Stock Investing: Awareness, or Where to Begin

All right, let’s start here: it’s not rocket science. Anyone
can learn to choose stocks to invest in and you don’t need an advanced
mathematical model or a degree in economics. First up, you simply need
awareness.

Neo’s perception evolves

Surely you remember The
Matrix? The central conceit was that humans are pod slaves, nothing but electrical
generators connected to a massive power grid controlled by the machines. The
world we think we know is actually a virtual reality program pulled over our
consciousness like a security blanket, making us think we are productive and
enjoying life.

Science fiction, mostly. We are living the lives we think we
are of course, but there is actually
a matrix overlaid on everything: the marketplace. Some of us see it plainly,
but others don’t really notice. It’s all around us. Nearly everything you see (outside
of the wilderness) had to be paid for by someone, which means it was sold by
someone.

Have a look. Take a walk down your street, and notice the
marketplace. You see light-up shoes on that toddler, and a stroller his baby
sister squirms in. You see the cellphone in their dad’s hand and the leash on
the dog. There’s a tired black hatchback on the corner and a new bicycle on top
of it. The woman across the street is carrying a purse and a computer bag,
which presumably holds a laptop. All these had to be purchased so all had to be
sold. The marketplace.

Tom Brady (not my neighborhood)

But what about the flowerpots and the welcome mats? The
landscaping in the front yards, doors and windows, siding and paint, and the
houses themselves? The lampposts and the electric cables that run between them.
The driveway pavement and the curb, even the ground it all sits on. All of it
makes up the marketplace, all of it was bought and sold.

Some folks see it that way naturally and some don’t. Once
you see it, you can start looking at things a little differently. Are you
seeing fewer hatchbacks, more small SUVs? Different types of strollers? Bigger
cell phones?

Now we’re beginning to get back to stocks: I see trends,
largely because I’m actively hunting for them. What’s changed this year from
last? What is there more of, what seems to be everywhere all of a sudden?
That’s where my stock investing ideas come from.

Where I live, in the Northwest, I’m noticing a lot of big
construction cranes in the downtown area. New buildings going up all over,
probably “mixed-use”—that is, retail stores at ground level, and condos or
offices above, or both. That’s interesting. I notice that no one I know buys
much recorded music anymore—no CDs, no iTunes, but we’re all still listening to
music. Yoga pants, gourmet coffee and
craft beer. No one writes checks anymore, it’s all credit cards and electronic
payments. Organic food, social networking, hybrid cars. You’ve noticed a lot of
this too.

All these trends are market forces at work. All of them are
driven by cultural shifts and consumer preferences. All are happening in real
time, right in front of us, and all are the beginnings of investing ideas. If
you spot the trend, you can follow the chain and begin to identify the
businesses that benefit from that trend.

Take the new construction in my downtown area for example. Construction
means there is demand for housing, and for office space. That implies rising
rents for existing units, as demand must currently outstrip supply. It also
means demand for construction materials, for heavy equipment, for labor to
build it all. All those new units will need services—electrical, water and
sewer, heat, cable for internet and TV. The companies that supply all those
things are going to do more business because of those buildings. As an investor,
those companies interest me.

Look at craft beer. In most of the country, mainstream American beers like Miller and Coors and Budweiser sell very well and lead the market by a wide margin. But on the coasts, upstart brewers are making products with new varieties of hops or a lot of roasted grains, resulting in a huge variety of flavor profiles. As they have multiplied, these companies have made a significant dent in the sales of the traditional brewers, such that the big guys are worried and have started to answer with new recipes of their own– or have begun buying up the tiny players to eliminate competition and produce their products on a larger scale. Clearly consumer tastes are shifting.

How about the way people consume music now. Music stores have largely
gone the way video rental shops went a few years back. It’s all internet radio
and on-demand streaming services. We all know the companies that provide these
services, because we all listen to music. But are you paying for it, or putting
up with ads instead? There’s money in there somewhere. Follow the money and
you’ll find companies worthy of investment consideration.

Not rocket science, as I said. But awareness of the
marketplace and the players in it is just the first step. The last thing you
want to do is leap before you look. You want to buy stocks of companies that
are growing, companies which are well-managed and have vision and whose
business model you understand. Companies which are dominating their
competitors. I can help you find them.

Stay tuned.