For many personal investors, investing in a stock is the comparatively “easy” part; a fairly straight-forward, simple endeavor. Yet, it is rather amazing how many personal investors fail to keep up with their investments. They sell their investment too late and incur a sizeable loss while others may hold onto a stock far too long, only to discover later, much to their dismay, that the company was declared insolvent. Some individuals invariably end up collecting stocks the way others collect heirloom teddy bears or dolls. Cultivating and maintaining a sound stock portfolio is a time-consuming task (a part-time job by itself!). It requires tremendous effort and patience along with the willingness to undertake diligent research and study.

Doing Your Homework

Being a proactive, knowledgeable investor requires making an effort to stay informed of economic and market news. Keen investors, for example, will want to know how changes in the interest rates or tax code may impact their investments. There are a plethora of print and online financial magazines and investment research publications that personal investors can utilize to track their securities. Some of the better known online research tools include morningstar.com, nasdaq.com, standardandpoors.com and zacks.com. Companies also publish press releases on dividends, earnings, stock splits and other timely financial disclosure which can be directly accessed on their website.

Do Not Ignore Annual Reports

Annual reports are bulky and make for extremely dry, tedious reading. However, they contain several nuggets of highly useful information of great relevance to investors:

• The customary letter from the chairman.

• A discussion of the current financial conditions and trends and the types of business strategies the company is implementing in order to generate profit (e.g., acquisitions, mergers, research and development, sales and marketing).

• Highlights of significant accomplishments by the company over the past year.

• Difficulties that the company may currently be experiencing or possible potential future challenges.

• Future business prospects.

• Financial statements. This is definitely one section investors should not skim over! Give careful scrutiny to the balance sheet, cash-flow statement and income statement. Read the financial footnotes of the financial statements as they can be an illuminating read in themselves. Be certain that you have read the independent auditor’s opinion.

• Subsidiaries And Brands.

• Management overview.

• Executive compensation.

• Listing of the board of directors and senior corporate officers.

• Registrar and stock transfer agent.

• History of the stock price.

The annual report is an excellent starting place to gather these key bits of information in order to do more substantive investment research (e.g., fundamental analysis). For example, peer-to-per analysis can shed light on how well or how poorly the company is performing.

Closing Thoughts

Clearly, building a sound stock portfolio is a dynamic process, especially when changes in the economy are the constants that have always to be kept firmly in mind. The same principle also applies to the study of investing which is fluid and exciting. Every investor should strive to acquire knowledge in core disciplines such as accounting, economics and finance. It takes time and effort to acquire some knowledge in these different areas. However, it is necessary to cultivate the skills that can help one in putting together a profitable portfolio.


For informational purposes only and not intended as advice. Listing of links does not imply endorsement.