Active
investors need to monitor their portfolio for changes
constantly. Passive investors, or those with a longer-term horizon,
however, can afford to take a more laid-back approach. But all investors
still have to do their homework from time to time. The following five tips
can help you manage your time and your investments properly.
Being an investor doesn't mean that you have to receive a daily subscription to the Wall Street Journal or sit in front of your computer all day. But if you hope to fare as well or better than the market average over time, managing your time as you manage your portfolio can make the most "cents".
1. Keep Abreast Of Market Trends - Weekly
You don't have to have your TV tuned in to CNBC at all
times, but you should peruse the latest financial magazines and trade journals,
and try to tune in to finance-focused TV shows at least once a week. The web is
another terrific place to read about strategies for investing, as well as to
obtain a feel for what the professionals are saying about the market's
anticipated direction. To cut through all the excess reading - just make sure
you get a handle on which industries are in or out of favor, along
with the health of the overall market.
Read or Listen to the News Remember that geopolitical goings-on can
affect your portfolio holdings; so can news of higher taxes, or currency
fluctuations. This means that you should at the very least, catch the weekend
market reports on TV or in your local/national newspapers. The goal here is to
get the big picture or the trend, and then to make changes to your portfolio
accordingly.
(Note: Don't get lured into making a decision because of the
"news of the day." In other words, the financial commentary that you
see on television, like your nightly news, is sometimes embellished in order to
garner more listeners. So again, try to decipher the longer-term trends and
weed out the day-to-day nonsense the financial media outlets use to hype their
broadcasts. The question you should always be asking yourself when watching or
listening to financial commentary is "How will this impact me or my
portfolio?")
2. Review Financial Statements - Quarterly
This rule applies mainly to investors who buy individual
stocks. Investors should review the Management Discussion &
Analysis (MD&A) section of a company's financial statements, as
well as the 10-K, 10-Q and proxy statement (which are
filed with the SEC) to get a better idea of management's take on the
opportunities and risks for the company along with its recent performance.
When you do this research, ask yourself the following
questions:
·
Is management optimistic about the company's future?
·
Has it made any insightful remarks about future earnings
potential?
·
Is it pondering a large acquisition or asset sale that
could impact earnings?
·
Is its credit in good or bad shape? Might that impact the future
growth of the company?
These are all issues that may be addressed in the financial
statements and which are helpful to the investor's decision-making process. Be
a detective, and try to dig past all the public relations fluff to
see what management really is saying.
Sometimes the written word is the best venue for investors to gain
valuable insight about the inner workings of a company, because face-to-face
meetings and some conference calls are highly scripted, especially given the
rise in shareholder-initiated lawsuits.
3. Call Or Interview Funds Or Firms - Once or Twice a Year
Trying to catch up with professionals in charge or funds or firms
can be a full-time job, so it's often best to choose when you attempt these
types of correspondences. Pick a time of year when they are slower or more able
to talk to you - and once you've got them on the line, pump them
for information on where the market or a particular industry or stock is
headed. Sometimes they will provide valuable insight that you hadn't yet
pondered - or don't have the time to research.
When talking to these professionals, try to ask open-ended
questions such as:
·
Where do you think the company is heading?
·
What are the biggest risks going forward?
·
What do you think Wall Street analysts are overlooking or
undervaluing in regards to the company?
You may be surprised by the candor of the responses you will
receive - at no real time cost to you!
4. Attend Conference Calls - Yearly
Don't be intimidated. Call up the investor-relations
representative at the company you own stock in to see if you can listen in on
the company's year-end conference call. You can also check the company's
investor-relations section on their web page, which will often provide
information on the date of the next call along with a link to listen to the
call online. Because of Regulation Fair Disclosure and the focus
firms have these days on disclosing information to both individual
and institutional investors at one time, many firms will allow
individual-investor participation if the investor requests to participate in
advance so that the company can arrange to set up a separate line.
What you are listening for in this call is what management
says about the company's future, but also the way in which they say it. Do
they believe what they are saying? Are they enthusiastic or merely going
through the motions? This information may provide you with the desire to either
buy more shares or to liquidate your position entirely.
The first part of the call will go over the company's financials
for the time period along with any other pertinent developments. This is then
followed by a Q&A session, generally with analysts, which is often the
most important part of the call since you can see how management reacts to
these tough questions.
(Note: As mentioned above, many calls are scripted, and management
is sometimes tight-lipped about the future because they don't want to be blamed
for any failures. With that in mind, the investor should not only be looking
for what is said, but what isn't said as well. If a company usually makes
financial projections every quarter, but has suddenly stopped, then that
may be a bad sign for the company, but a good sign for you to get out.)
5. Avoid Gossip or Speculation - Daily
You don't need to track market changes on a daily basis
to be successful as an investor, but being aware of the trends in the
marketplace can help you to cut down on listening to "hot tips" or
rumor mills throughout the day. A good way to stop the anxiety caused
by the investing gossip you hear is to chase the right kind of
information now. Two big areas to focus on are interest rates and
commodity/labor costs.
Seek Interest Rate News
Higher interest rates usually beget lower stock prices, because if
companies spend more money on loan payments, it will depress their earnings,
and lower earnings equate to lower stock prices. Conversely, lower rates can
mean that both companies and individuals will spend less on interest payments,
bottom lines will increase, and higher earnings translate into higher equity
prices. Knowing that most interest rate news is being accounted into the market
prices now and being able to see how it can affect future prices will help you
weed out any gossip tips you may receive now.
Track Commodity/Labor Costs
Investors should track fuel costs and
other commodity prices to gauge how those fluctuations may impact
their holdings. For example, some industries, such as trucking, see their
profits drop dramatically when crude-oil prices increase. Others, such as
oil-exploration companies, fare better when oil trades higher. Rising steel and
lumber prices will adversely affect construction and manufacturing companies.
Rising labor costs will bury everybody, but particularly retailers that
typically hire workers at minimum wage. If you know what's in your portfolio
ahead of time, you can cut the anxiety in its tracks and adjust your portfolio
accordingly.
Your Time Is Money
Determining when your information is the most valuable can help
you cut down on the hours you spend sorting through reports and financials.
Summer months are typically weak months in the market, and purchased stocks may
wane. September and October are also historically difficult months - and
year-end tax-loss selling can depress stocks even further. If you are
satisfied that the stock you own or wish to purchase is on solid footing, you
can continue with your purchases, but make sure you consider seasonal
factors when trying to time a purchase or a sale.
Being an investor doesn't mean that you have to receive a daily subscription to the Wall Street Journal or sit in front of your computer all day. But if you hope to fare as well or better than the market average over time, managing your time as you manage your portfolio can make the most "cents".
by Glenn Curtis
