No matter how old I get, this still boggles my mind…
The average person spends more time researching a one-week vacation than they do researching stocks.
I know friends who scour travel websites for hours to find cheap plane tickets. If they save $50 by taking a predawn flight, they dance the jig.
If they save $100 a night on a hotel room … you’d think they’d won the lottery.
But when it comes to investing $5,000 into a stock, they don’t give it a second thought.
Instead of researching the company, they throw their hard-earned money into a stock tip they got from their brother-in-law, a parking attendant or a shoeshine boy.
They might get lucky every now and then. But that’s NOT the way real money’s made over the long term.
Investing is a business proposition — not a lottery ticket. When you buy shares of stocks, you’re investing in companies run by real people, with real products and services.
And if you don’t understand where you’re putting your money, you’ll be on a fast track to the poorhouse.
So today, I’ll show you the right way to look at 2020 stocks. I do this using something I call my “3 Knows.”
Understanding these three stock-picking secrets will put money in your pocket and set you apart from the investing crowd.
Start off the new year right by checking out my 10-minute video below…
Put My “3 Knows” to Work and Join the World’s First Trillionaires
Once you understand the logic behind my “3 Knows” principle, you’ll be able to make money in any stock sector. And during any market environment.
More importantly, you’ll avoid investing in businesses that will lose money in the long run.
I’ve used these three principles throughout the course of my 35-year career. They’ve helped me identify life-changing investment opportunities for both myself and my readers, such as:
- 200%-plus gains in General Dynamics.
- 400%-plus returns in Microsoft.
- And a staggering 600%-plus windfall in Atrion.
Just to name a few.
In fact, this simple approach has led me to discovering an enormous $15.7 trillion profit opportunity brewing in the technology sector.
My research shows that this newly formed market could mint more millionaires than any other market in history.
In fact, Mark Cuban, legendary Shark Tank investor and owner of the Dallas Mavericks, says this new market will create “the world’s first trillionaires.”
But what’s even more exciting is that just one little-known company is expected to capture the lion’s share of this $15.7 trillion windfall.
And getting into it now could set you up for a lifetime of untold wealth.
I’ve put together a special presentation detailing this remarkable market opportunity — and the one company set to dominate it.
If you’d like to learn how to join the ranks of early investors piling into this industry — before it takes off and makes many people rich — I suggest that you check out my presentation right away.
See Stocks for What They Really Are: A Piece of A Business
In the video above, I teach you how to look at 2020 stocks and the market in general. It’s going to be a much easier way to invest in the stock market and, more importantly, it’s going to put more money in your pocket.
The question that I’ve been asked a lot over the past couple of years is: “How is real money made in the market?”
Now, I want to tell you … The real money that’s made — as I’ve seen over my 35-year career — has not been made by guys looking at every tick and blip on a chart.
That’s not the way the investing works. In fact, the Forbes 400 is filled with investors and the richest people in the world that view stocks for what they really are: pieces of a business.
What I mean by that?
When you look at a stock as just a wiggle or a jiggle, you’re not seeing the forest for the trees. You are caught looking at a stock in a single dimension. Instead think of that stock as a piece of the company and that the company has employees, CEOs, managers, products, services, revenue and earnings. That’s what a real business is. And if you look at the business like that, it changes everything. Because then you view investing as a business proposition, and not as a lottery ticket.
The 3 Knows
I call this holistic approach the “3 Knows.” And by looking at the 3 Knows, you will set yourself apart from the crowd.
This will inform your decisions when choosing 2020 stocks and all your investing for the rest of your life. And it sounds simple and like common sense. But like most ideas about investing, common sense is just not that common.
So try to really absorb these ideas because this is going to totally change the way you invest and, more importantly, help you make money.
1: Know The Business
OK, the first know is: Know the business. You have to know the business and what it does.
It boggles my mind that people spend more time on planning a seven-day vacation than investing their hard-earned money in a stock.
I’m serious. Think about that for a minute. They’ll look at every airline, compare flights and maybe put a layover there to save $52 here and $10 there, and they’ll look at Airbnb instead of staying at a hotel — all for a seven-day vacation, that costs maybe $1,000 to $2,000!
Now, think of it this way … Someone gives you an idea and says, “Hey, here’s a tip about this company that’s going to do X, Y, Z.” That same person will blow $5,000 quicker than you can imagine. I’ve seen it happen more times than you will believe. Smart people, making common sense mistakes.
That’s not the way you make money. You have to know the business. And what do I mean by that?
What are the key drivers of the business? In other words, how does the business make money? If they sell more products or services of X, will they make more money? And if they sell less, will they lose money or not make money at all?
If you can’t figure out what the driver of the business is, then how the heck are you going to figure out when the business isn’t viable anymore? You should be able to sum up the business that you’re investing in in less than 10 seconds.
Think about it. TJ Maxx: off-price goods, retail. McDonald’s: fast food, 30,000 throughout the world. Pepsi: a beverage and snack company. How much more complicated do you need to be?
Stay away from the semiconductors and things that are really difficult to understand (unless you do understand them). Stick to simple things. If you can’t sum up the business and what they do in 10 to 15 seconds, I highly suggest you move on. Because if you don’t figure out how the business makes money and what they do, you’re never going to have any idea if the company’s about to go off a cliff, dive into the abyss and boom — you lose all your money.
If you just look, for example, back 20 years ago at Blockbuster, you could have seen what was happening. But if you have no idea that if Blockbuster doesn’t generate more video rentals they’re going to go off a cliff … then you miss the whole point.
Same thing with Circuit City and other businesses that closed. If you don’t know what the driver is, boy, oh boy! You’re in serious trouble.
2: Know The Numbers
Think about this for a second. You and I go into a business selling hotdogs on 42nd Street. Now, we have to pay for a stand. We have to pay for a license. We have to pay for the frankfurters, the buns, the sauerkraut, the mustard, the propane tank and a whole bunch of other things.
Now, we’re going to have to figure the price we’re going to sell a hotdog for. If we say, “Let’s sell them for $0.50” without figuring that all out … we’re pretty stupid. We’re going to be out of business rather quickly.
And if we don’t have capital behind us in order to buy more goods — more frankfurters, more hotdogs — what happens if we sell out of everything and all of a sudden the wholesale prices go up and we don’t have enough money to buy more goods? What are we going to do then?
In other words, if we don’t know the cost, the profits, or anything about how the business spends money … how the heck are we going to make money?
Now, think about that for a second. When buying a stock, you’re buying a piece of a business. At the minimum, you should spend 20 minutes looking at the financial statements.
That includes the balance sheet, the income statement and cash flow. If you don’t know what the numbers are, you’re making a big mistake. You don’t need complex math. All you need to know is simple, fourth-grade mathematics to figure it out. It’s that simple.
My biggest concern before investing in any company is looking at the balance sheet. I don’t want to experience permanent capital loss. What that means is bankruptcy. I don’t want to wake up one morning and find my company can’t pay their bills.
Sales aren’t hard to fake. Sell goods below cost and you’ll have sales through the roof. It’s making money that counts. And if the business can’t pay their rent and pay their workers and keep the lights on, what good are they? I don’t care how much they have sold.
Make sure the business that you’re investing in is financially stable before you make an investment.
Now, most stocks that sell off and trade at low prices are at low prices for a reason. They have one foot in the grave. They’re about to go out.
Avoid those companies. Look for the companies that are financially sound and that are trading at a bargain price that has nothing to do with their financials.
3: Know The Product or Service
It’s easy to buy a business that’s product or service you buy or use. Think about it. If you like Nike or Under Armour or McDonald’s or Coca-Cola or Amazon (all these are public companies), then you will understand their products and services.
You can figure out all of these businesses. You can probably go and buy every type of product that these businesses offer and figure out if you like it or not. And you could easily see what competitive advantages each of these companies have and compare them to the rest of the marketplace. And if you could isolate those … Wow, you’ve got a great business. Figure it out that way.
That’s why I stay away from complicated businesses, because I can’t always figure out how it makes money — what it does, if I’m not too versed in it.
For example, I really avoid biotech companies — simply because I don’t know that industry. I’d rather stick with simple things that I can understand.
I’ll give you an example. They asked Warren Buffett — after he bought Apple (and this man never bought a tech company before he bought Apple) — what the reason he did it was. He goes, “I took my grandkids to Dairy Queen.” (By the way, that’s a company that Berkshire Hathaway, Buffett’s company, owns.)
They were sitting there having ice cream, and Buffett saw each of his grandkids and their friends take out their iPhones. And he said, “Boy, oh boy — these kids can’t live without these things!” And then he just did a little further research and found out that you could fit Apple’s entire product line on your kitchen table [1].
They don’t have a zillion products. They just have a few products and different colors. That’s it.
Peter Lynch, for example (one of the great investors who took Magellan Fund from 1977 to 1990 through the roof and destroyed the S&P 500), said that he got the idea to buy TJ Maxx when he heard it referred to as “the mothership” by a nurse who was helping him in the hospital with a knee problem.
She she said, “I’m going to the mothership.” He said, “What the heck’s the mothership?” She said, “TJ Maxx. I love going there and it’s fun.” [2]
Now, think about that. Isn’t it great to have a business that consumers love to go to and have fun spending money at? Those are the type of businesses I’m talking about — simple, easy businesses you can figure out.
Final Thoughts
Some ideas for you: McDonald’s, Google, Amazon, Facebook, Starbucks … These are simple businesses that you could figure out what they do and totally understand them. And, more importantly, use their products as a consumer and see what you like or don’t like about them.
Remember, you don’t need to make money by finding complexity. Just because a situation is more complex, doesn’t mean you’re going to make more money.
That’s why I love what Warren Buffett — the greatest investor of all time — said. He said: “Investors should remember that their scorecard is not computed using Olympic diving methods. The degree of difficulty doesn’t count.” [3]
Stick to simple opportunities, simple businesses, where you have an edge and understand what they do.
Those are my 3 Knows: Know the business, know the numbers and know the product.
Now, finding strong businesses is going to be really important, but it’s going to be more important that — by following this methodology of knowing the business, the numbers and the product — you’re going to avoid businesses that are losing money. And it’s more important to me to know what to avoid, than to know what to find.
Regards,
Editor, Alpha Investor Report
P.S. Check out my YouTube channel and click on the subscribe button. That way, you won’t miss any of the content I post on how to make money in the stock market and how to be a better investor. Choose the right 2020 stocks and invest in your future.
Sources:
[1]: Wall Street Journal – Warren Buffett’s Berkshire Hathaway More Than Doubles Stake in Apple to 133 Million Shares
[2]: Barron’s – How To Invest Like Peter Lynch, According To the Master Stockpicker
[3]: AZ quote – Warren Buffett Investing Advice