Financial Focus: Invest in Businesses-Not Wall Street
Invest in Businesses-Not Wall Street
If you're an investor, you might be shaking your head in dismay after looking at your recent brokerage statements. In fact, you might even be thinking about giving up on Wall Street altogether. But before you do, consider the following story.
Two typical American children, Mary and Michael, begin their day with a hearty breakfast of oatmeal produced by Quaker Oats, a subsidiary of PepsiCo, based in Purchase, New York. At school, they work on a computer, using a Windows operating system produced by Microsoft, based in Redmond, Washington. Upon returning home, they do their homework under a lamp containing light bulbs produced by General Electric, headquartered in Fairfield, Connecticut. That night, their parents, pressed for time, take them to McDonald's, whose corporate office is in Oak Brook, Illinois, and the children eat Big Macs and drink Cokes, produced by Coca-Cola, based in Atlanta, Georgia. Before going to bed, Michael and Mary wash up with Ivory Soap, produced by Proctor & Gamble, based in Cincinnati, and are thrilled to learn their parents are going to take them to Walt Disney World, owned by The Walt Disney Company, which operates out of Burbank, California.
You get the picture. None of these businesses are on Wall Street - and when you invest in them, you're not investing in "Wall Street," which is really just a shorthand term for our system of trading stocks.
Unfortunately, many people seem to think they are actually investing in the system itself, rather than in individual businesses, so when they repeatedly hear that "it's been a wild day on Wall Street," they start believing that the very act of investing has become too risky for them.
But that's not the case. As you can tell by their products, the companies mentioned above are likely to be around for a long time - or at least until people stop using computers, washing their hands and eating hamburgers.
Does that mean that the stock prices of these types of companies will just keep climbing? Of course not. These businesses, like all businesses, will go through good and bad periods, and their stock prices will reflect these ups and downs. But here's the key point: Barring an unforeseen calamity of epic proportions, there will be always be businesses in which you can invest. And if you buy quality companies, and hold them for the long term, you're going to increase your chances for success.
So when you're considering your investment strategy, don't worry about today's turbulence on "Wall Street." Instead, look at tomorrow's prospects for the companies in which you're interested. Are their products competitive? Do they belong to an industry that is on the ascent or the decline? Do they have good management teams? Have they been consistently profitable over the years? By answering these and other key questions, you should be able to get a good sense of whether a stock is a good investment candidate.
By thinking more about the individual businesses in which you might invest, and less about "Wall Street," you can become a more focused investor. And, over the long term, that focus can pay off for you.
This article was written by Edward Jones for use by your local Edward Jones Financial Advisor.