Six degrees of separation is the theory that everything is six or fewer steps …
“Invest in what you know (coupled with serious fundamental stock research)” attributed to Peter Lynch
“Own What You Love” Loyal3 slogan
These are common themes used widely among investors. Presuming due diligence has been performed and ones minimum requirements are attained it makes perfect sense. One example is my granddaughter’s portfolio. Each Christmas she receives a stock that she can relate to and one with a company sponsored DRIP. Her first was General Mills as she liked Lucky Charms. When she studied US history it was Washington Gas Light (WGL) as they keep the Capitol lit. Over the years her portfolio has grown to also include Hershey, Walmart, Procter & Gamble, Union Pacific, Disney and Kraft-Heinz. This year’s addition was Texas Instruments since she applied – and was accepted – to a high school sponsored in part by them. It is a moderately diverse portfolio, but more important is the fact that she can identify with it. Although none are owned through Loyal3, it is a kind of Own What You Love portfolio.
Another example is the buying behavior of some DG investors. The correlation between crowd theory (as Young Dividend posited) and reality (as FerdiS identifies) is tenuous at best. There is, however, a striking similarity amongst DGI holdings. I would postulate that while serious fundamental stock research has not been performed by many, the reality is one can ride the coattails of researchers/publishers such as A Frugal Family’s Journey, Roadmap2Retire, or Passive Income Pursuit and still remain faithful to the Invest in what you know advice of Peter Lynch.
There is a hybrid approach that becomes visible as one progresses. Articles have been written about the path to investing should begin with your kitchen pantry (CHD, MKC, et.al.). More recently was Whimsical Dividends’ post which addressed, among other issues like taxes, the consumption – by yourself and your friends – of products you own. All well and good. Yet if this approach has any validity, perhaps a six degree approach is even better?
Let’s assume you invest in real estate. Wells Fargo may hold the note. First American may provide title insurance. Home Depot may be the choice for remodeling. Need air conditioning? Try Carrier (UTX). Insurance? Allstate. Wells Fargo is also the Transfer Agent for ALL and FAF. Wells Fargo also provides private label financing for Carrier. Assuming these are all companies you’d like in your portfolio it makes sense to maximize your company’s profits with this approach.
In researching my companies, I found 297 inter-relationships but a third of these were as Transfer Agents. So when you go out this weekend, catch dinner at a restaurant supplied by Sysco (SYY – TD,WFC), followed by a movie shown by AMC (AMC-USB), in a theater owned by EPR(EPR-UMB,KEY).
Once again at least 6 degrees …