|
Page 1 of 5
If you've already built a sizable portfolio of index and other diversified mutual funds you probably are looking at buying individual stocks. I'd suggest you first take some time to learn some of the  ropes and start by reading a few books on the fine art of analyzing securities. Reading up before you take the plunge saves you the expense of paying full tuition at the most expensive school in the world - the stock market.
But once you feel you have the basics down, consider investing in consumer trends.
Consumer trend investing isn't for everyone, but it is one way to get ahead of Wall Street. That's partly because business analysts work seventy hour weeks in Lower Manhattan offices. So they rarely get to see what's actually going on in the rest of the country. If you happen to live in the fly-over-states, you might have a leg up on spotting the "new new thing." All you need is a few astute trendy picks to substantially improve the performance of your portfolio.
A word of caution is in order. This sort of investing comes with a high risk factor. If you bank on the wrong trend, you can lose your shirt - especially if the product you're banking on is made by a company that only makes that one single product.
The easiest way to spot a trend is by paying attention to consumers under thirty. Here's a methodology that you can use to spot companies early in their lifecycles and determine if they have a product that might become a dominant brand.
1) Determine if you're competent enough to spot a trend? Are you one of those people that buys everything as soon as it comes out or did you just recently discover something called an iPhone? If you are in the latter group, trend investing is not for you. You're better off investing your money on an iPhone or adding to your index funds.
Are you on the other extreme of the product cycle spectrum? Did you camp outside an Apple store overnight to get your hands on the first iPhone to hit the market. If you're the kind of consumer who craves bleeding edge technology, you are also going to have a hard time unless you know how to keep your powder dry.
The investors best situated to capitalize on trendy products are the ones that join the second wave of consumers following in the footsteps of early adopters? Why? Because many of the newest products do great with the buyers who are always eager for the latest and greatest gadgetry - but once those gizmos make it to general market they often flop.
In order for a consumer related product to drive huge market capitalization gains, it has to attract the majority of consumers for whatever niche it happens to be targeting. So start by evaluating your personal consumption habits - when did you buy a cell phone, a desktop computer, a laptop,etc. Once these products became everyday devices, what did it take for you develop brand loyalty? When did you switch from buying computers at a retail store to ordering them online from Dell? When did you get a Tivo or sign up XM satellite? Were you way ahead of the crowd? Because that's not good.
Let me give you a concrete example. In 2004, I was home for the holidays in New York and my kid sister was raving about this service called Netflix. It certainly wasn't new at that point and I'd already heard about it. But my sister thought it was the coolest thing to go to your mailbox and get your movies and she was so convinced that I'd also love it that she sent me a subscription for a few months. I signed up and was instantly hooked. Now I can't even remember the last time I visited a Blockbuster.
I am a very very tough consumer to please, but Netflix's service was incredible. My first thought was, "so why doesn't everyone do this". My second thought was how can I buy into this Company. So I looked at the company and its financials. A the time, it was getting a lot of negative commentary from analysts and as a result the shares had sold off and were trading at $11, a fraction of the IPO price. That gave it a market capitalization of about $500 million.
The consensus view was that Blockbuster was going to kill this little company. But everyone I talked to hated Blockbuster's service. In my mind, there was no doubt, Netflix was going to crush Blockbuster and the analysts just didn't have a clue. If I was sticking with Netflix, other demanding consumers would also be pleased with their service. Given the valuation, low multiple of earnings, and a high growth rate, it seemed incredibly undervalued. Sure enough, it's turned out to be a very profitable investment, Netflix trades at about $100 today.
But had I been bleeding edge, I would have probably acquired the shares at the IPO price and watched it skid and paid more attention to the 'conventional wisdom' on Wall Steet. It's not easy hanging on to a stock that's taking a dive. A lot of people just cut their losses and never look back.
My point is that a bleeding edge investor might be the first to invest and the first to sour on the company.
|
Facebook 
Twitter 
RSS 