Economics 101 and Potato Chips

Economics 101 and Potato Chips     

Potato chips?  Yes, potato chips.  Let me connect the greasy dots.

There are very interesting demographic studies that prove to be very predictable when it comes to human behavior, especially concerning the buying habits of us all.

 On average, couples marry and have children at age 28.  Children consume the most food at age 14, especially potato chips and salty snacks. This fact is not lost on the food industry.  Therefore you can expect that the most potato chips and salty snacks will be purchased by a family household at age 42.  So the grocery stores in neighborhoods with a younger demographic will have more potato chips than a store in a more mature neighborhood.  At least that’s the theory, so I decided to test it out.

We went to the Bashas’ store onScottsdale Road at the western edge of Grayhawk and measured the linear feet of potato chips and salty snacks.  We also went less than 4 miles to the AJ’s  Fine Foods store at  Pinnacle Peak and Pima and did the same thing.  A note for those of you not living in the valley, these stores are owned by the same parent company, with Bashas’ being the more family oriented store and AJ’s Fine Foods targeting a much more affluent and older demographic market segment (and it is a smaller store).  Here’s what we found. 

The Bashas’ store had one major aisle for chips, a secondary area for them, and at least 4 end caps and several small displays all over the store.  The total linear feet of potato chips and salty snacks was over 900 feet.

TheAJ’s Fine Foods store had one shelf area and one end cap.  That’s it.  The total linear feet of potato chips and salty snacks was 270 feet.  Less than one-third the size.  Seems to prove out the theory.

 Believe me, if the older shopper at AJ’s Fine Foods was buying a lot of potato chips, they would have the shelf space to accommodate it.  But it’s the younger family that’s buying and the food industry knows it. 

 These very predicable ,demographic trends come in to play in many more obvious ways, and I’ll be elaborating on them in the weeks and months ahead.  And they are having a profound impact on our economy now and into the future.

 

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Six Questions for Successful Investing – Part 6

Six Questions for Successful Investing – Part 6

When should I sell it if it is a winner?

You might ask “Why would I even consider selling a winner?”  Because, at some point it stops being a winner. And then it probably becomes a laggard, or even worse, a loser.

So, let’s examine how to deal with selling a winner.

You liked the investment in the first place.  You liked the price you paid for it.  You knew how much risk you were taking, and therefore, how many shares you bought.  Having done all of this, it worked out as planned and has risen to a much higher price.

So, have you continued to move the stop loss price up as the price of the investment went up?  If not, you should have.  But, let’s assume you did adjust the stop loss price to trail below the rising price of the investment.  Then you’re ready to sell when a new stop loss point is hit.

Go back to our original purchase, XYZ.  You bought it at $40 with a stop loss of $35.  It has risen to $70 and your adjusted stop loss point is $66.50.  If XYZ now hits $66.50, you sell.  You sell because you don’t know if the price is just pulling back or if it is the beginning of a downtrend.  You always have to remember that you cannot predict the future.  That’s why you have a plan.  That’s why you have to stick with your plan.

Selling a winner is sometimes very hard to do.  You can easily get caught up in the idea that it will just keep going higher.  Maybe.  Maybe not.

And if you sell it, and it then regains demand over supply, then you could always buy it back again, assuming it remains the best place to put the money when compared to all the other choices that are available at that time.

So, to wrap this up, knowing what to buy, when to buy, how much to buy, and then when to sell depending on whether it turns out to be a winner, loser, or laggard will greatly increase your likelihood of investing success.  These investment basics are important, but more important is having the willingness to stick to the plan.

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Six Questions for Successful Investing

Six Questions for Successful Investing

Here’s a list of six questions that can aid in increasing the success of your investing process.  Of course, it’s not the questions themselves, but the answers to the questions.  Or, you might look at it as just knowing to ask the questions in the first place.

What investment should I buy?

What price should I pay for it?

How much of it should I buy?

When should I sell it if it is loser?

When should I sell it if it is a laggard?

When should I sell it if it is a winner?

I’m not going to tackle all six at this time, but will move through the list over the next few blogs.

So, let’s look at the first question.  What investment should I buy?

There are way too many things to say about this topic to make sense in a blog.  You can look at it from hundreds of different angles.  Sales.  P/E ratios.  Free cash flow.  Value Line ratings.  Analysts recommendations.  The list goes on and on.  And all of these ways fall under the category of fundamental analysis.  There is nothing wrong with it at all.  But it sometimes gets confusing when the fundamental rationale does not correlate with the actual up or down in the price of the stock.

There is also a technical perspective you can take.  This is my preference.  I’ve learned over the years that all of the fundamental information gets digested by investors and that results in moving the price up or moving the price down.  If more people want the investment, the price typically moves up.  If investors don’t like the investment, the price usually moves down.  It’s just the most basic issue – supply and demand.  Economics 101.

So, I’m suggesting watching the movement of price.  Own what’s going up and don’t own what’s going down.  And if you have two quality investments going up, own the one that’s going up faster.  That’s utilizing relative strength.

So, if you think that this seems too simple, that’s OK with me.  I know it works.  Of course, you can always go back to relying on just the fundamentals, but I have found that to be lacking.  

Combining a fundamental background with technical methodologies is like playing the piano with two hands.  It just makes for better music.

I’ll take a look at “What price should I pay for it?” the next time.

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