What Musicians can Learn from Wall Street Analysis

Let’s start off with some role playing. Imagine you are some type of financial analyst or hedge fund manager. Look at the limited descriptions and financial numbers of the 2 publicly traded companies below and see if you can predict what the stock prices have done over the last 5 years.

Company A

Company A has paid a dividend (they just give some of their profits to shareholders) every quarter for the last 5 years, and every year they increased the amount of that dividend a little more. The company is consistently profitable and has been for a long time. The risk involved in the stock is typically presumed lower comparatively, due to the long history of the company as a dominate industry player and its strong customer base. This can be verified from the implied volatility (volatility is how much the stock price bounces up and down compared to whole stock market) ranging between 12-20 over the last year.* The net income for the last 3 years was $6 billion, $13.3 billion, and $13 billion.**

Company B

The second company has never paid a dividend. That’s understandable as the company has NEVER had a profit over the last 14 years! Its current revenue is unable to cover the cost of all the expenses and R&D (research and development). This company has averaged much higher volatility, between 30-50 over the last year.* The net income for the last 3 years has been a loss of $294 million, a loss of $889 million, and a loss of $675 million.**

Disclosure: Many factors determine stock price and movement. This discussion is for entertainment purposes only and is not a recommendation purchase or not purchase any stock for financial product.

Now take a look at what the stock prices of each over the last 5 years. The stocks are the blue line and for comparison, the red line on both is the same Dow Jones.

Company A

Company B


Did you bet that company A was the one up 13.83% while Company B would be up 1013.37%?! Well, you should have.

The major differences between these 2 companies can be summed up simply by describing the stock category they fall in; Income vs Growth. Understanding the category of the stock is a necessary part of the analysis when reviewing the quality of a company’s strategy.

If you haven’t already checked, Company A is T- AT&T Inc (considered Income or Dividend Stock) and Company B is TSLA -Tesla Inc (a Growth Stock).

And yes, if you are a serious musician or band, you need to know the difference. More importantly you must know which one you are. Keep reading to learn how to decide if you or your band is in the Growth or Income category.

Growth vs Income

Before discussing these categories in the music world, let’s get a better understanding of the terms in the financial world.


“Growth” can be used to describe a company, sector of companies, or a mutual fund (e.g., a Growth Fund will be a mutual fund holding mostly Growth stocks.) When looking at publicly traded companies, growth stocks will be the stocks that have very high potential and plenty of room for growth. When an investor is buying a growth stock they aren’t expecting the company to start paying out a bunch of dividends. The investor is looking for Capital Appreciation.

To make money via Capital Appreciation the investor is using the “buy low, sell high” mentality. They believe that they can buy the stock now when the company is not profitable but has a lot of potential and hold it while the company grows. Then when the stock prices rises over time (appreciates), they will then be holding a stock worth much more than they bought it for.

The characteristics of growth companies usually show potential. Think fast moving young companies. They have an idea or new niche market that is untapped. Often technology companies are in a growth mindset. You won’t be seeing dividends from these companies because every bit of money they do make, they are quickly reinvesting into themselves so that they can continue to grow and expand. It’s even very likely that they will be losing money and taking on debt.

Looking back at Tesla’s stock performance, you can see that there isn’t any real correlation between the stock price and net income. Why has the stock been soaring without being able to post an annual profit? The stock price is rising on potential. You have to spend money to make money, and in Tesla’s case, they have been spending a lot of money for many years. Investors believe that the potential is worth the risk, so they keep pouring more money into the company.

Income (aka Dividend)

The other side of the coin is “Income”. Here we are usually talking about older and established companies whose prices are based less upon future potential for growth. Companies like AT&T aren’t expected to, and usually aren’t trying to, make a huge leap in their industries market share.

It’s not that they aren’t trying to make money, but it’s hard to reinvest all your profits when you are already a dominate player in the industry. When Apple Inc had the business savant Steve Jobs at the helm, do you think they wanted to divvy up the extra cash they had to each investor? No! Apple had been around a long time, but because of Jobs incredible vision with the iPhone, the company would see many years of amazing growth. To accomplish this growth, they needed that cash to be reinvested in the company. The result was the amazing run Apple stock had for many years.

But what happens when everyone in the world has an iPhone? The potential for Apple was amazing growth as everyone in the world slowly realized that an iPhone was becoming a necessity. Once everyone has one, that potential is no longer there, increasing the argument for using that extra cash to pay dividends instead of reinvesting into the company.

Your Music-Are You Growth or Income?

So why is categorizing stocks between Growth and Income important?

For those that have already read “4 Tips for Musicians to Succeed Like a Business”, you may already be getting it.

If you went up to Elon*Musk, CEO of Tesla, and said “when are you going to start paying a dividend?”, he would instantly retort that dividends aren’t part of the plan any time soon. You have to spend money (and reinvest it) to make money.

The point is, the people running companies, from local businesses to Fortune 50 firms, know very well if they are Growth or Income because they made a conscious effort to be that way.

Since music IS a business, you should be able to answer that question easily too! Whether you’re a band, music group, freelance musician, YouTube musician, jazz artists, classical musician, major label artist, or street corner performer, you should know if you are a Growth stock or an Income stock.

So, what does a “Growth Musician” vs “Income Musician” look like? Below I lay out some typical descriptions and strategies of the different types of musician. Remember these are not a dichotomy. Strategies can be mixed and it’s possible to create success using both, but only if there is a coherent plan guiding the overall strategy.

The Growth Musician

The Dreamer. Just like Elon, you have a vision to make large leaps ahead with your music. This could be a featured Soprano on tour, a Nashville singer songwriter, or the garage band pulling together their first professional produced album. They are committed to growing their brand of music.

Growth musicians are focused on fan growth. Getting money isn’t for food or luxury, it’s for funding a recording, new equipment, or touring to get more fans. Just as Growth companies reinvest all their income to get more customers, Growth Musicians earmark all their income to get their music in front of more people.

It’s high risk. Stocks that fall into the Growth sector are known for their increased volatility in their stock price. Going for broke as a musician often leads to musicians being broke. Somedays things look great, somedays they don’t. There are no guarantees you are going to make it.

The “you need money to make money” moniker holds true. Growth companies are using private equity, IPO’s, and tons of debt to grow, even though they aren’t making money yet. Similarly, musician’s put in their own money, borrow from anyone they can, and get huge cash advances from record labels to make their album.

It was risky before, but debt can be a nasty thing. Any unfortunate financial circumstances are dramatically increased when debt is involved.

But success can come. For those able to ride the crazy ups and downs and persevere through the financial difficulties, they can become well rewarded. After developing that coveted fan base, musicians can monetize their followers, repay all debts, and prosper as a successful musician.

The Income Musician

Steady Eddie. No big showcase shows, no “for publicity only” shows. They play in orchestras, jazz combos, and cover bands. They often give music lessons and other side gigs.

Income musicians are often experienced. While not jaded about music, they focus less on getting a million fans, and are more content with supplying great music locally and to small, appreciative audiences. Many formally trained musicians leave school preparing for the grind of a freelance musician.

The rewards are smaller for the Income musician. There’s not much thought about being discovered overnight and becoming a sensation. But through strong musicianship, they know they can still have a shot at getting lucky and being picked up for some great gigs, a tour, or a major album.

The rewards are small, because the risks are lower. Freelance musicians don’t have to put as much of their own money or time. Taking on debt is less common since cash isn’t needed to front any project. Cover bands rarely make it big, but can always find a paying gig. It can be tough work, but it’s not behind a desk (at least not all the time).

The upside is the reduced risk. Once an Income Musician has developed their secure sources of income, they can live with less anxiety than the Growth Musician. Confidence that the income will continue with at least some consistency. This allows for the Income Musician to create a life from their music.

Just as a company can transition from a Growth company to an Income money after they have had great success, so can a musician. The garage band that got signed to a record label and produced some big hits can choose between trying to continue to aggressively grow or aim to just maintain their status and keep generating income that they actually take home.

What type of Musician are You?

Are you a Growth Musician or an Income Musician? If you can’t say instantly, you must figure it out. You need to know where you want to go with your music career before you can create your path to get there.

Understanding what your business is and what your goals are will make you much more likely to reach them. I highly encourage you to review your strategy and figure out what type of musician you are.

Need help understanding your strategy? Contact me at kyle@americanafp.com to discuss where you are as a musician and to better understand your financial goals, or read my free eBook The Financially Successful Musician.