In the previous post, I discussed the process of placing an order to buy 10 shares of McDonalds. I could have chosen a different company to purchase. Why McDonald's? McDonald's was just a company I chose for the example. But, what if I was ready to purchase some shares of stock, how would I know the right company to choose? The 'right' company depends on several factors. Determining which company to invest your hard earned dollars can be challenging, but not impossible.
As a beginning investor, I'd suggest that you think about the products and/or services that you use personally or in your profession. Is there a particular product or brand of products that you must have or use? Take a few moments to think about this. Also, what if the product that you are use to using is out of stock, would you easily buy a competitor's product or would you go to another retailer.
I'll give a personal example. I love french fries. From 1990 until 2003, I used to only buy one particular brand of french fries, Oreida. It was not uncommon for me to purchase a two pound bag and within a week, I would have cooked the entire bag, however, not all at once. If the grocery store was out of Oreida's, I would very seldom try another brand. When I did, I was always disappointed. After experiencing this several times, I would either go to another grocery store or delay my french fry purchase at that time. Then something strange happened around 2002 or 2003. Orieda changed the formula of their french fries. I could taste it instantly, however I tried the 'New and Improved' version, but to no avail. It just wasn't the same and I could not find a quality replacement for a long time, so I stopped cooking french fries at home.
So if I were looking for a company to invest during the mid 1990s, I might have considered investing in the producer of Oreida french fries, which happens to be the H. J. Heinz Company. But is H.J. Heinz Company a good investment? Are there other people like me who love their french fries? What other products do they produce? These are just a few questions I must ask when considering purchasing a company's stock. There are many other question that must be answered, but we will discuss those later.
Are there other products or services that I'm loyal to because of outstanding quality or performance? After compiling a list and identifying all the companies that produce these products or services, I'll select a few companies to research further.