The Beginning Investor's Kit
Author : N/A    -   Subject : Finance

    Chapter 10: Invest in What You

    Wondering what stocks to buy? Take a
    tip from investment guru Peter Lynch,
    former manager of Fidelity's Magellan

    Open your eyes and look around. As
    ThirdAgers, you and your peers have fueled the growth in real
    estate. You have been buying big ticket items like household
    appliances, cars, and more for decades. Odds are that you
    have growing discretionary income and you use it to buy
    quality products and services. In short, you know what you like
    and you spend money for what you need and enjoy.

    Right Under Your Nose
    So when you're considering stocks to invest in, consider
    companies that deliver goods or services you or your friends
    regularly use. Your observations as a consumer can make you
    a pretty good analyst.

    For example, consider the airline you regularly fly. How's the
    airline's on-time arrival and departure for you? Are the seats
    full? How's the counter service? Do the routes and schedules
    meet your needs?

    Take it a step further. What type of planes do you ride on? Is
    the airline adding more of them to the fleet?

    If you have the opportunity, ask the flight crews and ground
    crews questions about the airline's operations, equipment, and
    suppliers. Their answers and your own observations may
    convince you to do what Lynch suggests: buy the company by
    buying its stock.

    Don't rush out and make it part of your portfolio without
    looking further into the company, however. Make sure the
    company has solid fundamentals, like minimal or no debt, strong
    earnings and sales, and leadership in a growing industry.

    1. Compile a list of ten or so companies
    you do business with. Make it easy. Pick
    three from products in your kitchen
    cabinets, three from products in your
    bathroom, two from products in the
    garage, and two from elsewhere in your

    2. Determine what companies manufacture the products or
    provide the service.

    3. Rank the companies in order of the quality of service they
    provide or products you use. Consider your own satisfaction. If
    your friends use the products or services, consider the
    satisfaction they claim to get from the products.

    4. List the stocks in your portfolio. Do they match any of the
    companies on your first list?

    5. Use your online broker and sites like to
    research the stocks that are on your first list, but not in your

    6. You may track the stocks for a period of time, perhaps three
    months--a financial quarter--to gauge the stocks' volatility.
    Add the stocks of companies that show strong fundamentals
    and match your risk tolerance to your portfolio.

    Of course, even if you "buy and hold" those stocks, keep an
    eye on them to ensure that they retain the quality a
    shareholder and a consumer wants in a company.

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