Seeing the potential:when a local business sets a trend

By Tim Suffish CFA, CPA Vice President, St. Germain Investments Peter Lynch, former skipper of the Fidelity Magellan Fund, made famous the concept of "investing in what you know". For those that don't know of Mr. Lynch and aren't familiar with his investing ideas, the concept is simple. You invest in what you know, local things. This doesn't necessarily mean that if you live in Boston, you need to have a portfolio of EMC, Gillette (now Procter & Gamble), and Celtics shares; rather you invest in companies that you come in contact with as a consumer. "Seeing" the potential Here are a few hypothetical examples of how this works: Your local CVS store is jam-packed at all hours of the day Your kids mention a hot new shoe that "everyone" has to have The very popular local restaurant chain starts a national expansion campaign Peter Lynch made famous the strategy of using this first-hand experience to drive investment decisions. Don't cut yourself short . if you notice a product or service to be head and shoulders above the rest, chances are that many other consumers will feel the same way. If you act before the crowd as an investor, you may have a nice advantage. And making it work for you However, there are a few caveats to this strategy: 1. Beware of fads ! For example, early investors in the popular foam shoe, Crocs, were lucky enough to get in around $10 per share . long before it skyrocketed to over $70. Don't hang around too long in a hot stock though. In recent months, Crocs stock has round-tripped back to $9. 2. Don't overdo it with company stock. Investing in your own company stock; in theory an investment that you should "know" very well, comes with serious risk if you overdo it. As a general rule of thumb, you should hold no more than 10 percent of your investment assets in any one company. When you also work for that company, you are doubling up on the risk. If your company and/or industry come on hard times, you may be out of a job and have your investment suffer. As many in the investment business know all too well, having too much company stock can really hurt (the company stock of many Wall St. brokerage firms are down 50 percent over the past year). Keep your eyes and ears open as you drive to work, shop on the weekend, and watch the tube. Keen observation may get you in on the next big thing ! Column provided to PRIME by: St. Germain Investment Management; 1500 Main Street, Springfield, MA; Phone is 413-733-5111 or 1-800443-7624; web site:www.dgstgermain.com