Almost twenty years ago I had the fortunate pleasure of
getting to know one of my college business professors. He was a great man and when it came to buying
equities he had one simple philosophy that he passed on to me. That philosophy was to buy what you know and
buy what you use. If you don’t use the
product, then don’t buy the stock. It
sounded simple enough, and at times I thought it was a bit too simple.
I thought it would be interesting to test his philosophy with
a backtest on my life. I thought hard
about what products I use or consume on a daily basis. I then looked back five years to look at each
company’s stocks performance during that period of time. The five year period I examined ended on May
2, 2012. Here is the list of companies I
came up with that I use on a daily basis, and each companies trailing five year
total return.
Colgate-Palmolive (CL) – I brush my teeth with Colgate
toothpaste and use Speed Stick deodorant every single day.
Procter & Gamble (PG) – I shave my face and head with
Gillette razors nearly every single day.
Chrysler – I have driven nothing but Jeep’s my entire adult
life.
Time Warner (TWC) – While I can honestly say I do not watch
the same stations every single day, but for a couple, I do have the television
on every single day and my provider is Time Warner.
Walt Disney Co. (DIS) – The one station I watch every day is
ESPN.
Netfilx (NFLX) – I have been a subscriber to Netflix since its
inception, ie. Before Streaming.
Sony (SNE) - I watch
my Sony television every day. I also stream
media via my Sony PS3, and play a sports video game almost every day.
EA Sports (EA) – The only video games I play on my PS3 are EA
Sports games.
Dell Computer (DELL) – I use my Dell laptop every day.
Microsoft (MSFT) – I use Microsoft software on my computer
every day.
Apple (AAPL) – Forget the iphone, which I love and use every
day now, but 5 years ago I also used my ipod every day when I exercised or
drove in my car.
Google (GOOG) – I use the Google search engine almost every
day.
Verizon (VZ) – Verizon has been my mobile service provider
for over a decade.
Monster (MNST) – I do not eat breakfast, but I do drink a
Monster energy drink every morning. Five
years ago I drank the “Lo-Carb” version and today I drink the “Absolute Zero”. Sorry Starbucks but I do not drink coffee.
Whirlpool (WHR) – I have used my microwave and stove (Both
Whirlpool products) on a daily basis the last five years.
Morningstar (MORN) – The only website I visit on a daily
basis for my work is Morningstar.
Charles Schwab (SCHW) – Where I have done my banking for
over five years.
General Electric (GE) – Every light bulb in my house is made
by GE. For many years GE was the parent
company of CNBC which I also watch on a daily basis.
JPMorgan Chase (JPM) – The bank that holds my mortgage.
Metlife (MET) – I wake up each morning with my life insured
by Metlife.
Nike (NKE) – I exercise almost every day and I always where
my Nike’s.
Energy (XLE) – We all use energy every single day. I never stop at one specific gasoline
provider so I thought looking at an energy ETF would be a good representation
of my daily use.
| Company | Symbol | Invested | 5 Yrs Later |
| Colgate-Palmolive | CL | $10,000 | $16,810.85 |
| Procter & Gamble | PG | $10,000 | $11,918.15 |
| Clorox | CLX | $10,000 | $17,757.26 |
| Chrysler | $10,000 | $0 | |
| Time Warner | TWC | $10,000 | $19,289.25 |
| Walt Disney Co. | DIS | $10,000 | $13,266.24 |
| Netflix | NFLX | $10,000 | $36,890.98 |
| Sony | SNE | $10,000 | $3,004.43 |
| EA Sports | EA | $10,000 | $3,095.98 |
| Dell | DELL | $10,000 | $6,281.55 |
| Apple | AAPL | $10,000 | $58,364.54 |
| Microsoft | MSFT | $10,000 | $11,402.59 |
| GOOG | $10,000 | $12,832.24 | |
| Verizon | VZ | $10,000 | $13,942.41 |
| Monster | MNST | $10,000 | $36,929.28 |
| Whirlpool | WHR | $10,000 | $6,608.25 |
| Morningstar | MORN | $10,000 | $11,180.18 |
| Charles Schwab | SCHW | $10,000 | $7,927.86 |
| General Electric | GE | $10,000 | $6,435.52 |
| JPMorgan Chase | JPM | $10,000 | $9,127.33 |
| Metlife | MET | $10,000 | $5,780.98 |
| Nike | NKE | $10,000 | $23,192.85 |
| Energy | XLE | $10,000 | $11,852.02 |
| Total | $230,000 | 343,890.74 |
If you’ll notice I only took a look at companies whose
products I use on an everyday basis. Yes
an investment in McDonald’s (MCD) would have been fantastic, but I do not eat
at McDonalds on a regular basis. I also enjoy Coca-Cola and
Pepsi products, but also not on a daily basis.
I did not take into consideration my food consumption. I shop at the local Wegmans grocery store,
which is not publicly traded, and I tend to buy fresh produce and meats, which
are locally produced.
Again this was just a fun look back at my daily consumption
habits and how taking my professor’s advice would have done for me. As you can see by the numbers I would have
done quite well. An equal investment
made into all of the companies I used on a daily basis prior to and including
the last five years would have grown by 49.50% over that period of time. The S&P 500 was up 4.02% for the same
period of time.
Thank you and good luck everyone!
Jon R. Orcutt, founder
of Allocation For Life, is an asset allocation strategist and author of “Master
the Markets with Mutual Funds: A Common Sense Guide To Investing Success”
www.allocationforlife.com
