How To "Invest In What You Know" - Chaikin Analytics

How To “Invest In What You Know”

Anyone who is interested in writing or becoming a writer will eventually be given the age old advice to “write what you know.” The quote is attributed to Mark Twain and has also been linked to Ernest Hemingway, two of my favorite authors for non-market related reading. 

But since we are interested in the market, let’s keep the focus there. One of the first books that I ever read about investing was One Up on Wall Street by Peter Lynch. If you have not heard the name Peter Lynch, here is a quick background. As the manager of the Magellan Fund at Fidelity Investments, Lynch averaged annual returns of over 29% from 1977 to 1990. During his time running the fund, assets under management grew from $18 million to $14 billion. Clearly someone who may have some interesting viewpoints on the investment process. 

The book was first published in 1989 and according to has sold over one million copies. Lynch explains that the average investor has an advantage over professional fund managers. How? By adopting the mantra of the two great writers mentioned above with a twist for investing: Invest in what you know! Lynch argued that by paying attention to the products that we use everyday we can uncover potentially profitable investment opportunities. Lynch urges investors to look around their homes to identify the brands that are most used. Walk around the mall and notice which stores are the most crowded in addition to the stores that you visit regularly. What kind of car do you drive? Whose sneakers do you wear? At what restaurants do you eat? You get the point.

The world has changed a lot since 1989 including the way that we consume products. But we can still apply Lynch’s credo of buy what you know; just with a modern adaptation. While we can still pay attention to the products in our homes, the mall is increasingly becoming a place where less shopping is being done. Why? Because we can simply pull out our smartphones and order what we want or need. For many of us, they are an extension of our arm or at the least, rarely more than an arms length away. So I decided to take a look at the apps that are on the first page of my phone and see which public companies’ “products” I interact with frequently. From there we can look at how they stack up in the 20-Factor Model at Chaikin Analytics.

Here is a screenshot of my phone’s main screen:

Now we can quickly take a look to see which of the apps that I use are from publicly traded companies that may warrant further analysis at this time or in the future:

  • The phone itself is an iPhone Xs. (AAPL)
  • Under productivity, I use Dropbox to store and share my work and Zoom for recording videos and hosting meetings. (DBX and ZM)
  • I read a lot, in particular the NY Times and the Wall Street Journal. (NYT & NWSA)
  • For social media, I like Twitter, Instagram and What’s App. (TWTR, FB)
  • I bank at Chase, have an American Express card, use Venmo to pay people, and E-Trade for much of my investing. (JPM, AXP, PYPL, ETFC)
  • I use no less than ten different Google apps. (GOOGL)
  • I shop on, use the Kindle app, and order from Whole Foods. We have two Alexa’s at home and use Fire TV. (AMZN)
  • I go to Planet Fitness (no judgements) and track my workouts using an Under Armour app. I also track my food intake during the day with My Fitness Pal which is owned by Under Armour. (PLNT and UAA)
  • Every morning, I order my coffee with the Starbucks app so it’s ready for me when I get there. (SBUX)
  • I am an Uber power user, including UberEats. (UBER)
  • I book trips with Expedia and usually fly Delta if given the choice. (EXPE and DAL)

I may have missed one or two but now I have 17 public companies which are literally staring me in the face everyday. I loaded them into a watch list and can look to see which of them are rated Very Bullish or Bullish at Chaikin Analytics. Note that UBER and ZM have not been public long enough to have a rating in the model

Six companies whose products that I use regularly have stocks with Very Bullish or Bullish ratings: DAL, EXPE, GOOGL, AXP, FB and NWSA. These are names where it would make sense for me to consider doing more work to determine if now is a good time to make an investment. The others, I can keep on a watch list to alert me when the ratings change.

Note that I would never buy a stock just because I use the product but, to be fair, the fact that I am using the product should at least make them a consideration if they fit with a sound investment process. 

Obviously this list is unique to me and the apps on your phone may be completely different. The point is that investment opportunities are all around us and when they fit our process, they should be candidates for our portfolios.

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