Invest In What You Know
One of the most common questions I'm asked by new investors is how to figure out what companies to invest in, and without fail I always provide the same answer: "invest in what you know." This notion of investing in what you know is one of the hallmarks of successful investing.
When I started investing over 15 years ago my primary focus was on purchasing bank stocks, and the main reason for this was because I had worked in the banking industry for 8 years. Since I was very familiar with the banking industry, I found it less intimidating to invest in bank stocks, and actually became excited to delve into the financial statements and conduct investment research on this topic.
It was also very helpful to have worked in the banking industry because I got to see first hand the new technologies that were being developed at the bank, which in turn led me to invest in certain banks over others. Nonetheless, I was able to make great returns on my investment, which gave me the confidence to start branching out into other sectors. For example, I actually found the courage to invest in a railroad company, and to my absolute delight and surprise, made a great return on my investment by doing so!
You Become A Confident Investor When You Invest In What You Know
Your confidence in investing will increase exponentially when you invest in what you know. That's what happened to me! I already knew the jargon of the industry, and was familiar with the way the banking industry worked, so I was able to piggy back off of my banking experience. I recognize that not everybody has the benefit of working in the industry that they want to invest in. However, you don't need to work in the industry you invest in, you just have to be familiar with the product, service or business of the company you invest in. The simple act of using the products or utilizing the services, is the first step in determining whether you want to invest in that company.
For example, if you love shopping at Costco, and want to start making money from this company, as opposed to spending tens of thousands of dollars on consumer products at the company, why not become an owner of Costco by purchasing its stock. As an added bonus Costco is a dividend paying company, so your opportunity to make money is twofold:
Alternatively, you may love to wear Nike shoes, and are well versed in all the different lines of Nike apparel that are currently being offered in the retail landscape. Well, if that's the case, why not invest some money in Nike stock so you can begin to reap the benefits of Nike's great product offerings. I am not being paid by either Costco or Nike for the above endorsements, but rather have chosen to use these two companies as case studies in order to demonstrate the significance in investing in companies that you know. When you invest in companies that you know, not only do you become a confident investor, you also become a successful investor.
Invest At The Right Price
There is a second point that I need to make in regards to investing in what you know, and it is this - you NEED TO INVEST AT THE RIGHT PRICE. This is such an important part of the whole equation, that I have made sure to capitalize this point! It's great to invest in what you know, but it's even MORE IMPORTANT to ensure that you are buying these companies at the right price, and not at overvalued and exorbitant prices.
I like to use the example of shopping at the grocery store, or shopping at my favourite clothing store. When I go shopping at these stores I typically look for items that are on sale, or that are deeply discounted. I'm a very astute shopper, and refuse to buy anything at regular price. The same principle applies to buying stocks. Make sure that you are buying the stock of your favourite companies at a discounted price. This is the most effective way to ensure that you are making money as a stock investor, as opposed to losing money.
I will be offering an investing course later this summer, and would encourage anyone who would like to learn more about my money making investing principles and philosophies to register for that course. It will be worth your time and money!
As you become a more confident investor by investing in what you know you will begin to build up the confidence to branch out to other industries, which will give you a broader range of stocks to select from when building your investment portfolio.
My book '7 Steps to Get Out of Debt and Build Wealth' will be available for purchase soon, so make sure to stay connected by clicking on the "Get New Posts Via Email" button on my blog, and register to get the latest updates and posts sent directly to your in-box.
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