One axiom for investments is "Buy Low, Sell High," which means that company shares are purchased when they're low and - according to some experts - these same shares should be sold when a 15% to 20% profit is gained. While this proverb seems simple to execute, overwhelming charts and figures, greed and fear factors, and a host of other reasons (like unruly kids) might keep us from maintaining portfolios with an eye to reason.

I believe that many investors can learn how to create and maintain a profitable portfolio and a positive attitude about investments if they understand that apples are no different than stocks. The following scenarios show this link, and these examples provide a means to teach our kids stock market rudiments:

1. We purchase a bag of apples and then ignore it. We forget about these apples until a certain smell and a proliferation of flies and other vermin remind us that the apples are ruined. We wasted an opportunity to profit from these apples. This example also applies to portfolios that sit and rot. If we ignore news items, quarterly report notices, and other factors that apply to our stocks, we don't maximize the benefits that these purchases provide.
   
   
2. We purchase another bag of apples and eat them. In this instance, we benefit from the consumption of this product (unless we're allergic to apples), so the apple purchase becomes a wise investment. Quality apples provide one example of an investment that would outperform a product that contains tons of preservatives. The same understanding applies to stock purchases when we invest in healthy companies rather than in businesses that contain a high level of problems (although they might look tasty). The investment choice becomes wiser when we can purchase desirable apples (or stocks) at wholesale prices (a purchase of high quality at a low price). Although health seems like a non-monetary gain, think about money we might save on insurance and medical costs if we take preventative health measures.
   
   
3. We purchase a bag of apples and make a pie. For this example, our actions and ingredients affect the final outcome. When we add by-products to the apples to make a pie, this act is similar to adding investments to create portfolios. If the by-products are healthy and diverse, then we have a valuable pie. Alternately, if we add ingredients that are too similar or unhealthy, the pie (or portfolio) loses value. Also, pie-making and portfolio creations involve learning curves that include the possibility of errors. We can increase our successes by reading instructions and/or by obtaining a tutor, and by learning from our initial mistakes.
   
   
4. We purchase a bag of apples, make a pie, and share the pie. If we share the pie as an act of love, as a bribe, or as a reward, then the pie gains value because we've gained self-esteem or some other benefit through this action even though the receiver might hate apple pies. If we give away portfolios, the same benefits accrue even though the gift might wither from the receiver's lack of attention. While these benefits to us are not monetary, they are based on gifts that represent money; therefore, we might need to pay gift taxes. Also, the receipt of a raise or an inheritance based on our generosity is a bet or a gamble based on a flight of fancy rather than an investment, so we won't go there.
   
   
5. We purchase a bag of apples, make a pie, and the wrong person or an animal eats the pie. Whether a varmint eats our pie or a CEO steals our profits, the results are still the same. The mother of that kid next door might offer to pay for the pie, and attorneys or other entities might entice the CEO or his or her company to pay for infractions. While we might recoup some of our losses, the scar still remains. Interestingly, while many individuals might continue to make pies despite the fact that one was stolen, the same people might not continue to invest in the stock market after one stock was affected by a CEO's actions. Does this make sense when this perspective is applied? I don't think so.
   
   
6. We purchase a bag of apples, make a pie, and sell the pie. If we add the prices of all the pie's ingredients and packaging (hopefully all quality merchandise purchased at low prices) to the value of the time involved in making the pie (don't forget the cost of the gas or electricity used to bake the pie), then we have the base cost for this pie. Add 15% to 20% (or more) of the base cost to the base cost to create the final sale price. In other words, if the base cost is $4.00, 15% of $4.00 is $.60. Add $4.00 and $.60 to equal the final sale price of $4.60. Now, sell the pie. The difference between the base cost and the price of the pie when it's sold becomes a profit, or a capital gain. This same plot applies to stocks. We add the stock purchase price to other fees for our base cost (hopefully all quality stocks and services purchased at low prices) and then we realize a profit when we sell that equity at a price that's higher than our base costs. We've now accomplished the goal of "buy low, sell high."

Whether you share these analogies with your children or ruminate on them while alone in the shower, you might encounter other clich?d yet relevant comparisons between apples and stocks. For instance, "hot" apples might compare to "hot" stocks, because we can either get burned or enjoy the fruits of our labor. The adage, "One bad apple spoils the whole bunch" could apply if we let that rotten apple (stock) sit in the bag (portfolio).

Next week, I'll take you to places where even hardy souls hesitate to enter - to the attic and similar domains. We'll discover how spring cleaning provides a venue to beef up portfolios and to understand capital gains.

Until Then,
Linda Goin