handle innovation under their new leadership. We'll have to see. I know that they struggled following Jobs' initial departure from the company many years ago, though it was just that – many years ago:)
    My recent post Katy Perry and Personal Finance: Maxing Out Those Credit Cards

  7. Great perspective. I am not a huge Apple fan, but they are growing on me. I definitely wouldn't mind stock in them. However, we'll see how the stock goes now that Steve is gone.
    My recent post Yakezie Roundup #9

Speak Your Mind

*

CommentLuv badge