Peter Lynch, the legendary investor who built Fidelity’s Magellan Fund into an industry giant, used to regularly observe that investors shouldn’t buy shares in any company whose products they couldn’t understand. He and many of our nation’s best analysts also have argued that investors should kick the tires, so to speak, before buying shares of a prospective investment.
Analysts talk to company executives all the time to get the latest on sales trends and profit projections. Wall Street demands no less.
But the best analysts also visit factories, distribution centers and other physical locations that will give some clues of how business is going. Retail investors can do the same, if on a less costly scale. Thinking about buying shares of McDonalds? There’s no reason not to visit several stores at different times of the day to get a feel for customer traffic. Such a visit might be especially important during a special promotion. Sit, talk, eat (of course) and listen. Hear what customers are saying—or not saying.
Early investors in Outback Steakhouse will tell you they had lots of confidence in the management team and its concept. They’ll also tell you that all they needed to see were long lines, every night, to know that they were onto a winner.
Once upon a time, Checkers was a great stock. But not too long after Checkers began making an impression on consumers, its larger competitors—McDonalds, Burger King and Wendy’s— launched price cuts. All you had to do was drive by a McDonalds and see the 49-cent hamburger signs to know that Checkers was about to face a serious challenge.
We can even “feel” and “touch” technology stocks, especially Internet companies. How? Easy, just get online and spend some time surfing the websites of companies you might consider buying. Spending some time on the website of the “e-retailer” will give you a good sense of what’s going on.
Compare your experience online with that of going into a retail shop and buying a book or two. Both purchasing experiences have their merits, but how many physical bookstores greet you when you walk in with a list of books in which you might be interested based on your most recent purchases?
Things we do every day—and things we don’t do—can help us make good investment decisions. IBI