Archives for May 2008
When it comes to picking stocks, or picking a winner in anything, everybody’s got a system. A magic calculation that can tell the future.
Well, here’s mine …
Above, you can see a historical stock graph and 3 spiral swirls. But not just any kind of spirals … golden spirals. The golden spiral is based on the golden ratio. Otherwise known as Phi.
Phi is a mathematical pattern that we see everywhere in nature, from the shape of seashells to the very structure of our galaxy. It’s everywhere. The Golden ratio which is 1 to 1.618 is often viewed as the measure of perfection. It’s amazingly aesthetically pleasing to the eye and it’s used in graphic design a lot (called the rule of thirds).
Phi is so ingrained into everything around us that many scientists believe it holds the key to unlocking the greatest prize that physics has to offer; the grand unified theory. I tend to agree.
The mechanics of successful investing is pretty simple. Buy low and sell high. The less simple part has to do with what to buy and when to buy it. In other words, selection and timing.
Stock selection and timing are really closely related. The key is recognizing both current value and potential value. If the current value is less than the potential future value, you’ve got a winner. And of course if the opposite is true you could still have a winner by shorting the stock (betting it will go down).
Finding Stock Opportunities
There are literally thousands upon thousands of stocks out there. So first, you need to find them, and find out a little about them …
If you park your money in the same place for 20 years, you can do well. But a lot of times you’ll just keep up with inflation. And sometimes, the only gains you make come from steadily pouring money into your parking spot over many years; it’s just a savings plan. Not an investment plan.
Great returns come from catching the waves. Good waves can last anywhere from 2 to 5 years. You hop on, ride high, and then hop off and look for the next one.
The dot com bubble was a nice wave. And over the last few years property has been a good wave. The real question though, is … where’s the next big wave?
The answer has 2 parts. First, the sectors or industries should be experiencing strong growth. And second, where individual companies are concerned, they should have strong growth potential.
And by strong growth potential I’m not asking myself “are they cool” or “are they in the hot industry of the moment”. The question I’m asking is “can they sell it”?
Big Wave Candidates
Here’s a list of strong sectors to keep your eye on and maybe get involved with. In each of them there are a whole host of companies.
I won’t list specific companies because you should do your own research. And no matter how hot an industry is, some companies will bring stellar performance and others will completely bomb.
The “when” is easy to answer. Always. This isn’t as obvious as it sounds because in practice, most businesses start marketing and advertising when they start up and then one single thing always happens that makes them stop …
It can be change for the better, or for the worse. But that change usually becomes the new focus. It’s either “Oh wow, we have all these orders to fill” or it’s “Oh no, things aren’t going as planned. We have to make some cuts”.
To keep a good thing rolling forward or to turn around a bad situation, you have to keep some focus on your marketing and advertising and translate all of it into sales. Here’s how to approach your advertising based on your situation …
1. Build your brand. Things are going great. You’ve got more business than you can handle so there’s no use wasting money on marketing right? Wrong. This is the time to build your brand.
When you build your brand you get customers coming to you. They’re coming to you because they know you and trust your brand. And when people are coming to you; when they want what you have, it’s a lot easier to charge more and increase your margins.
First mover advantage; being the first one in a market or to develop a new technology can be a huge advantage. At the same time, doing all that hard work also lays the foundation for someone else to step in and do it better.
So if you’re a first mover, great. If not, no sweat. All you have to do is find an edge that gets everybody talking about the new kid on the block.
Let’s look at some “second-movers” and see how they did so well …
First there was Apple, then along came Billy G and some new ideas. Big ideas. Where Apple has always developed their operating system and assembled the hardware, Microsoft opened the floodgates to thousands of other compaines by licensing their OS and letting others build and assemble the hardware.
If you can create opportunities for other companies and entrepreneurs to prosper with your product, you can take the lead.
In Getting Paid 101 I talked about how to be pre-emptive and simply run your business in a way that helps (a lot) to make sure you get paid by delinquent clients. In Getting Paid 201 I talked about skip-tracing; or tracking down those fly-by-nighters that skip out on paying you.
Well, sometimes, you don’t get paid but you still have to do business with a company that owes you money.
It might be because they’re a significant portion of your revenue. And if they owe you a significant amount of money and you’re a significant supplier of theirs, it’s usually in your best interest to help them keep the ball rolling, generating revenue … so they can pay you!
This can be a very maddening situation so the first thing to do is get rid of all that emotion. Take a few minutes to yourself and cuss them out.
Good? Alright … moving forward, you have to play it smart and use your advantages. Here they are:
In reference to the great California gold rush of the 1800s it’s really popular to say “Don’t dig for gold, sell shovels”. The logic is sound because rather than investing in high-risk speculation, you can take a much more certain road and sell the tools that these high-risk, high-reward speculators need.
But there’s a limit to how many shovels you can sell. And there’s something bigger that both the gold diggers and the shovel sellers need. And that’s the railway to get to California and back.
When you build a “railway”, you’re building a platform, a gateway. The backbone of it all. You’re building a conduit through which all things must pass.
Tunnel vision is probably one of the best ways to create unproductive time. At a certain point it’s not focused concentration anymore. It’s just ignoring everything else and a lot of better opportunities. And it’s also limiting the angles and creativity you can apply to the current task.
Now surround yourself with a whole flock of tasks like that. It’s like being in the middle of a forest but you can’t see the forest or anything beyond it. No matter what direction you look in, all you see is trees.
Each one of those trees wants your attention. You have to get through one tree only to be greeted by another. And you have to clearcut valuable trees out of the way just to get some help in there.