The Nowicki family Christmas dinner was tonight. Michelle, the Nowicki family psychiatrist, said (to my FATHER, not me, the securities wonk)
“How do I know what stock to invest in? I don’t follow the market. I don’t watch the stock shows on MSNBC. Jim Cramer – the mad money guy – all of that.”
After I convinced Michelle that I was credible, given my Wall Street background and my SEC background, I suggested she do two things:
1. Think about products that SHE and likely the rest of the population need. Lawn mowers, for example, are a good example of generally needed products. How ’bout the company that makes ROOF sheeting? How ’bout the company that makes . . . blinds!? I suggested that my sister look around and look for companies that make products that are really, honestly, undoubtedly NECESSARY.
2. Pull from the website of the relevant company the past couple of years’ worth of annual reports. Take a look at “measures of success” – profit, earnings per share, stock price. Ask “did the company do well over the past few years? How has the stock done over the past decade?”
Chew over points one and two above. Take your $3000 Roth IRA and invest accordingly. Pay your sister qua financial advisor a small fee when you are wealthy.
SERIOUS POINT: Joe Common Investor, or my sister, needs to avoid reading the WSJ or watching Squawk Box (etc.) for purposes of seeking “hot” investment tips. Instead, look for a good, solid company, a fair assessment of the company’s use to the public, and a simple review of recent annual points.
The day-to-day drama of the market, about which I have before blogged, is not anything about which ye olde average investor should much care. Instead, it seems that the more sensible thing to do is take a LONG view of products that have a LONGER-term, solid future.  Invest in companies in which it makes common SENSE to invest. Unless you need to worry about cash in the short-term, I am not convinced that paying attention to what is currently “hot” and what is “not” is of the most value.  (Mind you, I am not an investment professional, nor am I giving advice for those who have less than … 20-30 years left to live.)
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To 1. I would add “and like their products too”.
Have your sister read this: http://www.amazon.com/Random-Walk-Down-Wall-Street/dp/0393315290
Tell her to stop listening to you. My god!
Steven – why?
Mark – Yes, yes. I feel your pain. And take heart in knowing that you did the community service, even though the tennis partner ultimately carried the day. I like knowing that I am not the only one who holds no professional weight with my family. I am always the last to know about legal issues, market issues, etc. etc. Way to build the confidence with the family support. Good to know it happens to the best of us.
Trading Goddess – nice website.
Kate – for the love of all things good and holy, what is *your* problem with my counsel to my sister?
While you were at it, did you convince her to buy the Brooklyn bridge?
I agree with the long term aspect of your post.
Funny that you mention lawn mowers…so did I today in my comments section. LOL!
You must be the “serious” sister.
When my family asks me (the family MBA) where to invest, I tell them “Wal-Mart or Microsoft, twenty years ago.” Then they don’t believe I’m serious when I tell “really, you should just throw darts at the Wall Street Journal. That’s what I do. No, really.”
Every now and then an older uncle or cousin (I have a really big family) might start sharing their heartfelt anxiety about their retirement, telling me I should be ashamed of using my rare understanding of markets to torment them with my silly responses. Then I’ll break down and tell them about index funds, carefully explaining the risk/reward benefits of maximum diversification. My payoff comes a few months later when I see them and ask them in my most reassuring, helpful tone how my advice has gone for them, and they tell me that they actually put most of their cash on a hot tip they got from their tennis partner.
If you didn’t suggest she invest in an index fund, then she should keep talking to your father and leave you out of the conversation.