Is it possible to achieve investment success in stocks using just information gleaned from general news sources and our own observations--and without poring over "official" investment analyst reports? I have known many investors who have done just that. They pay attention to what is going on in the world around them, and they apply knowledge from their own field of expertise.
First off, what do we mean by "success"? Different people have different definitions of success because different people have different goals, and success is usually measured by the extent to which we reach a stated goal. In the original Rocky movie (1976), Rocky Balboa does not win the climactic match with Apollo Creed, but he does go all 15 rounds. That is success enough for Rocky (and quite an eye-opener for Apollo). For investors, the success of a stock portfolio typically means outperforming some benchmark, such as the S&P 500, consistently over time. If over a five year period the S&P was up, on average, 10% a year but your stock portfolio was up 7% annually over the same time frame, that is not really success (you would have fared better buying the index fund). It would be success if your goal was to not lose money, but that is not really what we are considering here. Just to be clear, I am referring to that portion of your assets that you choose to invest in stocks, your stock portfolio, and not your other assets like real estate or bonds.
Now let's fire up those powers of observation. It does not take a rocket scientist to know that there are a lot of overweight people in America. Being overweight can lead to diabetes, which can cause kidney failure. Dialysis, anyone? This line of thinking might put dialysis center operator Davita (DVA, $138) on your radar screen. It would have been a nice addition to your portfolio, as DVA has had a five-year annualized return of 20.44% versus 12.73% for the S&P. In another case, suppose that at the beginning of this century you had noticed the popularity of energy drinks--you see your friends drinking them and you observe their shelf space in grocery stores. If you had invested in Monster Beverage (MNST) 20 years ago, you would have found the best-performing stock in the market. Shares have gained more than 100,000% over that time period, well ahead of the S&P 500. I can't resist calling these "monster" returns. Is investing really as simple as paying attention? No, of course not.
Good information is the lifeblood of investing, with the emphasis here on good. There is so much information that comes across my desk and through my email inbox, and most of it is useless for making stock choices. I actually divide information into two categories: actionable and non-actionable. Most of what I see (just glance at, really) is about as actionable as a coupon for a Brazilian Butt Wax (this is a real show on cable). Most of the actionable information is what I actually pay to receive. My favorite among the investment advisory services is The Motley Fool, which has supplied me with quite a few very profitable stock ideas (Netflix, Amazon, Facebook, and NVIDIA to name a few). If you are going to follow one of these services, be sure to do a little digging into their track record. Your power of observation is a great place to start, but at some point it is a good idea to read some trusted and reliable investment research--and that is not necessarily research from the brokerage firms. This will also help remind you that the product is not the same thing as the company, and the company is not the same thing as the stock.
Now, when it comes to observation, when was the last time you saw a television commercial for a home generator? I can't recall seeing any until a few years ago when I started seeing commercials for Generac (GNRC, $114 ). Every house I know of at Horseshoe Lake that has a generator has a Generac. Most of these houses are new and were built by the same contractor, who recommends Generac. Most homeowners take his advice, because most of them are not inclined to go shopping for one. What is reliable about the power at Horseshoe is that it reliably goes out--like every time there is a good gust of wind. I like to keep meat in our freezer, so I don't want to worry about losing power. I suspect that what is also going on here is that generators are going mainstream. I think the home generator is something akin to what microwave ovens once were--something that very few people had. Once people realized what a convenience a microwave could be, more people started buying them, and today I would say that it is rare to find a kitchen without one. So, if I'm correct, the generator will soon be just another standard home appliance. When you start seeing commercials for Generac's competitors, you'll know that the day has arrived. Keep those powers of observation sharp!
Life is short. Get busy. And Pay Attention!
Jim
Disclosure/Disclaimer: My family members and/or I own shares of AMZN and NVDA. Individual stocks are mentioned here for the sole purpose of illustrating investment concepts, and nothing stated here should be construed as the advice to buy or sell any security.
Copyright 2024 James Brinkley Taylor, Jr.
Email me with any questions, comments, or feedback:
jbrinkleytaylor@gmail.com
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