Thinking Outside the Stock
At StockBoxFinancial our slogan is “think outside the stock.” Despite what you might think, this is more than just a snappy little motto. We really want you to think outside the stock. We want to think that you are investing in a company rather than buying a stock. We want you to think that your ownership of a company will bring you long term prosperity rather than stock market gains. Instead of saying “I invest in the stock market” we want you to say “I buy businesses.” If you can think in these terms, outside the stock, your investing life will become much simpler. You need to believe that every time you invest in a company you are a small owner in a business. Actually, that’s exactly what you are. When you are a shareholder you own part of the company and you share in its success and failures.
After all, you already know what makes a great business. It’s easy to see from day to day life. You already know that great companies sell a product or service better than their competitors, have excellent customer support, treat employees well, and keep costs in check so that they can make a profit. If you can apply these basic ideas and use common sense you have the potential to do well in the world of buying businesses.
The first step in buying businesses is to find companies that you understand. At StockBoxFinancial we understand Chipotle Burritos and Pepsi soda, but we don’t understand end to end satellite communication. Our philosophy is to only invest in companies in which we can quickly grasp the business’s method of making money. As a rule of thumb, we believe that if you can’t understand a company’s business after ten minutes of research to just give up your investigation and move on. After all, why waste your time with companies you can’t comprehend? If you’re not a rocket scientist, don’t pretend to be one and stay away from rocket science companies. However, if you are a rocket scientist, then you have a huge advantage or people who don’t know anything about the subject. Peter Lynch, in his best selling book One Up on Wall Street, calls this advantage the amateur’s edge. Mr. Lynch asserts that amateurs have an edge over all the professional investors at hedge funds and Goldman Sachs. Fortunately, you don’t have to be a rocket scientist to enjoy this edge. You have an edge at your job and even just as a normal consumer. Walk into the local shopping mall and you’ll find a large number of companies just waiting for you to conduct investment research. You can look for companies that sell good products at reasonable prices. Also, you will want to see where all the shoppers are spending their money. If you are see that everyone is carrying a bag from store ABC, then this is a very good sign and then you should wonder about the overall business.
Before we jump ahead of ourselves, we need to remember that when you like a store or a company for their products or services we shouldn’t jump in and buy the stock right away. Using your amateur’s edge to find company is just a reason to get interested in a company. Research is needed to determine whether or not the company is a worthwhile investment.
The first question you need to ask, whenever you find a company you like is “is this a publicly traded company?” A publicly traded company is company in which you can buy shares and is listed on a stock exchange such as the Nasdeq or the New York Stock Exchange (NYSE). Sometimes you can figure out if a company is publicly traded by asking an employee at the store, but most of the time these workers squander their amateur’s edge and have no idea if that company is publicly traded or not. So, you can use a search on Yahoo’s Finance website which will tell you if the company you’re interested in is publicly traded. If you can’t find the information there, use the company’s website and send them an email asking for the information. Companies will almost always send you whatever information you ask for. If they don’t, then you probably don’t want to invest in their company anyway.