The Beginning Investor's Kit
Author : N/A    -   Subject : Finance

Chapter 10: Invest in What You
Know

Wondering what stocks to buy? Take a
tip from investment guru Peter Lynch,
former manager of Fidelity's Magellan
Fund.

Open your eyes and look around. As
ThirdAgers, you and your peers have fueled the growth in real
estate. You have been buying big ticket items like household
appliances, cars, and more for decades. Odds are that you
have growing discretionary income and you use it to buy
quality products and services. In short, you know what you like
and you spend money for what you need and enjoy.


Right Under Your Nose
So when you're considering stocks to invest in, consider
companies that deliver goods or services you or your friends
regularly use. Your observations as a consumer can make you
a pretty good analyst.

For example, consider the airline you regularly fly. How's the
airline's on-time arrival and departure for you? Are the seats
full? How's the counter service? Do the routes and schedules
meet your needs?

Take it a step further. What type of planes do you ride on? Is
the airline adding more of them to the fleet?

If you have the opportunity, ask the flight crews and ground
crews questions about the airline's operations, equipment, and
suppliers. Their answers and your own observations may
convince you to do what Lynch suggests: buy the company by
buying its stock.

Don't rush out and make it part of your portfolio without
looking further into the company, however. Make sure the
company has solid fundamentals, like minimal or no debt, strong
earnings and sales, and leadership in a growing industry.

1. Compile a list of ten or so companies
you do business with. Make it easy. Pick
three from products in your kitchen
cabinets, three from products in your
bathroom, two from products in the
garage, and two from elsewhere in your
home.

2. Determine what companies manufacture the products or
provide the service.

3. Rank the companies in order of the quality of service they
provide or products you use. Consider your own satisfaction. If
your friends use the products or services, consider the
satisfaction they claim to get from the products.

4. List the stocks in your portfolio. Do they match any of the
companies on your first list?

5. Use your online broker and sites like Investorguide.com to
research the stocks that are on your first list, but not in your
portfolio.

6. You may track the stocks for a period of time, perhaps three
months--a financial quarter--to gauge the stocks' volatility.
Add the stocks of companies that show strong fundamentals
and match your risk tolerance to your portfolio.

Of course, even if you "buy and hold" those stocks, keep an
eye on them to ensure that they retain the quality a
shareholder and a consumer wants in a company.

Return to articles