Welcome back. We’re glad you enjoy reading advice on how to invest wisely. Continuing from where we left off in part four of developing the success mentality for investing, we’re going to move towards covering another critical thinking skill that applies to ensuring that your investments are always sensible choices.
It’s Not All About Crunching Numbers
A lot of amateur investors are often told that they should bury their head in the market journals and utilize mathematical formulas for determining successful investment strategies. This is something basic that works, but it can only take you so far. In fact, crunching numbers is only useful when you couple it with what those numbers represent the real world.
Changing values can alert you to opportunities and risks, but they don’t necessarily tell you what those opportunities or risks are. When it comes to making those brilliant choices that the best investors are famous for, it often boils down to evaluating and paying close attention to business practices, employee behavior, and press correspondence.
Pay Attention To The Company Behind The Stock
This mindset is called qualitative evaluation, and it’s basically a matter of inferring changes and deducing market reactions to the things that occur with the key players and participants behind stock-based companies. Very much like being a detective, you have to be willing to forget the numbers and investigate the idiosyncrasies of a company and its behavior.
For example, in 2002, during a Ciena Corporation conference call, Gary Smith, their CEO, was talking. A very festive event, Smith maintained a jubilant attitude regarding the future of his company. However, some individuals recognized Smith’s unusual usage of the term”difficult” and his tone of voice when talking about the economic landscape for telecommunications.
While most basic investors would never have paid attention to this, the shrewd purveyors of fortune knew that this indicated troubled times ahead for the company. Sure enough, almost half of the stocks were sold off only months after the conference, despite optimism.
Always pay attention to what affects your stock directly. Numbers are representations, so you should turn to what they represent and pay attention to the happenings of businesses and the people that run them. This concludes today’s lesson. Don’t leave us however, as we still have more to cover for this series!
Sean Rasmussen
The Bullhunters Guide
Universal Wealth Creation © 2004 – 2010
{ 2 comments… read them below or add one }
Hi Sean,
I think I would have a tendency to rely maybe too heavily on what the numbers tell me. Thanks for the warning as I can start to think of this as a balance. I need the qualitative research too.
I think I’m going to have to make reading the financial newspapers, magazines and blogs much more important. I need to get to know more about who is running the companies I invest in and what that means for the company.
Qualitative evaluation is very important to find out what is going on behind the scenes with various companies and it is something I will be learning to do as I start learning a new trading strategy with a new mentor next year.
Depending on what type of trading you are doing, knowing more about the company you have bought shares from is very important.