Due Diligence DD doing it right!
Hey all back again for another, today I am going to give you my take on what good DD is. Been awhile since my last post, I do apologize once again, this hand of mine isn't making life easy at all right now. But I'm not here to cry about my hand just wanted to get it out there that I do not mean for it to be forever and a day in between my posts. It's outta my hands at the current time, no pun intended lol.
Ok so what is DD? It's what you need to do before you invest in ANYTHING!!! Would you buy a used car without driving it AND taking it to an mechanic that doesn't work for the dealership?? I certainly hope not because I can say from 30 years of buying and dealing with cars, fixing them etc etc (yes I started young) buying a used one without having it checked out is just plain damned STUPID so why would you invest money without knowing every single detail? Well you certainly shouldn't. I know many who trade cryptos that do not know a single shred of info about a coin and they're buying it. If you're hopping in on a run that is different, I do it all the time. But if you're buying it to hold and not even googling it...wow, get ready for some heartache lol. By buying blindly you're playing Russian Roulette with a 5 shot revolver with 2 in the cylinder if not 3 or 4. So just DON'T do it. DD isn't that hard, takes a little time but its not hard by any means.
Now if you've read my previous posts you've seen I've said if you want to learn to trade you should get a paper money account with TD Ameritrade. Others may have these options also but I don't know, TD has been great 100% of the time in my experience with them so I have felt zero need to even look at the others. I have an actual real money account with them also. Why paper money? Easy. It teaches you everything. And it doesn't cost you a penny so if you pick wrong you lose nothing. What it does is TEST your DD. I know not everyone wants to trade stocks, I know many of the millennials are straight scared shitless of it. Why I do not know. Yes its crashed/corrected a few times majorly but over all it is UP UP UP. Look at the big picture, you have to. Investing is not short term and you're not going to be rich tomorrow. It corrects every 8-10 years. It has the longest track record of being a consistent climber over everything else. And if you can pick a good stock you can find all kinds of good investments I think. Now the kicker here is do not just say well after looking at Amazon I think I am going to buy it. Well duh. That's not the point though. You want to find the hidden gem. Any jackass can buy stocks like apple, amazon, google, cisco etc etc.. And you should if you can afford these. Here is how I look at things, buying 1 or 2 shares of like Amazon is fucking stupid. It will have move up like 4-5 bucks just to cover your trade fees if you bought 2. Point is if you want to make money you need QUANTITY. THE MORE THE BETTER!!!! Buying 2 shares of a thousand dollar stock is just dumb. You can hold it for 10 years and maybe double your money lol. I'd rather turn that 2k into more than 4k. So this is why you need to find CHEAPER stocks so you can get MORE MORE MORE. You need to find that gem and good DD will allow you to do that.
What is the first thing I look at when I look into a stock? Easy, its not what most people would do from everything I have read over the years. But I look at Institutional Holdings(IH). What is IH? IH is the amount usually in percent of a company stock that other companies own. Why is this important. Again very easy. Other compaines/banks/ etc etc have waaaay more money than you and I. If the IH percent is high that is a very very good thing. I like a stock already if it has high IH because this tells me others have already done a ton of DD and they LIKE what they see which is why they took their companies money to buy part of another company. Is it the end of the world if the stock you're looking at has zero IH? NO not at all. There could literally be a 1,000 different reasons for it. They could be new and undiscovered. They could also have shit promotional people to. YOU have to figure that out. Now you certainly do not have to look at this first but it needs to be on the list. Cisco for example as of 3 seconds ago has 74.44% IH. So basically 75% of Cisco is owned by other companies.. One of my favs..
Next I look at earnings per share (EPS). Positive is always better but negative isn't always bad. A fair amount of stocks have negative EPS but they are in R&D and their investors know this. But you need to understand this basically tells you if the company is making money. A big number on the positive side is a good thing. Now do not just look at it and see its positive and be like yeah we're good here... You're DD stops here you're doing it WRONG!! Positive or negative you need to understand why that number is where it is at. What are the predictions from the company on this number? Are the PRO analysts talking about it? IS there DEBT tied to this number? If so who owns it, what's are the terms of this debt? Are they able to make any and all arranged payment agreements? Do they have debt with more than one lender or investor? When I look into EPS that is when I generally look at all their financials. You need to find out what they are doing with every dollar you can. And where every dollar is coming from or going to.
Other things to look at. VOLUME. The rule of Volume everyone should follow is under 250k a day? STAY AWAY. If its not doing 250k a day that to many is considered stagnant. Last thing you want to do is buy a dead stock. Now there ARE exceptions to this but this involves a lot more risk but if you find a brand new company that you think has a bright future but has no volume it might be a good idea to get in way early, before the crowd. But also keep in mind 99% of cheaper penny stock (anything under 5 bucks a share is considered penny) FAIL!! Which means you can lose every cent. So there is the risk. If you follow the NUMBER ONE rule of investing you'll be fine. What is this rule? NEVER INVEST MORE THAN YOU CAN AFFORD TO LOSE, EVER!!!! Risk can have huge rewards but they are rare. So don't fool yourself, just cause you like it really doesn't matter I'm sorry. You're one person, you can be a millionaire and the market really doesn't care. So if you're going to invest in new no volume companies follow rule 1 to the letter and make sure the market agrees with you, or to put it properly you agree with the market. You have to follow them because they are not going to follow you, they don't even know you're alive and they do not care.
Starting to get a bit long as usual so other things. Market cap and Total number of shares available is something you need to understand and why it is important, it is just really basic math. Number of shares X current value is your market cap. This ties directly to everything. You look at a chart and you can see the market cap going up and down parallel to the price. Huge market caps are always better. Small ones can be just fine to if you found the gem. Most of them are bad mmmmkay? When you are at the low end of the market well its just that, the garbage or not so good. Gotta pick through the trash.
Ok so you need to read a lot more perspectives on this topic as no single piece of writing should ever be IT. And there is so much more to DD. But this would be a book. Understand everything. Here is a list of other things I look at.
52 week range.
5 year range and more depending on the age of the company.
AGE!!!! cannot stress how important this is. OLDER is better. There is a million things to be said about a proven track record.
Historical volatility. Is it stable or all over the place all the time? All over the place all the time can be good or bad. More often than not its bad. If it jumps way up really fast odds are its gonna drop at a pace that makes its climb seem slow.
What are future estimates from the company and the analysts?
Do they pay dividends? What is the Yield?
SHORT INTEREST (SI).. THIS<<<<< PAY ATTENTION to this. You've heard the term shorting a stock? Well this is the end result. Shorting a stock means you are betting AGAINST it, meaning your betting its price is going to drop. When you short you buy high and sell it, then you try to buy it back cheaper to replace it in the inventory of where you basically borrowed it from. You do this through your trading account and/or broker. If you look at a company and they have very low SI this is a good thing. Means they are doing well and people are not willing/believe the company stock is coming down anytime soon. The opposite obviously applies if its very high. SI is massively important because it helps out more than anything in controlling market volatility and increasing liquidity. High SI can also be a good sign. Can tell you a good time to buy might be coming, shorters can pull a price down rather easily. Read all you can about SI. Crypos would benefit from SI but thats a long ways, maybe never away. But learn how to short things, times like now where we are going from massive gains to corrections one can make a lot of money. Going from Bull to Bear is the best time to short I think. When it makes the switch like the last few days of massive drops, there are some very happy happy shorters out there.
Buy sell ratio is another thing I like to watch, more buying is clearly good unless you're trying to short it.
Social signals, investor sentiment, what are people saying online?
What are the analyst reports? A lot of cheaper stocks are not even on these guys radar so do not expect to find anything from the pros on some of them.
Follow the money, every cent. You should read everything you can find about company before you invest in it. These are just a few of my major points I look at.
If you've done your DD right you should feel 110,000% confident you're making the right move before you push that buy button. IF you DO NOT feel absolutely, without any microscopic shred of doubt you have done it right and are sure DO NOT push the button. Did a question of doubt just pop into your head as you were filling out that buy order? Well if it did that is good, go answer the question and move forward.
Life is what we make it. The stock market while I love the crypto scene, is and always will be the best place for the average person to become not so average when it comes to money. The classes we took in school if you had the whole 1 class in 12 years lol where absolute shit. We need to change this and educate our kids how to and why investing is so important.
When you make the choice to start investing you have made the best move of your life. You have done what we all should have been taught to do long ago with our money. Most importantly if you're starting to invest well you've either grown up a bit or you just get that you have to be planning now for 5-10-15-20+ years down the road starting now if your life is gonna be easier later on down the road.
Most important of all!!! DO NOT FOOL YOURSELF!!! Do not think you're going to read this or something else and bam you're gonna be rich with your first purchase. You have a better chance of getting hit by lightning or winning the lottery. But unlike the lottery if you put the time in and LEARN EVERYTHING you can IT WILL!!!!! be worth it in the end. Investing takes time, learning takes time. What do we all have? Time. Use yours wisely!