How to invest in McDonald’s from Nigeria

McDonald's business model

McDonald's Corporation is an American company known for its hamburger restaurants around the world. It was founded by brothers Richard and Maurice McDonald in 1940, who first implemented the fast food concept inspired by Henry Ford.

Initially, the McDonald brothers did not have as broad a business vision as the company has today. It was Ray Kroc who would take the company to success, becoming the first successful McDonald's franchisee in 1955.

By 1960, Kroc would buy the company from the McDonald brothers for 2.7 million dollars, thus becoming the owner of the company. Since then, the company has grown to more than 36,000 restaurants in 118 countries. Ray Kroc turned the company into one of the most successful companies worldwide, although its real business is not hamburgers.

McDonald's business model: hamburgers or real estate?

Although McDonald ‘s is a fast food restaurant chain that primarily sells hamburgers, most of its revenue does not come from selling food, but rather from renting its properties, i.e., real estate.

Only 5% of the restaurants are wholly owned by the company, the rest are franchises that operate almost like any other well-known franchise. That is, the franchisee pays the brand (McDonald's) to have the rights to use the brand to make a profit.

Thus, McDonald's gets paid for the franchise, is the supplier of the restaurant and also gets a share of the monthly profits of each restaurant. But in addition to this, McDonald's gets paid rent for the space where the franchise is located since the company owns all the locations.

Each time a new McDonald's opened, the company would first buy the land and fit out the location and give the franchisee the finished restaurant. Thus, the franchisee is only responsible for the management and operation of the restaurant.

This is how McDonald's came to own more than 36 locations that it rents to its franchisees as part of the franchise agreement. And that is why, although the company only fully manages 5% of the restaurants, it generates annual profits in excess of 20 billion dollars.

And this allows it to offer attractive dividends to holders of company stock (dividends are the portion of profits distributed to investors) that have historically increased year after year. As a result, McDonald's is a company that every investor tends to include in his or her portfolio.

Financial assets you can trade

About Index Funds

This is the best option for people who can invest in the long term, especially for beginners, because it is less expensive, diversified, and the risk is lower.

You may have a different idea, but very few investors can beat their benchmark return (yes, you have surely heard of managers who achieve huge returns).

But besides Warren Buffett and a couple more, all that glitters is not gold: when someone brags about having beaten the market, they have probably done so for a short period, or the rates are so high that it ends up being better for you to index (whit minimal commissions). Also, past performances do not ensure a future one.

The good thing about index funds is that they perfectly solve both issues: their rates are insignificant and they frequently beat active managers, but in the long term.

Forex trading

Forex or currency trading allows obtaining profits by converting one currency for another.

In case you decide to trade euros and dollars, you purchase euros and pay with dollars, thinking that the first currency (the euro) will revalue compared to the second (the dollar), to make a profit by selling it. Let's say you entered when the price of one euro is 1.10 USD and you leave when it is worth 1.15: that difference is yours once you sell again.

As you may have already inferred, this type of trading requires investing a lot, because prices never increase that much, or using a lot of leverage, which you know is a risk. Our advice for those who are new in the world of trading is not to start with Forex, but with a safer and simpler market.

You can trade with the most common currency pairs on this broker but take into account that in Forex sales are always made through contract for differences, so the underlying asset won't be yours.

How do Contracts for Difference function?

If you already have been on this broker, you must have seen how the acronym CFD appears all the time. Before we come back to this, you should know that cryptocurrency trading on the platform is only CFD if you short sell.

We will also explain terms like going short and leverage, in case you are thinking about day trading cryptocurrency or more advanced practices.

this broker allows you not only to bet “in the black”, but with CFDs you can also bet “in red”. Let's say that you believe that the McDonald's will fall, so you clearly think “if it is going to depreciate or go down, I'll just wait and go when it has gone down”. However, if you are convinced that it is going down, why not take advantage of that and earn money?

The practice known as “going short” will allow you to do that. It works, more or less, this way:

  • You obtain from a loan 100 units of McDonald's, which cost $ 5,000 (these are completely fictional figures)
  • You sell the 100 units and earn $ 5,000
  • As you thought, it depreciates, and the unit of McDonald's goes from $ 50 to $ 30
  • You buy all 100 units one more time, but at the current price, $ 3,000
  • You return the 100 units to whoever made the loan in the first place
  • The rest is yours, so, you will have made $ 2000

It is really simple. Just know that by trading in McDonald's on this broker, you can make a profit if you anticipate downs in the price.

Leverage explained

In case you still don't know what “leverage” is, we'll put it short. When trading, it's the capacity of enlarging your investment without putting more money. For example, you can enter with $ 100, but if you use x2 leverage, you will be investing $ 200.

Leverage, Take Profit and Stop Loss

Assuming that, for example, you are certain that McDonald's price is going up, and that you have $ 1,000 for “going long”, you must know that you have the option of investing more and making more money.

You could consider requesting a credit, but you must know that all the process takes time, and by the moment you finally get the money, McDonald's might be already at a much higher price, so you wouldn't be able to invest the way you planned.

Thanks to leverage, you can obtain that amount of money with two clicks. It's like borrowing money, but much easier and quicker, and with the benefit that you will be getting it directly from the broker. As in the image below, you will see the different options you have:

apalancamiento

With other assets, the ability to leverage is greater. This is because cryptocurrencies are a value that is invested in the medium-long term. However, leverage is used primarily for short-term operations or day trading. But let's deepen a bit more on how all this works.

You enter with $ 1,000 and pick leverage x2, then you would have $ 2,000 to invest, since your broker would put the other $ 1,000 (which is double the initial amount).

A week later turns out that McDonald's price rises up by 20% and now your investment costs 2,400. So, a wise decision is to sell them back now.

You will have to give back the $ 1,000 of leverage and the net profit would be $ 400 (since the other $ 1,000 was your initial investment).

With $ 1000 you get $ 400, in other words, 40% more. Not bad, right?

Still wondering where the catch is? The trick is that the risk of losing out also increases. If everything goes as you planned, you will make more money in less time; however, if the value of the asset goes in the opposite direction, you will also lose more in less time.

For instance: if instead of increasing by 20%, the price falls by 10%, you do not lose $ 10, but twice that figure, which means $ 20, because of the leverage. Because of that, the concepts of Take Profit and Stop Loss are crucial when using leverage.

Take Profit is used as a form of reducing risks when trading. When you enter, you can set a profit limit and ask that your position is automatically closed when the asset reaches a price. 

If you bought McDonald's shares at $ 100, you request the broker to close once it reaches $ 120. That way, you make sure you won't change your mind and decide to wait a bit longer in case it keeps going up, which could make you lose it all.

Also, if you use leverage you absolutely need to place a Stop Loss order (take into account that any small loss is greater with leverage). Take into account that your broker will recommend a limit for Stop Loss, but it is better to place it closer to current price than the platform suggests.