The Irony of The Market

March 29, 2010  |  

by Kiara Ashanti

The stock market is not as intangible as many people think. It’s not only for professional investors or those with finance degrees or those who have the time to sift through and analyze the tens of thousands of stocks on the market. It’s actually something that everyone can easily play using his or her everyday observations. The irony of the market, as Charles V. Payne references, is that simple day-to-day choices that consumers make with their purchases can actually inform a basic investment strategy. As founder and CEO of the stock market research firm Wall Street Strategies, Payne is familiar with the more complex aspects of investing and stock picking but feels that general awareness is key to getting into the game. TAP caught up with the FOX business contributor  to discuss the irony of the market and other principles from his book, “Be Smart, Act Fast, Get Rich: Your Game Plan for Getting it Right in the Stock Market.”

TAP: In your book, you talked about the boom of Crocs and how it exemplifies how average Joes fail to use their day-to-day observations to make some great investments. What are some more recent examples of popular trends and companies that would’ve made great investments for the average consumer if they just paid attention to “the immediate world around them?

iPhone Users don't neccessarily invest in Apple stock

Deckers is a phenomenal success.  Google – how many people use them every single day, and never thought ‘I should purchase stock in this search engine company that I use four or five times a day.’  Apple-how many people are walking around with their second or third iPod and have an iPhone? Those are just every day, in our face, success stories.  So to me, it doesn’t make sense why someone would not at least investigate further and perhaps take a shot [at buying the stock].

TAP: So your view is that people should be investing in the companies behind the products they spend their money on.

It is just amazing to me.  I did a speech a few years ago and I asked the crowd how many of them had an iPod.  About three-quarters of them raised their hand. And then I said, ‘raise your hand if you own any Apple stock.’ And I think two people raised their hand.  It was really sad.  When the iPhone came out, it was $600 dollars. Wouldn’t it have been smarter to buy a $30 dollar cell phone, and take the $570 dollars to buy Apple stock?

TAP: Is your viewpoint mirror that of a trader or a long-term investor? For example, Crocs is great in terms of sales, but I’m not sure how long the business model would work. They have only one product.

Charles: A lot of companies start off with one product, but you do raise a good point.  What I tried to do in the book was give people ways to monitor whether or not to buy or hold a stock.  I’m not one of these people that believes you buy a stock and then put it away forever. I think that’s a horrible strategy. I blame the financial community for telling people that.  I think that’s why a lot of people got crushed in their 401(k)’s.  Sometimes it’s ok to go to cash, and sometimes it’s even okay to trade on the downside (shorting).

TAP:  Can you give me an example of what you mean?

Charles: The one example I give in the book is Starbucks.  Starbucks had same store sales that would go up every quarter about one percent or two percent.  They would just get better, and better, and better, and the stock was just rocking. Then there was a quarter where same store sales were nine percent, but the quarter before it was 11 percent. That’s a yellow flag.  It’s not time to bail, but certainly is time to say ‘that super growth is maybe slowing.’ Next quarter it got a little weaker, and sure enough the stock had peaked. The one thing I talk a lot about in the book is that the stock market is not about buying one stock and hoping it pops.  It’s a lifelong endeavor. It does involve some homework. Earnings reports are very important. Four times a year you want to see your portfolio is doing.  If it’s [the stock] not doing that great, it’s okay to take it off the table.

TAP: In chapter six, you talk about using charts.  For the average investor though, charting can be scary. Why does an investor need to learn and what’s the best way to go about doing so?

I say a picture is worth a thousand words. A chart illustrates so many things to a person.  It illustrates success and failures.  It illustrates management’s ability to run the company in a cohesive manner.  It shows underlying risk.  If you see a chart that is just up and down, up and down then you understand that stock might not be for you if you are faint of heart.  You don’t have to be a chartist.  You can just look at a chart and get a sense on how well a company is doing. What I try to do in the book is just go over a few techniques.  To your point of charts being intimidating, there are just a million and one ways of evaluating them.  I think people make it too complicated.

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