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Buy What You Know
 

This technique is used by observant investors, who are able to identify and invest in early stage businesses. The objective is to identify profitable small cap companies. The local Sunday papers usually track the 100 or so small publicly traded companies in your area. You may know people who work for them. You may use their products. You may hear if they are hiring. The local papers may do write-ups on them.

Keep your eyes open at work. Look at those competitors who are always winning the bids or have superior products. Notice the suppliers who offer exceptional value and service; they may make excellent investments. By understanding their business models, you can gain an edge over the rest of the world. Most likely, these companies will not be the next Microsoft, but you may be able to find a good quality, well managed, undiscovered company among them. Fidelity used this approach for years and it worked. Investing around the world to find the next Microsoft, in technologies you know little about, is very risky. The “buy what you know” strategy seems appropriate when dealing with small cap and local companies.

 

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