Learn About Investment Research

Turning Ideas into Profit By Learning to Research Investment Ideas

Investment Research for Beginners
Learning to research an investment, whether it is a stock or mutual fund, is one of the most fundamental skills necessary to build your wealth. Colin Anderson / Blend Images / Getty Images

If you have ever wanted to know how to invest in stock, the best place to start is doing your own research. For new investors, this can be daunting. Fortunately, there are a few good places to start. I'll walk you through them.

Public vs. Private

Before one can invest in a business, he must discover if it is public or private. A publicly traded company is one which has shares of stock traded on the open market.

Private companies, on the other hand, do not have shares available for public purchase. Private companies may be owned by an individual, a family, a partnership, employees, or a small group of investors.

To illustrate the difference, consider Hershey and Mars, two of the largest candy companies in the world. The late Milton Hershey’s chocolate business is publicly traded on the New York Stock Exchange. An individual investor could take his paycheck and acquire shares in the company, profiting from every Hershey bar or Reese’s peanut butter cup sold. The multi-billion dollar Mars company, however, is still owned by the Mars family. An investor could not buy shares unless the members of the family allowed him to acquire some of their closely held, personal stock.

How does one determine if a company is public or private? The simplest, most effective way to answer this question is to call the company and ask.

At the same time, many corporate web sites offer information on their ownership status; rest assured, if you see an “investor relations” section, the company is public. The lack of such a section does not necessarily mean anything. Take, for example, Fruit of the Loom. The undergarment manufacturer is not publicly traded because it is owned by Berkshire Hathaway, Inc.

Berkshire, on the other hand, is traded on the New York Stock Exchange. Hence, an investor may be able to indirectly invest in a business entity through a publicly traded parent company.

Ticker Symbol

Once the investor has discovered a company is publicly traded, he must look up the company’s ticker symbol. A ticker symbol is a collection of letters that represent a particular stock on an exchange or the over-the-counter market. Microsoft, for example, is MSFT. Cisco Systems is CSCO. Berkshire Hathaway has two ticker symbols, one for its class A shares (BRKA) and one of the class B shares (BRKB). Coca-Cola is KO. The Washington Post is WPO.

To discover a company’s ticker symbol, the investor can call his broker or go to a site such as Yahoo Finance. Once at the main page, he can choose the “symbol lookup” option. The resulting page will allow him to enter the company (or parent company in the case of a subsidiary such as Fruit of the Loom) name.

With the ticker symbol in hand, the investor can return to the main Yahoo Finance page and enter it. After pressing the “get quote” button, he will be taken to a summary page that includes a current quote for one share of the company’s stock, the total market capitalization of the business, recent dividend payment and yield information, the price-to-earnings ratio for the trailing twelve months and other items of interest.

Obtaining Annual Reports, SEC Filings and other Financial Documents

Assuming the figures presented seem promising to the investor, he will most likely wish to acquire a copy of the company’s annual report, proxy statement and 10k. For this, he will find the Internet an excellent source of free, timely information. One of the best resources is Free Edgar, a database of annual reports and SEC filings. Additionally, the investor could contact the shareholder relations department of the company in which he is interested via telephone or web site and request information. The bottom line: Nearly everything you need to know can be found in the annual report, proxy statement, and 10K.

Dividend Reinvestment Programs (DRIPs) and Direct Stock Purchase Plans

If, after careful analysis of the financial statements and business economics, the investor wishes to build up a long-term holding in the company, he may want to consider an automatic dividend reinvestment program and / or a direct stock purchase plan.

Both of these are ideal solutions if he desires to begin a dollar cost averaging program into the company; the former will automatically invest his dividends into additional shares of stock while the latter will provide for regularly scheduled deductions from his checking or savings account to purchase shares of the company’s stock without the aid of a broker. Equiserve is a free database containing information on the both types of programs at thousands of publicly traded companies across the United States.