Investing
August 26, 2015

How to Invest in What You Know

Simple. Thrifty. Living.

Experts often tell investment beginners to stick with what they know. Because learning how to invest can be overwhelming, sticking with what you know makes sense. You already understand how the companies make money; you know the process, the products, the competition and the strengths. If you aren’t sure where to begin, think of the places you shop the most or the brands you know.

You can get expert opinions by reading and studying the market, but personal experience and knowledge through familiarity are things you won’t find in an article. For instance, if you’re a coffee drinker, you know the most popular coffee chains and companies. You know which ones are thriving and which ones seem to be losing steam. If you wouldn’t buy their products, why would anyone else? When you shop frequently at a particular store, eat at a certain restaurant or buy a specific brand, you’re helping that company’s stock grow.

Although you may know exactly what you like, there are some other variables to consider when trying to decide if you should invest in a particular company. Some things to look at include:

  • Price
  • Valuation
  • Revenue growth
  • Bottom line
  • Company debt
  • Volatility
  • Earnings ratio

Companies that are expected to grow rapidly are generally priced higher. If you can find an up-and-coming company, the stock is less expensive. Since the goal is to buy low and sell high, you may want to look for companies that show promise and growth in industries that interest you. Many sites that specialize in educating beginners can help you research those variables.

If you aren’t sure where to begin, make a list of the places you shop the most. Browse new stores in your local mall or opening in your area. If you haven’t heard of it, do a little research to see where the company is based, how many stores exist and the number of new stores projected to open.

Another place to look is through your cabinets and pantry. Although you see a bunch of brands, you may be surprised to learn they are owned by the same parent company. For instance, Johnson & Johnson owns a variety of baby, health care and first aid products under various names, such as Acuvue, Benadryl and Desitin.

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