I love Disney World: fireworks, parades, and Mickey Mouse. A few years ago, we visited there as a family and my wife came home with a unique souvenir: an order for her stockbroker to buy Disney stock.
Let’s examine some points my wife considered before buying the Disney stock:
Q: Before buying Disney stock, did you check if it would complement the rest of your investment portfolio?
A: I knew it was a growth stock, and as a middle-aged investor I’m aware that growth is important to my retirement success. I also know that diversification is important. As I didn’t want to become overly reliant on one particular stock (I generally use money managers who buy ETFs for diversity), I only bought a small position.
Q: Before buying the stock, why did you think it would increase in value?
A: I had just come back from a Disney vacation and experienced the magic firsthand. This is a company that is all about servicing its clients. In good times as well as in tighter times, families visit Disney. And everyone (except the cranky spoiled toddlers) is always happy. So I thought that over the long term, Disney stock would go up in value.
Q: What changes in the economy did you consider before buying the stock? Did you ever feel your money was at risk from investing in this stock?
A: No, I felt that Disney was as American as apple pie, and even if it dipped in the short term, the Magic Kingdom would be there when it’s time for me to take my grandchildren to visit. I thought that in leaner times, Disney would find a way to stay relevant and maintain its profits, if not through the theme parks than through media. I read some analysts, and they all thought it was a strong stock.
Q: Did you ever consider selling your stock? If so, did you sell it?
A: As I watched the stock climb 20, 30 points from the price I purchased it at, I told myself that I would sell if it doubled in value. Now that it is more than that, I can’t decide if my decision not to sell is plain greed (how much more can I get?), or my realization that the company is fundamentally strong and will continue to enjoy solid growth.
My wife put a lot of thought into why she didn’t want to sell her Disney stocks. Any decision to buy/sell/hold should be made after careful consideration and in conjunction with professional advice. Sometimes selling the wrong investment is worse than not selling at all. Listen to this seven-minute podcast on how to decide whether to sell this stock or that.
Disclosure: As of the time of the writing, family members own stock in Disney. Before buying Disney stock, check with your own financial advisor to make sure it’s appropriate for you.
Douglas Goldstein, co-author of Rich As A King: How the Wisdom of Chess Can Make You A Grandmaster of Investing, is an avid chess player, international investment advisor, and Certified Financial Planner (CFP®).
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