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Remember back in early to mid June I mentioned we would go over how to use the money that you used to pay yourself first?  You don’t?  Refresh yourself with this earlier article on paying yourself first.

 Remember now?  Super.

We are now going to use this money for safe investments.  When I say safe investments, I don’t mean mutual funds or index funds.  We are going to use your own knowledge and experience to see where your investment dollars go.

You: Investment Guru 

Get out a pad of paper and write down all of your hobbies and the jobs you ever had.  This is your sphere of influence.  We’re going to stick to these areas when it comes to investing.  Work for Microsoft?  Ok, how is the company doing?  You probably don’t know how well the company as a whole is doing, so you need to go to the company website and find the corporate link.  You’ll see various investor and shareholder  links and information.  What you’re looking for is the annual reports.  Try to go back atleast 5 years in your research.  For right now, unless you know how to read income statements, balance sheets, and cashflow reports, stick to the written reports.  Now, based off what you know from working there and what the annual report says about current operations and future endevors, what do you think of the company’s outlook?  Do you think things are doing well?  Do you feel, based off your own experience and the annual report, that this company can make money, and therefore, make you money as an investor?

Wait For the Fire Sale

Ok, you’ve determined that you want to invest in a company.  You know what the company does, you feel that things are going well and they will continue to do well in the future.  Don’t buy just yet!!!  Its time to go shopping.  When you go to buy a computer, you look for the best deal, correct?  That’s what we’re going to do.  We’re going to wait for the investment to go on sale.  That means waiting for bad news.  When that bad news comes, and it will, you have to look at the news with a critical eye and determine if this is a shift in what you think about the company.  Has anything about the basic structure of the business altered that makes you think the company will not make profits in the future?  An example of this is Apple.

Remember back in the summer of 2006 when Apple was in trouble over stock options?  Well the price per share fell down to $50.67.  Now, as an investor, stock options do affect the value of a stock and gives questions about management, but is the core business affected by this?  The iPod is still going strong and rumor has it that Apple might launch a new product, maybe even a phone based off the iPod.  Jump to summer 2007.  Price per share is $127!  If you had bought on the bad news last year, your investment would have  doubled!

I’ll Close With a Personal Example 

Back when I was working for a major food producer as a trucking dispatcher in their private fleet, I invested in the company’s 401k.  This was pre-Enron, so I invested in company stock.  While researching, I noticed a pattern in the stock.  The core product sales was responsible for over 90% of revenue, so if it sold well, the price per share was good; vice versa when sales weren’t so good, the share price tanked.  Well the product enjoyed a seasonal cycle.  In the summer months, with the grills fired up, everyone had to buy the product, so from May till September the price per share would be very nice.  In the winter months, no one was grilling, so demand for the product would lower dramaticly and so would the price per share.

So what I did was buy as many shares I could during the winter months with prices low.  As the price per share would start to rise with the warmer weather, I would keep the shares, but all my new investment funds going into the 401k would go into the money market account; the price to buy new shares had gotten too high for me to make it worthwhile.  Finally around August or so, with the temperatures at their peak, along with the stock price, I would sell all my shares of stock and put the money in the money market account.  The money would then sleep until winter, with the price per share in the tank, when I would put all my money back into the stock.

I no longer work for the company and unfortunatly the company has diversified somewhat, so it’s no longer possible to ride the ups and downs of its share price.

I’m investing in a company now, an oil tanker company.  I’ve never worked in the oil tanker business, but, at its heart, it’s just a transportation business that uses boats instead of trucks.  So, stick with what you know, and buy on the cheap!

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