There's a lot to think about when you're just starting out as an investor. No doubt, one of the biggest questions is, What should I buy!?
You might have heard the phrase coined by legendary investor Peter Lynch: "buy what you know".
Unfortunately, Lynch has been misquoted somewhat by those who take that approach too literally. Investing isn't quite that simple – buying a stock you haven't analysed properly is akin to gambling. In other words, it's a pretty good way to lose money. But investing doesn't need to be much more complex, either.
What Lynch really meant was that individuals have a clear advantage in the market when they use their specialised knowledge to hone in on businesses they can actually understand, and are familiar with.
For instance, maybe you operate in the retail industry, or are a keen shopper and know of a publicly-listed up-and-coming retailer that the market hasn't clued onto yet. Indeed, one of the first shares I ever bought was JB Hi-Fi Limited (ASX: JBH) – a store I was very familiar with (I still shop at JB Hi-Fi regularly) that had ample growth ahead of it at the time. Unfortunately, I didn't hold onto the shares for long; selling them so soon is up there with my biggest investing mistakes.
Or maybe you work in the healthcare industry, where you have see exciting new medical devices making their way into the field. Some lucky investors may have picked up on the early successes of businesses like Nanosonics Ltd. (ASX: NAN) or ResMed Inc. (CHESS) (ASX: RMD) as a result of them keeping their ears and eyes open.
As I mentioned previously, it's important that you have a look through the financial statements of any business before you invest, and that can be daunting for new investors. But by focusing on what you know, you can at the very least reduce the work often required to find new ideas, thus helping you to start your investing journey.
