When you invest in products and services that you understand and that you know about inside and out, you might feel more confident about your portfolio. But these products and services change over time. And while your portfolio needs to reflect these changes, how can you keep up with news that seems to happen when you blink your eyes?

You could stop blinking, but I wouldn't advise that solution. And, you could become a news junkie, sniffing out every bit of fact and fiction about your investments. But, I wouldn't ask you to do this, either. You'll probably stop sleeping, let alone blinking. Instead, my suggestion is to soak in your investment research on a long-term basis, a method that's very similar to holding long-term investments.

This practice takes time, and that's the point. When I avoid investing in a company until I learn more about it and its sector, I develop patience and I avoid impulsive behaviors. It all goes back to my father's admonition about anything: "Watch it." When this advice is applied to my propensity for impulsiveness, a safe period of time for investment research equals about six months.

Six months represents enough time to learn more about a business and a sector, because it covers at least two quarterly report periods and at least two periods to account for seasonal changes in consumer interest. During that time I can also soak in rumors and disparaging news and learn which items are relevant or not. When those 'bad news' blurbs are released, I can also watch how they affect a specific stock or sector through increases or decreases volume and through increased sales or purchases. This knowledge will help me ride out storms that affect stock performance after I invest.

This practice can help you weather takeovers and purchases as well. For instance, my daughter and I are absorbed in graphic design, an industry that seems small-time in the overall scheme of investments. But, we discovered a small film industry that displayed extreme talent in animated film production a few years ago after we watched a movie that this company produced. Since we already had a background in graphics, we knew quality when we saw it. This, however, was just the first step in our decision to invest in their business.

We began to research this company's competitors, and we compared their profits, losses, and plans for expansion against its opposition. Although this was a very small business, it was public; and we felt very confident about their ability to make a mark on the animated film industry. Additionally, because I write about investments I also knew that buy-outs were hot at that time, so we looked hard at the larger entertainment companies and the sector as a whole before we put any backing behind that little company.

We learned this: That small company planned to output two more films over the upcoming two years. Both releases were highly publicized and well favored among a newly burgeoning fan base. Past performance showed record numbers in sales to see the movies, and the by-products that portrayed characters from these films were selling well, also. After about five months we invested in the stock, keeping in mind that within two years a major interest in purchasing that company might occur.

About six months after our initial investment, the stock dropped on news that the company might be purchased. Instead of selling, we held on after we read a few film magazines that carried facts that belied this rumor. It seemed that the company was going to go forward with their promised productions, so we held tight. After the announcement of their second film release one year later, however, this company also announced the upcoming sale of their business to a major entertainment firm.

The stock soared, because the timing of the sale to a well-known entertainment conglomerate combined with the successful release of a new film seemed to fire up investors. At that point, we sold our shares based on two bits of knowledge that we obtained during our research. First, we didn't like the company that purchased the smaller firm. Secondly, we also knew that the DVD industry was building and that theatre ticket sales were declining at the time. Both factors led us to cash in when the stock was climbing.

Although an investment that lasted only one and one-half-years might not seem long-term, when you add that five months' worth of research to that timeframe, the total investment time equals two years - long enough to feel confident about a purchase or a sale. Because we invested in a product that we understood, we quickly learned during our research time how what we knew could be modified by other events. Therefore, we anticipated those events and we acted on them with confidence.

How did we do? We made a 30% profit on our initial investment, we avoided brokerage fees by hanging tight when the rumors flew the first time, and we managed to avoid a huge drop in the purchaser's stock that occurred almost immediately after they acquired the smaller company. That stock is just now meeting its previous price almost two years later. In that time, my daughter and I have conducted more research and have made profitable investments in cleaning products.

Yes, that's another product that we know something about, despite rumors to the contrary.

Until Next Week,
Linda Goin

The securities markets are subject to the risks of fluctuating prices and the uncertainty of rates of return and yields inherent in investing and past performance is no guarantee of future results.