Researching Investments

“Know what you are buying,” is one of the fundamental steps when developing a portfolio.

Yahoo Finance is one of the best free research tools available, as it offers profiles, valuation metrics and other data on companies. Before you add a stock to your portfolio, you need to know as much about it as you can—not just a description of the company. We feel investors should understand the company’s competitive landscape, i.e., who the competition is and how they stack up against them; the company’s market share; the strengths and weakness; and why the company is so special. You want to know the critical factors that drive the company and what will make the company profitable.

Price of the company is more than just the cost. Investors should understand the valuation based on some metric relative to earnings, book value or cash flow.

Mutual funds require just as much research. When looking for a mutual fund, you should know what asset class you want to invest in and seek the best funds in that category. We feel you should understand the fund’s interests in small-cap, mid-cap, large-cap, international or commodities. In addition, you should understand the fund’s objective for growth, dividends or value. With a mutual fund, you should look at the fund’s history, price ratios and turnover.

One critical area to consider is style drift. You want to understand the fund’s objective and how far the fund managers can deviate from that objective. You likely do not want a large-cap fund that shifts to all bond holdings within a year.

Morningstar.com is a good resource for fund research, as is the fund’s own prospectus. While you want to look at past performance, you do not want to buy a fund because it beat last week, month or year. You should look at the long-term trend of the fund and the strategy they employ.

At Henssler Financial we believe you should Live Ready, which includes fully understanding the investments you have chosen.  If you have questions regarding your stock or mutual fund holdings, experts at Henssler Financial will be glad to help. You may call us at 770-429-9166 or e-mail at experts@henssler.com.           

Disclosures:

This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing.