To start, this is a simple strategy that I use often when investing. Anyone can use it and it doesn't require a close analysis of a company's financial position or a degree in business finance. This strategy requires little or no investment experience. I have used this strategy for years and it works. Because I used this strategy, I was able to fund a down payment for my home.
Here's how it works.
1. Find a public company you like and understand
The first step is the most important. I don't want you investing in any company you don't like or don't understand. Even if every analyst in the world, every friend in the world, and every stock "expert" is advising you to invest in it, do NOT. Only invest if you like the company and understand it. This is important for you to grasp because it's the foundation for my strategy.
How do you know if you like the company? Well, when you talk about their products and/or services, is it positive or negative? Do you shop there religiously or try to avoid it? For example, I know someone who won't step foot in a Walmart, but would buy a Target bumper sticker. I would recommend to that person not to invest in Walmart, but instead consider Target.
Just because you like the company, doesn't mean you should invest in it. A lot of people like Snapchat, but hardly any of them know how Snapchat makes money. People also love Instagram, but hardly anyone realizes that it's owned by Facebook. The important question to ask is, do I know how the company makes money? A simple Google search can help with this knowledge, but you need to know the answer before investing in the company. Then, consider if you would support this way of making money.
Here's a quick example of how I recently did step 1 for my own finances
I was considering Boeing as an investment. Do I like the company? I love the company. I have always been fascinated with planes and Boeing makes them the best. You have Airbus too, but I like Boeing better because they're based in America. I also think their planes look better. They're innovative and an engineering company. I'm a software engineer, so I really understand what it takes for Boeing's engineers to achieve everything they do. I understand the intellectual property they hold, which would be very difficult to copy, even if stolen.
Most of the planes we fly in are Boeing. I also fly at least once a year and have experience flying in a Boeing airplane. I've watched videos on how Boeing planes are made, just for fun. I've also applied for jobs at Boeing. I know how they make a majority of their money, selling aircraft. It's a simple answer, but I have the answer.
You can see, I haven't once yet considered whether it was actually a good investment or not. I simply considered whether I liked Boeing and understood the company. I think the obvious answer is yes and yes.
2. Check it's 5 year and life time track records
Now, this is the one financial, stock-specific item I want you to consider, but before I send you to Google, I want you to understand why I am having you check the track record. If you invest in a company, you need to expect to hold it for at least a year or more. I would even argue that you should hold anything you invest in for 5 years. That's why I say the first step is so important, because you're not just investing to make money. You need to invest in something you like enough, where in 5 years you know you'll like it just as much.
So, how do you check the track record? What even is the track record? The track record is simply just the stocks performance history. How much has it grown over the past few years? For this strategy, I only buy stocks where it's graph looks like a stable uphill climb. I stay stable, because I don't want too many ups and downs, because I might trip. Below's an example of a graph I would say is a stable uphill climb (Visa Graph).
Don't look at anything below one year, because you're going to be holding the stock for at least a year or longer. I want you to really understand this. You're investing in a company you're expecting to keep around for a long time, that's why the long-term track record matters most.
The greatest thing about this strategy is its simplicity. You've only considered two things and I would say you're ready to invest, if it all checks out. If you like the company, understand it, understand how it makes money, and its long-term graph looks like a steady uphill climb, then you're ready to invest. Don't go overboard and put all your money in this company. You still want to diversify (message me if you don't know what this means). Buy what you feel comfortable with, then use the strategy again for a different company.
Again, realize when you're investing in the company, what you buy today you'll have for at least a couple years. Be ready to be a long term investor. To give you a little motivation, the best long term investor of our time is Warren Buffett, who has a net worth of 86 billion dollars, as of today. He did this through long term investing and was really the one who made long term investing so popular.
4. Vote, re-invest, hold
This is my favorite step of my strategy, that I think a lot of strategies miss. First, when you invest, remember you have a very small share of the company. You might own a chair in a conference room, or some pencil on someones desk (metaphorically, but a good way to look at things). For many companies, each stock you own gives you a right to vote for executives. You'll probably get an email inviting you to participate in the voting. I want you to participate in every single vote. It reminds you that you're actually part of the company and the reason for investing in the company. Your votes are probably not going to make a difference, to be honest. But, the psychology behind it is important enough for you to be involved.
So, what happens when this investment starts to go down? Maybe, you're starting to lose money? For me what happens is, I check my investment and maybe see a 20% growth...a couple months later, it's only 13%, 7% lower than last time I checked! What I want you to do in any of these scenarios is invest a little bit more into the company. Maybe buy only a couple more shares. If you really understand the company, you could buy a significant amount, since the stock is "on sale". But, in none of these scenarios I want you to sell the stock.
I want you to hold on to it, through thick and thin. Don't let the day-to-day scare you. You understand the company, like the company, and see that it has a good long-term track record. There's no reason that today's USA Today article should scare you into selling or getting rid of the stock. If anything, this feeling should lead you to buy more of the stock, because other people are going to make the poor decision and sell the stock. When a lot of stock is sold, the price drops, which is your time to get something on sale.
This is my main strategy for investing. It's not what I started with, but I wish I had. I have helped friends get started with this strategy and it works well for them. If you want help, please message me! I'll be more than happy to help.
This shouldn't be your only strategy you use, but it's a good one to start with. I have many different strategies, but this one drives at least 50% of my investing. I have other ones that focus on the technical financials. Some strategies that focus on dividends. I have some that focus on mutual funds, and others that focus on passive investing. This strategy has been the most successful out of them, but I still maintain a diverse portfolio. I want you to do the same eventually, but if you can't from the start that's okay.
For those who already have a portfolio of investments. Don't sell everything and just use this strategy. You may want a fresh start. So, if you do sell everything, don't reinvest primarily using this strategy. If you're looking for a fresh start, please reach out to me and I'll help you out!
Thanks for reading this post about one simple investment strategy I use a lot. I hope you've enjoyed Better Budget. If you have any questions at all, please reach out to me. I'll do my best to answer anything. As always, continue getting better at your personal finances everyday!
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My name is Corey and I have a passion for budgets and personal financing. I can talk about it for days (weirdly enough). Hope you enjoy the blog!
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