by Wyatt Atkins

Created on: October 22, 2008

Let's be realistic: due diligence, for the average investor, is not really due diligence. There are too many unknowns and too many uncertainties. Careful research, however - which by the way is something you absolutely must do - is a measurable, tangible and achievable goal that will prove beneficial to you as an investor and as an asset manager.

So what is research and how does one go about it?

Depending on your investment profile and style, the way research is conducted, its depth and focus will vary widely. For example, an investor seeking cash-rich, debt-free companies should be willing to sacrifice explosive growth; the trade-off is the financial security of the company in question. Annual reports, analyst's reports, press releases and even stock forums on the net should be consulted (the degree of confidence obviously varies widely). These means of research should not be underestimated, although admittedly, the cinematic ways of acquiring information seen in the 1987 film Wall Street (Bud Fox following people around or getting temp jobs in the companies he was interested in!) might actually bring in valuable information not easily attainable otherwise. Likewise, financial data should also not be overestimated; the truth can usually be expressed in numbers, but numbers do not the whole picture make, and in this line of work you need not only the full picture, but also the big picture - not to mention a picture taken by a geosynchronous satellite as well!

... but that's really hard, isn't it?

Having said that, research is not rocket science either: assuming a fair degree of confidence in the financial data contained in the quarterly and annual reports, one can always find what she is after, from plays concerning undervalued companies, to turnaround situations, or explosive future growth, for instance. It goes without saying, however, that other variables come into play as well and should be included in any research worth the paper it is printed on; for example the current business and financial environment, the prospects of the whole industry/sector the company belongs to, the competition, the technological outlook (for the foreseeable future, at the very least!) and quite a few other variables as well. It is hard work and can actually be quite frustrating, even intimidating at times; but it can - and most of the time it actually does - prove quite rewarding. When you buy stock, even for a few minutes (if you are a day trader, for example), you become the owner of a company, assuming the risk and the possible rewards that go with it, for better or for worse - although, make no mistake, you are not married to the stock either!

Most of us spend quite a few hours per week in supermarkets, trying to stay informed on brands, specifications and qualities of products we spend $10 to $20 per week - should we not at least do the same when investing part - or, god forbid, all - of our life savings?

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