The concept was first popularized by Peter Lynch in his best-selling classic: “One Up On Wall Street.” I’d like to share some recent personal experiences:
Royal Caribbean Cruises (RCL)
I like cruising. I like RCL: their modern ships, well-run operations, interesting itineraries, world class entertainment, reasonable prices…
When the market was tanking in early 2009, it took RCL down with it. The RCL stock cruised from a high of $55+ in early 2005 to a low of $5.00 in March 2009. The conventional wisdom was that the upcoming new greater great depression and the end of capitalism as we know it would cripple Caribbean travel and put RCL out of business.
But: most RCL cruises are actually outside the Caribbean; most RCL cruisers are wealthy retirees, not boozing boomers; and its modern fleet and worldwide operations are hard to duplicate: a valuable brand. So I bought the stock when the market rebounded in March, betting against the conventional wisdom.
I also checked their bonds at the time – they were priced to yield 18% due to the same overblown fear. But the bonds were secured by modern cruise ships, not some mercurial mortgage derivatives. So I bought those too.
The stock recently traded above $17.00, the bonds are priced to yield 9% last time I checked.
The town where I live has a retail space vacancy sign in every strip mall. Amidst all the gloom I noticed a new tenant move in into one of them: Medifast. Sure enough, the company has been reporting spectacular earnings and the stock has shot up from under $5.00 in April to above $15.00. Apparently, people don’t stop dieting in a recession.
In the stock market, running with the crowd and accepting conventional wisdom at face value rarely pay.
Stock investing is not only (and not so much) about dissecting quarterly statements at your computer as it is about keeping your eyes and ears open.
Personal experiences and observations can lead to substantial stock market profits if you train yourself to respond to new information with: “How do I make money off this?”
The opposite is also true: your personal experiences can save you from disaster. You may hear a talking head gushing about a new store concept but when you check it out, you feel underwhelmed. Like it or not, most of us are average, and what we think or feel, countless others are likely to think or feel too. If you don’t like the store, sooner or later sales will disappoint, and the stock will tank.
It’s your money.