What Easter Baskets Can Teach Us About Investing

By Brian Hill, all rights reserved worldwide

This Easter we once again experienced the joyful tradition of giving colorful Easter baskets filled with delicious candy. As I was picking out candy, it struck me that as with picking stocks, you need to have a strategy in place. You want to make sure you make thoughtful candy choices that will delight the family members you are presenting them to. You can’t blame the Easter bunny if your baskets meet with an unenthusiastic response -- he’s not like your broker. Your family knows you’re the one who made the confectionary choices. Article continues below.

Diversification

As we have all been taught, one key to effective investing is diversification -- not putting all your eggs in one basket. One way to diversify is to let someone else select the basket elements for you, a kind of Easter candy mutual fund. If you want to pursue this strategy next Easter, you’re in luck because none other than Warren Buffett’s Berkshire Hathaway, Inc. owns See’s Candies. This high quality candy retailer offers an Easter Family Basket that includes a large chocolate butter egg and a chocolate rabbit. But keep in mind that you pay extra for having someone else manage your basket -- See’s basket retails for more than $60.

Risk Tolerance

We all like variety in our Easter baskets, but you have to consider whether the person you are giving the basket to is a risk taker. Perhaps she likes the proven winners, those with consistent popularity down the decades, like Hershey’s Kisses from The Hershey Company. The risk of being a loyal Hershey’s consumer is further diluted by the fact they own another immensely popular candy brand, Reese’s. There’s very little risk your family will be disappointed by your handing out baskets filled with Hershey’s Kisses and Reese’s chocolate and peanut butter eggs.

Asset Allocation Model

The National Confectioners Association reports that chocolate products accounted for 60 percent of confectionary sales in 2010. This doesn’t mean you should fill your basket with chocolate products alone. Your basket should include other classes of top performers, such as jelly beans. Candy corn is increasingly popular as well, and makes your basket more colorful. This also protects your emotional investment should the person you are giving the basket to not be particularly enamored of chocolate.

Don’t Chase the Flavor of the Week

Easter basket trends come and go. The treat that seemingly every basket has one year may virtually disappear a few years from now. In the worst case, the brands are discontinued -- never to be seen again. Candyfavorites.com lists some of the once-popular products that are no longer with us including, High Noon Candy Bar, Jawteasers, Dr. Pepper Gum and Skittles Smoothie. As you are contemplating the products to invest in for next Easter, consider whether they will have long-term consumer appeal.

Don’t Follow the Crowd

Just because your local grocery store has an enormous display of one candy brand, it doesn’t mean you have to fill your basket with it, like you see everyone else doing. Part of effective Easter basket investment strategy is having the courage to go your own way, to uncover those tasty treats that other investors may be ignoring. Receiving a basket with something new and different is exciting for a family member and shows you took care with the choices you made.

International Diversification

America isn’t the only place where wonderful confections are manufactured. Consider adding the delicious Cadbury Crème Eggs to your baskets next year. These are made by Cadbury PLC in the UK. But fortunately you can make a crème egg play by purchasing shares of Kraft Foods Group, Inc. which acquired Cadbury in 2010.

Dollar-Cost Averaging

Just as with Halloween, Christmas and Valentine’s Day, Easter presents an opportunity to over-indulge in candy acquisitions. You may find, as other investors have found, that you can’t even give the stuff away when the holiday is over. A solution is a more disciplined candy investment approach called Dollar-Cost Averaging. You purchase the same dollar amount of candy at regular intervals throughout the year rather than splurging at these four special days. Investors find this sort of discipline very difficult: The National Confectioners Association reports that 25 percent of annual confectionary sales were made for those four days alone!

Participate Further Up the Candy Chain

Although you can include Marshmallow Peeps and Jelly Belly jelly beans in your baskets, you can’t own shares in those private companies nor even in M&Ms which is owned by Mars. If these are perennial favorites in your Easter baskets’ flavor combinations, consider checking out the major suppliers of the ingredients they use to see if any of those companies are publicly traded. If you are a major supplier of a highly successful, rapidly growing company, their success can become yours as well. Just please don’t give your kids Easter baskets filled with 5 pounds of raw sugar.

Buy and Hold Doesn’t Mean Buy and Forget

Proponents of the buy-and-hold Easter basket strategy advise that you make your selections with confidence and stick with them year after year. Don’t switch them out with other candy selections right before the holiday because you are unsure you made the right choices. That’s all well and good except your selections may go stale after a certain period of time. What worked well in last year’s basket may not perform as well this year. Remember to consider the latest trends in consumer tastes and lifestyles when you make your Easter candy investment selections.