Here’s a story that’s supposed to illustrate a quick way to invest in the stock market and make a lot of money:
They say that legendary investor Peter Lynch, who ran one of the biggest mutual funds of all time, discovered L’eggs, not from his market research, but rather from his wife. She picked up a pair of panty hose at the grocery store, and couldn’t stop raving about the new “L’eggs” stockings she had just discovered. She liked not only product’s quality, but no less important the convenience of being able to pick up the stockings at the grocery store, and not needing to make a trip to the clothing store. Lynch saw the potential here and began to buy shares in the company that thought outside the box. Eventually, that trade became one of the fund’s most profitable moves.
What lesson can you learn from this great investor?
The takeaway from the story is that you can use any idea to trigger researching an investment. For Peter Lynch, that was his wife’s stockings. Or perhaps like me, you really like your iPhone and Apple Watch, so you start to follow the stock. Before investing (i.e., risking) any money, though, it’s critical to look at the investment side of the company.
The lesson you should not learn is: Just because you like a product, that doesn’t mean that the company will do well. After all, lots of fine ideas never make it in the market because of competition, poor management, bad marketing, a crummy economy….
What to look at first
I’m certainly not recommending any stock, but let’s think about Apple as an example. Start by taking a look at the competition. iPhones are great, but ask my kids… they prefer the Galaxy. Next, if you look at the corporate side, you’ll note that Apple’s CEO Tim Cook is simply not Steve Jobs, the visionary founder of the company. And how do you like their marketing and product design? Frankly, I’d prefer that the earbuds they made weren’t so white.
That’s not enough information to make a decision
You still don’t have enough data to make a decision as to whether to invest based solely on personal preferences. A quick way to get into the market is to use a mutual fund or money manager, since they’ll handle the research for you. But you can still lose money since even the pros can underperform.
Douglas Goldstein, CFP®, is the Director of Profile Investment Service, Ltd., which specializes in helping people who live in Israel with their US dollar assets and American investment and retirement accounts. He helps olim meet their financial goals through asset allocation, financial planning, and using money managers.
Published August 17, 2018.