Ready for a market scrimmage? Make sure your coaching is good
If you're looking for an excuse -- even a flimsy one -- to invest in the stock market, check the results of this year's Super Bowl. According to the Super Bowl Index, you won't do too badly.
Since the first Super Bowl, says Robert Stovall, senior vice-president of Dean Witter Reynolds, the stock market has ended the year higher than it began whenever the winner was a team from the National Football Conference -- or an old NFL team now part of the American Conference. In 15 years, the only exception to this rule came in 1970 when Kansas City, an American Conference team, won. But even then, the market as measured by the Standard & Poor's 500 was up only 0.1 percent.
So now that you've decided to invest in stocks because the San Francisco Forty Niners of the National Conference reign as this year's champion, how do you find out if the companies you're interested in have any potential?
Despite the growth in the use of discount brokers, who usually offer no research and no advice, most people still use the services of a full-service brokerage firm. If your broker is recommending a particular company to you, he should also give you a detailed report supporting the recommendation. The report should examine the company's business and financial performance, including sales , earnings, return on equity, price-to-earnings ratio, and product development. It should also discuss the company's competitive position with other companies in its industry.
Your broker should also be able to give you some overall reports on various industries, in case you want to invest in a particular field but don't know which company is best.
While 77 percent of investors surveyed last year by Dow Jones & Co. said they use full-service brokers, more than half of them, or 40 percent of the 2,183 who responded to the survey, said they used both full-service and discount brokers. Though there is some question as to the ethics involved, some investors will obtain research and advice from a full-service firm and place some of their buy or sell orders with a low-commission discounter.
Of course, many people who use discount brokers also do their own research. While this method takes more time and effort, it may prove more satisfying. And sometimes it may even be more thorough, if you use enough information sources.
You can start by writing the company secretary and asking for a copy of the firm's annual report. If you do not know where the company is located, your local public or university library may have copies of Standard & Poor's Corporation Records or one of Moody's manuals. Moody's, for instance, has books covering industrial companies, utilities, transportation companies, and banks and financial institutions.
The books not only give addresses, but also include the names of company officers and the company's history.
The library may even have the latest weekly and monthly reports put out by these publishers. These give quarterly earnings and any news of recent acquisitions and divestitures.
In addition to the annual report, companies also publish an annual 10-K form that is filed with the Securities and Exchange Commission. The 10-K gives a much more detailed account of the firm's financial condition and the performance of various parts of the company. This is particularly helpful with a large diversified corporation. Most companies will send them to stockholders on request, but many others have simply started to include the 10-K in the annual report. You can also order a copy from the SEC's Public Reference Section, Washington, D.C. 20549. Ask the SEC what it charges.
The survey by Dow Jones also found that a majority of active investors use its flagship publication, the Wall Street Journal, for information on investments. Forbes, Barron's (another Dow Jones periodical), and Business Week also ranked high in the survey.
For more esoteric information - at prices ranging up to several hundred dollars or more a year - there are a variety of investment newsletters you can subscribe to. These might include the Value Line Investment Survey and Standard & Poor's Stock Reports. There are also many newsletters put out by specialists who might have specific investment strategies. Your stockbroker or library may have copies of some of these.
Incidentally, the subscription price of any periodical you read to help you with investments is deductible from federal income taxes.
If you want to see if the company has had any legal problems or customer complaints, your state attorney general's office, consumer protection office, or Better Business Bureau may have records of the problem and how it was settled, assuming it was resolved.