Brent, since you're already familiar with the basics of DD, I'd just add a few more things. These don't apply to daytrading where momentum is all that counts.
For me, DD could be a 5-minute exercise, or it could be a very lengthy process depending on how long I want to hold the stock and size of the position. First thing is to look at the chart, right then right there I got confused because I'm a lousy chart reader. Then I gather the most fundamental data, the Yahoo profile page gives a quick overview. I look for the company's growth in top and bottom lines in past few quarters, balance sheet, short interest, float and total outstanding shares, insider trading activities, insiders holdings..... Then I read all recent press releases. Over time you'll develop a keen sense to interpret what management says in the PRs. For example if management blames revenue short fall on delays in closing a couple of large deals which will be pushed into the next quarter. Don't believe it. The truth is their sales force stinks or customers don't want their products. Stay clear until they can prove otherwise, better yet short the stock.
A little more work requires shuffling through the company's SEC filings. Here you'll learn a lot more about the company, verify the company's balance sheet, find out who their customers are, competition, things like that. If I'm thinking of a large position (long or short) or as a long term investment, it's mandatory that I speak to company's top management, usually the CEO and/or CFO. Listen to the quarterly conference calls, be a part of it and ask questions during the call. Then I go out and visit them. I attend their annual meetings. If the company holds an analysts meeting, I show up to hear what WS analysts have to say during the meeting and during break sessions.
Of course no amount of DDs can guarantee success, but they do increase my chance for making the right decisions. And if it bombs, well at least I gave it my best shot but it just didn't work out. Erase it from memory and move on. There're thousands of stocks out there.
And then there's the psychological factor. If you're in the market long enough, you'll encounter several major setbacks. You can fall flat on your face. Your confidence will be shaken up, and you feel disgusted. You wish you had done differently, but wishing won't change what has happened. It just makes you feel even worse.
The cheese has moved, you must pick yourself up and seek new cheese. You've gotta stay calm during those tough times, remain optimistic, take sometime off, don't lose your sense of humor, tell yourself you'll bounce back and you will. You've gotta have strong conviction, commitment, and confidence. For, without them, there's little chance for survival.
Finally for starters, don't commit more than you can afford to lose. Preserve your capital. The market will be here with or without you.
Regards,
Tom |
