|Mr. Money - Know' s
By: Dana Goldfarb
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
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Last modified: November 08, 2002