Money & Career

Modern woman's guide to investing in the stock market

Put your shopping savvy and purchasing power to profitable use. Here's how to grow your bank account with our fun and easy approach to playing the stock market

Blue coin purse

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If money is power, and power is an aphrodisiac, it just makes sense that your finances should have some sex appeal, too. So why do financial literacy and investing in the stock market seem so dull? Perhaps it’s because they lack a woman’s touch.

That’s where we come in. We’ve spent the last several years making the world of finance and discussions about money and investing real, relevant and — dare we say — shockingly entertaining for women just like you. What does this mean? First of all, forget penny-pinching. Our approach is all about wealth creation, wealth management and financial security.

We’re kicking off this special series for Chatelaine by tackling the stock market head on. We decode some must-know investment lingo and offer up some smart and savvy strategies to make fast friends with the stock market, despite the economy. Of course, we also share our other favourite ways to put your money to work for you — not the other way around.

To illustrate how investing in individual stocks works, we thought it would be fun to tell the stories of two brands fashionistas know well: European luxury-goods giant Prada and U.S.-based mass retailer Michael Kors, which both went public last year (meaning they offered shares to investors for the first time).

One of the two IPOs (initial public offerings) was a runway success story, the other a bit less so. Any idea which fared better? Take a guess. Now, read on to find out if you picked right, how you can apply this information to your investing — and where each company sits today.

Q: With Prada and Michael Kors going public last year, 2011 was super-exciting for fashion-savvy investors. Which company’s IPO scored big?
A: One one hand, Prada, an esteemed 100-year-old Italian heritage brand; on the other, Michael Kors, a New World, one-man mass brand. If the devil wears Prada, then angels must wear Michael Kors, at least from a stock market point of view. Not what you expected? Let’s take a closer look.

Prada began issuing shares on the Hong Kong stock exchange in June. The goal was to raise $3 billion to fund the company’s expansion in Asia. It was a niche strategy to list the company on Hong Kong’s exchange (not in New York or Toronto), and very few retail (a.k.a. individual) investors even noticed.

It was mostly institutional investors who bought Prada shares, providing less than hoped: $2.14 billion. The shares, under the symbol 1913, were issued at HK$39.50 (C$5.06) and closed with only a modest gain of 10 cents, at HK$39.60, on opening day. Not exactly what the company had hoped for.

Compare that with Michael Kors’ triumphant opening on the New York Stock Exchange. Following on the stiletto heels of Prada, expectations for another fashion IPO were grim. However, retail shoppers and fans of the Project Runway star showed their faith and demanded more shares than were available.

On IPO day, the Kors shares (stock symbol: KORS) were issued at $20 each. Right away, they skyrocketed to $25 — a quick 25 percent increase — before closing the day at $24.10. (Most recently, they cost around $50 a share, for an increase of over 100 percent in less than a year.) The company raised $944 million, less than Prada did, but notably more than the $792 million for which it hoped. The Kors IPO stunned market watchers and ended up being the biggest in U.S. fashion history.

What was the secret to its success? While analysts and advisers would all have their own opinions, we like to think that it had a lot to do with purchasing power. Think about it: How many of your friends own a Kors purse or shoes, and how many own Prada pumps? There you have it.

Q: Isn’t the stock market run by a bunch of bankers, corporations and governments that have nothing to do with me? How much influence does the average woman really have?
A: The way world leaders deploy resources is often determined by those who hold the purse strings. As women gain greater access to income and education, real change is taking place. Today, more women then men are graduating university, and a recent study by the Bank of Montreal (BMO) showed that 82 percent of Canadian women are the primary decision makers or have equal control over family money matters.

The stock market is just a collection of companies whose share prices depend on who buys and uses their products. They need women to grow and survive. You can see a shift taking place already, with male-targeted brands like Molson Coors (TPX) and Heineken (HEIA) falling all over themselves trying to make their products more attractive to women.

Q: I know I should be saving in an RRSP, but I’d like to dip my toes in the stock market. Which should I do first?
A: There’s no need to choose! Registered Retirement Savings Plans (RRSPs) and Tax-Free Savings Accounts (TFSAs) are simply vessels; you fill them with whatever investment mix suits you. Pick from cash, stocks, bonds, mutual funds and exchange-traded funds (ETFs). Speaking of toes, Coty, Inc. (owner of coveted OPI nail polish products) is preparing to go public, just as Prada and Michael Kors did last year. (An IPO date is expected soon.) So here’s your chance to jazz up your RRSP or TFSA with the creators of coveted polish colours like Tutti Frutti Tonga and Who Needs A Prince (two of our favourites). Ask your adviser if it’s right for you.

Q: But how could I ever know what company might make a good investment?
A: Bet you know a lot more than you think! On any given day, you come into contact with countless publicly traded companies. So when trying to decide which one might be a good investment, look to your life for inspiration. You go online with your Rogers (RCI) account, check Facebook (FB), put on your M.A.C lip gloss (EL), jump in your Volkswagen (VOW), get groceries at Loblaws (L), pay with your TD debit card (TD), take the kids to a Disney movie (DIS), buy them a Fruitopia (KO), call your man on your iPHone (AAPL) and remind him to stop in at Tiffany & Co. (TIF) with his Visa (V).

Your experience with a company and your awareness of a brand’s growth and popularity all contribute to what you already know about their quality as a possible investment. Start with a company whose products and reputation you trust; then pay attention to what you hear about it on Yahoo! Finance (YHOO).

Q: What are some other real-life IPO stories I might recognize?
A: Lululemon (LLL) was a fun one. It went public in 2007 and was hugely oversubscribed (meaning demand for shares was greater than supply) — everyone who owned a pair of butt-enhancing yoga pants wanted in! The company raised nearly $328 million, and shares went from an IPO price of $18 to $29.72 on the Toronto Stock Exchange on the first day (traded as high as $81.09 in May 2012 and traded at close to $60 as of late summer). Of course (as we know from Prada), not all companies experience a big spike on their first day of trading. Facebook (FB) famously went public this past May at an opening price of $38 per share — and closed the day at roughly the same price. Over the next 10 days the share price fell nearly 25 percent (and it continued to fall to about $20 in August).

Q: I keep hearing this value vs. that value…. What does it all mean?
A: Book value is how much you pay for what you get. So if you buy 10 shares at $50 each, the book value is $500. Market value is what investors will pay for those shares at any given time. If the price drops to $40 a share, the market value for 10 shares drops to $400. If the price goes back up to $50, the market value also goes back up to $500. Book value keeps track of what you’ve spent, and market value is relevant only if you’re prepared to sell. How’s that for a ‘valuable’ lesson?

Q: Is it better to buy individual stocks and bonds or units in a professionally managed fund?
A: It depends on your level of interest. Buying individual stocks and bonds is a fun way to customize your portfolio, but it takes more effort to research and pay attention to each investment; online brokerages and your adviser are great sources of information. Many beginners prefer buying mutual funds or exchange-traded funds in order to pool their money with a bigger group of investors and have easy access to an entire portfolio of stocks with a professional manager looking after it.

Choosing an IA (ahem, investment advisor)

You see a doctor for your health. Your dentist helps with those pearly whites. You wouldn’t trust anyone but a stylist to cut your hair, and you have an esthetician to take care of business down there. But who looks after your finances?

“It’s so confusing,” we hear you moan. True, financial advisors come in many varieties — that’s why we’re here to sort you out.

Think of a financial planner like a family doctor: a general practitioner who knows your family situation and history. This person creates an overall plan that takes into account income, debts, expenses, taxes, insurance needs, retirement goals and dreams to buy that house, cottage or car.

Then there are specialists. Investment advisers (IAs) help you build a balanced portfolio of stocks, bonds and funds; estate planners advise on inheritance and tax laws; personal bankers help you with loans, mutual funds, RRSPs and Tax-Free Savings Accounts (TFSAs). You may also want an insurance adviser, accountant or mortgage broker.

Nowadays, most IAs charge a management fee based on the size of your portfolio. As your portfolio grows, you become wealthier, and the IA earns more, so everyone is happy. Planners, on the other hand, tend to charge a flat fee for their advice, and then you see specialists to obtain each specific solution.

Just like some women won’t let anyone else touch their toes and prefer to do their own pedicures, plenty of investors prefer the DIY approach. Online investing sites are plentiful and full of great resources to help you research and choose your own investments.

Laura McDonald and Susan Misner created
GoldenGirlFinance.ca to help women learn to build wealth. They’re also the authors of the bestselling money guide It’s Your Money, Honey.