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Saturday, December 8, 2012

Value of Research


The truth is the free market has always been the staple success of capitalism. There market allows for winners and losers, of course there are many market manipulations that have long permeated the scene. These manipulations have broadened the loser pool in order to enrich a small group of winners.
There is a reason for successful manipulation though and it is in the basic premise of laziness. Unfortunately for losers they are simply lazy and dependent which turns them in to investment victims. The manipulation I am discussing here is perfectly legal and it plays within the rules, yet it is a tilted game and the losers are unaware they are being manipulated.
So what is this manipulation and how does it occur? The simple answer is financial media. In general investors rely upon many different levels of financial media for their information. Most of the time this information touted through the financial media is enticement for investors to buy whatever in order to enrich those who have paid for the media platform. If you as an investor rely on the pundits who are paid via advertising, or even company remuneration then you are receiving biased information meant to entice you to use your money at the risk level and allow others to have a risk free ride on your losses. This is simple supply and demand and it shows itself in the concepts such as pump and dump schemes and the oldest loser in the history of the markets which is buy high and sell low.
So how do you get a fair chance at making money in the markets? The answer is the old fashioned way. Your research should begin with basic business principles on how good companies become great. From that platform you can then look into industries and sectors that are leading the way. Once you have this basic education (all of which can be self-taught) you will reverse engineer the process. By reverse engineering you will start top down, which is looking at industry first, then the overall market for that industry drilling down until you find companies that are leading market share in those specific industries. Once you land on these companies you begin to reverse engineer their internal fundamentals and then their stock history.
This sounds like a lot of work and in some cases it is, yet this work is non-biased (of course you will have to identify your own personal bias level, but that is another story line) and it will be work that pays off in your financial decision making process.
Now, the information you need is all available in public filings for any companies you want to research and there is incredible amounts of information available on industries and sectors as well. (Simple Rule #1 is NEVER invest in a company that does not produce public filings) All the information you need is readily available and if you can read and comprehend some basic tenets of markets and business you will be able to identify your own winners. In doing so you are providing a reasonable risk profile for your investment opportunities. When you rely on others for these decisions you are increasing your risk profile by taking on the potential underlying bias and conflict of interest that is under the surface. This invisible manipulation is what introduces you to a zero sum game in which you have been set up to lose by design.
Does this mean you dismiss your advisors or brokers? NO, it simply means you have a process to vet their recommendations. If you find that their recommendations continually fail your due diligence process (research) then fire them and find new professionals to work with. The point is to uncover and reject manipulation when it appears.
Lastly, the financial periodicals ( I won’t name them, but you can find them on any newsstand) including the penny stock, small cap issues that appear in your mailbox are all PAID for and have underlying motives. Those motives are simply to tout the companies, funds etc.. that pays the most for the ink on the pages. In the case of the freebies that appear in your mailbox these are often paid for by non-affiliate shareholders of the company being touted. These shareholders are often paying for the media piece in order to solicit buyers who they can sell off to while watching the stock rise on the back of the new buyers.
The end game is your money deserves the best chance for success, this is always dependent on your making smart decisions about money. The best chance you have is to do your own homework.