Apr 21st, 2009
Invest in What You Know–AND Like!
One of the long term tenets of investing has been, “invest in what you know”. What this means is someone like me wouldn’t be interested in investing in, say, a company that makes lingerie, but I would be much more interested in making investments in a company that makes computers. Understanding the things that the company does when you invest in it is of utmost importance.
However, just because I know what a company makes doesn’t necessarily mean they’re a great choice. For instance, I know what kind of computers Dell makes, and they’re not among my favorites. I know all about Coke products, but they’re not the ones I buy. Instead, I buy Apple products and Pepsi products.
While I know all four of those companies, I’m more likely to buy stock in AAPL and PEP than DELL and COKE, just because I like their products better.
There’s nothing horribly wrong about investing in a company that makes things you know even if you don’t love their stuff (for instance, I’m a long time stock holder in Wells Fargo and Altria, even though I hear horrible things about the service of the former and know horrible things about tobacco products produced by the latter). Still, you’ll likely feel better and maybe do better with your investments if your buys are things you both know -and- like.
I love shopping at Walmart and I bought stock in it…even though people are always talking about how bad Walmart is. I figure if I spend all my money there I might as well own the company right?
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