5 Quick Research Tips For Busy Investors

By Glenn Curtis AAA

Active investors need to monitor their portfolio for changes constantly. Passive investors, or those with a longer-term horizon, however, can afford to take a more laid-back approach. But all investors still have to do their homework from time to time. The following five tips can help you manage your time and your investments properly.

Tutorial: Stocks Basics

1. Keep Abreast Of Market Trends - Weekly
You don't have to have your TV tuned in to CNBC at all times, but you should peruse the latest financial magazines and trade journals, and try to tune in to finance-focused TV shows at least once a week. The web is another terrific place to read about strategies for investing, as well as to obtain a feel for what the professionals are saying about the market's anticipated direction. To cut through all the excess reading - just make sure you get a handle on which industries are in or out of favor, along with the health of the overall market.

Read or Listen to the News
Remember that geopolitical goings-on can affect your portfolio holdings; so can news of higher taxes, or currency fluctuations. This means that you should at the very least, catch the weekend market reports on TV or in your local/national newspapers. The goal here is to get the big picture or the trend, and then to make changes to your portfolio accordingly.

(Note: Don't get lured into making a decision because of the "news of the day." In other words, the financial commentary that you see on television, like your nightly news, is sometimes embellished in order to garner more listeners. So again, try to decipher the longer-term trends and weed out the day-to-day nonsense the financial media outlets use to hype their broadcasts. The question you should always be asking yourself when watching or listening to financial commentary is "How will this impact me or my portfolio?")

2. Review Financial Statements - Quarterly
This rule applies mainly to investors who buy individual stocks. Investors should review the Management Discussion & Analysis (MD&A) section of a company's financial statements, as well as the 10-K, 10-Q and proxy statement (which are filed with the SEC) to get a better idea of management's take on the opportunities and risks for the company along with its recent performance.

When you do this research, ask yourself the following questions:

  • Is management optimistic about the company's future?
  • Has it made any insightful remarks about future earnings potential?
  • Is it pondering a large acquisition or asset sale that could impact earnings?
  • Is its credit in good or bad shape? Might that impact the future growth of the company?

These are all issues that may be addressed in the financial statements and which are helpful to the investor's decision-making process. Be a detective, and try to dig past all the public relations fluff to see what management really is saying.

Sometimes the written word is the best venue for investors to gain valuable insight about the inner workings of a company, because face-to-face meetings and some conference calls are highly scripted, especially given the rise in shareholder-initiated lawsuits. (For more advice on getting the information you need from these documents, read What You Need To Know About Financial Statements and Footnotes: Start Reading The Fine Print.)

3. Call Or Interview Funds Or Firms - Once or Twice a Year
Trying to catch up with professionals in charge or funds or firms can be a full-time job, so it's often best to choose when you attempt these types of correspondences. Pick a time of year when they are slower or more able to talk to you - and once you've got them on the line, pump them for information on where the market or a particular industry or stock is headed. Sometimes they will provide valuable insight that you hadn't yet pondered - or don't have the time to research.

When talking to these professionals, try to ask open-ended questions such as:

  • Where do you think the company is heading?
  • What are the biggest risks going forward?
  • What do you think Wall Street analysts are overlooking or undervaluing in regards to the company?

You may be surprised by the candor of the responses you will receive - at no real time cost to you!

4. Attend Conference Calls - Yearly
Don't be intimidated. Call up the investor-relations representative at the company you own stock in to see if you can listen in on the company's year-end conference call. You can also check the company's investor-relations section on their web page, which will often provide information on the date of the next call along with a link to listen to the call online. Because of Regulation Fair Disclosure and the focus firms have these days on disclosing information to both individual and institutional investors at one time, many firms will allow individual-investor participation if the investor requests to participate in advance so that the company can arrange to set up a separate line.

What you are listening for in this call is what management says about the company's future, but also the way in which they say it. Do they believe what they are saying? Are they enthusiastic or merely going through the motions? This information may provide you with the desire to either buy more shares or to liquidate your position entirely.

The first part of the call will go over the company's financials for the time period along with any other pertinent developments. This is then followed by a Q&A session, generally with analysts, which is often the most important part of the call since you can see how management reacts to these tough questions.

(Note: As mentioned above, many calls are scripted, and management is sometimes tight-lipped about the future because they don't want to be blamed for any failures. With that in mind, the investor should not only be looking for what is said, but what isn't said as well. If a company usually makes financial projections every quarter, but has suddenly stopped, then that may be a bad sign for the company, but a good sign for you to get out.)

5. Avoid Gossip or Speculation - Daily
You don't need to track market changes on a daily basis to be successful as an investor, but being aware of the trends in the marketplace can help you to cut down on listening to "hot tips" or rumor mills throughout the day. A good way to stop the anxiety caused by the investing gossip you hear is to chase the right kind of information now. Two big areas to focus on are interest rates and commodity/labor costs.

Seek Interest Rate News
Higher interest rates usually beget lower stock prices, because if companies spend more money on loan payments, it will depress their earnings, and lower earnings equate to lower stock prices. Conversely, lower rates can mean that both companies and individuals will spend less on interest payments, bottom lines will increase, and higher earnings translate into higher equity prices. Knowing that most interest rate news is being accounted into the market prices now and being able to see how it can affect future prices will help you weed out any gossip tips you may receive now.

Track Commodity/Labor Costs
Investors should track fuel costs and other commodity prices to gauge how those fluctuations may impact their holdings. For example, some industries, such as trucking, see their profits drop dramatically when crude-oil prices increase. Others, such as oil-exploration companies, fare better when oil trades higher. Rising steel and lumber prices will adversely affect construction and manufacturing companies. Rising labor costs will bury everybody, but particularly retailers that typically hire workers at minimum wage. If you know what's in your portfolio ahead of time, you can cut the anxiety in its tracks and adjust your portfolio accordingly.

Your Time Is Money
Determining when your information is the most valuable can help you cut down on the hours you spend sorting through reports and financials. Summer months are typically weak months in the market, and purchased stocks may wane. September and October are also historically difficult months - and year-end tax-loss selling can depress stocks even further. If you are satisfied that the stock you own or wish to purchase is on solid footing, you can continue with your purchases, but make sure you consider seasonal factors when trying to time a purchase or a sale.

Being an investor doesn't mean that you have to receive a daily subscription to the Wall Street Journal or sit in front of your computer all day. But if you hope to fare as well or better than the market average over time, managing your time as you manage your portfolio can make the most "cents".

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