week end report (regular exercise)
 
What do they do?
 
That's the key phrase for any company that I am interested in. Some investors become interested in a stock because it has fallen enough to become cheap, or is rising fast and they want to ride it up. That doesn't mean that they know anything about the company behind the stock.
 
What do they do, is also a question that has to be asked regularly, not just once. Companies change. Hardware companies can begin to make money from service contracts. Car companies can begin to make money more from financing than from sales. Pixar made as much money from toys and merchandise as they did from movie tickets.
 
I believe it was Peter Lynch that recommended that an investor should only buy stock in a company if they can use only three sentences to describe how the company makes money. I like that idea. But I also don't hold myself to such a strict standard. I do, however, have a semi-annnual exercise of writing down the descriptions. That way I can read my previous descriptions and see if the company or my reason for owning the stock has changed.
 
It is June 27th. Summer is here. And I've begun my exercise, so this blog post will be shorter than usual to make time for my synopses. (I can hear a chorus of hurray! But then, the writers understand the concept of "I would've written a shorter version, but I didn't have the time.")
 
Here's the basic format I almost use. You might find the same exercise helpful.
 
Name of the company
    (It can change.)
 
Stock symbol
    (It can change.)
 
Market cap
    (So I can check growth or shrinkage without worrying about dilution.)
 
Basic operations
    (What do they do? explained as if I was talking to someone unaware of the company, its technology, and its industry.)
 
Investment status
    (Are they a speculation or an investment? Speculative companies hope and plan to make money. Investments are making money. Many have a bit of both.)
 
Prognosis
    (What could go right or wrong, and do I want to buy, hold, or sell? Even good companies with good prospects can be sell candidates if my other stocks can't pay the bills. This is a personal exercise and my personal finances are part of the consideration.)
 
It is essentially a simple exercise, yet I find it takes me a day or so. Partly that is because I post the results several places. I am a bit more careful with my writing when others will read it (even if it doesn't seem that way to the grammar hounds out there, for one thing, they hate paranthases).
 
It also takes a day or so because the exercise is not rote and routine. It makes me think. I typically hold stocks for years, which means that a lot can happen. The company, my life, other companies can change. There are thousands of stocks to pick from. It is highly probable that better investments have surfaced. So, as time allows, I research other stocks. I usually don't change my portfolio immediately. Familiarity decreases the workload. I'm also not hunting for the best performance. Good enough is good enough.
 
So, stay tuned. The end of June is near, so I'll be researching, writing, posting, and participating in the conversations on the various discussion boards.
 
See you there.
 
 
 
 
Saturday, June 27, 2009