Using a Watch List to Buy Anything
Nov 11th, 2008 by Nut
The idea behind a watch list, when it comes to investing, is all about doing the research and work behind buying a stock before you actually buy it. That means you figure out which stocks you understand, like, and would care to own and jot them down on a list. If you like the stocks and you’ve put all this work into it, why not just buy the stock right then and there? After all, you’re probably a little bit excited over finding a gem and you want to get in on the action ASAP.
The idea behind watch lists is that you’re waiting for the stocks on that list to get cheaper or cheap enough. Like my story about buying Pro Evolution Soccer 2008, it’s all about finding the right intersection of price and desire.
As the soccer game shows, the idea behind watch lists can carry over to anything else you may want to buy. Imagine having a list of things you want/need in your pocket at all times. Then you stumble onto a fantastic deal for one of them—you don’t have to go through all the pains some of us go through before buying something. You’ve already done all that, now it’s just time to pull the trigger.
Let me go back to the stock example for a second. When I was reading Phil Town’s Rule #1 (a great book for value investors just starting out), one of the first companies I thought of investing in was Coach (COH). I had one of their products, enjoyed it immensely, and I also did a bunch of research on the company. Everything looked pretty good. I ran the math described in the book (which is VERY selective—it’s nearly impossible to find a company that meets all of Town’s requirements) and noticed Coach almost met them all.
The one thing missing was the price—the stock was at something like $30 and the numbers said it was a “buy” (grain of salt, please) at $27. It was tough because—if you’ve read the book you know how tough it is to find companies with his guidelines—the company was so close to being a “perfect buy.” But I held off and waited. Eventually the stock dropped down to $25 without any of the fundamentals changing and in the next six months climbed to $37—a tidy 48% return in less than a year. Of course, the company sank with the rest of the market and is currently at $17 (which makes this all seem like it was for naught—it’s not). I never bought the stock, but if I was really serious about that company and investing in it, having it on my watch list would’ve allowed me to jump in without having to agonize over the decision, transfer funds to my broker, and so on.
Think of all the things you WANT for a second and write down the ones in your top three. Do some research and figure out what a good price is for those products and what a great price is. Then just sit back and wait. You may find them at that price and you may not, but once you do it’ll be a lot easier to scoop them up, especially if you suffer from buyer’s remorse like I do.
And if you want to rail on my for my horrible example on Coach, please do so now.
