| How do I do research to find a good company? |
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| Investing - Investing Basics | |||
| Written by Hugh McManus | |||
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HOW DO I DO RESEARCH TO FIND A GOOD A COMPANY?The best way to start off your research on a company is to get ther annual report. The annual report is a publication from the management of the company to shareholders. The report details what the company does and what it plans to do; key news; who the main players are; a list of the board of directors; financial information with some explanations. I’ll touch on the annual report later. There are a host of on-line resources available and many of these are listed in a later document. Keep in mind a few things
Media reports on a company can also be a good starting point. There are now many cable companies dedicated to providing financial information to the masses: CNBC, Bloomberg and Fox all have shows that run from early morning until evening providing detail on companies and the markets. (CNN used to run CNNfn, but it failed closed in 2004). Once again, caution should be exercised here as these programs often concentrate on price movements without regard to the long-term fundamentals that can drive value. Keep in mind that the market is a public opinion poll; these shows are like the Weather Channel for all things financial. A farmer would not likely change his opinion on the climate just because a storm is forecast! You’ll find when it comes to things financial, the media focuses on the “weather”; true investors learn the rhythms of the climate! Sources of InformationWhen analyzing a company, you will want financial information. To see how well a company has done, you need to examine the numbers. There are a number of sources of information. You can go to the company itself and ask for the annual reports; you can also review the 10-K and 10-Q. There are also companies that gather and publish financial information. The two big sources in this field are Standard and Poors and Value Line. There are others, but these are the big guys! Standard and Poors (S&P) reports faithfully the numbers a company publishes. If you want exact information, S&P is for you. Value Line, on the other hand, normalizes data. There is a discussion on Value Line in appendix 3. Many successful fundamental investors prefer Value Line to S&P, because Value Line focuses directly on the operations of the company. Value Line is most likely available at your local library. You can also get some interesting information using analysts' earnings projections at Manifest Investing. What’s Fundamental versus Technical Analysis?Fundamental analysis focuses in on what drives the earnings engine of the company. It gets in under the hood of the company. Technical analysis, in its purest form, concentrates more on what other people think of the company. Technical analysis likes to look at stock price behavior and is not as concerned as to what is driving that behavior. Say you’re at a motor car race. A fundamental analyst is interested in the cars, a technical analyst prefers to study the crowd.
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