Pursuing a great product
Shaq’s experience with the Ring doorbell camera was so delightful that he was eager to meet the company’s CEO, Jamie Siminoff, when he spotted the Ring booth at the CES (Consumer Electronics Show) conference in 2015.
“So, I went to the conference and I told the guy, ‘Hey, my name is Shaquille O’Neal. I want to invest in your company and you’re going to pay me to do commercials and then whatever happens happens’,” he recounted. Siminoff took him up on the offer and Shaq became one of the earliest angel investors in the startup, deploying $1 million into the firm. He also received equity compensation for promoting the product on TV and online.
In 2018, Ring was acquired by Amazon’s Jeff Bezos for $1 billion, delivering Shaq a hefty payout from his early investment.
This successful venture capital deal wasn’t based on complicated market analysis or extensive research. Shaq was simply a fan of the underlying product and spotted potential for growth. In his book “One Up on Wall Street”, legendary investor Peter Lynch discussed why this simple strategy was so effective.
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Read MoreInvest in what you know
As the manager of the Magellan Fund at Fidelity Investments from 1977 to 1990, Lynch averaged a 29.2% annualized return. He later credited his success to his core investment philosophy: Invest in what you know.
Lynch argued that ordinary investors who were not part of the inner circle on Wall Street had some strategic advantages. For instance, an engineer with years of experience working in oil and gas fields probably understood energy companies better than a stock picker with a degree in accounting.
Based on this philosophy, he advises people to focus on products and industries that they are well familiar with. “Know what you own, and know why you own it,” he says in his book.
Warren Buffett abides by this philosophy too. The billionaire has often talked about his “circle of competence” and how he prefers to invest in simple businesses that he understands.
To put this into action, you could create a list of industries that you have personal experience with. Perhaps list all the products and services you use frequently and dig into the companies that offer them. Ask friends and family about the new products they’re using and what they’ve experienced in their niche market. Also, look into your own industry to find companies or new innovations that may have been overlooked by financial analysts.
Focusing on your circle of competence could be one of the few ways to gain an edge while investing in the stock market.
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