Re: Question for investors, traders...and investment types (and for Michael Ross too!)

Gordon,

These are excellent questions and I will try to give my view on them.

Before I do however, I'll give a brief introduction so people can read my response in light of this background information.

I'm very much a fundamental analyst, rather than a technical analyst.

This means that I value companies based on their "fundamentals" -- their sales, profits, growth, that kind of thing. The value is determined irrespective of stock price, and whether the price has gone up or down recently isn't something I pay attention to.

I invest on behalf of myself, an investment company I run, and soon a small self-managed Superannuation Fund that is currently being set up.

I hold no degrees, but am currently completing a five year undergraduate degree in Commerce/Economics with an Honours Year in Finance.

Having said that, let me now address your questions...

> HOW do I get information about/from the
> companies across the country or around the
> world...information that might be useful in
> picking some undervalued type stocks...

Important information about companies can be gathered from a number of sources, namely:

- annual reports
- news articles and press releases
- just looking around
- calling them up

Just looking around?

When you look at reports and news articles, you're looking at information that lots of investors have already seen. It's also already old information.

But let's say you're looking at a company you know something about.

Example:

Let's say you're looking at Jenn's Perfumes, a public company that recently set up in town. It's a new company, not much history.

You notice your wife goes there a lot. In fact, when you pass, it's crowded all the time.

Such information isn't going to be reflected in annual reports -- they talk about what happened last year.

But if the store's always crowded and you see that, will that impact the profit? You bet it will.

And when it becomes public information, the stock price should go up.

Just looking around and using information you already know about companies you're familiar with is one of the BEST sources of information for investment analysis.

I know that the successful fund manager Peter Lynch has talked about such things in his books, which I recommend for anyone looking to buy an investment book.

Alternatively sometimes you can just call a company up.

Make sure you know something about them first so you don't seem like a naive investor, but if you have specific questions, just call them up and ask. Some companies will be happy to share details with you.

I'd advise against asking about their sales or profits figures directly. It's like asking about someone's salary, generally not a very polite thing to do.

Contact details of the company are easy to find on the web, or you could call a broker and ask.

> For instance, say I know that a company has
> placed an order for 100,000 folding LCD
> "test" monitors to be used with
> new "projection" computers...and
> the company beyond this one was going to
> release the worlds first 'FOLDING'
> monitor...would that be valuable information
> in the market place? Or would it have to hit
> the "production" stage to make an
> impact?

Now that you've found the information, whether it's valuable is another question.

Some people assume that if Company X is going to increase sales by 100% next year, it's always a good buy, as the price must go up!

Such thinking isn't always rational.

What if everybody already knows that, and before you did?

If that's the case, the share price would already go up to reflect the fact that the company will earn more.

Ever seen a company release an earnings report that shows its earnings as higher than last year's, but its share price still declines on the news?

I have.

The reason is because the share price before the announcement was already higher due to *expectations* of the earnings made by skilled investors and analysts.

So in the case of folding LCD screens, if it's valuable depends on (a) whether it's already known, and (b) how definate or likely it is.

> Would buying stock at this point be
> specualtive? or would it be a long term (2-3
> years) investment?

Speculative is just a description of the amount of risk you are undertaking.

Investing just with that knowledge would be a little risky, as there are many other things to look at when analysing a company.

Does it have too much debt?
What is the management like?
Who is it competing against?
How does it make its profits?

Questions like that.

Just to sidetrack, the last one is an important one -- just because a company has $100 billion in sales doesn't mean it makes money. Don't believe me? Look at Amazon.com. Lots of sales, everybody knows them, but they've made many losses in the past.

Using your example, you'd have to look at things like:

- How many of these foldable screens do you expect it to sell?
- Will it definately sell them? Or is there still some uncertainty?
- What will the profit be like? Can they charge high prices without effecting demand too much, or is demand highly sensitive to price changes?
- How soon will competitors join in? And if they do, will they be able to undercut prices and dwindle away profits?
...and so forth.

I hope this helps!

- Thomas.

PS. I read an article a few weeks back about a company that was going to be making foldable LCD screens... Interesting concept! :)