|The infamous Trans-Alaska Pipeline|
Personally, I try very hard to invest in companies I've done business with directly or whose products I've purchased. At the very least, I invest in companies which occupy industries I'm long familiar with. Most investors think that's too limiting, as the universe of public companies is vast and we as consumers tend to do business only with a few brands in the scheme of things-- and then, by definition, only with companies which do business with consumers. (Many businesses, of course, sell only to other businesses: component manufacturers, for example, sell primarily to other manufacturers. Many financial or technological services are provided only to corporations, and so on.) But I feel strongly that as a customer of a particular business, I am in a unique position to be personally familiar with its products or services, and with at least some of its corporate culture as well.
|Front-end loader? Backhoe?|
Let's look for a moment at Netflix. I started renting DVDs from them online back in 2003, when most folks were still spending a couple of evenings a month shuttling to and from the video store. I was stunned with the quality and simplicity of Netflix's service. (Enter a list of films you want to see into your online profile and they mailed them to you, up to 3 per month, sending you the next one on your list as soon as you send back the last, all postage paid). I knew intuitively that this thing would catch on, that the days of millions of people endlessly wandering the aisles at Blockbuster were numbered. I researched the company, learning what I could about their debt structure and their per-customer acquisition cost and their founder/CEO's background and so on. When I liked what I saw, I bought the stock. Then I waited 2 or 3 years for the stock to rise (I was way too early... a recurring theme in my investment history). I held onto that stock for the better part of a decade. Blockbuster was eventually sold for parts and then shuttered.
|Remember that feeling?|
That's what you're looking for. A business you can understand, for sure (if you can't explain what they do, how will you know when they cease to do it well, or start doing it differently?). A business with a strong financial and competitive position. A business with a superior product or service-- which you know firsthand because you've tried it. There are a ton of them: the stores you like to shop in, the shoes you prefer on your feet, the brand of computer you use or the kind of car you drive, the athletic apparel you prefer, the soda or coffee or spirits you drink, the detergent or toothpaste you use. Go with what you know. If you like what that company sells, chances are very very good that you aren't the only one, and if the company is well-run, the stock will withstand market pressure and competition and will rise over time. Which is exactly the point.