Apple, Stocks and Shares and the Insights of an Investment “Dummy”
How an investment "dummy" comes into being...
The concept and practice of investments, shares, equities, funds, etc., have all eluded me for pretty much all of my life. Learning about the different kinds of investments was a foreign language which I never cared to learn as it just seemed to be a bunch of confusing mumbo jumbo and secret codes that didn’t make any sense.
But, this wasn't entirely my fault.
It was more down to a rough introduction to stocks which came when I was about 12 years old.
One day, my very well-meaning father announced that he had purchased his own company stock for me as an investment in my future. Unfortunately, he gave me no introduction to the workings of the stock market or the array of companies, analysts and activities behind it. He was thinking that I didn't need to know any of this, given my young age.
In his mind, all I needed to know was just enough to understand the plusses and minuses that showed up next to the symbol when looking up that particular stock on the indices.
So, the extent of my knowledge was that a plus sign meant that the stock had gone up and increased in value and that the minus sign meant that it had gone down and decreased in value. Except for a short run, the particular stock which I “owned” was predominantly preceded by minuses.
Before my 14th birthday, my father’s company had been absorbed by another and the stock disappeared into oblivion. Good thing my future was not resting on that stock alone!
By singling out that particular stock for my benefit and bringing this to my attention, my father unintentionally taught me great deal about stocks with the overarching message being a very big one – avoid them! They are a financial black hole. From then on, the stock market was for other people, not for me.
My father’s company stock was the only one I knew about and the only one with which I had first-hand experience. It was, however, not the only stock he had purchased. Now as the consequence of an inheritance, I became, once again, a stock owner. And, without a clue as to what it all really means - beyond watching the plusses and minuses, that is.
Acutely aware of my experience from when I was 12 years old, I realized, that whether I wanted to or not, it would probably be of great benefit to learn the language of the investment trade in order to ensure that I do what I can to maximize the investments I have inherited and do my best to try to circumvent or minimize any losses.
It was a bit of a crash course to say the least. For people who are seasoned investors, my insights will more than likely be old hat, nothing new. But for those who are new to the stock market and investments, or are thinking about getting into some investments, especially with savings interest rates being so low at the moment, maybe the insights from the experiences of a fellow beginner will be of some help and provide some perspective as you delve into this process.
1. Develop an adaptive strategy - the importance of this cannot be underestimated!
Some people do not enjoy watching the daily activity of the market. This is understandable as the moment-by-moment fluctuations can be nerve-wracking. You want to pick good investments and then rest on your laurels for your wise choices as your money grows like a weed. If only this strategy were foolproof. Unfortunately, dramatic changes can happen rapidly and often without warning. So, watching is vital to your ability to develop an adaptive strategy and respond appropriately.
Surprisingly, one of the first things that I discovered about myself as an investor was the adrenalin rush I got from watching the daily activity, especially when my stocks are doing well. But, even when a stock is going down, there is often some kind of news that will tell you the reason for the downward trend. Knowing why your particular investment has lost money can help soften the blow – especially if you can see that it is likely due to a temporary setback or that the situation can be addressed.
Personally, I am finding it interesting how world events and things happening in the industry have a direct, and sometimes indirect, impact on the direction of the stock market. Sometimes things happen with the stock that cannot be traced to anything in the news or in the reports of the company. Watching your stocks lose money, without any indication as to why, can make you crazy. What do you do? Sell immediately or sit and wait for it to go back up? What if it doesn’t go back up? These are the questions that I think any beginner finds are the most intimidating.
However, the most fascinating and valuable lesson this week came from Apple. This was back during the release of the Windows Phone 7. I was expecting Apple stock would suffer a bit with that event. Instead, it rose to its highest ever level.
There is a long lesson and a short lesson here. The long lesson for getting to grips with the stock market is that there is a lot of reading to do, loads of terminology to master. Understanding the different kinds of investments and involved risks is paramount to making a success of it. Even with my investment guidebooks at hand, along with the other materials I have surrounded myself with, I fear, I still have a long way to go to really be comfortable with it. And, I understand now that being comfortable and developing an intuitive side to it is a key element to making it work for you.
2. Cultivate some intuition through research.
The short lesson, related to the above, was not really in any of the materials I have read, at least not yet. And the lesson is that, while it is possible for people to intuitively have a sense of which investments to make without knowing anything about the market, true intuition does not normally come out of nowhere. It seems to be that recessed knowledge which comes from reading and paying attention to what companies are doing, how their strategies and ethos work together being key. One of the biggest factors for a company to keep their stocks rising in the face of tough competition is the loyalty of their customers. Apple is a prime example.
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As someone new to investment, I was thinking what a dream it would be to find some of the most innovative market newcomers out there, who are just starting out and have something really amazing to offer. And, being new, they would not yet have the widespread market presence to make their stocks unaffordable. It would be fairly easy to get in at the ground level. But if nothing else, I have learned from Apple that while creatively approaching the market by meeting a need/niche is vital, it is not enough. There must be responsiveness to the market and flexibility towards the meeting the customer base that they serve.
Apple is a true innovator who has also mastered the art of responding to their customers. It appears that Apple allows the customers’ wants and needs to set the bar and it is the customers who drive Apple’s innovation. Meanwhile Apple’s competitors respond to Apple and their innovation appears to be driven by the need to be better than Apple.
Maybe one of the tricks is finding the true innovators and knowing how they differ from the companies who manufacture the “I can do that too” brands. It is equally important to find out who the innovator's customer base is and watching how they respond to them. What do customers have to say about them? That said, sometimes the manufacturers of the "I can do that too" brands can rise above the original innovators simply by more efficiently responding to what customers want. Important to watch out for that too.
Okay, this isn’t rocket science, I know. But, I think Apple may be a paradigm for what both the market and consumers are looking for in the post-recession generation – a return to good old-fashioned service ethics and values, doing the right things to promote customer loyalty.
3. Finally, eggs+one basket = asking for disappointment.
This was another harsh insight from my experience of investments when I was 12 years old. My father didn't tell me about any other investments he had, just the one stock that he designated for me. As far as I knew, all of the eggs for my future were in that single basket. He was being optimistic. Optimism is not a bad thing but it is critical to be too optimistic to the point of excluding other possible outcomes.
Certainly, he thought he was doing the best thing. But, I wonder what would have happened if he had leveraged that one investment against at least one or two other more stable ones so I could see the value of building a varied portfolio rather than counting on a lone winner. Also, as the stock in his company began to fall, it would have been a great lesson to see how those lost funds could be recouped by moving them to another, if not better performing, at least somewhat more promising investment.
At the end of lesson one, I am fairly certain that I will probably never be a stock market guru. I just hope I am able to gain enough information to kick start the intuition, to get a handle on it just enough to make a few smart decisions so that my money is working for me, instead of sitting flat or, worse, falling into that black hole.