In 2002, I was working in the accounting department for a subsidiary of a publicly held company. As part of our annual compensation package, employees were granted stock options based on company performance. When business turned south, I was let go as part of a downsizing. The terms of the options required me to sell them at termination or lose the value. This left me with a decision: what should I do to invest these funds?
At this time my wife and I had a four year old. I began to think about where our money had been going the last three years: diapers and wipes, toys, milk, juice, and fast food (mostly McDonald’s). With this information in hand I began to think about how these areas we were familiar with could help lead to a solid investment.
* What companies are involved? The products we were spending on led to several publicly held companies. Johnson & Johnson , Mattel , Tyson , and McDonald’s jumped out quickly as potential investments.
* What is your strategy? While I have some financial knowledge, I did not have time to do proper research on a regular basis. My strategy was to find a solid stock to buy and hold, preferably with a good dividend payment. My candidates all met these qualifications.
* What are the valuations? At the time of my purchase, one of the four candidates seemed to be undervalued. McDonald’s had seen slumping sales, negative publicity from health groups, and some changes in their management team. At around $20 per share, some analysts said it was undervalued.
* Final Decision. Ultimately, I made my purchase decision in the drive-thru line at my local McDonald’s. As I handed over my card, I thought to myself “I would sure feel better about this if I owned a piece of the company”. That led me to pull the trigger and purchase the stock at just over $21 per share.
Long story short, today (04/07/2013), McDonald’s trades at $101.42 per share. Innovations such as salads, smoothies, and healthier Happy Meal options were brought by the new management. Overseas sales also became more significant, and today I have seen my investment increase five fold. By reinvesting my dividends I have also increased the number of shares held over time.
Every story does not end like mine. As the brokerage houses say, your investment can lose value. Since this purchase we have made other modest purchases using this same rationale. None have gone up as much as this one, but have at least broken even in every case but one. But buying shares of companies we use is a fun way to teach our children about investing and to feel good about our purchases.