The following is a contribution from Kalen Bruce at MoneyMiniBlog. If you’d like to contribute to Monster Piggy Bank, please contact me
I still remember walking to the back restrooms of Walmart and seeing the stock price on the wall. I don’t know why they thought that was the best place for it, but there it was. The first time I saw it, I honestly had no clue what the numbers meant. I eventually realized what they were. And I realized that they were higher every time I saw them.
I thought oh, that’s what a stock is. This is how much one share of Walmart is worth. Of course, growing up in Arkansas (where Walmart originated), I thought Walmarts were in every town everywhere…in the world. They sure were in Arkansas. Once I started learning a little more about stocks, I thought Walmart was finished growing and the stock price would stop rising.
I was wrong.
I later learned that, at the time, they were opening one store every day somewhere in the world. That seemed like pretty impressive growth, but I still thought the ship had sailed and I was too late.
Becoming Interested in the Company
Forgetting about the stock market, I actually became interested in Walmart as a company. How they operate. How they market. I read a few books about them and then I found a 9 hour audio documentary. It told me that Walmart was bigger than it’s first 10 competitors combined. It also told me that Walmart was still growing rapidly.
After listening to that documentary, I wondered how anyone could not own Walmart stock. I assumed everyone knew about their growth and their numbers. Once again, I thought I was too late.
That’s when it dawned on me…
I knew more about Walmart than 99% of the world. Just from reading a few books and listening to a documentary. As far as I was concerned, I had insider information.
Taking the Plunge
I finally decided, several years after I first realized what a stock was, to buy some shares. You guessed it…Walmart shares. I watched the price go up and up. And then the recession hit. The stock market collapsed. But a funny thing happened to Walmart’s stock…nothing. It really didn’t change much at all, considering that most of the popular stocks were plummeting.
Why didn’t Walmart’s stock change? Because they were a solid company and they were worth their stock price. It wasn’t highly inflated. It was accurately valued, or possibly even undervalued.
Why am I telling you all of this? Here’s why…
How I learned to Pick Stocks
I accidentally figured out how to pick great stocks. I didn’t know that’s what I was doing. I thought I was just interested in the company. What I learned is that picking great stocks starts with picking great companies.
I knew everything I could know about the financials, the operations and the management of the company I bought into. It wasn’t much of a risk. Not only were they a large blue chip company, but I had all the right information. Little did I know, I had spent years researching my stock pick. And how’s it doing today? Still going strong.
I own several stocks now. I can’t say that I put as much time into the others as I did for Walmart, but I know what to look for and I know how to do my research.
Putting in the Time
There are different strategies out there. From stock market gambling to complex formulas for picking stocks, you have options (no pun intended). Like anything, you have to pick what works for you.
Large dividend stocks, value stocks and index funds are my favorites, but that’s just me. The important thing that is true in all strategies is to do your research and learn. Even if you decide to take a high risk approach, like investing in penny stocks, you need to know how to do it.
Sure, you can buy one share of a dominant company to see how the stock market works, but don’t start pouring your money into individual stocks if you don’t know what you’re doing.
This Isn’t About Walmart
I want to make this clear: this isn’t about Walmart. This is about picking stocks. If you don’t like Walmart, don’t buy Walmart.
The point is that you should be focusing on the company. Learn as much as you can. It’s better to own 3 stocks that you fully understand than 20 stocks that you “think will do good” or “heard will do good”.
Warren Buffet says “Diversification is protection against ignorance. It makes little sense if you know what you are doing.”. He didn’t buy 50 different companies. He focused on the companies he knew.
In 1978 Warren Buffett wrote this in a Berkshire Hathaway letter to shareholders:
“We try to avoid buying a little of this or that when we are only lukewarm about the business or its price. When we are convinced as to attractiveness, we believe in buying worthwhile amounts.”
Don’t focus on having a large portfolio with several companies, focus on learning more about the companies you already know and like.
Don’t focus on the price of the stock, focus on the value of the company.
Kalen Bruce is the founder and main writer at MoneyMiniBlog, where he writes short, sweet and simple articles about money and productivity. Kalen lives a debt-free life with his wife and four children. Get his free ebook here: Financial Freedom on a Full Schedule.