"One Up On Wall Street" by Peter Lynch is a classic book on stock picking. His recommendation to retail investors is to buy what we know, based on our personal experiences. It is a tried-and-tested formula that every investor can implement in the consumer space. For example, early fans of Nike $NKE
and Apple iPhones $AAPL
would have done very well if they had bought shares in either company. Lynch does qualify his methodology with multiple outlines of valuation and financial analyses; investors are taught ways to avoid overpaying or investing in companies that do not have sufficient viability.
Personal preferences can be tricky though. When we fall in love with a product, we may end up looking for evidence to support our biases. Companies like GoPro $GPRO
and Blackberry $BB
were once popular hits, until they weren't. When I was in investment banking, Blackberries were EVERYTHING. I even bought Blackberries for personal use! Thank goodness I was not interested in equity investments back then.
By the same token, if we dislike something, we may end up writing off investment opportunities prematurely. There are people who dislike fast food, and that might have stopped them from investing in McDonald's $MCD
As I reflect on this post, and the article I wrote below, I am also observing my own biases. Am I long Tesla $TSLA
because - to quote the song from Queen - I'm In Love With My Car? Does my Amazon Prime membership (and growing spend on that platform) feed into my bullish take
on the stock $AMZN
No easy answers to the above questions. Elon Musk (am I in love with him too?) may, however, have something to offer with his physics approach of first principles thinking.