Stock Research in Unusual Places

Typically when most investors think of stock research, they think of a computer activity such as starting up yahoo finance and searching through symbols to find that stock that is attractive. However, some of the best ideas are found in different ways just observing your surroundings and paying attention to new trends.

Peter Lynch, in his book Beating the Street, wrote a chapter entitled “Shopping for Stocks” in which he talks about his experiences with his daughters and his local mall. He found that his daughters were very good at identifying trends which he could capitalize on as an investor. In fact, he reached the point that he would take his daughters shopping just to see what interested them.

I had an experience similar to this in late 2008 to 2009. My niece, who was in second grade at the time, asked for a gift card to the clothing store Justice for her birthday. This was her favorite store which has a target audience of grade school girls. My wife asked me to go there and purchase the card for her.

When I walked into the store, there was music playing with famous teen bands on TV. The motif was brightly colored. The store was filled with trendy clothes and accessories geared towards grade school aged girls. My grade school girls today say they have lots of “glam.” Don’t ask me what that means but I know it means they like it. I was probably the only male in the store as it was filled with girls and their mothers. Keep in mind that this was in the middle of the market crash so a filled store was an unusual thing. There was lots of activity which was really good to see as a potential investor. Given the motif, products, and brisk activity, I quickly understood that it was a dream place that young girls would like and would want to shop.

Later, back home, I remembered the experience and investigated Tween Brands which was the owner of Justice and happened to be a public company. Also, I spoke with one of my trading friends, who confirmed that his daughters were also interested in Justice. After fully researching the company, I purchased shares in late March of 2009 in Tween Brands. In June of 2009 they announced that they were being bought out by Dress Barn. In that short period of time, the stock almost tripled. Unfortunately, I didn’t own a big position and didn’t own it the whole way up but I did make a decent amount of money. This example gives you a flavor of what you can learn about investing opportunities by paying attention to your surroundings.

There is another example that is more recent. It happened last year. I was looking for a home improvement store and pulled into the parking lot just before the store. This parking lot was in front of a grocery store. As I was driving along, I noticed a semi trailer with an awning off in the distance. It was clear to me that this was some special promotional event.

Part of the reason that this trailer caught my eye was that there was a logo that looked a bit familiar. It was hard to see at first because of the distance away. However, as I got closer, I realized why it was that it caught my eye. It was the logo for Nathan’s Famous (NATH). Now it just so happened that I owned stock in Nathan’s Famous at the time. They had recently started a new marketing campaign. However, I had never seen Nathan’s Famous products before and wasn’t aware that the marketing campaign was coming to my area.

Naturally, I had to stop and check out the activity at this promotional event. As it turned out, the display was in the process of being disassembled. However, I was able to talk with the people that ran the event. They told me that they were going to a different city every few days to show the product. I also found out that the grocery chain there just started selling Nathan’s Famous products. I learned that their product received a good reception at this promotional event and also confirmed that the customers at the store had never heard of Nathan’s Famous. So, I knew that this promotional activity was going to help sales grow especially since they were expanding their territory.

The rest of that day I was blown away at the dumb luck of running into this promotional event. At the time I wasn’t totally convinced that this investment was great but this promotional event significantly increased my confidence. Later in the year, Nathan’s Famous reported a great quarter where earnings increased by 47.4%. To be fair, the increase in earnings was not just related to that promotion. However, seeing that promotion was what gave me the conviction to continue holding. I made a quick return of 32% in a few months and I probably wouldn’t have made as much had I not been paying attention and spent the time to investigate.

Shopping isn’t the only unusual place where you can do stock research. Perhaps at work you learn about a customer that is doing well which leads you to an investment in that industry or company. Perhaps it is a party where a friend tells you about how they are very busy at work or a neat new product that they really like. In a little bit of conversation you might learn about a trend that is happening that you might be able to capture in an investment.

There are virtually limitless ways of finding about new trends that might lead you to a good investment idea and many of them don’t revolve around sitting in front of your computer. Even with a drink at the local bar you might find out about the hottest new trend in liquor that leads you to an investment idea. Whenever there is a new product that my kids receive as a present which they really enjoy, I always check the manufacturer to see if they are a publicly held company. Another place to pay attention is when commercials come on TV. That is one way to find out about new trends that may lead you to an investment idea.

The important thing about finding investment ideas in unusual places, however, is to keep an eye out for these things while you are out exploring the world and living your life. Also, it is important when you find one of these situations to learn as much as you can so that you can exploit the opportunity. Don’t be afraid to ask questions at a store or other business as the employees are usually more than willing to provide information. Anyone can do this as it doesn’t require special training. It just requires some attentiveness and inquisitiveness.

One of the things that I most enjoy about the members of MicroCapClub is that we are an eclectic mix of people with diverse experiences yet all have significant investment experience. This eclectic mix gives us expertise in many areas and diverse perspectives. We have investors who are fund managers, analysts, home builders, engineers, computer programmers, accountants, doctors, lawyers, and many more professions. The members are able to use everyone’s unique knowledge, experience, and talents to find ideas in different areas. Our broad skills and perspectives are also very helpful in researching companies as often there is someone with specialized skills that can provide a unique perspective and information that the average person can’t.

Having a network of people with diverse backgrounds is a way to help you find ideas in unusual places as it broadens your scope to unusual areas that you wouldn’t otherwise encounter. Sometimes, you can also piece together a part of a new trend just by talking with other investors as there are often multiple pieces to the puzzle and it takes more than one person to complete the puzzle. It can be helpful to brainstorm with your network regarding trends that they are seeing to help find new ideas.

If you have had an interesting experience doing research in an unusual place, please leave a comment below so that we can enjoy and learn from your experience.

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