Before
Buying, Be Sure To Do Your Homework!
So, 1999 is now in the history books. Even
though 65% of the stocks on the New York Stock Exchange were losers for the
year, the Dow Jones Industrial Average hit high ground as did the Standard
and Poors 500 Index and the Nasdaq Composite Index. Heck, the Nasdaq Composite blew the roof right off the
building. That’s because
–as you probably already know- it is heavily laden with high tech stocks,
specifically the “dot coms.” These
high tech companies are the same ones that are helping to shape the future
of communications on the planet. To
watch this happen before our very eyes and ears is very interesting, indeed.
But, this is also a time to be very careful about the high tech
companies you invest in. When
researching a company you should really do more than tune into a chat room
on the internet.
Do
your homework! Become familiar
with the company, whether it’s a “dot com”, a steel company, or a
bank. Make sure you know the
corporate purpose and that management knows it, too.
How, you ask? Well,
thank you for asking. First, is
through company literature like quarterly and annual reports.
You can get these free of charge from the company.
They look like pretty dry reading, especially if there are no
pictures. But you’ll be
surprised at how much you can glean from them.
If you’ve never read one before, I suggest that you first go to the
bookstore and get a “how-to” book on the subject.
Don’t feel intimidated; just go get the book.
You’ll learn how to read a balance sheet, which presents a
company’s financial condition at the end of the year; and an income
statement, which presents the company’s year-end business results. Don’t forget to read the Letter to Shareholders at
the beginning of the report. This
message is from the president and is written in plain English.
It will help make the rest of the report more interesting.
Another way to learn about a
company is through research reports written by securities analysts of
brokerage firms. These reports
will discuss earnings projections, current operations and problems.
Try to stay objective when reading; you don’t want to get caught up
in the analyst’s hype.
A
third way to get company info is by attending the annual meeting.
I know that this can be geographically impossible, but if time and
money permit, it can be a worthwhile and entertaining experience.
Management tries to give a favorable impression, and shareholders in
attendance look to uncover some “dirt.”
Some companies will actually hold the meetings in different cities
every year and/or include a tour of a company facility.
You can get time and date from the company or inside the front cover
of the annual report.
So
get informed, get involved and get hopefully get wealthy.
Dana Goldfarb is
a broker for Sutro & Company In Woodland Hills
Ca.
And Can Be Reached At (818) 313-8700
