Common Sense Investing

Stock Selection Confusion

 

Every day we're bombarded with information about what stocks to buy from the talking heads on TV, Internet, social media, radio and our friends and family. While some of this information may be accurate most will leave you scratching your head and feeling overwhelmed and confused. Have you ever googled a stock that you're interested in learning more about or all ready have in your portfolio? If you have you'll see conflicting analyst ratings, good news, bad news and different "expert" opinions. Who should you believe? What information should you use? How can we bring back some "common sense" when it comes to choosing what stocks to invest in for the long term?

 

I think we complicate what stocks to buy because the simple and obvious seems, well, too simple and too obvious. The amount of information you can find about stocks on the internet at any point in time is overwhelming and confusing. There are always new and exciting "trending" stocks or sectors but the reality is we don't know how long these trends will last and if the company will still exist 5 or 10 years from now.

 

What if we simplified our investment philosophy to a common sense approach where you only invest in stocks that manufacture or produce items that are used every day by millions of people? Companies that you think will be around for a very long time and will easily out live you. Think of everyday items that you use such as personal grooming products, food and beverages and where you buy these common household goods.

 

It's not easy to predict the longevity of a new technology without the help of hindsight but it's fairly safe to assume that french fries and hamburgers (McDonald's Corp.), soft drinks and bottled water (Coca-Cola Company) and shampoo and toothpaste (Proctor and Gamble) will be around longer than any of us. Take a look at the long term price charts and the 5 year performance of the aforementioned companies stocks.

 

MCD Long Term Price Chart
PG Long Term Price Chart
KO Long Term Price Chart

Not only have the above stocks produced solid gains over the last 5 years but they have proven to be great investments for decades. It's tempting to spend time and energy on trying to find the next Apple or Google but sticking with companies that have proven themselves for decades will add an element of safety not found in new and exciting stocks.

 

Next time you research an investment that you'd like to hold for a long time (at least 5 years and beyond) ask yourself has the company been around for at least a couple decades? Do they have a proven track record of an increasing their dividend? and will the company continue to exist because they are part of our everyday lives and routines?

 

There's no 100% guarantee when it comes to investing in stocks. However, having a long term time horizon and a simple common sense approach can add some clarity of what it means to be a long term investor and what companies truly fit into this category.

*The gain is expressed as percentage increase over initial investment cost. Gains are considered to be any income received from the security, plus realized capital gains.