Of all the investing philosophies espoused by Wall Street luminaries Warren Buffett and Peter Lynch, the most universal may be the axiom "Buy what you know." Loyal3, a San Francisco-based startup, aims to make it easier for consumers to do just that. Its Customer Stock Ownership Plan (CSOP), which launched in May, enables people to buy small amounts of stock in publicly traded companies. "People love Target and Coke," says Barry Schneider, CEO of Loyal3. "Why aren't more of them owners of those brands?"
Well, for three reasons: The market can be intimidating, exclusionary, and expensive. According to a 2011 Gallup poll, just 54% of Americans own stock—the lowest level since Gallup began tracking ownership annually in 1999. (The S&P 500 index's falling 6% over that time hasn't helped.) Brokerage firms don't bother with low-net-worth clients, and the fees charged by online brokerages make investing a losing proposition for people who want to float just a little cash.
Loyal3 addresses those concerns. Its goal is to court public companies—or ones planning to go public—that engender consumer devotion, and then serve as middleman so users can buy partial shares of them. The first (and, as of press time, only) CSOP partner is Fifth & Pacific Companies Inc. (formerly Liz Claiborne Inc.), a $1.5 billion outfit that owns such brands as Juicy Couture and Kate Spade.
After creating a Loyal3 account, users can visit F&P's site or Facebook page to buy fractional shares, at market value, in increments of $10, $25, or $50. Any dividends earned are reinvested, and CSOP shareholders can sell at any time. F&P covers the trading fees. Loyal3 gets paid by the company for acting as broker.
For partners like F&P, the appeal extends beyond the sale of stock. "We don't care if the volume of shares traded is small," says William L. McComb, CEO of F&P. "Ownership drives loyalty, and vice versa." And the mobilization of loyalty is at the heart of Loyal3's allure. Says Schneider, "We make it as easy to buy stock as it is to buy a book on Amazon."
To a point. Loyal3 lets users invest only up to $2,500 per brand each month—a decision that speaks to the danger of making stock as easy to buy as a Hunger Games paperback. In a weak economy, people who can't afford a well-rounded portfolio may be better off opening a 401(k), or saving. And while Loyal3's mission is to introduce more people to the market—and Loyal3.com does offer links to financial advice—the company's model isn't built on investor education. For every user that understands the market, another may invest in a brand because he likes the pants it makes.
Of course, that kind of bond between brand and consumer is what Loyal3 aims to forge. "Consumers are well-positioned to assess which companies to invest in," Schneider asserts, "because they know from experience the brands that have superior products and services." Given the track record of "professional" stock pickers, that may be as good a guide as any.