If you’re a mind reader, you don’t have to read anymore.
You might like to read another person’s mind but it’s not going to happen. People make assumptions when they don’t know the facts. Stock market decisions based on assumptions are just like mind reading. An assumption about a company’s performance is like making a buy, sell or hold decision based on your ability to read the CEO’s mind.
Dr. Spock can read minds but he is not available for investment counseling. Mind reading as an investment strategy is worse than risky. It’s downright disastrous.
Get the facts
A more successful strategy is to make stock market decisions based on facts. Public companies must file detailed quarterly and annual reports with the United States Securities and Exchange Commission (SEC). The companies make their reports available to the public. The reports are also located in the SEC EDGAR system. A quarterly report is called 10Q by the SEC. The annual report is called a 10K by the SEC. In just a few minutes you can be using the SEC EDGAR like a pro. Take a look at this tutorial on how to get a public company’s report on EDGAR.
All the facts are in the reports and the reports are free from the SEC. The annual and quarterly reports companies file with Securities and Exchange Commission can help you better understand the facts about a company. The reports are free and easy to download.
Use a PEST test
If the stock price is up, ask yourself ‘why’. If the stock price is down, ask yourself ‘why’. If the stock price has been flat, ask ‘why’. Look at what the price has been doing for the past 3, 6 and 12 months, and then ask, ‘why’. The answer might be a significant opportunity or threat to the company.
Give the company a ‘PEST’ test and you will most likely find the answers. It will help you identify the opportunity or threat to the company. The PEST test examines the political, economic, socio-cultural and technical environment for a company. A major event in any of these environments could be a game changer for a company and impact the stock price up, down or sideways. A new government regulation could hurt a company. The same regulation might help the company’s competitors. Qualcomm’s CDMA patents transformed the company. The public outcry over exploitation of coffee plantation workers was blow to Starbucks. Giving a company a PEST test is better than trying to read the CEO’s mind.
Read the annual report and level the playing field with the pros.