The five-minute exercise that could change how you invest

Many first-time investors spend hours looking for sharemarket clues in broker reports, headlines and economic forecasts.

Craig Semmens says they may be missing a simpler place to start: their own home.

The chief executive of Phillip Capital Australia said ordinary spending habits could tell people a lot about the businesses they already knew, trusted, and kept using.

“Most first-time investors assume they need to understand markets before they can understand businesses,” he said.

“I think it’s the other way around. Most people already understand many companies remarkably well because they’re using their products and services every day.”

Mr Semmens said the point was not to buy shares in every brand in the pantry, or on every phone or subscription list; but to use everyday experience as a starting point for research.

“The knowledge people have as consumers is a valuable starting point for investment research,” he said.

“The biggest barrier isn’t a lack of knowledge, but rather a lack of confidence in the knowledge they do have.”

His suggested exercise takes no more than five minutes: Walk through your home and list the products, brands and services you use regularly.

That could include your bank, phone, supermarket, health products, travel bookings, streaming subscriptions, car, computer, and favourite retailers.

Then ask why you use them. Do you trust the brand? Do you recommend it? Do you keep coming back because it is cheaper, easier, better quality or hard to replace?

Mr Semmens said those answers could help people think more clearly about how companies won and kept customers.

“Every purchasing decision is, in some way, a judgment about a business,” he said. “You’re either an Apple person or a Samsung person. You have a preferred airline. You have a preferred bank. You have a preferred car. You have favourite retailers.

“But the companies you avoid can be just as revealing as the ones you buy from.”

However, he said personal experience should never be the whole decision.

“Once you’ve identified companies you understand as a consumer, you still need to analyse them as an investor,” Mr Semmens said. “You need to understand valuation, risk, diversification and whether they suit your objectives.”

Diversification simply means not putting all your money behind one company or sector.

Mr Semmens said that should be easy with this strategy because of the diversity of what you buy.

“That’s important because investing isn’t about finding one company, it’s about understanding how different businesses fit together and spreading risk across them,” he said.