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Act Like An Owner, Think Like A Consumer

When someone owns a quality business, they have to understand that its making money for them and selling real products or services to people or a business. Every share someone owns is a small piece of a real business, so it would be wise to think like a consumer. One has to look at the entire business as if they are buying the whole company. After all, why would you want to own a piece of a business if you wouldn’t want to own the whole thing?

You’re buying a piece of that company’s stores, factories, plants, distribution centers, goodwill, trademarks, products, services, reputation, history, and technology. I take this into account with every investment I make. If I don’t feel comfortable or understand how they make money and how I’ll receive rising dividends as long as I own them, then most likely I will just say no. It’s difficult to be excited about a stock’s depreciation when you don’t really know what you own.

Along the lines of thinking like a consumer I would rather make a bet on more people being alive in 20 years from now, consuming more products from companies like Coca-Cola (KO). I’d also feel comfortable betting that energy will continue to be in high demand as middle classes around the world come about, meaning companies like Chevron (CXV) should continue to profit and pay raising dividends. (Granted oil has been getting smacked the past 2 years!) I also think healthcare is a great area to be in, and businesses like Johnson & Johnson (JNJ) will continue to sell more products in this space.

While it’s not necessarily realistic to know and understand every little part of the business, you should have a basic idea on what they do and how they do it. Know what you own. Know why you own it. If you can’t explain it in a paragraph of what the company does, how it makes money, and why you think you’ll be collecting more money 10 years from now, then you may want to consider whether you should own the company at all!

In the end just act like an owner and think like a consumer. Look at what your fellow neighbor is doing and buying, when I look around someone is always wearing a pair of Nike (NKE) or the local starbucks (SBUX) is always packed. I’am almost certain that these two companies will be around in the next 10 years. If a business is profitable I expect to collect a portion of the profits as a shareholder because I own a part of the business. I don’t work for free either. Whether I’m working or my money is working there should be a paycheck waiting!

Full Disclosure: Long KO, CVX, and JNJ

Work Hard or Work Smart?

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6 thoughts on “Act Like An Owner, Think Like A Consumer

  1. DM,

    Right you are. All too often we slice these companies up into just sheer numbers. We need to remember that the ticker we are investing in is more than just their sheets. If we forget to do so, we could end up in a dying industry and ultimately investing in something that is doomed to fail from the start.

    Thanks for the article,
    Dividend Reaper

  2. DR,
    No problem and yes sometimes I tend to forget and have to remind myself. If all else fails go with what you know!

    Take care,

    DM

  3. I’m in the same boat as you. If I can’t understand why/how a company works and how they make money I won’t buy.

    However sometimes I do buy into companies like DPM and CVX because I think their great deals, but later realize I don’t know how they are run so I quickly sell. Luckily always for a profit so far. WTF though, I need to quit buying companies I don’t understand. lol

    PS. Chevron Corporation is CVX =)

  4. WS,

    Yes I completely understand! haha but learn about CVX and get back in but only if it drops by about $5-$10 from its current price.

    Good Luck,

    DM

  5. DM,
    I have a question regarding BBEP.
    They have a two stocks,regular,and preffered(BBEPP).
    I have a stock purchase in regular (BBEP),
    and price is going down for long time,and no dividend is paid.
    On other hand, BBEPP price is going up,and they have monthly divident payment??
    How is that works,how is that possible,same Company,one stock is diving down,with no dividents,and other stock is sky rocketing,with monthly payments for dividents?
    I am fairly new into stocks.Is anyone can explain to me whats is going on with that Company.Is it possible to regular stock goes to zero,and preffered stock to go to sky? What is going to gappen next? Any submerging of those two stocks?
    Thank You

  6. Edo,

    I also own the common shares of BBEP and hopefully with oil stabilizing they will make it out ok and won’t file for bankruptcy. Currently BBEPP is down -$0.83 and closed around $8, but preferred stocks are similar to bonds and the dividend(%) that is set for them remains the same for a duration of time and if the payments stop they are #1 on getting paid when possible. Think of it as a safer bet but you won’t get any upside when the company is doing great. Also look at it as the preferred gets top priority and the common stock gets 2nd(kind of like the stepchild of the family).

    I hope that helps and if you have any other questions just let me know and hopefully BBEP can pull though for the both of us.

    Good Luck,

    DM

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