Developing the Story
Starting Your Research
At StockBoxFinancial, when we develop the “story” of a stock we pretty much find out everything we can about the company. Whenever we do any research we always take notes on the company (so we can review certain things later) and write down whatever questions we have. Usually, these questions are answered by more and more research.
One of the best ways to get started is with a Google search for reviews of a company’s product or service. This is a quick and easy to see if the company has a great product or if there is something you need to be concerned about. The next thing to do is read the company’s profile which can be found on most stock investing websites such as Yahoo Finance. At this point, if you have a lot of trouble understanding the firm’s business model it’s best to give up your investigation. Obviously it’s fine to have some questions or even a lot of questions, but you should understand how the company is going to make money.
If you found this company using your amateur’s edge, then there is usually a reason you are interested. If you don’t have a reason quite yet you should poke around the various statistics, such as growth rates, on a finance website such as Yahoo’s looking for something to spark your curiosity. After five or ten minutes, if you don’t see anything you like, give up your search and move on to something else.
The Annual Report
After these preliminary efforts, if you’re still intrigued by a firm it’s time to do some serious research. At this point you have a potential investment on your hands. You need to find out everything you can about the company. The first thing to read is the latest annual report. Even if the report is ten or eleven months old, you are going to be able to get more information from it than any other source. At StockBoxFinancial, we usually read almost the whole annual report and skip the generic stuff that doesn’t add any information. A lot of times these annual reports are quite long and may seem rather daunting, but if you must remember you are thinking about investing in company for the next five or ten years or more. So it’s important to do your homework. Also, the more annual reports you read, the better you understand what to look for which allows you to read them faster. The most helpful section of an annual report is usually titled something like “management’s discussion of results.” In this section, management talks about how the business performed during the previous year. You can learn a lot of intricate details from this section.
The Quarterly Report
After reading the annual report, if you still believe the company you’re interested in is investment quality, then the next step is reading the latest quarterly report. After reading the annual report this information will seem quite familiar and you’ll be able to move through the quarterly report rather quickly.
The Most Important Investing Question
Now you should have a solid grasp on the company and its prospects. Next you need to ask yourself the most important question in your research: How is this firm going to increase earnings? If you can answer this question, and believe there is chance of these events happening then you may have found a good investment. This question is important because most of the time the only way a firm’s share price will increase is if earnings increase.
The Final Test
After all this research and effort it’s time for the final test: the earnings conference call. Almost all public companies post their latest earnings call on their website for anyone to listen. If you listen to the earnings conference call and can understand at least 90 percent of what is said then you’re ready to invest in stock the stock. If you don’t understand at least 90 percent then there is more research to be done.