This post at mint.com prompted some thought about the boom or bust possibility of investing in individual stocks.
The idea here is what if you purchased a company’s stock instead of its products? The example that stands out the most to me is what if you went back to 1997 and had two choices for stocks to invest in:
- Circuit City, an electronics retailer that had stock returns 18.5 times greater than the broad market over the prior 15 years and would be featured prominently in Jim Collins’ 2001 business best seller Good to Great.
- Apple, more a personal computer company back then than a handheld personal electronic device innovator. Apple had plenty of history with the Macintosh computer but was struggling in 1997.
You could have purchased the new Power Macintosh G3 Minitower in 1997 for $3,000. You would now likely be on your third or fourth next generation PC since then. If instead you invested the $3,000 in Apple stock at that time, it would be worth over $300,000 today.
Of course, most people, given the relative attractiveness of the two companies in 1997, would have chosen to invest in Circuit City. As it turns out, Circuit City went from Good to Great to Bankrupt trying to keep pace in the retail electronics market.
For every Apple that you invest in at the right time, you can afford to also invest in many duds and still make nice progress toward your goals. But the timing is critical and the ride may be turbulent along the way.
~ Gary Brooks, CFP®, Brooks, Hughes & Jones, Partners in Wealth Management, Tacoma, WA