I recently made two additional stock purchases for the month of September. I’ll be going over these securities in subsequent posts. Needless to say, I found these two companies to be undervalued and unfairly punished by the market. I want to discuss this issue, where Wall Street punishes particular stocks for bad news, poor earnings numbers, and the like. Most investors tend to get scared and immediately sell. This perpetuates as computer algorithms kick in, pushing stocks even lower. In many cases, these price declines are not justified. Rather than reviewing fundamentals panic because all they see are numbers and words on a screen. With that in mind, I want to bring up one technique I use to alter my behavior and keep calm.
For example, many of you live in a home you purchased. You might have a mortgage, but in all likelihood you have some equity built up. Essentially you are invested in a property, a piece of real estate. In essence you took risk to buy that property not knowing if the price will fall in the coming months. But what else do you get from a home? Well, you can customize it, repaint, add furnishings, have family gatherings, throw parties, and build memories. You spend most of your time here and it is ingrained in your daily life. It hopefully creates a lot of value. Because it’s part of your life you rarely think about the price of your home! I found building similar connections with companies helps to abolish investing fear.
My largest position is P&G and it now accounts for about 8% of my portfolio. However, I’ve found the company, surprisingly, accounts for 8% or more of my daily activities as well. For instance, I wake up and brush my teeth with Crest toothpaste. I then shower with Head & Shoulders shampoo and Old Spice body wash. Sometimes I need to shave with my Gillette razors and cream. When I get home from work, I need to do the laundry with Tide pods, perhaps wash dishes with Dawn, and clean the counters with Bounty towels. I see the value created firsthand by my largest holding (P&G). After all, generic brands never match up. Furthermore, these rather mundane activities become more enjoyable when you are using your own products!
Now of course I can’t do this for every company. I can’t build a relationship with Phillip Morris as I never have and never will smoke! However, I try to engage with my own companies and brands whenever possible. This provides a similar effect to that of living in a house. I care less about price fluctuations if I’m able to actively witness the value being created by my company. When the numbers and fundamentals line up, the picture is even clearer. The market has become increasingly volatile and fear is everywhere. So I challenge you. Next time you buy a company, try to forge a connection with the products or services they offer. You’ll likely feel safer in the process. Remember, if you see the value the company creates, others will too!
DISCLAIMER: I am long on PG. I am not a licensed investment adviser or tax professional. I am not liable for any losses incurred by any parties. This blog should be viewed for entertainment and/or educational purposes only. Any transactions published are not recommendations to buy or sell any securities. Please consult with an investment professional before making investment decisions.