Stock Picking Basics (1)

With the advent of “systems” for investing and a new wealth of information about companies, it can be hard to figure out which stocks you want to invest in. While many commentators will tell you about a lot of different companies from a variety of industries, sometimes it helps to just simplify. One of the most basic stock picking adages is to buy what you know. There is also the corollary to buy what you buy. Now how do you put these sayings into practice.

If you are just starting out in the world of investing and have your strategy and comfort with risk evaluated, the next step is to start looking into companies you wish to invest in. Before looking for exotic companies with high returns, you really don’t even have to go to far to find successful companies that have had great returns already. For the poor college student/new college graduate that’s too lazy to cook, there are plenty of fast food restaurants that have been returning greater than 10% over the past few years. Companies like McDonalds (MCD), Wendy’s (WEN), Jack in the Box (JBX), and YUM Brands (YUM) which owns KFC, Taco Bell, and Pizza Hut are all strong companies with a lot of growth potential in the near term. When you go to these places for lunch or dinner then you’ll just be putting your money back into your investments. Plus, if you goes to these restaurants and watch how brisk business is at times, then you already have a bellweather into the health of the company’s performance. If you find you’re the only one in there, then perhaps it’s time to pull out of fast food restaurants.

Not one to partake in fast food, how about consumer electronics? Still seeing lots of iPods or hearing about all the new TV’s people are buying? Companies like Apple (AAPL), Research in Motion (RIMM) the maker of the Blackberry, Sony (SNE), or Philips Electronics (PHG) are all good places to start if you also plan on upgrading a few of your electronic toys in the near future.

So what are you spending your money on every week? Why not invest in the companies that are going to be getting your money anyways. The gas companies are not a bad idea if you have a favorite gas station to fill up your car. Ask yourself some of these questions when brainstorming about which companies to invest your money. Where are you getting your food from or what kind of drinks are your favorite? What about the clothes you buy or even the bathroom products you use? This is why the adage of investing in what you know and what you buy is such an easily understood idea that can be oft overlooked. Plus, you get the advantage of seeing how the company is actually performing without having to wait for its financial reports every quarter.

As of this writing, I currently own shares of YUM Brands (YUM).

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