Have you ever asked yourself: How do I know or decide what to invest in? How do I choose the company that to invest in or the share to buy?
One of the most difficult aspects of investing, particularly for those just starting out, is deciding what to invest in. With an almost infinite number of investment opportunities choosing the right one can be daunting.
Type of investment vehicle aside picking the right stock from the staggering number of listed companies can be a real challenge and adds to the complexity of investing.
Deciding on a good investment
So how do you decide which company to invest in? Frankly speaking, go with your instincts. This might sound the polar opposite to what you have heard and read before on Captain Finance, but it often proves to be the simplest and an effective way to decide on your investment.
Research remains key and may under no circumstances be disregarded, but given the huge number of companies, you can only do research on so few.
So how do you narrow down the companies to research? Here a shortcut to help you cut through the investment jungle: Invest in what you believe in. It will make finding a gem that much easier and no longer appear a daunting task.
Walk through your city, read papers and magazines, think about what you, your friends, colleagues, and those around you buy and like. When you look around what products and services pop up everywhere and every time? Which ones do you love using yourself and are happy to recommend to others?
Two simple rules of investing
- Buy shares in companies from whom you would buy yourself
- Keep your eyes open and soak in your environment
About 12 years ago, still a student, I was walking through the beautiful city of Brighton in the south of England when I spotted something intriguing. It was the start of the new term and wherever I looked students were flocking their new Puma sneakers. In town the same sneakers were walking the streets. Obviously not only students opted for the newly designed street wear, people from all walks of life splashed out their hard earned cash on these sneakers.
In fact, Puma had been struggling for years and likewise its share price. Other big brands had dominated the market, but somehow out of nowhere Puma had taken it by storm.
The following days I noticed a similar picture. Everywhere I went people were strolling in Puma sneakers. Suddenly the once unpopular struggling brand had come to new life. The share price, once in the gutter, was to follow suit.
I realized quickly that their strong presence was to going to be reflected in the share price. How right the assumption turned out to be. Over the next years, the share price went up by over 300%. The company went from underperforming to outperforming many of its peers and other stocks.
Invest in brands
Here lies the key: invest in companies that offer products and services that you would be happy to use and that you know many others love or will also use. Companies that offer something people cannot live without. Whether it’s because they choose (e.g., luxury products) or are required (e.g., insurance companies) to use a particular service or product. Increasing popularity means higher profits and share price.
One of the companies that has most notably demonstrated the link between the clear presence in people’s daily lives and a strong share price performance is Apple. Not long after their products first appeared it became common sight that people were listening to their music on iPods or talking on iPhones.
The increasing popularity was so simply observable and a fantastic indicator to decide where to invest your hard earned cash.
Investing isn’t rocket science
Indeed it requires as little as walking through the world with open eyes. With a better idea of what moves the world and what products or services aren’t seasonal snapshots, choosing an investment becomes a lot easier.
When it is no longer just you or a few experts believing in a particular product and you find that you can frequently spot them as you walk down the street or hear them in conversations, it is probably time to research that specific company. Whether on the streets of Brighton or in the hands of our friends and neighbors, your environment will give you a good idea of what investment to look into further. But remember: Only invest in what you really believe in.