Want to buy stock in a company, but don’t know where to start? How do you sort through a sea of choices to uncover a stock that may be right for you?
Finding a stock you can buy doesn’t have to be difficult—or boring. And, you don’t need to be a financial wizard to logically pick a quality investment. Good stocks lie scattered around your everyday life in plain sight, like those nearly perfect shells on the beach.
You can hone your investing skills and learn to spot good stocks if you start with three basic guidelines:
1. Choose products and industries you know.
What’s your favorite snack, restaurant or brand of shoes? Like to shop in specific stores, buy certain brands or wear particular labels? Do you follow the latest trends in cell phones, electronics, sports gear or movies?
Some reliable, steady companies produce your favorite products—from toys and software to peanut butter, pizza, beverages and ice cream. It’s not that stocks in banking, oil exploration or mining companies can’t be good investments, but do you know, follow and buy the products they produce?
If you understand a company’s core products, it’s typically easier to see how the company makes money and its stockholders profit. And, isn’t making money your main goal for investing?
2. Choose companies that attract many customers.
If you enjoy using specific brands of products and services, chances are many others like them too. So judge a company’s popularity rating by the customer lines at the stores, by amount of merchandise that goes out the door and by what consumers tell their peers.
Does the product you like appeal to more than one age group? Does the company get more customers by offering a line of several products? Are the company’s products available and priced so anyone can get them?
3. Choose industries with products that customers use often.
Companies with consumable products—items bought again and again—can be reliable investments. Consider how much your family spends for food, gas, shampoo, cleaning products, paper towels, coffee and other items used regularly.
When a consumer has a good experience with a product, chances are they will buy the same brand again and again.
Marketing experts often say “it’s harder to make a new customer than to keep a current one.” True for repeat buyers of cars, hotel rooms, electronics, restaurants? Doesn’t it also follow that those regular and loyal customers are the best prospects for new products or updated models a company introduces?
Yes, having satisfied, repeat customers bodes well for company growth…and thereby the company stock.
Learn more about investing from the Money Godmother. You can also read One Up on Wall Street by Peter Lynch.