Due Diligence

The most important part of investing is doing the due diligence. I do this in several different parts. Now I think I will break each of these down next week so as to give you a better understanding of how each works and why we do it. Today ill highlight each part so I can give you the basic layout of what we look for when we do the due diligence on a company. The first thing I like to do is check and see if the company is current on all of its SEC filings. Next I look at the financial statements themselves. I look for revenues, liabilities, outstanding shares of record, the business description,outstanding loans,and any other important information the 10Q form reveals. I then find the names of the officers and start investigating their backgrounds. It is important to me to find out just how many companies the CEO is or has been involved in as the integrity of the company relies on the integrity of the CEO. There are many symbols that are traded as companies but are actually what we call shells. They have no products, no revenues, or employees. The only thing they have is stock. I would suggest stay away from these kind of companies. I look for companies with real products and real revenues. Next i look to see what the 50 day moving average is on the stock and find the 90 day and 52 week low on it. I also look for spikes in volume as they can be a telling sign of advertising or promotional campaigns. I also look at the recent news releases to see what if anything has been happening with the company. Checking the company's sector competitors and how they are faring is also helpful in determining how the company stands in the marketplace. Once I have digested all of the info I check the current price the stock is trading at so I can determine what my entry price will be. Tomorrow I will talk about active trading and the times I trade and the times I do not trade.