Let’$ talk due diligence

It’s been pointed out to me that while many people have followed my business blog through its progression from it’s beginning at Cathleen’s Corner, all the way to this site, there are some who have just discovered this site for the first time.
 
So, this post is for the newbies who have inquired what it means when I say I’ve added a stock to my due diligence list.
 
It simply means that a stock has caught my eye, so I’m going to roll-up my sleeves and check its balance sheets, it’s P/E ratio, how its overall industry is performing, read its latest reports, etc.
 
It does not mean that I’m running out to buy it.
 
In fact, by far I don’t buy most of the stocks I do due diligence on — that’s the whole point of doing the homework in the first place — to weed out the bad investments before I plunk a single dollar of my money into it.
 
Early on in deciding to blog about stocks I decided that I wasn’t going to reveal what stocks I owned — because I don’t want to become the Jim Cramer of the blogosphere shouting out “buy-buy-buy” or “sell-sell-sell.”
 
There are no shortcuts in investing.
 
You must know precisely what it is you like — and don’t like — about a stock before you buy a single share. Otherwise, you’re never going to know when those fundamentals have changed — and it’s time to get out.
 
I have not made it a secret for months on this blog that the mainstay stocks on my due diligence list are McDonald’s, Walmart and Famly Dollar.
 
I never indicate if I might own them, if I own them and might be dumping them, or if I’m just waiting for a pullback in any of them to create a perfect buying opportunity.
 
It simply means that they interest me enough that I continue to monitor their fundamentals.
 
I do not want to create a scenario where people are trying to mimic my moves — which is why I never tell you what my positions are.
 
We all know there are plenty of investment blogs on the Internet where people will hype stocks they own that they want to dump, and when everyone jumps in to buy that stock because of their hype — thereby driving the price higher — the hyper dumps the stock, which, depending on their amount of shares, could drive the price down.
 
I don’t play games with readers of my forum — and I don’t allow others to do it on my board, either — which is why I keep the comment filter on.
 
I’d rather see a newbie to the market miss a great buying opportunity, than to jump in and buy a stock just because they think I might own it.
 
It would be a surefire way for them to get burnt.
 
One thing people must keep in mind when reading investment blogs where the authors tell readers they own a stock is — you need to know what price they bought at. For instance, if they bought a stock at 10 a share two months ago, and it is currently at $20 a share — they may be crunching the numbers and figuring the stock has topped off and are getting ready to dump it; while a newbie who hasn’t crunched any numbers, jumps in to play copycat and buys at the top-of-the-market price, only to take a quick loss when the hypers dump it.
 
You cannot ride anyone’s coattails in investing.
 
You must do your own due diligence.
 
Pick a stock you have an interest in.
 
Read every single piece of information you can get your hands on about that stock, its competitors and its industry.
 
Crunch the numbers.
 
And, if you decide it’s a stock you want to pull the trigger on — then wait for the perfect buying opportunity and pick up some shares of it.
 
Don’t put all your money into one stock — and don’t buy your full position all at once — cost leverage your position.
 
Once you follow this simple strategy, you will sleep easier knowing you know precisely where your money is — and you’re not relying on any so-called guru for guidance.
 
Just always heed my usual disclaimer: Do not base any of your investment decisions on anything you read here — do your own due diligence, or at least enough homework to pick the right professional to do it for you.
Advertisements

There are no comments on this post.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: