The truth is you know more than you think you do because a significant part of successful investing is understanding what the company does.
You use products and services every day that you enjoy or make your life fun or your work more productive. Maybe they make your kids laugh or your teenager stop and look at them in the mall.
Eyes Open
All of these products and services are potential investment candidates. If you keep your eyes open, you may spot one before it becomes a market leader, but even if you don’t investing in market leaders is not a bad strategy.How do you know a company is going from one of the pack to a leadership position? If I had the absolute answer to that, I’d offer Bill Gates a job mowing my lawn.
You can gain some clues by looking at today’s market leaders and seeing what made them that way. Take Dell Computer (DELL – Nasdaq).
Michael Dell is the poster boy for the American Dream. He started his business in his dorm room while in college and some 20 plus years later it is the biggest personal computer company in the world.
Not Innovators
Dell didn’t invent the personal computer. The company credited with bringing the personal computer to the market, Apple (APPL – Nasdaq), barely has 5% of the market. IBM (IBM – NYSE), the company that gave legitimacy to personal computers recently sold off its PC division to a Chinese company. The other giants of the early PC era don’t approach Dell’s market position.How did Dell do it? It wasn’t technology – I’m not sure, but I doubt that Dell owns a patent. Their computers are good, but they aren’t state of the art. Dell builds its computers with the same components as everyone else.
What sets Dell apart and put them on the road to the top? Dell began selling direct to consumers before anyone else did and when the Internet took off, Dell rode it with great marketing success.
Customer Focus
Dell focused on meeting customer needs while other companies worried about processor speeds and hard drives.Dell’s innovative marketing and distribution system allows customers to go online and order a computer customized the way they want it and have it delivered to their home in just a few days if they’re willing to pay for overnight shipping.
How could you have spotted Dell in the early stages? Of course, it’s easy now to look back and see all the signs. You also have to know that for every Dell there are many other companies that never achieve its level of success.
You don’t have to hit a home run every time you invest, but companies that exhibit the kind of solid customer-oriented thinking that propelled Dell usually get noticed.
