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Sunday, October 22, 2006

How To Invest (or Buy Anything)

There are pros and cons about getting advice about an investment from a person who already owns that stock, bond, or fund. However, it also strikes me as funny to buy a product from someone who does not use the product. I know there are conflict of interest laws out there. I can understand why a guy like Jim Cramer might get in trouble if he bought stocks just before he recommended them to a hundred thousand or more viewers. I realize financial industry insiders need to be careful about what they say to potential investors.

On the other hand, people who do not own a stock are not likely to be as thorough about researching that investment. What does it matter to them? Oh, yes, they have a reputation to uphold. A reputation based on taking as little risk as possible and hoping as many people as possible will believe them every time.

My retirement strategy has always been different from the stampeding hordes. I use primarily the same strategy for investing that I use for big ticket purchases. After all, several hundred shares of most stock IS a big ticket purchase, at least for a bloke like myself.

Before I buy a product I talk to other people that have purchased that product. I read multiple reviews from people that actually got their hands on the product. I look up sales figures for a product. I typically will not buy a product until it has been on the market at least a year. I wait until I can get the best price, from a reputable dealer that is! Finally, I read the documentation that comes with the product. Yes, I read the owner's manuals for my cars, cameras, computers, and audio equipment. (I must confess here; I write technical manuals for a living so reading the manual is a best practice in my field!)

When I get to the store I do not grab the product off the shelf and go to the cashier. Six trips to southeast Asia (India, Thailand, and Singapore) taught me to use the staff provided in retail stores as a key benefit. In those places, at least in the past, the clerks literally force fantastic customer service on a potential buyer. They absolutely insist on describing all features, comparing a product with similar products, and reciting the specifications from heart. If you appear to be prepared to buy the product, they usually insist on carefully opening the box to make sure every part and all paperwork is included. In addition, they will gladly show you every possible accessory for a product that they have in stock. The whole time they perform these services they remain calm and professional about every single step. When was the last time you received this level of service in a store in the U.S. or Europe?

I expect very much the same routine when I buy a security or fund. I realize corporate web sites and industry analysts have to provide me with similar services, but if they do not do it efficiently and pleasantly, I do not buy the stock, fund, or bond. In the case of very public products or services, I literally conduct an investigation of the retail outlets. I go in and talk with bankers at several locations before I buy a bank stock. I go to the classy bar near a brokerage house at 6 o'clock in the evening. I went to several outlets of a computer store before I invested in that manufacturer (okay, okay, it was Apple Computer, Inc. AAPL, Merrill Lynch & Co., Inc. MER, and Bank of America Corporation BAC).

I also visited their biggest competitors and thought long and hard about the different experiences, if any. In some cases, I readily admit, I was lucky enough to consult for some of the firms that I later invested in. In many other cases, I looked around the businesses where I consult and noticed where they were spending their money.

In the cases of government contracts, I looked around just as carefully. My tax money is my money all the same, I just get little say where it is spent. Nevertheless, I can learn where tax money goes and invest in that direction right when the big contracts get awarded. Most government contract awards are public information that can be located easily if you try. The rest of the money goes to Halliburton anyway.

Whenever possible, I buy the product or a service from the business I plan to invest in. I call the Customer Service desk with a tough question. (Another confession: I train customer service representatives at large corporations.)

Finally, when I buy something for a large sum of money, I plan to keep that product for at least a year, if not many years. If the floor model is broken, I will never buy that product. If the investment has not done well in recent years, I am just as unlikely to invest my money there. There are exceptions, but even an IPO stock must have a business with a solid reputation behind it.

My buying methods are not easy to emulate. Solid purchase decisions require hard work to get a substantial return on investment. ROI is what it is all about for me. I cannot expect to depend on a product or retire securely with anything less.

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