I personally abide by buying what I know when purchasing stocks as mentioned in Stock Picking Basics (1). For illustration I will apply specialized knowledge in addition to exposure to the products and services of those companies. I like to play a lot of video games, so I visit gaming websites that have articles, news and reviews like 1up, ign, and gamespot. Each year there is an expo called E3 where big announcements are made. In 2006, the Nintendo (NTDOY.PK) Wii was announced with actual playable systems on the show floor. The writers of the gaming websites wrote extremely favorable reviews of the gaming console. At this time, the Nintendo DS was sold out and proved itself over the initial skepticism. Since the DS already illustrated what a little creativity can do, the Wii had untapped potential. The expo was in May and the Wii would come out in November. Another factor in Nintendo’s favor as a profit making entity is that they never lose money selling a game console unlike Sony (SNE) and Microsoft (MSFT). The successful games are mostly games made by Nintendo too. They make money selling the console and the associated software. All of this information would lead one to believe that Nintendo was a good investment. Indeed it was.
Buying a stock is only half of the work in investing. The other half is knowing when to sell. How would I know when to sell Nintendo? One indicator is the software sales and quality of software. If they continue to make good games, people will continue to buy them. Another indicator is when it stops being sold out at all retailers. Since the Nintendo Wii is in such scarce supply, there is a website called wiitracker that displays if the Wii is in stock at a number of retailers. It also tells you how fast the Wii sold out. If you buy what you know, you will always have a gauge on the company performance. It beats reading financial reports that are read by thousands of other people.
I happily own Nintendo (NTDOY.PK).