Why Beginners Are Often Great Investors

Contrary to popular belief, I am convinced that anyone can be a successful investor. Sure, it won’t happen overnight, but learning the basics is often enough to invest independently. Going one step further, I argue these “beginners” are actually above-average investors. They may be new to the investing world, but they have insight into certain aspects of the economy that the typical financier does not.

One of my favourite parts about helping people along their investing journey is observing their first a-ha moment. After they finally understand what moves a stock, their eyes light up with ideas on which stocks will go up in the future. They ask to hear my thoughts but hesitate to buy the stock regardless of my opinion, thinking they must be missing something obvious.

There’s no way they are the first person to have this idea, right? Well, they may not be the first, but they often see the future before most, and I have some real stories to prove it. Hopefully these will encourage you to trust your judgment next time you have an idea.

Walt Disney (DIS): Forget everything from ECON101 and embrace culture

Do you recognize the characters in the image above? If so, then you understand the true scale and impact of the Marvel Cinematic Universe. To lots of people on Wall Street, the first few Marvel movies were nothing special. Heck, these bankers were probably too busy staring at spreadsheets in their cubicles to even watch Iron Man, Captain America, Thor or The Avengers when they were released. However, any true Marvel fan knew these movies were the start of something big.

Eventually, Marvel started to catch the attention of investors as it rolled out into Disney Parks and as Endgame was crowned the highest-grossing film (well, for a bit). Money managers were late to the party if they just analyzed delayed stats instead of reading the comics or watching the movies. On the other hand, the true Marvel fans (those who sit through the credits for secret scenes) who bought the stock shortly after the release of The Avengers in May 2012 would have earned 339%.

A similar event occurred when Disney launched its streaming platform, Disney+. I remember working on Bay Street hearing the same skeptical remarks: “Netflix is already so established. It’ll be impossible for Disney+ to steal market share. Plus, there are a handful of other streaming services coming out soon. Disney has so little content, nobody will pay for it.”

Even after I brought up all 30 seasons of The Simpsons, the entire Marvel slate (eventually), or The Mandalorian, my peers were still convinced nobody would ever sign up. Based on my conversations with friends though, it was going to be a major success. “It’s Disney! Everyone loves Disney.” Turns out we were right, and once again investors’ skepticism prevented them from earning a decent return. Businesspeople were too focused on supply and demand economics when they should’ve known about the loyal fans who wouldn’t let Disney+ fail.

Lululemon (LULU): Test the product or ask around

Anyone who shops at Lululemon knows just how great their products are. Based on every conversation I have with Lululemon customers, they just can’t get enough of the brand. Lululemon knows that they can charge high prices because the quality is adored by so many.

And it’s not just my female friends who love Lululemon. Although the investment community was skeptical of the menswear product launch at first, Lululemon’s ABC pants have converted so many men to retrofitting their entire wardrobe with incredibly comfortable and stylish athleisure apparel. If you don’t know what ABC stands for, I suggest looking it up to truly understand why it is life changing.

Had you bought the stock at the end of 2015 knowing the new product line would be a hit, you’d have earned yourself an impressive 499%. To many of my Lululemon friends, this did not surprise them one bit.

So how did Wall Street get this one wrong? Well, as a male-saturated industry, many had never been into a Lululemon store, and likely never took the time to ask their female friends what they thought of the brand. Their next missed attempt is attributable to the fact that they are often stuck in the office in their suits instead of embracing athleisure wear. It’s not until the stock started taking off that investors took note.

Scotts Miracle-Gro (SMG): You can easily predict trends before Wall Street

One of my friends is an avid gardener, so “naturally” she thought of buying some shares in SMG at the start of the pandemic. It had fallen about 30% in a month, like so many other stocks in March 2020. She found this odd, as she believed the gardening company would see a boom in demand with everyone stuck at home over the spring and summer months. She was still new to investing at the time and her friends gave her cold feet, so she never pulled the trigger. One year later, the stock is 189% higher. Talk about thinking “green”.

This is one of many trends that everyday people can predict before Wall Street because they experience it firsthand. At the start of the pandemic, while money managers were running around like chickens with their heads cut off, beginner investors were picking up bargains in Goodfood to profit from the accelerated cooking-from-home economy, in Etsy as millions of homemade masks were being sold, and in Peloton as they knew people could not live without gyms.

Tesla (TSLA): Forget the financial lingo and buy what you love

If you loved the car and/or the visionary, then you loved the stock. This was the case for so many of my fellow freshmen in September 2016. They could care less about words like “profitability,” “liquidity” or “risk.” The cars were “S3XY” (if you know, you know) and the company is run by a legend. That’s all that mattered to them. Even when Elon Musk told investors he didn’t care about the stock price or embarrassed the company with a not-so-perfect truck demo, the believers kept holding on. An undergraduate degree later and the stock is up 1,391%… not a bad way to start your career.

This is a classic example of a stock that investors wouldn’t touch with a 10-foot pole because it wasn’t earning any money and had no clear path towards profitability. To them, bankruptcy seemed more likely than outperformance.

Conclusion

These are just a handful of examples of beginners outperforming the experts. “Beginners” have more spare time to immerse themselves in a cinematic universe, stroll through the mall, observe first-hand trends before anyone else, or ignore the financial lingo that scare so many people on Wall Street. They are often the first ones to accurately predict the future. This being said, lots of times the beginners get gun-shy and never end up buying the stock.

Obviously, beginners aren’t bulletproof. They will still get burned, like the rest of investors. However, I hope these examples help give you the confidence to act upon your next investment idea instead of getting cold feet like so many before you. Nobody knows if your hypothesis will pan out, but that’s just how the stock market works. If people think you are wrong, why not put your money where your mouth is? You’ll be the one laughing if your hypothesis is right. If it doesn’t work out, it’ll be a good learning experience for your next investment. The only way you lose is by never doing a thing.