The word “investing” can conjure images of tough, Wall Street professionals, hectic and fast-paced decision making, and significant wins and losses. However, investing in stocks doesn’t have to be dramatic or difficult. Any experienced finance professional would argue that keeping a diversified portfolio, including stock investments, is a great way to ensure any losses are minimized.
However, deciding which companies to buy stocks in is a very personal decision. Some investors want to ensure all their financial decisions support their personal values, while other investors only care about their return on the investment. Either way, everyday we make decisions to support companies–from the grocery store and gas stations we regularly frequent, to the streaming services we use to watch the latest TV hits.
However, what would happen if investors purchased stock in these popular companies, instead of just purchasing their best-selling products? A 2018 study sought to answer this question and determine if consumers were missing an opportunity to benefit from supporting popular organizations beyond purchasing products. The researchers chose significant services and products and, using the price from the year they were released, calculated the return on investment had the consumer purchased company stock, instead of the actual product.
Technology: The technology sector had the widest distribution of returns–with two companies bringing negative returns! Apple was, not surprisingly, the technology company with the highest return on investment; using the price of the first iPhone, which premiered in 2007, a consumer would have made over $6,000 by the end of 2018.
Unfortunately, the technology sector seems to be one of the riskier industries to invest in; two of the companies, GoPro and Sony, studied had negative returns on the original investment. Since technology trends and products change so quickly, it can be difficult to determine which companies may be profitable in the future.
Food and Drink: For the most part, the food and drink industry is not the most profitable sector to invest in. While all six companies included in this study were profitable, four of them made less than $10! The only exception was McDonald’s–which used the McRib (debuted in 1981) as a benchmark. Had a consumer invested $0.99 in McDonald’s in 1981, they would have made over $2,700 in profit.
Retail: The retail industry actually had the company with the highest return on investment. An investment in Nike, using the 1987 launch of the Air Max, would have profited over $62,700! The second highest grossing company was still largely profitable at a $3,500 return, but many of the research companies (Target, Etsy, Adidas, and Mattel) grossed under $1,000 each.
Automotive: As a whole, the automotive industry can be quite profitable for investors; purchased stocks in three of the five companies resulted in over $20,00 in profits! However, the automotive industry also had the largest loss of all the studied companies–regardless of sector. Using the 1998 launch of the Ford Focus, Ford resulted in almost a $5,000 loss.
Entertainment and Streaming: Researched as two separate categories, entertainment (largely production companies, like Disney and 20th Century Fox) and streaming were profitable more often than not–but not by any significant amount. The highest grossing company stock, in both categories, was Netflix–but it would have only gained investors $78.
The streaming sector also had two companies with losses–HBO and Pandora.
Banking: The banking sector is difficult to measure, as the research used credit card annual fees as the base price points; unfortunately, the starting price for the two banks researched varied by over $9,000. So, while American Express gained almost $500,000 and JPMorgan Chase only gained $200, it is hard to compare the two with such a gross difference in the initial investment amount.
Ultimately, companies’ cultural significance and continued best-selling products will determine long-term profitability. And, as always, consumers should always make informed decisions prior to making a financial commitment and purchasing stocks.