Saturday, June 22, 2013

The 5 Companies I Could Not Live Without

On my first day at The Motley Fool, I heard co-founder Tom Gardner share an interesting investing philosophy: If you have a great experience with a company, buy some shares. You don't have to buy a lot, just enough to develop a further interest. If the company does well and you don't have shares, you will always regret not buying at least a small position. It is a forward-thinking philosophy similar to co-founder David Gardner's idea that you can develop a predictive sense of the world's direction by owning shares in businesses whose products and services consistently draw your attention.  As a relatively inexperienced investor, this notion struck me as odd. I have had many great experiences with companies. If following this rule required me to own shares in each one, then I would have an unmanageable amount of holdings. But the more I considered it, the philosophy made sense.

How many truly great experiences have I had with companies? I define a great experience as one that inspires brand loyalty and creates lifelong customers. As I thought about it, I realized there were only a handful of companies with which I have developed such a bond. And now that I have identified these companies, I find myself wanting to buy shares in them (as soon as my student-sized budget allows), if only for the joy of becoming a part-owner in my favorite businesses. And keeping track of these investments will never seem like a chore because these are the companies I would enjoy following even if the stock market ceased to exist. That said, here are the five companies I could not go without, and what investors can learn from my experiences.

Amazon (NASDAQ: AMZN  ) : I am a devout reader, and I cannot remember a time I did not use Amazon in the search for my next book. I still remember the days when I would intentionally go over $25 per order to qualify for free shipping, since I knew that I'd read every book I ordered, in time. But Amazon has become far more than an online bookstore. It is hard to imagine a product that Amazon does not sell, and with an Amazon Prime membership, free two-day shipping has become something I take for granted. I received a Kindle Paperwhite as a gift and it has forever changed the way I read.

Amazon has built an online-shopping empire that will be difficult for competitors to match. The name Amazon.com is synonymous with online shopping. With an estimated 5% to 6% of retail sales occurring online, there is room for Web-based retail to grow in the coming years. While concerns have been raised as to the profitability of Kindle's razor-and-blade business model, my personal experience speaks to its effectiveness. It's just so easy to buy books on a Kindle that a momentary buyer's impulse can result in an expensive spending spree.

Apple (NASDAQ: AAPL  ) : I run my life on Apple products. I am an iPhone user and it is impossible for me to imagine using anything else. As a college student, I see many other students who use Apple products as well, from Macbooks to iPads. I am also an athlete and I cannot imagine a workout without my iPod Nano clipped to my shorts.

One thing many investors do not consider is that an entire generation has spent their formative years using Apple products. The familiarity of the interface and ease of use are ingrained in their psyche. Sales to repeat customers can yield powerful results, and Apple could be well-placed to enjoy the benefits of this for years to come.

Chipotle (NYSE: CMG  ) : It's a bad week if I don't eat at Chipotle at least once. It's fast, cheap, relatively healthy, and delicious.

I recently read a fascinating write-up on Steve Ells, Chipotle's founder and co-CEO. One thing that really impressed me was his refusal to add coffee and cookies to Chipotle's menu because they wouldn't do it better than anybody else. Chipotle's business model is simple; people like the food so the company opens more stores. What's hidden is the strict adherence to quality. Nothing appears on Chipotle's menu if Steve Ells hasn't had a hand in it. And as a master chef in his own right, Ells is well suited for the job. Chipotle has plenty of room to grow domestically and internationally, and its conservative store-opening policy ensures new stores will remain profitable in the future.

Costco (NASDAQ: COST  ) : It's a testament to Costco's attention to customer experience that I go there for fun. Every Costco member knows the joy of setting foot in the store for the free samples. If you've read Robert Cialdini's Influence, you'll know free samples trigger feelings of reciprocation; customers may feel compelled to purchase the product by virtue of psychological bias. But it could also be because the food is so good. Costco is also the place my mom shops for staples needed to run an active household: food, toilet paper, paper towels, bottled water, etc. And Costco's store layout is such that I cannot go through it without scanning the book stacks or the clothing offerings for a good find.

Costco has built an experience virtually unmatched in the retail world. Unlike its competitors, it typically offers only one type of each product, but the company's buyers are skilled at finding items to satisfy customers. Selling without a large markup means tight margins, but Costco's membership requirement makes the business model closer to that of The Wall Street Journal than that of Target. American Express is the only credit card it accepts, which means the company appeals to a different demographic than competitors like Sam's Club or BJ's Wholesale.  Costco also eschews advertising and in-store decoration. Customers go there to shop, not look at pretty floors. In the game of business, players can maintain the status quo or change the game. Costco has changed it.

Disney (NYSE: DIS  ) : I am a huge Marvel superhero fan. Before that, I was into Star Wars. And before that, I wanted to be Peter Pan or Aladdin. Disney has been there my whole life, with worlds of stories to explore and characters to love. If that was all it offered, it would be enough. But I've also had great experiences at Disney's parks and resorts, I refuse to miss the latest episodes of Modern Family and Once Upon a Time, and I cannot follow sports without ESPN.

You don't get moats wider than Disney's. Disney owns the rights to almost all of its characters and their stories; this is a fountain of unlimited creative potential. ESPN dominates sports media on television, the Web, and mobile devices. And the theme parks, both domestic and international, have vast amounts of foot traffic that continue to generate cash. The company has diverse revenue streams and a broader appeal than Stark Industries and Coruscant combined.

It's easy to forget that Walt Disney is more than just the House of Mouse. True, Disney amusement parks around the world hosted more than 121 million guests in 2011. But from its vast catalog of characters to its monster collection of media networks, much of Disney's allure for investors lies in its diversity, and The Motley Fool's premium research report lays out the case for investing in Disney today. This report includes the key items investors must watch as well as the opportunities and threats the company faces going forward. So don't miss out -- simply click here now to claim your copy today.

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