Invest in What You Understand

I’ve talked to a lot of co-workers and relatives who have invested heavily in businesses they simply don’t understand. This is a mistake.

You don’t have to know everything there is to know about a company to invest in it, but you should have a general understanding of their products and market. Warren Buffet famously invested in Coca-Cola since 1987 and currently owns around 10% of Coke stocks. He loved this company because of its iconic name, and well known product. He found a company he knew and understood and was able to make sizable returns on his investment. Coke stocks went up from $2.45 per share in 1988 to it’s current price of $47.38, paying good dividends along the way. Walmart, Best Buy, and Kroger are all publicly listed companies that any average Joe can understand.

Walmart 5 year return: 72.5%

Best Buy 5 year return: 490.8%

Kroger 5 year return: 132.7%

If you’re a gamer you know names like Activision Blizzard, responsible for games such as World of Warcraft, Call of Duty, etc. which all have their own cult following. If you bought this company 5 years ago and held it you would return 555% on your investment. Walmart and Kroger are included as examples of companies that have stiff price competition and do not have an “economic moat” such as a company like Activision Blizzard. Best Buy has been a go-to place for electronics and has been well positioned to capture what I call the Apple Tech revolution, not having to deal with rivals that have gone under such as Circuit City and Ultimate Electronics.

Now companies that you don’t understand, stay away from! For example, “exploratory mining companies”, small no-name drug companies, and Greek shipping companies are all stock investor pitfalls that usually end up going bankrupt. This is why for all of my serious investments I make sure the company has at least a 400 million market capitalization. You can certainly play with penny stocks, but I’d never suggest putting any amount you can’t lose into them. It’s my same advise with gambling at a casino.

Now you may be asking, “I knew Circuit City and their products, but those lost money!”. You’re right! Besides knowing the business you also have to do some research on the company’s cash flow and growth. Those are outside the scope of this article, as the “secret sauce” for successful investors is largely dependant on their cash flow figures in comparison with this stocks outstanding and stock price.

Is Freelancer full of Scammers? is advertised as a place to have content written for you, or software developed, etc. You can have someone write articles on your topic of choice, or even have bids for mobile apps you have ideas for.

I recently joined Freelancer and hired someone to write something for me.  I paid them about 20 USD to do a financial analysis piece on Kroger’s stock price after it had crashed 30.6% after two sets of bad news on July 15th and 16th. On the 15th Kroger’s management came out with some low expectations due to price cuts and competition from other grocery stores. On the 16th Kroger was hit with news that Amazon was buying Whole Foods. You can imagine the implications this move will have for the entire industry if it parallels the book market or retail sales market in the US. Take Borders and Sears as prime examples, Borders was bankrupted by Amazon and Sears is closing stores around the country in a death spiral towards bankruptcy. Basically what I wanted written is a current evaluation of Kroger as of it’s price drop and a valuation of the company as it stands now. What I got instead was a bunch of words which looked like they were written in a foreign language and freshly presented after a Google Translation!

Below are a few bits from this “native English speaker from England”:

  • The supermarket chain has direct subsidiaries, convenience stores, Jewellery stores, and online retails platform for their customers
  • The prices of groceries have broken the 60 years longest streak by a decline for straight 17 months
  • The discounts offering at Kroger are highly competitive of all its rivals which make it most favorable

In short, the entire article was a piece of trash. I’d rather have a Nigerian prince write my articles for me. A waste of $20, and proof that Freelancers are not who they say they are. This particular Freelancer had over 60 five-star reviews, most likely fake users.

Another story I have, one which thankfully didn’t cost me money, was when I put out a bid for a mobile game app. About 50 bids came back in with various quoted prices. When I contacted some of these bidders, they switched their price from around $300 to $5,000. When I said I’ll think about it, they come back with the standard line “What is your budget”? With swindlers like these I would not trust them to develop an app exclusively for me and not steal it for themselves afterwards. Again, if you think you can outsource work cheaply and turn a profit it’s probably time to look somewhere else besides

If anyone using Freelancer has had a good experience with content writing or having apps developed, let me know. For now I’ll avoid them like the plague and maintain as a single author source for information. Once I have more time I’ll do my own mobile apps as well.