Should You Buy Stock in Your Most-Loved Brands?
- By DailyWorth Team
- October 24, 2011
“Buy what you know.”
You’ve probably heard this bit of folksy, feel-good advice about stock picking. It’s often attributed to investing legend Peter Lynch, who from 1977 to 1990 managed Fidelity Investment’s Magellan Fund (FMAGX), which earned an eye-popping 29% average annual return.
The basic idea is tantalizing: rather than taking a broker’s advice to buy, say, some new energy stock that you don’t fully grok, use your own two eyes to suss out investing ideas from everyday life.
Have you just discovered the best yoga pants on earth? Are your co-workers driving more hybrid cars?
A key piece of Lynch’s philosophy is that we, as everyday consumers, often have a better vantage point on trends than a Wall Street analyst reading stale reports from his mahogany office.
But just because, say, you love a certain brand of doughnuts, that doesn’t necessarily mean you’ve found a great investment. “Finding the promising company is only the first step,” Lynch wrote in his bestseller One Up on Wall Street. “The next step is doing the research.” That means understanding the company's business model and making sure the stock isn’t overvalued.
Let’s face it: step two is a doozy.
Can you do it? If you have the time and inclination (along with the assets needed for a diversified stock portfolio), you bet. If not, stick with mutual funds or ETFs instead.
Taking stock: Where do your investing ideas come from?
Brokerage Products: Not FDIC Insured • No Bank Guarantee • May Lose Value
The content in this website with the exception of that provided by Charles Schwab have been provided by third-parties and/or prepared by DailyWorth who is not affiliated with, associated with or endorsed by Charles Schwab & Co., Inc. (“Schwab”). Therefore, the information contained within the content of the website that has not been prepared by Schwab should not be considered as approved, endorsed or recommended by Schwab. Schwab does not guarantee that the Information is accurate, complete or timely, nor does Schwab make any warranties to you regarding any results from using the Information. This also includes any links that DailyWorth provides as a courtesy to users of their website to third-party websites. Third-party websites are owned and operated by independent information providers (“IIPs”).
Interviews with Schwab employees created by DailyWorth are for general informational purposes only and should not be considered an individualized recommendation or investment advice. Investing involves risks, including the potential loss of principal invested. Keep in mind that diversification strategies, do not ensure a profit and do not protect against losses in declining markets and may not be suitable for you.
The content provided by Schwab is for general informational purposes only and is not intended to be a substitute for specific individualized tax, legal or investment planning advice. Where specific advice is necessary or appropriate, Schwab suggests that you seek professional assistance.
Charles Schwab & Co., Inc. (“Schwab”). All rights reserved. Member SIPC. (0413-2767)