Wednesday, March 12, 2014

The 3 P's Of Investing

     Many often say that there are two types of investing, investing with the mind or the gut.  In previous posts I discussed looking at a companies financials and technical data in order to make a sound investment but most do not have the time or knowledge to do that.  Therefore many of us rely on our gut judgement when picking a stock that we believe has a bright future.  While doing so we often look at many different aspects such as do I use this company, does the company have a good record, or do they have reliable products.  You may not know you are doing so but in some shape or form you are using the 3 P's of investing, People, Product, and Potential.  Let me discuss a few points on each.

People - The first thing to do when looking at a company is to look at the individuals who are in charge and make the decision.  Do they have a good track record with previous experience?  Are they fully committed to the company and its products or are they just working there for check and a nice bonus if the company does well.  Elon Musk of Tesla is a great example of someone who has experience, as a former founder of PayPal, SpaceX.  He has proved successful in starting business and running them successfully.  Additionally, he knows his products and is involved in their development.

Product - What does the company make or provide to the consumer.  Years ago it was easy to identify a companies product as many were manufacturing companies.  During this time it is a little more complicated as you have technology and social media stocks.  Therefore you must also look at a product in terms of service.  Facebook and Twitter provide a service to its customers, and monetize their service through advertising.  Other companies such as Google has expanded their products from a search engine to gadgets, mapping services, and software.  When looking at a product you must take into account its usefulness, longevity, creativity and future advancement.  What may be the hot item of the year or decade may be something that will be long forgotten in a couple years, such as a cassette or even a CD.

Potential - Ultimately you are investing in a company because you believe it has potential.  Potential can be derived from many factors including, personnel change, a new product, expansion, development or patents.  Additionally, when looking at potential you have to keep in mind short and long term potential.  Apple consistently represents an example of short term potential as every year they release new products with increased capabilities or technology giving the stock a short term run up.  Noodles & Co. represents long term potential as the fast food casual dining chain is only located in 33 states and is opening new stores every month.  The potential for the end result of revenue gain is great as the company expands. 

     When looking at a new company to invest in, it is vital that you do some research and I recommend you focus on these three areas.  Rate one company against a similar company and you will see why some are more successful.  As always feel free to leave comments below and follow me on twitter for real time stock updates.

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