Invest in What You Know
Location: TMFPencils CAPS Blog
Peter Lynch says, "The worst thing you can do is invest in companies you know nothing about."
The greatest investments are often right in front of us throughout the course of our daily lives. I became a student at Berea College in 2010, and am approaching graduation in May. Looking back on my experiences over the past four years as a college student, I now realize how many great investments were right in front of me all along. Let me explain.
When I first came to Berea in August 2010, I signed up for Amazon.com's (AMZN) Amazon Student service. This service gives students the opportunity to receive free two-day shipping on a wide variety of products for a dorm rooms, classes, and other college essentials. As it turns out, Amazon's stock has increased 148% since I began using Amazon Student as a college freshman, far and away outpacing the S&P 500's 66% gain over the same period.
Fast-forward to the summer of 2012, in between my sophomore and junior year of college. I was participating in an intensive summer social entrepreneurship program in Appalachia, exploring the thriving towns of Western North Carolina and the comparatively struggling counties of Eastern Kentucky. In particular, my classmates and I focused on how social media customer review websites -- Yelp (YELP), TripAdvisor (TRIP), and Google Reviews -- could put businesses in smaller communities in Eastern Kentucky on the radar of potential tourists in the Appalachian region.
Since the summer of 2012, the S&P 500 has increased a total of 33%. Yelp's stock, it turns out, has increased 319%. TripAdvisor has seen its shares increase 176%. Google has delivered returns of 101%, triple the returns of the S&P 500 over the same period.
In February 2013, I attended a college workshop on how to effectively utilize LinkedIn (LNKD) as a platform to market job skills and boost my chances in the job hunt scramble. I set up my LinkedIn profile, but foolishly (not Foolishly) did not even consider researching the business as a potential investment. Since I started my LinkedIn profile in early 2013, the stock has increased 55%. The S&P 500 increased 21% over the same time frame. Starting to get the idea?
The greatest long-term investment returns will often be generated by the businesses creating and offering the products and services we use in our daily lives. Of course, not every business whose products you use will necessarily be a great investment, but it is a good place to start when considering investment opportunities. Start by researching the businesses behind the products you and your friends know, use, and love. Younger investors -- such as teens and college students -- are in a particularly apt position to spot up-and-coming trends and potentially stellar investments.
Don't take for granted the products and services you utilize on a regular basis. Looking back on my experiences since I started investing in 2005, many of the greatest investments have indeed been businesses whose products I knew and loved. This is all the more reason to be conscious about the products and services we are using, and to focus on evaluating the businesses behind those products as potential investors.