Every investment and every investment decision involves some degree of risk. Whether pre-investment research results in a purchase or a pass, it’s possible the “right” decision should’ve gone the other way. Regardless of the fact that an investor can never know for sure, research that focuses on fact and an objective pre-purchase analysis can increase the chances of making a good decision about whether or not to invest in a company.
Comprehensive fact-based research has both a focus and a perspective. While the focus throughout the research stage may remain on the company and its offering, the perspective should be investor-oriented. Facts remain only bits of information until an investor compares them to long-term investment goals and her current financial situation and risk tolerance limits. She can then decide whether the facts make the offering attractive or not. Background knowledge on the basics of investing is also important and can be helpful in making the facts make sense.
Company information can come from reading a prospectus, researching a company on its own website and by using third parties such as the SEC and state securities agencies. A prospectus provides facts relating to a company’s investment objectives, goals and strategies. Facts about a company’s history, accomplishments, product or service offerings and business plan are all available on corporate home or investor-relations pages. Both the SEC and state securities agencies can provide an investor with any negative information the agency has on file.
Access a company’s annual report from the investor relations page on its website or from the SEC. This report provides detailed information about the company’s overall financial condition as well as management policies. Most include a balance sheet, a summary of a company’s assets and liabilities, a statement of income and retained earnings that includes facts about financial performance over a period ranging from a month to several years, a statement of changes in financial position that details how well a company manages working capital and, finally, a report that verifies the accuracy of financial information from an independent accountant.
Use the company’s ticker symbol to get real-time data – albeit with a 20 minute delay -- and historical performance. Go back to the prospectus and review it not only for past performance and principal investment risks but also for information on fees, expenses and procedures for purchasing and selling shares. The SEC requires each company to provide the same categories of information in a standard, readable format so a beginning investor can understand it and use it to make comparisons before investing.
- U.S. Securities and Exchange Commission: Financial Navigating in the Current Economy: Ten Things to Consider Before You Make Investing Decisions
- U.S. Securities and Exchange Commission: Mutual Fund Prospectus
- New York Stock Exchange: How to research Stocks
- Utah Department of Commerce Division of Securities: Key Questions to Consider When Investing
Based in Green Bay, Wisc., Jackie Lohrey has been writing professionally since 2009. In addition to writing web content and training manuals for small business clients and nonprofit organizations, including ERA Realtors and the Bay Area Humane Society, Lohrey also works as a finance data analyst for a global business outsourcing company.