By now, you should have your brokerage account set up and your idea of the company who's stock you would like to own.
But how do you know if this stock is worth buying?
Loook at your company two ways: qualitatively and quantitatively. (Don't be scared of the numbers! Actually, don't think of them as numbers...think of them as dollars. Makes things much less intimidating somehow.) You probably already have the qualitative story down and there's more on the quantitative to come.
The Qualitative Story
Let's take my journey Michael Kors, for example. Michael Kors, the American fashion designer and famous face of Project Runway, took his company public in December 2011 in an initial public offering, or IPO. When a company "goes public," that means that its stock is now listed on a stock exchange (generally the New York Stock Exchange or Nasdaq) and the company received just about all of the proceeds from selling its stock on the IPO day. After that, the shares are traded among investors, but the company does not get any more money; only from the IPO does the company recieve funds.
Anyway, I was ecstatic beyond ecstatic when Michael Kors went public because that meant that I could own, not just a watch or a handbag designed by the wonderful MK, but an ACTUAL PIECE OF THE COMPANY. Owning stock means exactly that -- you own a portion of the company. Empowering!!!
Qualitative analysis: I knew that Michael Kors is very well respected in the fashion community. He creates trends, but is not a [laughably] trendy designer. His designs are typically composed of clean lines and classic silhouettes that flatter girly girls and menswear women alike. His label's reach goes far beyond the US, into Europe and Asia. He is arguably the next Ralph Lauren.
For me, this came through knowledge of the fashion industry and being in touch with my own preferences. I know how much my friends love MK, and how much I look forward to his fashion shows (especially fall. There's always something about fall fashion that just gets you). Basically, it was women's intuition, my gut. I believe that women have a special edge in investing because we have less tendency to get laser focused on the numbers and take the broader picture into view.
From this intuition, I knew that his company was worth more than $31 per share, where it was trading when I first looked into it in early February 2012. I mean, an MK watch is $250 at Macy's! It HAD to be worth more than $31 per share because after the company recieves its money from the IPO, investors are essentially trading the company's reputation. They may sell their shares because they feel the company has done (or not done) something it should have, or the buy shares because they believe that it's an amazing company doing amazing things (see ticker symbol AAPL for an example). The stock price can be a reflection of investors' anticipation of all the great things the company will do in the future, short- and long-term. But sometimes, the stock price hasn't caught up with company's reputation, which I felt was the case with Michael Kors.
Sidenote: Crocs is a great example of the importance of looking at the narrative/big picture. In 2007, Crocs traded at nearly $70/share, and I predicted that it would come crashing down. Why? Because Crocs are ugly. Every fashionista around the world (including Anna Wintour herself) cursed the person who started wearing them outside of a hospital. Suburbanites across the US found them comfortable, and Wall Street cleaned up. Luckily, fashion (and a global financial crisis) slapped everyone, and Crocs now trades at around $20/share. Still worth too much in my view, but meh.
I was sure that MK was a good buy in qualitative terms -- I just needed the numbers to back me up. Tune in to the next post for details!
No comments:
Post a Comment