Buy the company or the product? Consumers understand their favourite brands, so they should buy shares in the firm
We've all been guilty of being swayed by the hype that surrounds fashionable items. The iPhone X is a perfect example of that.
Unphased by the £1,000 price tag, fans pledged their money before the new phone even hit the shelves, while thousands camped outside Apple stores on the day of its release.
But let’s consider for a second that instead of buying the latest iPhone, you spent that money buying shares in the company instead.
We asked for figures from the Share Centre to show much better off you could be.
Apple of my i… Phone
Having recently been crowned the most valuable company in the world, Apple is a perfect example of how buying shares could work in your favour.
Say, rather than buying the first ever iPhone in 2007, you had purchased $500 of Apple shares instead. Today, those same shares would be worth more than $4,500 – nine times the original investment. And if that wasn’t enough, you would have also scooped up dividend income of $300 along the way too.
To put that in perspective: if you’d invested, you would now be able to buy three new iPhone with that money, and still have some change. (By comparison, the phone would have depreciated in value, and it’s likely you would need to buy about five new batteries to keep it running.)
Feeling Fever-ish
It’s not all about technology though.
Chief executive of the Share Centre, Richard Stone, points out that gin has been a real success story in recent times – and with that, so have mixers. Take Fever Tree, which has built a great brand and now has a huge fanbase.
Share Centre figures show that if you had spent £6.50 on a Fevertree share in January 2016, that would now be worth over £36 – nearly six times the original investment in just two and a half years.
“You could buy a lot more Fevertree mixers now with that investment than you could when you made the investment originally,” says Stone.
Game-changing
You could also see the hype around Pokemon Go as a reason to invest in one of its big stakeholders, Nintendo.
While the app itself is free to download, players can pay for in-app purchases to give them advantages in the game – 79p for 100 Pokecoins might sound like a bargain, but if millions of players are buying these non-existent assets, that’s a juicy income for Nintendo.
“In July 2016, Nintendo’s Pokemon Go became an overnight phenomenon,” says Rebecca O’Keeffe, head of investment at Interactive Investor, pointing out that over the course of that month, Nintendo’s share price more than doubled.
And if you’d remained invested until March this year, you’d have benefited from the share price almost tripling in just two years – which is way better than buying virtual money. As Stone points out: “Buying shares in the company rather than buying the product itself may seem less exciting in the short term, but it can reap real benefits in the longer term.”
Spot the winner
With all that said, choosing a company that is going to outperform isn’t always easy – or we’d all be successful fund managers.
And yet O’Keeffe reckons consumers have more information in our hands than we might realise. “The reality is that if you, your family, or friends are all talking about a specific product, then don’t discount the idea that this may be a potential buying opportunity for the underlying shares – as long as you’re getting in at an early enough stage,” she says. “However, if you’re late to the party and everyone is already talking about it extensively – for example Bitcoin in late 2017 – it may be best to avoid.”
In fact, you could even argue that consumers have a head-start.
Stone agrees, saying that if your “must-have” product is regularly sold out, then the company behind that product is probably doing well – which is something you as consumers know before the company has even told the markets (particularly when you consider that there is a lag when publishing official reports).
Common denominator
But trying to predict which companies will be the winners doesn’t have to be limited to the ones selling the finished goods.
If you want to dig a little deeper, you could look at components that are the common denominator of many popular brands. For example, Stone points out that – rather than choosing a specific brand of phone – you could have invested in ARM, the company that made the chips inside most mobile devices. Before the company was acquired in 2016, the company’s share price increased eight-fold in a decade.
“These examples all demonstrate how the information personal investors gain as consumers, if applied to their investing, can deliver significant returns,” says Stone. “The challenge is having the willpower to delay purchasing the latest fashionable item, and instead investing in the company, and at some future date enjoying the rewards that can bring.”
So if you’re buying the newest phone or designer bag, use your understanding of what is making a product popular to make yourself money in the process.