The social network experiments conducted by Stanley Milgram, Duncan Watts and Steven Strogatz have become pop-culture mainstays. Movies, multiple books, and spin-off experiments have all occurred as a result - so was born the expression, "six degrees of separation." But does the six degrees theory apply in the stock market, as well? Just how connected are the stocks we trade, the organizations we study and the industries that shape our financial stability?

8 Tips For Starting Your Own Business

It's amazing what you can find inside financial documents like the 10-K and DEF14A. Stockholders really are quite inter-connected. Here goes.

The Maze Begins
Let's start with a company that I'm very familiar with, St. Louis-based private label food company Ralcorp Holdings (NYSE:RAH), which owns 19.2% of Vail Resorts (NYSE:MTN), one of the biggest ski operators in the world. From there, the 10-K reveals Vail Resorts owns 69.3% of Specialty Sports Ventures (SSV), a Colorado sporting goods retailer that not only operates store locations at some of the best ski resorts in the country, but also rents out more skis than any other organization in the United States. That's what I call vertical integration.

Anyway, we're on to our third connection. In May, 2007, SSV bought 18 Breeze Ski Rental shops for $6.5 million. Included in the purchase were two licensed Starbucks (Nasdaq:SBUX) locations in the town of Dumont, Colorado. Dumont sits along I-70 on the way to Vail and CopperMountain, and is an ideal spot for attracting skiers before and after hitting the slopes. (Learn more in Introduction to Financial Statements.)

We're Halfway There
It turns out that one of Starbucks' biggest partnerships is its 50/50 joint venture with Pepsico (NYSE:PEP) to distribute its Bottled Frappuccino and Doubleshot espresso drinks. Starbucks' global consumer products group, which involves the coffee partnership as well as an ice cream partnership with Dreyer's, increased revenues 13.6% in the first quarter of 2009, from $100.6 million in 2008 to $114.3 million in 2009. What's even more impressive is, its operating margin was 45.1%. That's the most profitable part of its business, albeit on smaller revenue.

And now we begin the difficult process of closing the circle.

A Square Peg in a Round Hole
As it happens, Pepsi owns 33.18% of the Pepsi Bottling Group's (NYSE:PBG) common stock, as well as 40.2% of the voting shares. PBG is essentially the sales arm for Pepsico. On the bottling group's board of directors is a man by the name of Barry Beracha, who was the executive vice president of Sara Lee Corp. (NYSE:SLE) until 2003 - a connection which allows me to close the loop. Sara Lee spun-off Hanesbrands Inc. (NYSE:HBI) in September, 2006 and conveniently, Ralcorp director J. Patrick Mulcahy also serves on the Hanesbrand board. It's a small world, indeed. (Corporate structure can tell you a lot about a company's potential. Learn more in Evaluating The Board Of Directors.)

The Bottom Line
While this was meant to be a fun exercise, there is an underlying message. We as investors need to look more closely at apparently-unrelated events, as they could lead us to future opportunities - and risks - that were previously unseen.

Related Articles
  1. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  2. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  3. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
  4. Mutual Funds & ETFs

    ETF Analysis: iShares Core Growth Allocation

    Find out about the iShares Core Growth Allocation Fund, and learn detailed information about its characteristics, suitability and recommendations.
  5. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
  6. Stock Analysis

    Should You Follow Millionaires into This Sector?

    Millionaire investors—and those who follow them—should take another look at the current economic situation before making any more investment decisions.
  7. Professionals

    What to do During a Market Correction

    The market has what? Here's what you should consider rather than panicking.
  8. Mutual Funds & ETFs

    ETF Analysis: Vanguard Mid-Cap Value

    Take an in-depth look at the Vanguard Mid-Cap Value ETF, one of the largest and most popular mid-cap funds in the U.S. equity space.
  9. Mutual Funds & ETFs

    ETF Analysis: Schwab US Broad Market

    Take an in-depth look at the Schwab U.S. Broad Market ETF, an incredibly low-cost fund based on a wide selection of the U.S. equity market.
  10. Professionals

    Tips for Helping Clients Though Market Corrections

    When the stock market sees a steep drop, clients are bound to get anxious. Here are some tips for talking them off the ledge.
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  3. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  4. PT (Perseroan Terbatas)

    An acronym for Perseroan Terbatas, which is Limited Liability ...
  5. Ltd. (Limited)

    An abbreviation of "limited," Ltd. is a suffix that ...
  6. BHD (Berhad)

    The suffix Bhd. is an abbreviation of a Malay word "berhad," ...
  1. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  2. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  3. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  4. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  5. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>
  6. What happens to the shares of stock purchased in a tender offer?

    The shares of stock purchased in a tender offer become the property of the purchaser. From that point forward, the purchaser, ... Read Full Answer >>

You May Also Like

Trading Center

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!