How I Pick Stocks, Part 2: Buy What You Know

A lot of people see my stock plays on the gram and twitter and follow me in.  That was never my intention but proceed with caution. I don’t like stock tips. I don’t give them and I don’t take them. There are multiple reasons for this but for me the most obvious one is that it takes more than finding the right horse to make money in this game.  You have to know when to buy, when to sell and for how long you want to own the stock for.

A way that I believe you can determine those three things above is to buy what you know.  I always tell people that buying stocks is a lot easier than you think it is. All the fancy numbers, charts and ratios that we will discuss as we get further into this series help, but all they really serve the purpose of doing is confirming what you know deep down inside.

Buy what you love and what others love

When I buy a stock, a stock like Under Armour, Tesla, or Habit, it is typically a product that I use, wan’t to use, or see a lot of other people using.  At the end of the day we are buying businesses, not symbols and not charts. Those businesses sell products, if people love the product the company will sell a lot of products. If people hate the product then they don’t and they lose money.  As Warren Buffet says “I would rather own a good business at a fair price than a bad business at a good one” or something like that. If they sell a lot of quality products this is an indication that it is a good company.

If you see a line around the corner it is probably a good buy. If you see them in the hands of every person, it is likely a good buy.  The greatest companies in the world are those that have turned their brand into a verb or a known. A company that is so obvious to you that you are overlooking it in search of a gem.  Stop that.

What you have to do is take inventory of everything you own.  Take inventory of everything that you see people using around. They bought these products for a reason.  Where are the patterns? Where are the trends? There is usually a publicly traded company attached to that product.

Avoid what you don’t know

So when I pick stocks I overlook a lot of things that might be good buys if I don’t know that company. I overlook them even if smart people are telling me to buy and its lit.  An example of this would be biotech and pharma. I just don’t understand that industry, maybe because I am a finance guy not a science guy.  But a science guy would be able to hack that play because they KNOW the inter-workings behind that industry.  They know how news will impact it they know the history and are likely able to predict the future.  There is a huge opportunity in trading your lane.

Once you buy what you know, use your interest, your knowledge base and your genuine like for that product or industry to dig in deep. Read the reports, watch shows, podcast, documentaries, overdose on content to become even more proficient in that sector.  This is why the people who love what they do tend to perform better at their job and ultimately make more money.  When you love your industry or your product its not a burden to read articles or listen to documentaries on that topic.  This love lets you take in more information and develop a better sense of what is going on.  It gives you an advantage.  This advantage will let you know when to buy, sell, hold and maybe even short the stock.  This is what I was saying earlier.

When you genuinely love the stock you are swimming in the companies kool aid. If something happens you know how it will affect that stock, you know its trading patters and its range.  This gives you sort of like a stock spidey sense and that is when you really start making money.

So the action steps from this post are this: 

  1. Take inventory or products you know and love
  2. Do a google search to find out what publicly traded company owns it
  3. Look at the charts, read the posts, look at the sector outlook
  4. Buy shares in that company

Don’t chase whats hot, chase what you know and then become even more of an expert at what you know. This becomes your hidden advantage that will help you make money even if its not flashy and not on the up and up.  Its better to know a company well and make money trading it in a cycle than to try and take advantage of every stock that pops.

If you are interested in investing with our club on either the stock or real estate side we would be happy to welcome you into the partnership.  Email membership@capitaltodd.com today to join.

Be great, invest well,

Todd Millionaire

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