MonEmailbag: What It Means to Do Your
Homework
By Herb Greenberg
Senior Columnist
10/10/98 12:18 AM ET
First up this week are William and Heather Morel, who wonder what
this column means when it admonishes investors to do their homework.
"Do you mean look over the SEC filings and charts and info on, say,
Microsoft Investor and ValueLine and S&P?" (Yes, absolutely.)
"Look at the estimates? Are they useful?" (Not if you're a long-term
investor. Instead, if you're in it for more than a month or quarter, pay
attention to the direction of sales and earnings. And keep an eye on the
balance sheet to make sure rising earnings aren't the result of
overzealous numbers uncrunchers.) "Look at analyst reports? Can one
trust them?" (Not for an unbiased opinion on whether you should buy a
stock. But they can be a serious heads-up if they're urging caution. And
they can be unmatched for details and background on the company
and/or its industry.) "Or do you mean phone the company?" (A waste of
time for the typical small investor for anything other than finding factual
information.) "Or phone customers?" (By all means, if you can get them
to open up.) "Or phone competitors?" (Again, great in practice but you're
not likely to get far. That's why it's best to stick with companies and
industries you know from personal experience.)
Bottom line: Stock research can be time-consuming and tough. Just make
sure you read any report that comes from the company and pay
attention to the financials and management commentary in the quarterly
SEC filings for any sign of trouble. Be especially leery of the world
challenge. It's always a euphemism for trouble.
Message Center
Memo to Lee Huber and everyone else (and there are a lot of you)
who want to know what trading curbs are, when they're triggered, etc.:
Don't confuse curbs with trading halts, which cause trading of all stocks
on the major exchanges and Nasdaq to stop after stocks fall by certain
amounts. Curbs refer to index arbitrage, or program trading, on the
stocks that make up the S&P 500. They're designed to reduce volatility.
They go into effect when the Dow Jones Industrial Average moves
50 or more points from the previous day's close.
At that point, buy and sell orders must meet what's known as an index
arbitrage tick test (not the kind of tick that spreads Lyme Disease). In
down markets, sell orders may be executed only on a plus or zero-plus
tick; in up markets, buy orders may be executed only on a minus or
zero-minus tick. The curbs stay in effect for the rest of the day, unless
the Dow moves back with 25 points of the previous day's close.
Memo to James Gilbert, who wants to know how long a stock can
be shorted before it must be bought back: Forever, unless you happen
to own a heavily shorted stock that gets caught up in one of those nasty
squeezes created when the rightful owner of the shares you borrowed
wants them back. Downright nasty when that happens.
Memo to Mike Radigan, who wants to know whether a company is
required to make any special filing with the SEC, like any other insider,
when it does a buyback of its own stocks: Nope. The best you can hope
for, according to David Fried of the Buyback Letter, is a special
notation or mention in the CEO's quarterly letter to shareholders. You can
also calculate it yourself by looking at the number of shares outstanding
each quarter, and looking for shrinkage. The company may also spell it
out in the category that explains how it used its capital.
Memo to Inaki Aguirre, who wants to know what a clearing broker
is: According to the well-written glossary at the International Finance
& Commodities Institute Web site (risk.ifci.ch/glossary.htm), a
clearing broker "is the member of a stock or commodities exchange
authorized to deal directly with the clearing corporation when settling a
trade executed on the exchange floor or through an electronic order
matching system. Parties to every trade exchange names or other
information identifying their clearing member. The clearing member is
responsible for any collateral or cash exchanges with the clearing
corporation, carries the position, and is responsible for its ultimate
settlement or disposition. Most investors find it convenient to deal with a
limited number of clearing brokers. If they want the services of a larger
number of executing brokers, they will ask the executing brokers to 'give
up' the trade to a clearing broker and the executing and clearing brokers
will share the commission." Much better than the definition on the
American Stock Exchange's Web site.
Memo to Casey C., who wonders how an online day trader
independently confirm the safety and Securities Investor Protection
Corp., or SIPC, status of his online account: The same way any investor
would -- by checking with the NASD's hotline (1-800-289-9999) or
through its Web site (www.nasdr.com/2002.htm) for any disciplinary
action and other background information. It's available at brokerage firms
as well as brokers. Regarding SIPC: Call the organization at
202-371-8300.
Memo to Eddie (no last name given), who wants to know the minimum
requirements for a company's continued listing on the New York and
American stock exchanges, as well as on Nasdaq: Best bet for full
details is to check the Web sites for each: www.nasdaq.com,
www.amex.com and www.NYSE.com.
Have a question you think would work for the MonEmailbag? Shoot it my
way at MonEmailbag@thestreet.com. Include your full name and, please,
no questions about personal financial circumstances or brokerage
disputes. And answers can't be guaranteed.
Thanks to TSC's Kim Fraser, as usual, for the research. |
