Should I Buy Disney Stock?

I am a huge fan of the Walt Disney Corporation’s products. I shudder to think how much money I have dropped on their theme parks alone in the past five years. I think they do a wonderful job, have great assets and seem like a great company. So I should buy their stock, right? Hold Up Right There

“Good” Doesn’t Mean “Well Priced”

I think Disney is a “good” company for many reasons, but that doesn’t mean it’s a good buy. Many people make the mistake of buying companies because they like their products and services, without taking into account a pivotal aspect — price.

Certainly you’ll agree that regardless of whether Disney is a good deal right now, it would be a much better deal at half the price and a much worse deal at double the price. So deciding whether to buy a stock without taking into account the price is very dangerous.

I have known many people who bought Starbucks in 2006 at $40 per share because they loved their coffee. Interestingly when the shares were trading at $10 per share in 2009 they didn’t want them anymore, even though they were 1/4 the price (it’s now trading at about $50). Obviously they weren’t using price as a indicator on whether they should buy or sell, which brings us to an even more important point:

Companies You Love Are HARDER To Value

Your analysis of whether or not to buy a stock you “love” will almost certainly be biased in the pro-buying direction. You’ll be looking for any excuse to pull the trigger. If I’ve learned anything it’s that when you’re feeling emotional about an investment, you need to do some more thinking before you make any moves.

For me, it probably makes more sense to buy one of these lovely framed shares of stock than to invest in the company. It’s very hard for me to be objective about a company I love, and while this framed share likely won’t be a good investment, looking at it is probably a much better way to get my Disney fix than adding it to my portfolio.

I don’t think it’s a good idea to have a rule that you never invest in companies you love, but I do think that it’s probably a good idea to do some extra diligence in your research before investing. Make sure you’re being 100% objective before you make any decisions, and when in doubt err on the side of caution.

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