Ben's Investing Pages
Stock Picking * The Karma Factor * Random Thoughts * Useful Links * Investing Books
I've been investing, strictly small time, for about 10 years now, but I've had an avid interest in the markets for much longer. Growing up there was a time when I thought I wanted to BE a stock broker. Well, I decided not to go that way, but I get to have all of the fun anyhow by handling my own investments.
I do all of my trading, myself, through Datek. They do all of my trades, up to 5,000 shares, for a flat rate of just $9.99. They also allow me to do Stop-Loss orders, which I'm very much in favor of (more on that soon).
How do I pick a stock?
I first try to think of a product or company that will succeed. Sometimes that's just a hunch but often it's the result of looking at the world around me.
As an example...a couple of years ago there was massive flooding in the midwest. There was obviously going to be a lot of cleanup and reconstruction to do. I looked at that and asked "Who's going to make money from this?" Well...contractors will. Those contractors are going to need a lot of heavy equipment and one of the strongest companies in that industry is Caterpillar. In fact, if you look at their chart from early 1997 it looks very strong!
Look around now...what's big in the news and culture today? Well, how about the Internet? You're using it right now. On the Internet stocks like Amazon.com and Yahoo! are red-hot these days. But are they overvalued? I think they are and I'm not looking for the kind of unpredictable roller-coaster that those kinds of stocks bring.
WHY are they so hot though? Are they making a lot of money? Well...the word is that Internet commerce is growing fast. Amazon.com and Barnesandnoble.com are selling books and product at a rapidly increasing rate - sound like good investments? Maybe - but which one of them will dominate? Is there a safe bet? Yes.
What's the hallmark of Internet commerce? No store. Nowhere to go and get stuff. Think about that for a second...if you buy a product on the Internet, how do you get your hands on it?
They ship it to you.
That means that companies in the business of transporting goods from place to place are positioned to make a lot of money. Doesn't matter if you buy from amazon.com, Barnes & Noble, or anywhere else...if they have to ship it to you the shipping companies are going to make money!
UPS and FedEx are solid players in the transports. A dark horse is CNF Transporation - they run Emory Worldwide and, currently, handle the U.S. Postal Service's Priority Mail packages. Despite the current high fuel costs I think those three are excellent buys.
The karma factor
One other factor I consider is that I won't buy stocks in companies or products that I don't believe in. Tobacco companies are a good example. I know people who are doing very well buying Phillip Morris and other tobacco company stocks. Maybe I could make money with them. But I don't feel good about their product and I have to think that the wave of lawsuits, legislation and special tobacco taxes will continue. I don't want to be the part owner of a company selling that kind of product - I think it's inevitable that they will take big hits in the form of judgments and legislation.
Alcohol companies are the same way for me; though not as drastically. I don't drink and, while I don't begrudge my friends their alcohol, I just don't feel good about being part owner of a company that makes its money off selling alcohol. So I don't buy them.
Random Thoughts
I try to look for companies that sell products that people need. People need food. They need water. Utilities are good. Basics. That's why I don't invest in gold. Do people make money investing in gold? Sure. I'm just not confident that it will always hold it's value - when it comes down to it people just don't NEED gold they way they need food, water, air, accommodations, etc.
Internet stocks. I've heard that Warren Buffett said that if he were teaching an investing class he'd ask, on the final exam, for the students to tell him what an Internet stock was worth. Anybody who answered the question he would fail.
Internet stocks are so intangible - there's so little barrier to entry. Any hour another Lycos or Excite can pop up, be hip or trendy and steal share from other sites. It makes me nervous to invest in the "flavor of the month" stock, knowing how quickly the tides can turn.
More to come...soon...