The Next Hot Stock is In Your House

Being a successful investor means picking the right companies. Who could have guessed how big Microsoft (MSFT) would become in August 1987? Did you correctly predict Apple (AAPL) would explode upon the scene in July of 1997? Or how about General Motors (no longer GM, now GMGMQ)? Did you start buying put options four years ago because you saw the writing on the wall?

If so – then you’re probably wealthy beyond belief, and there’s little reason for you to be reading this.

But if you’re like the tens of thousands of people out there, from their early 20s to their late 70s, who would like to do something with their money, but haven’t a clue where to look, read on.

When I first started investing, roughly a year ago now, I was simply sticking my paychecks and tips I was earning as a waiter into an account with Sharebuilder and trying to read up on the latest hot-stock trends.

I didn’t know any better – most of us don’t! If we get a phone call from some brokerage firm telling us that stock XYZ will double in price in the next two months, but we’d better hurry, some of us might buy! (Note: I didn’t buy Helix Wind (HLXW) when Bellwether Research called me, pitching that stock).

After all, what’s the option? Learn about the stock markets and investments?! That sounds incredibly boring – right?

Wrong.

This isn’t just your money we’re talking about. The money only represents the hours you put in at the office, or the time at the construction site. The money represents the years you spent furthering your education, or the years you spent working to support a young family. Your money isn’t what defines your life…but it’s a representation of your efforts.

You owe it to yourself, and your future financial stability to learn at least a little about personal investments. I’m not saying that everyone should manage their own money. Most people (including myself) don’t really have the time that it would take to nail down all there is to know. But before you blindly hand over your hard earned cash to a money manager (think Bernie Madoff), take a little time to read up about the markets.

Where to Start

I didn’t know jack about personal investments when I first started buying stocks. The first company I put money into was actually several years ago, and it was a real estate investment trust (REIT). The company, whose original name no longer exists, is now called Bimini Capital Mangement (BMNM) and I have lost about 96 percent of the original $85 I originally put in. Whoops!

Fast forward to summer 2008, when I was earning “real” money and wanting to invest it for the future. I spent a bunch of time on the Motley Fool website, picking through the latest top picks that the Fool and its members were recommending. I settled on Melco Crown Entertainment (MPEL), a Macau-based casino company as my first investment.

And then all hell broke loose. That first investment was only about $600, but we all know what happened to the stock market in the latter half of 2008. Suffice to say I was a bit surprised, but still determined to make investing work for me.

If you go back and read some of my older posts, you can follow along as I’m buying into other companies and adding to my positions, even throughout the worst of the recession.

These days, those original investments are pretty much even. Some are down a few percentage points, some are up a few. But that wouldn’t be true if I hadn’t continued to add to my positions when the price dropped.

I haven’t picked the next Microsoft or Apple, but along the way I learned something about investing.

The Goose with the Golden Egg is on Your Nightstand

I read all about Best Buy (BBY) on the Fool website, but I hadn’t ever purchased the stock. Anyone who knows me very well knows Best Buy is essentially my biggest weakness. I can’t enter those stores unless I leave my wallet in the car! But even though I loved the stores themselves, I hadn’t translated that into owning stock – owning part of the company.

In November of 2008, Best Buy hit a 52 week low of $16.42 a share. Today the company is trading at $32.08 – nearly a 100 percent return, despite the ongoing recession.

I didn’t buy into the company then, and I still haven’t yet – buying my house is consuming most of my money these days. But I’m still keeping an eye on the company. The stock is still 34.5 percent below its 52 week high, and I still believe in their business model.

Let’s look at another company I know and love - Hewlett-Packard (HPQ). I have owned an HP computer exclusively for nearly a decade. I personally have never had any problems with their computers, be it a desktop or a laptop (I’m typing right now on an HP laptop). But even though I knew all about the company, and I used and loved their products, I have never bought any of their stock.

In November of 2008, Hewlett-Packard was trading at $29.34 a share. Today the company is trading $37.85 a share – a nice 28 percent return. There have been two dividend payouts from the company, for 8 cents/share as well.

I haven’t bought into HP yet, although I’m keeping an eye on them. I don’t believe in Dell, and no one I know that uses a Dell likes the computers. The mainstream isn’t going to buy an Apple, simply because most don’t know how to use a Mac – plus they’re significantly more expensive. Sure, there’s Lenovo, Sony, Acer, etc. for competition, but HP has a good share of the public mind. Plus the current share price is still 23 percent below its 52 week high.

Okay, one more example, just to prove a point.

How about the auto industry? We all know that the Big 3 American manufacturers have been sunk by the recession. Chrysler, GM and Ford have all been hammered, and even the foreign manufacturers have been hit as well. It’s a terrible time to own vehicle stock, right?

Not so fast…

I have never owned a Honda. My first car was an ’84 Mercury Grand Marquis, followed by an ’84 Oldsmobile and then a ’02 Nissan. But I have long been a fan of those cars and their reputation for being incredibly long lasting.

Oh, and they get notoriously good gas mileage too – right? In fact, whether you’re a diehard Ford person or not, have you ever really heard anyone complain about their rice-burning Honda? I know I haven’t.

But even though I liked the company – and I’m looking at a Honda for my next car purchase – I have never translated that into owning part of the company.

In early December of 2008, Honda (HMC) hit a 52 week low share price of $17.35. Today it trades at $26.30 – almost a 40 percent gain! And dividends? You betcha! There have been two dividend payments from the company since then.

So What’s the Point?

My point is that your best bet for finding quality, sound companies to invest in are to investigate the things you use and love in everyday life.

Are you glued to your iPhone? Then maybe you should buy Apple stock. Or maybe you could do a little research and see that there’s a small cap stock called Arm Holdings (ARMH) that makes the microprocessor going into every single iPhone, along with a slew of other leading phones. You would also see that Arm Holdings is up almost 75 percent since January 2009.

Are you, or is your girlfriend/mom/wife a huge fan of Coach (COH) handbags? Do you hate shopping at the mall while dozens of girls pawn over the latest Coach this and that? Are you amazed that there is never an empty seat to rest because other guys are impatiently waiting on the women in their life? Then you may want to look into Coach as an investment. The stock is up over 91 percent since November 2008!

Do you have wireless internet in your home or apartment? Chances are if you do, you have a NetGear (NTGR) wireless router. NetGear is usually a bit more expensive than competitor Belkin, but the company is better known and generally more trusted (I own a NetGear router too).

Guess what? Since October 2008, the stock is up almost 65 percent.

I could go on and on with examples, but I have other things to do with my Fourth of July weekend. I hope this illustrates to you that searching for the next great investment, and next year’s hot stock, doesn’t have to mean combing through piles of financial reports.

Take a look at your life. Who makes that toothpaste you love? Johnson & Johnson (JNJ) - up 21 % plus dividend). Where do you pump your gas? Exxon Mobile (XOM) - up 21% plus dividend). How about your snazzy new LCD TV? Sony (SNE) - up 61% plus dividend.

The next hot stock may already be in your closet/kitchen/bathroom, waiting for you to uncover its potential! Starting looking and start investing in your future!