The Next "Big Thing" Could Be Right Under Your Nose
By Anthony Rhodes
I’m going to let you in on one of my secret investment tactics. When I want to find out what names are poised for growth in certain sectors of the economy, I don’t check Silicon Valley, for inquiries into new cutting edge technologies. Nor do I call one of the big Wall Street prognosticators, in an attempt to gain access to the next ground-breaking merger or acquisition. I don’t even try to contact one of the major venture capital firms, to seek the names of their hottest potential prospects. No, under these strenuous and all-important circumstances, I have to resort to the “silver bullet” approach to investment research. Such precise and valuable information demands nothing less than that I bring in the big guns to find the answer. Yes, these situations call for me to contact…kids.
You read it correctly; I stated that I would contact children. Believe me when I tell you, that your local elementary, middle grade and high schools are populated with some of the very best sources of information for predicting the most popular brands of the future. Many unknown, but now trendy names owe a considerable amount of their success to kids, and if you listen very closely, they’ll inform you as to some new businesses, which are on the horizon, also. This week, I’ll share some examples in which the information I received from listening to kids, turned into profitable transactions for my clients. And will attempt to inform you that, when looking for the next potential hot stock, sometimes we need not look any further than our very own backyard.
Back in 1999, I was invited to participate in a Career Day program, which was hosted by one of the local area elementary schools. You know the ones, where professionals from various occupations meet with students to discuss their jobs and related skills, in an attempt to foster positive business-community relations. As I was being introduced to the class, and asked to summarize my duties as a financial advisor, I noticed that many of the students were wearing a brand of shoe, which I had never seen before. When I inquired into the name of the shoe, and as to why so many of them owned them, I learned that they were called Skechers; a small, then relatively unknown shoe company, whose products were targeted to the swiftly growing skateboarding community. After a lengthy conversation about the shoes’ quality and level of comfort, I heard those seven magic words, which prompted me to look further into the company: “All of our friends are buying these.” This produced an analysis of the company, which yielded my eventual purchase of the stock at around $5.00. I later sold it in early 2001 at $25.00, for an astounding profit of nearly 400%!
In that same year (1999) I went into a Best Buy store near my office with the intent of purchasing a new laptop computer. As I was looking over their various offerings, a group of youngsters came over and began a conversation about computer games, and more specifically regarding a company; whose graphics were supposedly amongst the best in the business. After joining into their conversation, I learned that the company being discussed was called Nvidia; a chipmaker that I was familiar with, as their initial public offering took place a few short months prior. Under normal circumstances, this would not be the type of stock that I would find interesting: it was in the technology sector; an area which I was afraid to place any of my clients’ money in, and it didn’t have a track record of performance of which to properly analyze it by. Certainly, all of the signs pointed to leaving this stock alone. But the exuberance, which these kids displayed, forced me to take a closer look. At that time, the stock was also trading around $5.00 a share, and I did have a somewhat aggressive client, who was in the market for a little risk. After a thorough inspection, I explained to him the nature of the company, and decided to invest a small portion of his portfolio in the stock. In retrospect, I wish I had invested more. You see, although I sold the stock in mid 2000 at $30 for a tremendous profit, Microsoft later announced that they would be using Nvidia’s chips in their soon to be released Xbox gaming console, and the stock skyrocketed to over $65.00 per share in late 2001!
Now, in both of these instances, were it not for my conversations with these kids, I would’ve never purchased those securities, and my clients would’ve missed out on some pretty hefty gains for their portfolios. I learned over that period of time, that children sometimes have the inside scoop on various companies, and that by merely taking the time to listen to their opinions, one might be able to convert a simple conversation into a very profitable situation. Ignore them at your own risk. And when next you view a huddled mass of adolescents, seemingly discussing some uninteresting fashion or technology, peer a little closer. It just might be the most valuable meeting that you will ever participate in.
(Anthony Rhodes is a Registered Investment Advisor and owner of wealth management firm The Planning Perspective www.theplanningperspective.com)