I’ve heard it a million times: “Individual investors can’t beat the market, so they shouldn’t even bother trying.” Or, “The stock market is too risky.” Or my personal favorite, straight from the comments section of a recent Wall Street Journal article on how to teach your children about investing: “[S]tay out of the stock market it is rigged against you.”
It can be different
While I do get that there’s trepidation on the part of many who have been burned by the market before, it doesn’t have to be that way. In fact, I’m teaching my 8- and 7-year-old daughters how to invest, and they’re getting a big kick out of it. They’ve been investing for over a year now, and as it stands they’re beating the market by more than 5.5 percentage points! Forget investing wisely; I’m talking about investing Foolishly.
Of course, I play a role in helping my girls choose what stocks they want to buy. But they make the final call. We talk about the various companies that play roles in our lives and we consider the ones that they would feel good about owning essentially indefinitely. I give them a list of four finalists based on conversations we have together and they come to an agreement and make the pick. Then we buy. And then we get on with life.
Oh, to be young again
The beauty of starting them at this age is that their interest and knowledge is in fact limited, which means they’re never incessantly twiddling their thumbs over an earnings miss or why same-store sales are down. They don’t care! They just think it’s cool that they’re part-owners of these businesses that play a part in our everyday lives. Take a look at their portfolio holdings and it starts to make sense:
- Management reported that Apple Inc. (NASDAQ:AAPL)‘s gross margin was down almost 600 basis points from the same quarter last year. They also reported the strongest June quarter revenue ever in the company’s history.
- Scale is starting to really pay off for the king of coffee. For the most recent quarter, Starbucks Corporation (NASDAQ:SBUX) reported a record operating margin of 16.4%, which resulted in record operating income of $615 million.
- The Lone Ranger was a flop. With a budget of around $250 million, it’s only brought in $86 million to date. But The Walt Disney Company (NYSE:DIS)‘s movie segment only accounts for a little more than 7% of annual operating income; I think Disney will survive.
- NIKE, Inc. (NYSE:NKE) just reached $10 billion in annual North American sales for the first time ever. Even more impressive, it’s closing in on the $4 billion mark in emerging markets. Nike is ubiquitous with sports all around the world, plain and simple.
- Under Armour Inc (NYSE:UA) is still a small company when compared to the Swoosh, but it’s growing like gangbusters. In fact, this most recent quarter marked the 15th consecutive quarter in which apparel grew at least 20%, and the 13th straight in which total revenue grew better than 20%.
It’s all about perspective
Of all the great investing advice I’ve gotten in my life, it all comes back to this: If you want to be an investor and truly maximize your chances of growing your wealth significantly over time, then you need to see yourself as a part-owner of the business(es) in which you are investing and proceed accordingly. You need to be thinking about the future. Not next week or next quarter. I’m talking years. It’s not perfect by any means, but investing with this mentality can yield some impressive results. Consider how all five of these companies have fared over the last seven years in relation to the S&P 500: