Furniture – a boring investment? Think again, “Boring” may be one of your better investment choices. — Interior Design Ideas, Home Decorating Ideas, Furniture Lifestyle!

Hidden potential in boring investments.

You can learn a lot about a company’s value and potential return just by looking at the hype and emotion surrounding the company, be it the hottest technology product of the year to boring news (or no news at all). Put some sense into your investment decisions, and take the emotion out of it.

A boring company in a boring industry, like furniture, may be one of your better investments because like shoppers that buy the hottest thing on the market, investors pay a hefty premium to invest in the hottest company on the ticker that is selling the best product since sliced bread. Learn how to spot hidden value in company’s with little or no press, proven products that have stood the test of time, and investments that will give you a higher than market return with lower than market risk for the long term.

Investing should be about “minimizing risks and maximizing returns.” If you agree, then you shouldn’t jump on the band wagon, over pay for an investment for a company that everyone is talking about, because when everyone knows “this is a great investment” it is already fairly valued (or, even worse, overvalued).

Paying too much for hype.

When everyone wants that popular product, it gets bid up. Remember the Wii’s that people stood in line at Target to buy for $300 and turned around to sell it on Amazon.com for over $1000? Well, that’s the same psychology that people have when investing in the new IPO on the market and everyone’s paying a higher than market value price for it, because everyone wants to own it. Why? Well, because EVERYONE says it is the best thing. And it is always great to invest with the crowd, it gives you a sense of support and security to invest where everyone else is, because its got to be he right thing… right?

Well, at least I don’t think so because great investments can be found in time tested companies that profit year over year and can prove they can grow that profit year over year as well. But don’t get me wrong, I am not saying that companies like Google are bad investments because it is being hyped. But think about the price that people are paying to invest in Google:

Making sense of the logic:

-As of 10/10/2007, Google shares closed at $625 a share at a 50 price to earnings ratio.

-It profits $6.38 billion a year

-The only reason that Google can trade at a 50 P/E is because it is growing yearly profits at 57% a year.

Hmmmm, let’s think about that for a moment. Based on the math and investor’s current expectations, Google can go to $10,000 per share by 2012 in the course of the next five years, but it will have to keep up its growth rate of 50% yoy on profits. Let’s see, growing at 50% earnings per year for the next five years at $6 billion the first year, Google will be profiting $68 billion a year by 2012 and be worth (remember the 50 P/E) a grand total of $3.4 trillion of market cap, that makes it $10,951 per share at the current 312 million shares outstanding.

No wonder everyone is paying $625 a share for a company that EVERYONE expects to be worth 26% of the USA’s gross national product (It was $13 trillion in year 2006). I believe many would agree with me that Google is just ever so slightly overvalued because it is impossible that it can keep growing its profits every year in the long term. One year or one quarter where Google makes an investment mistake and has to write off a few billion dollars against its profit or profits shrink in the face of competition will cause the value to drop dramatically because everyone didn’t expect “super-google” to not make as much money as it did before.

Hidden values in proven product and growth, not one hit wonders.

So now, to find the investment that is fairly valued (or better yet, undervalued) we’re going to have to do some hunting. I usually start with what I know about or industries I am familiar with and do some poking around and run some quick tests of financials to check the the potential in the return on investments of the company. I manage a full time business selling furniture, so I thought starting with furniture companies would be a good idea. I suggest looking at industries and companies you are familiar with because there is a higher chance you might understand and know about the business better than the general public which gives you that edge you may be paying a fair value for the price of the stock. Now let’s focus on a few things with simple concepts because I can do all my research at Yahoo! Finance.

Confirm the company is boring.

The company should have lower than 50% institutional ownership and at least 10% inside owners. This means that not a lot of investment advisors are covering the company so there is more room for growth in allowing the company to blossom. Further, the significant insider ownership is important because this means that a small group of people know something that the public doesn’t know that enables them to own such a high percentage (and risk) in the company and still have control over managing the potential.

Current profit growth.

Good rule of thumb should be looking for investments that double every 5 years or so, so a company that can grow its profits 15% a year should net a a 20 P/E which will give it a fair value and reasonable risk toward investor expectations. (On Yahoo! Finance, you can find this after you enter an inquiry for a stock quote on the Company -> Key Statistics page)

Historical profit growth.

Companies should have at least 3 years of profit history (preferably 5) to prove that they have their management under control and can trend towards continuing their current profit growth. (On Yahoo! Finance, you can find this on the Analyst Coverage ->Analyst Estimates page)

Feasibility and projected value.

With the same logic shown above on Google, using the current profit growth and historical data, we can run some simple calculations to value a company and see how feasible it is to expect the return. (On Yahoo! Finance, you can find this on the Analyst Coverage-> Analyst Estimates page)

Examples…

(If you are interested in running some analysis or discussion on a particular company that is publicly traded, please post a comment and I will be glad to post my response in applying the concepts above, of course time allowing and depending the number of requests there are.)

Other factors.

The above points are only part of the factors that contribute to assessing a company’s potential return on investment. Other factors include, debt, equity, management personnel, and industry risk, but I will post more about those in the future.

If you haven’t already noticed, I’m a value investor. But I think everyone can learn from investing by navigating the emotion of investing. Many people make mistakes investing on impulse, but you can turn that emotion into profit by observing the markets emotion and hype. As my role model investor said: “Be fearful when others are greedy, and greedy when others are fearful.”, happy due diligence on making your next investment decision and I hope you profit from it!

Thanks for reading,

Eric
-Co-founder and CEO of Visiondecor**. He enjoys writing posts about products from his company or the general internet, and has a particular interest in writing offbeat posts involving investing, humor, and lifestyle.-

**Visiondecor engages in selling furniture at their flagship website, www.visiondecor.com, and on their other multiple retail sales channels, including auction sites, retail partnership, catalogs, mailers, business to business and over the phone and fax. Its product selection, with 5000 plus items, includes furniture for the living room, bedroom, dining room, kitchen, bathroom, game room, office, den, and other home goods for furnishing the home. Their marketing strategy focuses on offering affordable pricing, simple ordering, and convenient delivery to customers shopping for items ranging from coat racks, barstools, coffee tables, dining chairs, dining sets, sofa sets, to bedroom sets. Visiondecor furniture was founded in 2002 and is headquartered in City of Industry, CA.

Disclaimer: This article was written as a general insight to sensible investing and should in no way be construed as investment advice or suggestions. As with all people and investors, everyone should be doing their own due diligence before making an investment. I am in no way invested or hold stock in the publicly traded companies I mentioned above as of the date of this article. But if you have any questions or comments, feel free to post them, and I would be glad to discuss and respond (volume and time allowing of course).