Why You Should Never Buy a Stock Without Trying the Product (or Service)

Anna Johansson  |


There are many “good” reasons to buy a stock. If you’re looking to generate income, you might want it as a piece of your portfolio because of its long history of paying quarterly dividends. If you’re an active trader, you might use technical analysis to calculate its inherent value and risks. But if you’re a value investor, shooting for long-term gains, you’ll want to pick your stocks based on a combination of objective and subjective qualities.

The basic approach here is to buy stock from companies you truly believe in. If you see that a company has strong leadership, and you know that they make good products or sell quality services, you should feel confident that they’ll have a long, thriving future ahead of them.

But how can you be truly confident in a company’s performance until you experience it firsthand?

The Trial Run

Before you buy any stock, it’s a good idea to try out their products and/or services for yourself.

Let’s look at some of the reasons why:

  • Product quality. First, you’ll get to see whether the products this company is selling are as high-quality as the company claims. Sometimes, you just don’t know until you get your hands on them.
  • Competitive differentiation. Next, you’ll be able to see how this product stacks up against a rival product; in a trial run, it may become evident that one brand has a distinct advantage over the other.
  • Customer service. If you talk to customer service, you’ll get a feel for how much this company invests in its infrastructure, and how much they care about their customers.
  • The overall customer experience. Would you purchase this product again? If you would, chances are, lots of people like you would, too.

Tips and Tactics

So how can you go about getting these products and services? And how can you make the most of the strategy?

  • Make a direct purchase. This option is ideal for retailers, restaurants, and other consumer-focused businesses. In many cases, you can find a nearby location for this brand, walk in, and make a direct purchase. You can get a hamburger from McDonald’s  (MCD), or sign up for a membership at Planet Fitness  (PLNT).
  • Ask for free samples. In some cases, you may be able to ask for free samples. Some companies, like Blindster, will send you free samples so you can get a glimpse at their product before you buy. Others may be willing to send you a sample if you write them a letter asking for one; it never hurts to try.
  • Sign up for a free trial. Most online service providers, like Dropbox  (DBX), extend a free trial of their services so you can get a feel for how it works before you start paying for a subscription. Take advantage of these free offers so you can get a deeper glimpse of the company whose stock you want to buy.
  • Compare to a competitor. If you can, try to make a purchase or get a free trial from a competitor, in addition to the brand you’re researching. That way, you’ll have a basis for comparison.
  • Reach out to customer service. Even if you’re happy with the product, reach out to the company’s customer service department with a question or concern. This is your chance to evaluate the company’s commitment to customer service.
  • Do your own QA testing. Try doing your own quality assurance (QA) testing. In other words, try to break or compromise the integrity of the product you’ve purchased. How easy is it for the product to fall apart? This can tell you a lot about the product’s longevity.
  • Use multiple experiences to make a final judgment. If you can, make multiple purchases, or visit the store multiple times. That way, you can evaluate the consistency of service in addition to its quality, and gain more confidence in your assessment.

Alternatives for Inaccessible Businesses

Of course, not every business is going to be accessible for this kind of test. For example, Pfizer offers many prescription drugs, but you won’t be able to test their name-brand products against their generic counterparts if you aren’t already experiencing a condition that warrants their use.

There are some options for you, despite this:

  • Look at the research. Is there any research that confirms the quality of this product, or its effectiveness?
  • Read customer reviews. What have other customers said about this product, or about the brand in general?
  • Talk to clients and customers. If you can, try to have a conversation with someone who’s worked with this brand in the past. What do they have to say about it?
However you can, it’s important to subjectively experience a company’s products and services the way one of their customers would. This firsthand perspective can tell you much about a company’s quality, and whether it’s worth investing in for the long term. Though it’s still important to look at the numbers, and analyze the fundamentals, sometimes these subjective experiences can tell you just as much.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
MCD McDonald's Corporation 165.79 2.48 1.52 1,295,193 Trade
PLNT Planet Fitness Inc. 51.34 1.19 2.37 578,428 Trade
dbx Dropbox Inc

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