Be an investing detective
Private eyes might do well at investing because there’s a lot to learn about various companies or industries by being nosy and asking questions. In his classic 1958 investment book “Common Stocks and Uncommon Profits” (Wiley, $25), Philip Fisher recommended doing just that.
“Most people, particularly if they feel sure there is no danger of their being quoted, like to talk about the field of work in which they are engaged and will talk rather freely about their competitors. Go to five companies in an industry, ask each of them intelligent questions about the points of strength and weakness of the other four, and nine times out of 10 a surprisingly detailed and accurate picture of all five will emerge.”
Imagine you’re considering investing in a department store. It might look good on paper, but you should still check out the scuttlebutt. Call the company’s investor relations department and ask some questions. Find out who its top competitors are by asking or just by observing, at malls and elsewhere. Then look into those companies, too.
Hang out in or near some of its stores and gather data. See how much customer traffic it has, how many people actually buy things and how much they seem to be spending. Compare this with competitors. Which stores are busiest? You might even interview some shoppers to see what they like and dislike about various retailers. Talk to employees, too, about how the business is doing and what they think about the company and its prospects.
Search the web and you’ll likely find valuable industry information, such as from retailer trade associations. Scan news feeds, too, at business sites such as Yahoo Finance. Your local store might be doing good business, for example, but perhaps stores elsewhere are not.
If you not only study a company’s financial statements but also gather perspectives on its performance and prospects from observation, news stories, employees and customers, you’ll be a much more informed investor, most likely with improved portfolio results. Keep up with developments even after you invest in a company.