Disney is one of the biggest names in the entertainment world, boasting a collection of content that is second to none. The company has used savvy management to transform that content into decades of attractive returns for shareholders. From 2014 to 2018, Disney grew sales nearly 22 percent on the back of Pixar films and movie franchises such as Star Wars, among others, bringing in about $13 billion in profit for 2018.
Here’s how to buy shares of Disney stock and what to consider before you buy.
1. Analyze Disney and its financials
Analyzing a company’s competitive position and financials is probably the single hardest part of buying the stock, but it’s also the most important. The best place to begin is with the company’s Form 10-K, which is the annual report that all publicly traded companies must file with the SEC.
The 10-K can help you understand a lot about the company:
- how it makes money and how much
- its assets and liabilities
- its profitability trend over time
- the competitive landscape
- the various risks faced by the business
- the management team and how they’re incentivized
The annual report is a great first step at finding out about the company, but you’ll want to do more than this. You’ll want to study what other companies are doing to compete, for example. It’s important to have a broader perspective on the industry.
For example, Disney competes in a variety of industries — against both television and film companies, as well as amusement parks and other product licensors. So Disney is up against some of the largest competitors in the world, such as Netflix and Amazon in filmed entertainment. And in television, Disney competes against the spectrum of other channels and content, though it has some prized assets such as ESPN. Many competitors have responded by producing and distributing their own high-quality shows and films.
2. Does Disney make sense in your portfolio?
Disney has been a solid performer for investors over many years, and that performance may continue. It’s a well-managed company, and it’s a blue chip stock, numbering among the 30 companies in the Dow Jones Industrial Average. These factors make it a favorite among many investors, and its dominance in a crowded entertainment field also looks attractive. Plus, Disney pays a dividend, attracting income investors who are looking for a cash payout.
So you’ll want to consider the following questions:
- Does a growth company fit your needs?
- Will you be able to continue analyzing the business as it grows?
- Given the stock’s volatility, will you be able to hold on if it drops or even buy more?
If you’re buying just a little bit of Disney as a starter position or to get some skin in the game, these considerations might not matter as much as when you take a full position.
3. How much can you afford to invest?
How much you can afford to invest has less to do with Disney than with your own personal financial situation. Stocks can be volatile. So to give your investment time to work out, you’ll likely want to be able to leave the money in the stock for at least three-to-five years. That means you should be able to live without the money for at least that length of time.
Committing to holding the stock for three to five years is important. You’d hate to have to sell the stock when it’s near a low only to watch it rebound much higher after you exited the position. By sticking to a long-term plan, you’ll be able to ride out the ups and downs of the stock.
If you’re investing in individual stocks, you’ll want to keep the percentage of any single position between three and five percent. This way you’re not heavily exposed to one investment breaking your portfolio. If the stock has more business risk, then you might choose an even lower percentage than this range.
In addition, rather than just committing a one-time sum of money to the stock, consider how you can add money to your position over time.
4. Open a brokerage account
While opening a brokerage account may sound like a difficult step, it’s actually quite easy, and you can have everything set up in 15 minutes or so.
You’ll want to select a broker that caters to your needs. Are you trading often or infrequently? Do you need a high level of service or research? Is cost the most important factor for you? If you’re buying a few stocks but investing mainly in funds, then a number of brokers specialize in offering commission-free trading for those funds.
After you’ve opened your account, you’ll want to fund it with enough money to buy Disney stock. But you can take care of this step completely online, and it’s simple.
5. Buy Disney stock
Once you’ve decided to buy Disney stock and you’ve opened and funded your brokerage account, you can set up your order. Use the company’s ticker symbol – DIS – when you input your order.
Most brokers have a “trade ticket” at the bottom of each page, so you can enter your order. On the broker’s order form, you’ll input the symbol and how many shares you can afford. Then you’ll enter the order type: market or limit. A market order will buy the stock at whatever the current price is, while the limit order will execute only if the stock reaches the price that you specify.
If you’re buying just a few shares – and Disney has fluctuated from $100 to $140 or so over the last year – then stick with a market order. Even if you pay a little bit more now for a market order, it won’t affect the long-term performance much, if the stock continues to perform well.
Buying a stock can be exciting, but success won’t happen overnight. Investors should take a long-term perspective on their investments, and also consider taking advantage of dollar-cost averaging, if they believe in the stock for the long haul.
With dollar-cost averaging, investors add a set amount of money to their position over time, and that really helps when a stock declines, allowing them to purchase more shares. High-flying stocks can dip from time-to-time, so the strategy can help you achieve a lower buy price and higher overall profits.
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