How I Invest, Part 6: Beware of Research

(Credit: Ivy Dawned via Flickr)

(Credit: Ivy Dawned via Flickr)

In previous entries I discussed the importance of researching a stock before you buy it. Research, of course, doesn’t stop when you purchase a stock. It’s an ongoing activity.

As the world changes, so does the stock market and so do individual stocks and the companies they represent. As an investor, it’s imperative that we know what’s going on in a company when it’s happening and assess how those activities are going to affect the stock price.

A golden boy stock of one year may be a huge failure the next. BlackBerry (BBRY) comes to mind. Once a favorite in my portfolio, today it’s still alive as a company, but just barely. I sold the stock I owned years ago.

First Solar (FSLR) is another example. It’s stock price was over a $160 a share in February 2011, then fell to as low as $15 in July 2012. Had I had a magic ball I might have realized that was the perfect time to buy again. I didn’t. Today, the stock is hovering around $70 a share.

So why is this blog titled “Beware of Research?”

Because, frankly, there is just too much information out there — and like food, much of it is just junk! With food it’s actually easier to discern what is the good stuff and what’s the junk — but not all the time. Besides what’s defined as healthy changes all the time.

Anybody can blog — look I’m doing it!

Just because we think something is true, does not necessarily make it true. This is important.
So what happens? Research becomes blurred, because if it’s a popular stock like Apple, or Google, or Netflix, or whatever stock you want to name here, everybody has an opinion — and because news wires like new information — all sorts of stuff gets put out there: opinions, or rumors, or opinions of rumors, or new products, or opinions of new products. Big name commentators may be the worst. Drama and expose are the tools of the day. If it ain’t there, make it up.

OK, lots of junk information — lots of opinions by lots of people — many whom have limited credentials. So, what do we do? Where do we get valid, credible information?

Frankly, I spend a good deal of my research time on Scottrade. They have a great a research department, and most of their information seems well is sifted. Is there some junk mixed in? Sure, but not nearly as much as is spouted on Yahoo Finance or on TV.

Business magazines are good sources of information, too, if you can stomach the advertising. At least most of the articles are written by folks with some credentials and the articles are usually multidimensional — offering solid research and multiple perspectives.

The Nightly Business News on PBS is a great tool — a show I watch as often as possible. Since it’s not indebted to any advertisers, it offers frank commentary and business and trends in business with limited drama and hype. I recommend it.

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About Liz Stauffer

Liz Morningstar Stauffer’s improbable journey—from a divorced mother of two at the age of 34 to a millionaire some 15 years later—has inspired her to create the blog “The Improbable Millionaire," offering tips, advice, stories and support for people on a similar journey—even if they don’t know it yet!

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