In business, there is a concept called Network Effect. The best way to explain it is by example. If you have a telephone and you’re the only person in the world with one, it’s useless. The network is nonexistent, and you have no one to call. If your best friend gets a phone, your phone becomes useful for the sole purpose of talking to that one friend.
Now, suppose all your friends got phones. Suddenly, your phone has become a valuable tool for for communicating with all of your buddies. As more people get phones, your phone becomes more useful. Network Effect applies to more than just telephone systems. It applies to social media, distribution networks, library systems, and almost any network. The Network Effect means the more people use the network, the more useful the network becomes. On the flip side, the bigger the network becomes, the harder it is for people to leave it to join a different network.
What does all this have to do with investing? Companies that rely on networks get more powerful as they get bigger. It also becomes harder for existing customers to switch to competing networks. As long as their customer base continues to grow, their profits will continue to grow. With rising profits usually come increasing stock prices.
Network Effects are more potent in internet companies. Are you looking for some unshakeable stocks to form the foundation of a long-term investment strategy? I would go with Amazon (AMZN), Google (GOOG), Apple (AAPL), and Facebook (FB).
How my stocks are doing
The stocks are still in the red and lagging the S&P500, but I’m not concerned. I’m playing the long game, and I’m confident I’ll win out in the end. However, I did tweak the way I pick stocks after the disastrous January picks. The method I used to pick the stocks in January was more speculative and long-term. Those stocks (GILD, FPRX, KORS, BKE, and AOBC) are still good picks, but will probably fall a bit more before starting to pick up again. They were falling stocks that hadn’t bottomed out yet.
Starting in February, I changed the way I picked stocks to favor companies that have likely already bottomed out in their price drops. The February picks (CVS, HRB, and IRMD) are up 3.65% (compared to the S&P500’s 2.79%). Because of that, I feel better about my new stock picks for this month.
Overall, my picks so far are down about 5%, while the S&P500 is up about 4%.
Remember, I own every stock I recommend here. Do your own due diligence to see if you agree. Even though I’m not getting paid to recommend stocks, I do have an incentive to pick good ones.
Stocks I recommend for March
Here are five new stocks I recommend buying now. I recently bought shares in each of them. I’ve included the price per share that I paid.
- DistributionNOW (DNOW) $16.76: A global distributor to the oil and gas and industrial markets.
- Kinder Morgan (KMI) $21.38: An energy infrastructure company.
- Western Alliance Bancorporation (WAL) $51.88: A bank holding company.
- NVIDIA (NVDA) $105.41: A visual computing company.
- Tractor Supply (TSCO) $71.57: An operator of rural lifestyle retail stores in the United States.
Once again, I will give an update next month on how these stocks did. See you in April!