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New to investing? Why I’d start with buying what I know

Invest in what you know. That was the simple yet powerful philosophy immortalised by the legendary investor Peter Lynch in his book One Up on Wall Street”.

Although this classic book was written over three decades ago, most investors would find the principles covered still relevant. His writing style and examples make it a must-read both for new investors and seasoned veterans.

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Pay attention to demographic cohorts

Consumers participate in the economy daily and may already be aware of new trends that may also become investing opportunities. By doing due diligence before investing, it is possible to find numerous ‘baggers’ – stocks that increase by multiples over time and that could especially make retirement portfolios grow steadily. 

People in their 20s are especially well suited to spot up-and-coming brands or stay on top of companies that will be around for many decades to come. So you may want to visit the high streets or a mall to see what stores are attracting crowds. 

Take JD Sports Fashion, for example. In 2016, its share price was hovering around 200p. At the time, if young investors had paid attention to how Millennials drove up the demand for must-have trainers and how well suited the group was to benefit from this booming market, they might have purchased JD shares.

Fast forward to October 2019 and each share is worth about 730p. In other words, the investment would have more than tripled.

What is your favourite drink?

My next example comes from paying attention to which products are getting rave reviews from family and friends. Several months ago, my husband suffered a stomach upset when he could not bring himself to eat or even get out of bed for several days. When he was ready for a drink other than water, being the good North American he is, he asked for ginger ale.

So I popped down the grocery store and picked up a few bottles of different brands of ginger ale, including the Refreshingly Light Ginger Ale by Fevertree Drinks (LSE: FEVR), a brand we had not tried before. I was simply hoping that there would at least be one type that he would be able to keep in his stomach.

By the time he had recovered in a few days, he had become a brand evangelist for Fevertree Drinks. Since then, I have been paying attention to the company which was set up in 2005 and listed on the AIM market of the London Stock Exchange in November 2014.

FEVR shares were priced at 134p per share on their debut. On 12 September 2018, the price hit an all-time high of 4,120p, which was more than 30 times of the IPO price.

However, over the past year, shares have declined and are currently hovering around 2,115p. 

In hindsight, FEVR would have been the perfect growth stock to add to a portfolio.  However, just because we like its products does not necessarily make it a good investment now. The diligent investor should drill deeper.

I find its forward P/E of about 36 still a bit rich. However, my husband would consider investing if the price declines more. On top of any potential share appreciation, the company’s dividend yield of about 0.75% may also help pay for his weekly dose of ginger ale.

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tezcang has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.