Investment Planning . . .  ALERT

The information contained in this ALERT is not intended to constitute legal or financial advice.  Such decisions should only be made after consultation with a competent professional.

For years, folks have been trying to improve their financial circumstances by investing in the stock market.  Members of The Doherty Estate and Financial Planning Society know the sad statistics.  After trading costs and expenses, it is very difficult for a trader to beat the relevant stock market index when investing, so perhaps one shouldn’t even try.  Look at the matter in the context of playing golf:  If I asked if you could beat Phil Mickelson in an even-up game, you’d be incredulous at the question.  “He’s a PROFESSIONAL golfer,” you’d protest, “how could I beat HIM?”  That’s precisely the point I want to make.  Those investment guys on Wall Street are professionals, too.  How do you think you’re going to beat THEM?  So, get comfortable with index investing and you just might find that your investing experience is significantly enhanced.

However, for those who still wish to rush headlong into the world of individual stocks, one must learn to identify the warning signs which signify trouble with a company.  You certainly don’t want to get stuck with the next Enron.  To minimize that likelihood, departing Wall Street Journal columnist Herb Greenberg recently developed a set of 5 guidelines to keep in mind when contemplating the purchase of an individual stock.

• Read Herb’s column

1.  The company’s numbers are the numbers.  They can be spun, but the truth is there.  Now, one may need to be a forensic accountant to truly understand (another reason why you’re not a professional investor) what the numbers mean, but don’t be misled by the company’s spin.

2.  More with the numbers.  The company’s real story, and likelihood of investment success, is on it’s balance sheet and it’s profit and loss statement.  Keep in mind, as Herb stresses, that when a simple business is made to look complex on financial statements, that can be an indication of trouble.

3.  There are no seals of approval on company finances. Investors would like to believe that Generally Accepted Accounting Principles (GAAP) constitute an endorsement, but such is just not the case.  In most situations, there is enough wiggle room under GAAP to allow the company’s accountants to paint just about any picture management desires.

4.  The stock IS NOT the company.  And vice versa.  Lots of good companies have the price of their shares of stock tumble for reasons unrelated to actual company performance.  Rotation in and out of sectors and short squeezes are just two of the factors in the real world of investing that affect stock prices, but have absolutely nothing to do with the soundness of the company’s business.

5.  Understand Risk.  I frequently conduct a seminar entitled, The Five Biggest Mistakes People Make with their Money.  Mistake Number Four is the failure to understand what risk means in the world of investing.  As Herb points out, before you invest in anything, ask yourself how much you could lose BEFORE you calculate how much you could make!

The hiring of a lawyer is an important decision that should not be based solely upon advertising.  Please visit the Doherty Professional Association at www.dohertypa.com today to learn about Mr. Doherty’s credentials and how he might assist you in estate and financial matters.