Every time you shop at a company, see their products selling well, or hear good things about a firm, it is an opportunity to research a potential investment idea. It doesn't mean you should actually buy shares, but it might just be a great place to start your search. Think of all the investors that found Wal-Mart Stores, Nike, Dollar General, Microsoft, Home Depot, Walt Disney, or Coca-Cola long before they had appreciated 10,000% or more (but were known in virtually all American households).
Years ago, I wrote an article called Finding Investment Ideas for Your Portfolio for About.com, a division of The New York Times. I’ve been thinking for the past few days about how it is that I seem to come across so many opportunities and then I realized that most people like me are always looking whereas the average American isn’t.
By that, I mean that every time I walk into a business, without exception, the first thought that occurs to me as I look around is, “I wonder if this company is publicly traded.” If it looks promising, I add it to a mental list and during my regular research periods each week, I pull all of the information I can about the company, or the corporate parent, and begin attempting to value it conservatively. It only takes a few, or even one, great investment in a lifetime to be financially independent.
If my friends and family could actually hear my thoughts, it would be amusing. As we walk through the aisles of Wal-Mart, I am thinking to myself, “Wal-Mart has a net profit margin of 3.3%. So, if I buy this $49.95 video game, the stockholders, who are the owners, are going to generate after-tax profit of $1.65 on the sale. With a dividend payout ratio of roughly 30%, $0.50 of that will be distributed as a cash dividend and the remaining $1.15 will go toward expansion or stock buybacks. With 3,810,171,967 shares of stock outstanding, each share of the company is entitled to $0.000000000433051 of the profit.” Sometimes, I actually pull out a calculator to compute figures as I stroll besides the shopping cart.
It’s almost like a game of chess, or solving a puzzle where the pieces are constantly moving and half of the box is missing. I love the game. Particularly, I like that if I’m right, I make money for the people about whom I care, so they can buy nicer clothes, pay off their debt, take vacations, or send their kids to music lessons. That matters to me far more than the idea of owning a Net Jet. It provides me with a real sense of satisfaction. Most people can’t say they actually make a difference in people’s lives. I can.
Yet, this idea of looking for such opportunities never occurs to most people. Here’s an example from my own family …
Ed’s Sporting Goods: An Example In My Own Family
Members of my extended family owned a business called Ed’s Sporting Goods that at one time was the largest sporting goods retailer and team dealer in Northwest Missouri. Now, it was a successful business – far more successful than the average entrepreneur and something about which the owners are, and rightfully should be, proud. (more…)
