Investing in Consumer Goods and Retail – Think Like a Consumer

Seasoned investors are constantly on the lookout for the next big thing, and experience and intuition often guide them into making choices others may not even consider, but what about novice investors? Someone not used to buying stocks or considering the difference between one sector and another may have a difficult time grasping the art of buying low and selling high, especially with so much risk involved. One trick is to ask yourself what kinds of goods and services you yourself use on a daily basis that are likely to stay in high demand. The answer, more often than not, is investing in consumer goods and retail.

Think about it. How often do we buy toilet paper? New clothes? Automobile parts? What time of the year do we manically beat crowds to be the first in line for that new electronic device at 4am? Although consumer goods may slow down during a recession, there are certain times of the year, like holidays, when the buying frenzy begins again, and some products are simple must-haves any time of year. Investing in something like food and beverages may not seem glamorous, but it’s often a smart move. The same can be said for paper products, automobile companies, electronics, and other companies that produce everyday items.

Investors that focused on consumer goods during the start of the recession likely saw a loss of investments as consumer spending declined. This doesn’t mean that all companies suffered, however, and necessities like toilet paper, soap, and shampoos sold as steadily as ever. Diversifying your portfolio in various retail and consumer sectors is ideal, so choose a variety of companies from groceries and frozen food products to health and beauty aids.

The number of return on total assets will vary widely in retail, and often depends on the type of business. Larger chain retailers require greater assets to function. Knowing when to invest is also important. Consumer confidence is a huge factor in driving the success of any retail business, and consumers often shop around holidays, when reports of unemployment numbers begin looking favorable, and during stimulus initiatives and tax season. Adequate advertising also affects how well a retailer will do, so take note of commercials to see what catches your eye. Think like a consumer and you can begin investing like a consumer. Even though few retail opportunities seem worth the while, it can make for an exciting and more diversified portfolio.

About Richard Wilson