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A little more than a year ago I wrote about investing in your back yard: Researching companies in your local area and then investing based on your own risk tolerance levels.
Perhaps we've been fortunate to have Wall $treet Week with FORTUNE's own back yard here in Maryland. While the average unemployment rate for the U.S. stood at 5.5 percent for the month of July, Maryland's unemployment rate stood at 4.2 percent, according to the Bureau of Labor Statistics.
Part of the difference can be explained by seasonal trends, as summers in coastal states and tourist destinations typically create jobs in the leisure and hospitality industry, education and health services.
But another difference is the diversity of Maryland's business foundation. Traditionally strong in manufacturing, shipping financial services and government contracting, Maryland is also home to household names including Black & Decker, Marriott International, McCormick and Perdue. Stock prices of appliance and tool maker Black and Decker soared 68 percent over the past year, thanks to gains in sales and earnings, and the purchase of Tools Groups. Food processor McCormick saw its stock rise 27 percent with growing sales and improved efficiency.
Things look so good in Maryland that the state may be drawing the eye of businesses who want attractive property in the key Baltimore-Washington D.C. market. General Growth Properties, a developer of regional malls, inked a $7.2 billion deal to buy Columbia, Md.-based Rouse, a pioneer in entertainment mall retailing.
Obviously, successful local investing depends largely on what's in the area to begin with. But even in a region with strong overall economic growth, investing requires research, because the best backyard investments aren't necessarily the obvious ones.
Consider the defense industry, which has some of Maryland's most prominent employers, such as Lockheed Martin and Northrop Grumman. Most people probably view ongoing strife around the world as profitable for defense firms - yet as of last Friday, shares of Lockheed and Northrop had gained just 6 percent and 9 percent year-over-year, compared to an 11 percent gain for the S&P 500. Perhaps investors are looking at future projections: the Bush administration expects the military's discretionary spending to drop in the 2005 federal fiscal year.
Yet local investors ought to have the edge in finding gems and avoiding the dogs in their regions. In many ways, it's the same idea as being an insider - when you're closer to the scene of the action, you should know more about it. At the very least, people in the area should have a better grasp of factors such as employee morale.
Investors still have to understand the big picture in the end. How does a company fit with the rest of its industry and market? How does it stack up against competitors? Parochialism and tunnel vision have no place in a smart investor's plan.
But an information edge can help.
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