There's something about becoming a stock investor that changes the way you think about money, economics, and the business world. When you first invest some of your hard-earned cash in a particular company's stock, you may find yourself looking more closely at the financial pages of the newspaper or your favorite news website to find new information about how your company is doing. However, in addition to doing due diligence and continuing research, you'll probably start noticing things about how that company does business in your own community.
Collecting anecdotal evidence about a company in which you've invested can be really fun and help to make investing more concrete than just a bunch of stock quotes flying across an electronic ticker. Even though one long line at your local establishment won't necessary make a big difference in your stock's quarterly report, there's something satisfying about watching people spending their money on products that will help your business earn a profit and hopefully enhance the value of your investment. It almost makes you want to walk up to them and thank them for their business.
It starts with you ...
The businesses with which people are the most familiar are the ones they visit on a regular basis for their own benefit. Peter Lynch, the former superstar manager of the popular mutual fund Fidelity Magellan (FMAGX), suggested to beginning investors that they could find investing ideas all on their own simply by buying companies that they already knew.
So for instance, if you spend some of your free time as an amateur pilot flying single-engine airplanes, you'd be in a better position than many to evaluate whether or not shares of Textron (NYSE:TXT), which produces Cessna small aircraft, would make a good investment. The same goes for those who buy arts and crafts supplies from retailers like Michaels Stores or who like playing with radio-controlled cars from stores like Radio Shack (NYSE:RSH). Whether you prefer Burger King (NYSE:BKC), Wendy's, or any of the many other restaurants with shares that trade on public stock exchanges, you can probably find at least one company whose products you know and love. (For me, it happens to be Red Robin Gourmet Burgers (NASDAQ:RRGB) and their Whiskey River veggie burger. Mmm.)
Investing in companies whose products you use can also teach you a number of valuable lessons about stock investing in general. Perhaps the lesson that often hits hardest is that just because you happen to like something about your favorite company doesn't mean that it's necessarily a good investment. You may really have liked shopping at a long-vanished store like Montgomery Ward, but the money you spent there wasn't enough by itself to keep competition from retailers like Sears (NASDAQ:SHLD) and J.C. Penney (NYSE:JCP) from forcing it into bankruptcy and oblivion. It's always discouraging to see a company that you like and respect fail to achieve success as an operating business.
... but it also goes beyond you
On the other hand, that lesson goes both ways. Just as you won't single-handedly succeed in making a major business stay healthy and profitable, plenty of profitable businesses don't depend on having you as a customer in order to provide healthy returns for their shareholders. So in searching for investing ideas, you can look beyond your own buying experiences and instead focus on the next big thing, even if you have no intention of buying it yourself.
For instance, I've owned shares of Starbucks (NASDAQ:SBUX) off and on over the course of the last decade. Yet for my own part, I'm not a big coffee drinker. Even though my friends assure me they could recommend several different types of drinks I would enjoy, I don't really plan on joining the ranks of the caffeine-dependent masses anytime soon. Yet that doesn't stop me from getting a big smile on my face every time I walk by a 25-person line of coffee drinkers on a weekday morning. And when my favorite coffee company is able to get an extra nickel or dime from each of those 25 people and thousands more like them across the country, it just makes that goofy grin of mine even wider. Of course, what goes around comes around. There are plenty of owners of Coca-Cola shares who are happy to return the favor when they see me lugging a 12-pack out of my neighborhood grocery store -- even if it is caffeine-free.
The point is that if you're a good observer of customer behavior, you can find promising companies for your investment dollars without spending a single dime at their stores. You might overhear your children and their friends talking about the latest hot video game or clothing store. A friend might tell you about a really good experience at a hotel owned by Hilton Hotels, or a spectacular vacation cruise from an operator such as Carnival. Even if you choose to forego such expenditures for yourself, you can still benefit from the way other people spend their money.
Many companies depend directly on consumers for most or all of their business. As a consumer, this gives you a valuable perspective from which to observe how certain companies prosper while others struggle to overcome challenges. Often, even before Wall Street decides to downgrade a certain stock for missing expectations of sales or earnings, you can use your own observations and experience to predict impending trouble. In addition to giving you insight on how investing works in general, owning shares of your favorite shopping spots may make you a little bit more willing to wait in long lines during the coming holiday shopping season. In fact, the thought of all those profits on your investment just might put a smile on your face.
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Fool contributor Dan Caplinger thanks coffee drinkers everywhere, as well as his fellow burger aficionados. He owns shares of Starbucks, a Stock Advisor pick, and Red Robin. Coca-Cola is an Inside Value selection. The Fool'sdisclosure policynever makes you wait in line.
