Duncan Greive shares his three philosophies on buying shares in global giants for people who are curious but terrified about investing.
Like any perfectly normal twenty-something, I started investing in sharemarkets after reading a Warren Buffett biography. I came across The Making of an American Capitalist in a second-hand bookstore. It’s a well-regarded account of the legendary investor, though, despite running nearly 500 pages, is generally considered more glib than Alice Schroeder’s definitive The Snowball (832 pages). But as someone finishing uni, both fascinated and intimidated by the world of money, it was more than enough – I was enthralled by the story of a kid from Omaha who seemed to understand investing in a completely different level and on a different timeline, to all the financiers of Wall Street.
I remember feeling like a door was opening up to me, like this forbidden world was somehow accessible now. So much of finance and investing feels designed to keep regular people out, almost to the point that it can seem deliberate. The acronyms and indexes and huge numbers rising and falling and seemingly arbitrary commodity prices updated. It’s not intentional, of course – like almost all jargon, it serves as purposeful shorthand to speed up the flow of information between the initiated.
So you need a way in. Mine was reading that Buffett biography. As with many titans of finance, he started very young – drawn to the numbers, he studied them the way his peers did baseball statistics. He first bought shares as an 11-year-old. Now he’s one of the world’s wealthiest men, an icon of modern capitalism. His annual letters studied like biblical texts, and his idiosyncrasies – he has an ordinary house and largely subsists on hamburgers and cans of Coke – have made him a living American myth.
The fascination for me came from the fact he started so young. It implied that investing is not, in fact, a mysterious art that only the most learned professionals should ever approach, but something a literal child could do. I found that liberating.
I still find myself reflexively resisting the sentiment that investing is the preserve of a privileged elite. For starters, professionals are wrong as often as amateurs, sometimes catastrophically so, and with far larger dollar figures attached. And at various times it has been a mass hobby – something everyday people paid attention to, buying stocks and keeping the certificates in sock drawers, and gradually attaining significant wealth in the process.
Buffett himself advocates for people to invest in index funds, rather than trying to pick stocks, which remains the most prudent way to manage the majority of your savings. Yet there is nothing like investing in individual stocks to sharpen your mind and learn, through participation, about the nature of markets.
This is something that fell from favour here after the astounding 1987 crash, which hit harder in New Zealand than anywhere, and led to our obsession with investment property, a distortion which has played its part in our wildly expensive housing stock. Yet, unlike residential property, which requires enormous amounts for even the smallest property, shares can be approached with relatively small sums, making them a much more democratic investment class.
Ultimately a share is a product like any other. It just happens that this product is a microscopic part of a business. Except that unlike almost all other consumer goods, which we buy and immediately lose vast chunks of their value, this one has the potential to provide income and appreciate over time.
I have bought and sold shares since reading Lowenstein’s book in my early 20s. Almost always the smallest portion you could buy (around $500), and never with any hugely complex holding. I have done fine, without ever getting close to personally proving Piketty’s thesis that returns to capital outperform returns to labour. But I found it intensely stimulating – a way of looking at the world and thinking about how it was evolving.
Until recently I only ever invested in the New Zealand market. Which was fine, but a little boring. Ours is dominated by utilities, like electricity companies, which are solid investments but don’t really set your pulse racing faster.
Then Hatch came along, not only allowing New Zealanders to invest in the US sharemarket, but letting us invest at whatever level we felt comfortable. I was one of the first through the door, and I‘ve never left.
I wanted to share the three general principles I have in mind when I invest. Seasoned professionals probably find them laughably simple, but to me that’s the point – it can be as simple or as complex as you like. And even if you (sensibly) have the majority of your savings well-tended to in a Kiwisaver, managed or index fund, it’s OK to keep a little bit to exercise your mind. Even if it’s only $100 – which it really can be with Hatch – the sense of being able to follow your own instincts is liberating.
So here are my three principles for making your first investment. They’re my own, and able to be ignored by everyone. But if you’ve felt the fear, and wanted to do it anyway, I’ve found them really simple and functional ways to help take your first plunge.
1) What do you do?
By this I mean: monitor your own consumption. Do you watch Netflix? Wear Lululemon?
Order Uber Eats? So do a lot of other people. Over the past five years, the value of Netflix and Lululemon have each risen more than 500%. Uber – I’ll get to that later.
Your own habits are likely not wildly different from millions of your peers. When you change the way you consume something, or discover a product you love, you’re having a tiny but potentially instructive impact on the fortunes of a business. If you intend to buy and hold shares in a company – and trading in and out in short time spans really should be left to the pros – then picking something you yourself use is a good way to deploy your own consumption as a way of figuring out which companies are likely to outperform their competitors.
2) Buy the world you want to see
It’s easy to be cynical about large corporations running values-based campaigns. When AIG creates diversity-themed All Blacks ads, is it because the giant insurer is genuinely gripped by concern for LGBTQI+ rights? Or just cashing in on a larger social movement?
Yet where the company’s values are baked into its product and proposition, that feels less seasonal and more structural. And the sense that shareholder value (aka profits) shouldn’t be the only thing which drives a business is rising worldwide. It’s therefore a fair bet that businesses which not only market, but also embody a more complex set of stakeholders are likely to thrive.
You probably can’t afford a Tesla, but the belief that a purely electric car company will outperform petrol-driven competitors has seen its stock nearly triple in the last 12 months. Anxiety around the climate change implications of meat consumption has led to a huge rise in plant-based eating. Beyond Meat saw its value soar on its listing last year, and even after declining, their share price remains at nearly double the price it went public. There is growing anxiety around fast fashion, leading to consumers seeking out brands which manufacture more sustainably. VF Corp is over 100 years old, but has acquired sustainability-forward brands like North Face and New Zealand’s own Icebreaker, which is in part why its stock has quadrupled over the past decade.
3) Feel which way the wind is blowing and walk with it
This might seem identical to the above, in following a larger trend. Yet it’s much broader, more about watching the way the world is than simply the way you’d like it to be. For example, the likes of Facebook and Google have been subject to numerous troubling news stories over the past few years, which might ordinarily be a good reason to avoid them. But there is little coherent regulatory response. So it’s not unreasonable to think that the likes of Alphabet, Amazon, Facebook and Apple could continue to grow. Some, like Scott Galloway, co-host of the essential tech/politics podcast Pivot, believe that even if the companies are broken up by antitrust suits, the component parts (like Amazon Web Services, YouTube or Instagram) would be worth more than the conglomerates.
It’s not all so troubling, either. There are huge levels of innovation happening in healthcare, transport and more. I listened to a podcast interview with the CEO of streaming device company Roku a year ago and found the business case for his platform compelling. Its stock nearly doubled last year, as more and more US consumers cut the cable cord, and bought TVs which used the Roku operating system. This is a period of great flux in business, and with immense venture capital flowing and showing no signs of abating, well-conceived and -run companies will continue to appear and prosper.
For all this, there are no guarantees. Uber could conceivably be part of all three of the above. A company used by millions, which pitches itself as a solution to transport and logistical problems, and is part of a megatrend toward app-based services. Yet in the nine months since its long-anticipated IPO, its share price has mostly depreciated. And that’s an inherent part of investing, the potential for larger gains does go hand in hand with the risk that some shares may decrease in value for a while – or forever. It’s also why it’s a ride far more fun than a term deposit.
For all those buying and selling shares, it remains as much art as science. Some even more basic principles, like not spending money you can’t afford to lose, still hold. And some will have a moral objection to buying shares in certain companies – an equally valid position (even if many unknowingly hold them through Kiwisaver accounts anyway). But if you’ve been curious about sharemarkets, and wished you could invest in some of the huge companies shaping our world, it’s not nearly as intimidating or inaccessible a world as it once was.
This content was created in paid partnership with the Hatch. Learn more about our partnerships here.