Everyone who reads Casual Kitchen should own at least a couple of consumer products stocks.
Yep, you read that right. This blog--which relentlessly criticizes the consumer products industry, urges consumer to fight back against it, and tells readers
to drop their loyalty to brands at the slightest provocation--
is actually telling you to invest in the very industry we subvert.
Why? Because owning these stocks gives you an inside view of the perspective of these companies' owners and managers. It is
by far the most effective route to becoming an informed and empowered consumer.
Getting started
Obviously, this isn't an investment blog (thank heaven). But my 13-year career as a stockpicker on Wall Street gives me a perspective on the food industry that doesn't really exist elsewhere in the food blog world. And in today's post I'll share thoughts on how to get started finding a few good consumer products stocks that can help you not only make money, but get more value for your consumer spending. How? Well, just keep reading.
Uh, and let me also surreptitiously toss in a
huge caveat that you should not rely on this post or this site as a source of personalized investment advice.
Now, your first task is to find out which companies actually
sell the products you buy. In some cases it'll be obvious: Pepsi makes Pepsi, Coke makes Coke, Whole Foods is a publicly traded company, and so on. In those cases, just type the company name into
Google Finance, and whammo: there's your ticker symbol, stock price, chart and other assorted trivia about the company.
In other cases, however, it can take a bit of digging to find the company behind the product. For example, companies like Palmolive and P&G own hundreds of separate brands. And seemingly large companies (like Ben&Jerry's for example) can actually be
tiny divisions of huge food conglomerates (like Unilever Corp.). And so on. Ironically, this is one of the reasons so many consumers feel deeply powerless against "Big Food." It's easy to presume that consumers have no power over companies so huge that you can't even tell which products they make.
But that's a deeply flawed perspective. The thing is, the information you need is either right there in the fine print on the product's label, or easily obtainable via a quick internet search. And just knowing which companies make what products puts you in a far-above-average position of cognition about the consumer products industry. Hey, most consumers just wilt in the face of Big Food. You, however, are looking for
opportunity, and in just a few short minutes you can determine if a product you buy is owned by company you can invest in. In most cases it will be.
Okay. This is where the real work starts. Next, go to the company's website and download the PDFs of the company's past few annual reports. Look for a link to the investor relations page--everything you need should be there.
And when I say read, I mean really
read. Go through the whole report from beginning to end, including the footnotes, all the legal-sounding stuff, the disclaimers and risk factors, everything. Read it all.
(A side note: you'd be shocked how many investors, both amateur and professional, ignore this advice to their detriment.) I may have lost half of you already with these instructions, but believe me, after just an hour or two of careful reading, you'll have drastically increased your knowledge and context about the company and its prospects.
Better still, this one session of reading will make savvier and more informed than 99% of consumers. Don't worry if there are words or terminology you don't understand. With time and osmosis you'll get your mind around the language and the jargon.
Next, go listen to the last couple of management conference calls. This is where you can pick up some of the best forward-looking insights about the company and the broader industry in which it operates. These calls are sometimes unintendedly amusing (for example, I throw up in my mouth whenever some analyst says
"congratulations on a great quarter guys!"), but they give enormous insight on management's values, priorities and strategy. Again, you can usually find webcasts of the most recent calls on that company's investor relations page. Also, if you prefer reading transcripts (this is my preferred method because it's faster), there are free conference call transcripts available for most major stocks at
seekingalpha.com.
When it comes to selecting a stock to research, I usually tell people that it's a good idea to start by considering companies that make products you like. But keep in mind, that's just a starting point. It's not always true that great companies always have great stocks--or vice versa for that matter. And once you begin buying, start small and keep learning about the company, and look for opportunities to buy
more if the price goes lower.
Finally, be sure to enjoy the regular dividend checks you receive as a stockholder! Almost all consumer products companies, as well as many retail stocks, pay their shareholders generous dividends. Hey, nothing lessens the sting of paying for groceries, clothes or other consumer items than to know that in a small way you are technically paying yourself.
This total initial research process might take you anywhere from 2-4 hours, a small price to pay to learn much more about the companies you do business with nearly every day. And even if you don't end up actually buying a stock, the simple act of engaging in this process will make you more informed than almost all consumers.
To know your enemy, you must become your enemy
Which brings us to the second money-making aspect of this process. Face the facts: the consumer products industry claims a substantial percentage of our discretionary spending. And once you learn how profitable some of these companies are, you will have no choice but to rethink the value you receive from many of the products you buy.
An example: having a better understanding of
the consistently high profit margins of companies like Pepsi or Coca-Cola has helped me think much more objectively about the value of buying soda. It doesn't mean that buying soda (or for that matter, being a shareholder in a company that sells soda) is greedy or wrong, but
it has helped me decide to what extent I receive value as a soda consumer. This is exactly what I mean when I say owning consumer products stocks helps you become savvier and more informed.
Thus this is not only an effective wealth-building exercise. It's also a money-
saving exercise because the process of learning about a company teaches you much more about the inside of the industry than you'll ever learn from the standpoint of a pure consumer. You will save money by knowing more about what drives these businesses, and you will
earn money by collecting dividends (and possible capital gains) from those companies you feel are worthy of your investment dollars.
Double your power
Every long-term Casual Kitchen reader knows that my primary goal here is to empower consumers. After all, we are the ones who agree to pay our hard-earned money to buy the products on our store shelves--and unless and until we do this, no consumer products company can make a single penny of profit.
We complete the circle of consumption. And as a result, I believe we have far more power than we think.
In essence, being a stockholder enables you to double your power, because you can have an impact in two ways: 1) as a part-owner, and 2) as a savvier and better-informed consumer.
To all the hand-wringers
A final few words: I know that have a few straggler readers who
still subscribe to the ludicrously disempowering view that
companies are evil, so the next few sentences are dedicated to them. Companies are not monolithic. There exists a spectrum of good and evil, and various companies exist in various places
on that spectrum. Believe it or not, however, the more you learn about these companies, the more you'll learn that many companies are closer to the "good" side of the good and evil spectrum than they are to the "evil" side.
Further, there is an alternative to giving away your power.
Instead of pointlessly wringing your hands about Big Food and generalizing about how all companies are evil, you actually have the opportunity--with just a few hours of open-minded reading and listening--to understand which companies are evil and which are good. More importantly, you'll know better what to do about it.
Only then will you be a truly empowered consumer.
Readers, please share your thoughts!
A few final notes and disclaimers:
1) Please keep in mind that stocks--even boring consumer products stocks--can go down.
2) Also keep in mind that expecting a stock to go up the minute you buy it is an act of supreme narcissism.
3) Finally, please don't take this post as direct investment advice--after all, there's a reason why I left Wall Street. My point is simply to encourage you to research and invest in some of these stocks to become a savvier, more powerful and more effective consumer.
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recipe. This is, bar none, the best chocolate mousse recipe ever. Try it, and I guarantee you'll agree with me.
by Nicholas Taleb. This is a truly exceptional book about how we fail to understand large and unexpected risks. I first read it a few years ago, and read it again last year. It's somewhat arrogantly written, but it's also one of very few books that actually changed how I think about everything.