Should You Invest In Companies You Like?
Maybe you’re new to the world of investing. There’s a huge selection of stocks to choose from, so where do you start? Apple since you’re an iOS user, Nike because you like their brand and maybe Amazon since they seem to be doing fairly well? Erm, if only it was that easy. With that logic, you could date someone who is perfect on paper and end up living happily ever after. It’s not usually the case.
It’s human nature to be drawn to things you’re interested in, but when it comes to your investment portfolio you need to keep yourself out of it. Investing is all about setting goals, taking calculated risks and doing your own research.
Here are a few things to keep in mind when deciding how to invest your money:
Believe in the product or company.
It’s important to get behind the product or company you’re investing in. Ideally, you should be on board with their mission and believe they have a sound strategy that will lead to profitable growth. You’ll want to consider if the CEO and leadership team can execute their vision and deliver results. There are many businesses with good ideas out there, but continued growth is hard work and pretty rare. Those companies are called unicorns for a reason.
At the same time, you should stick to what you know and can understand. It might not be the easiest feat to invest in an oil company if you don’t know much about drilling.
Look at the numbers.
“You don’t need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beats the guy with 130 IQ.” – Warren Buffet
Unfortunately you can’t just go by gut feel or a flashy brand. It’s important to get into the knitty gritty of the numbers and the facts. It’s a good idea to look at a company’s financial statements and annual reports. You’ll want to understand as much as you can about the company, including: business strategy, core business activities, future plans and whether the company is making a profit or loss.
You can also visit the ASX website and check out the Prices and Announcements section, where companies share their public news and announcements. You can follow your favourite companies on the stock exchange just search for their ticker code. For example Wisr's code is WZR. This is a good way to keep your finger on the pulse of what’s happening.
Imagine the future.
These billion dollar companies didn't exist in 2005:
2005 isn’t that long ago! Chances are you never would have dreamed about getting into a car with a stranger 10 years ago – and look at us now. When investing, you want to try and predict what you think the future world will look like and choose accordingly. Right now, we’re hearing a lot about cannabis, fintech and cryptocurrency. While nobody has a crystal ball, try to think about what industries you think will dominate in the future.
Do your own research.
DYOR baby. Meaning do your own research. There are many public forums like HotCopper where you can take part in conversations or just read what investors have to say about companies. The more information you can find out, the better.
Spread your wings.
You know what they say, don’t put all your eggs in one basket. You may have heard the term: diversified portfolio. It essentially means that you have a wide variety of investments, usually in different industries. The idea behind this technique is that a portfolio with different kinds of assets will lower your risk.
Want to learn more about investing? Read Welcome to… the Stock Exchange.