*This is so meaningful to me that I believe it should go up on my blog as well. Keep checking out the forum for content like this but this was so important to me I had to repost it here!*
In my most recent blog post I was adamant that investing in an ETF that tracks the S&P 500 will be the most beneficial for people who don't know about stocks that much. However, I believe there is a way that people can choose stocks without knowing about the stock market. Don't get me wrong, index investing is the best way to grow wealth in the stock market without having to do much work and with very little risk. Nevertheless, there is a great way to pick stocks no matter what career or industry you are in. It really doesn't matter what industry you are in, anyone can pick and choose stocks that have the potential to outperform the individual indexes or veteran investors. You may be wondering how an electrician can potentially “beat the market” when many seasoned investors cannot. My simple answer to you would be the fact that an electrician is - an electrician. The fact that electricians know how to do their job and they can see what works and what does not gives them a comparative advantage over many professional investors. This applies to everyone. An electrician will be able to tell you in a heartbeat who makes the best circuits. A real estate agent will tell you the name of the best home builder. A software engineer will tell you who makes the best programs. A doctor will tell you who makes the best and most used remedies. A profesor will tell you what industries students are flocking to. The list goes on and on. The point is that everyone has their own comparative advantages. That is one of the perks of a capitalist society. Everyone has their job and all they have to worry about is doing it well. Instead of saying that this is a bad thing since mechanics can overcharge you because it seems like they speak some foregin language; every person can use this to their advantage. By pointing out industry leaders and laggards, you can help yourself pick stocks and determine where you want to invest your money. This shouldn't be the crux of your investment thesis however, but it should simply aid in your fundamental analysis of companies. Just because a real estate agent observes that homes constructed by Dr. Horton(DHI) consistently sell for 20% over asking, doesn't mean the real estate agent should turn around the next day to buy their stock. Combining your comparative advantage with your own due diligence is the best method for new investors who are trying to pick a company. It is worth noting this strategy is not foolproof, just because you have identified an industry leader, you must (I cannot stress this enough!) put at least a few hours into researching the company, looking at its past performances, looking at its competitors. Do your homework! Only then should you make your decision. If anyone is familiar with Peter Lynch they will recognise the basis of this article. Peter Lynch was famous for this approach which he developed during his time at Fidelity Investments. He published two books about his investing thesis, “One Up on Wall Street" and “Beating the Street '' in which he detailed this investment method. The beauty of this “bottoms up approach” is that almost anyone can do it. If you are employed and work in any industry, you have a sense of the leaders and laggards. You know who is making quality products for the best price. You know who is making the most money consistently. This investment strategy has worked for me many times. I guarantee if done right and combined with the right research, it can be much more rewarding (both monetarily and emotionally) to choose the right stock that outperforms the market.
reference - https://homeweb.csulb.edu/~pammerma/fin382/screener/lynch.htm
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