Following Your Investments

Congratulations! You’ve purchased your first stock and now want to keep tabs on the company. There are a couple of things you can do:

  • Obsessively check the stock price every day and track your gain/loss and drive yourself crazy (don’t do this)
  • Forget about the stock you purchased because (of course) you made the best decision ever and there is nothing that the company could do to make you sell the stock (don’t do this either)
  • Continue to follow the company every so often by checking earnings reports and other news from the company (this sounds like a good idea)

When it comes to investing, especially if you are doing it for the long haul, you shouldn’t care about daily price fluctuations. There’s nothing that you as an individual investor can do to influence the price, so it’s best not to worry about your daily gains or losses. However, this is not to say that you should ignore your investment altogether. Every investment should be made with an end goal in mind, even if it is only sell in case of fraud or other doomsday scenario.*

*I meant to mention this yesterday, but before you push the “buy” button in your portfolio, you should have an exit point in mind for every stock that you purchase. Maybe you are tracking some of the metrics, and want to sell if EPS drops during a quarter without solid explanation. Or maybe the CEO changes and you don’t feel that the company will have the same direction under the new guy. Maybe the exit is going to be after 20+ years of gains and dividends and you are liquidating to fund your first retirement trip to Aruba. Either way, every investment should be made with an end result in mind, and this exit should be evaluated at regular intervals.

But if you aren’t tracking stock price movements, how do you follow your investment? Remember, a purchase of stock is an investment in a company, not just some numbers on a website and in your brokerage account. That company has responsibilities as a public company to provide investors with information at regular intervals, or anytime that there is big news that may impact the company’s performance. This is how you should follow your investments, not watching stock prices or listening to the target stock pricing guesses of analysts and television pundits.

There are various means to follow what the company is doing. You can most likely go directly to the company’s investor relations page and sign up for dispatches that should align with the federal reporting requirements. Not every piece of news should affect your investing thesis, but it’s also better to hear straight from the company than seeing the news “spun” through the financial news.

But that’s also not to say that you shouldn’t be getting your news from elsewhere. As an example, you can look to the recent revelations about Facebook and Cambridge Analytica, a “scandal” that wasn’t mentioned in advance by the company before it appeared in the news media. While the news knocked Facebook (Nasdaq: FB) shares down a bit – as low as $151 a share – it has since recovered most of that loss, though it does have some way to go before it reaches its once lofty heights (it’s currently 14.6% down from its 52 week high).

Personally, a good reminder for me to check in on the various companies that I am invested in is when they release quarterly earnings. The company will typically release a press release, highlighting the quarter from their perspective. They may also forecast what they think revenue or earnings might be for the rest of their fiscal year, or highlight industry specific metrics so that they can be compared to their peers. These metrics differ depending on the industry. For example, retailers will often report the change in same-store sales from the same quarter the previous years, which illustrates the change in revenue from only stores that were open at the same point the prior year.

This is a good metric because it doesn’t include the new stores that the company has opened, thus eliminating their results from all the metrics. Therefore, if a company has 400 stores and produced $1 million in revenue in 2016, but they added 20 stores during 2017, they don’t report the revenue from those 20 stores, because you would expect the additional stores would increase total revenue. The same-store sales number for 2017 would report only the revenues from the 400 stores covered under the 2016 report, and we would hope to see an increase.*

*Depending on the type of retail, these numbers can swing wildly, and as more retail moves online, it is becoming less and less relevant for most types of retail operators. Restaurants still love the metric, however, if only because Amazon hasn’t figured out how to do fast food…yet.

If not directly from the company, you can go right to the SEC and get copies of the important news from the company. Looking at a company’s EDGAR page, however, can be super confusing because of all the different form types. Short of looking at everything, you can find the most recent financial information for a company under a couple of different forms:

  • Form 10-Q – This is the quarterly report (3 of these per year)
  • Form 10-K – This is the annual report (replaces the 10-Q from the fourth fiscal quarter)
  • Form 8-K – This is the SEC version of a company’s press release
  • DEF 14A – Proxy statement for the company. Usually published in advance of the annual meeting, it will show executive and board member compensation

If you have an understanding of accounting, you can dive into the financial reports and see the numbers behind the language of a press release. There are also plenty of places that you can go to help point you in the right direction on how to read a financial report. Again, these things are very dependent on the industry a company is in; you would evaluate a technology company like Alphabet (Nasdaq: GOOG) differently than a retailer like Walmart (NYSE: WMT) or an industrial manufacturer like Caterpillar (NYSE: CAT). Sure, some of the basic numbers will be illustrative – earnings per share (EPS) is the same regardless of industry – but sales growth and other metrics would need to be adjusted based on the company and industry.

I had intended to make this post more about how to read the various financial reports, but decided instead to talk about how to follow a company either before or after you buy shares in the company. In future posts, I’ll talk more about what specifically to look for, using some examples based on companies that I currently follow, and what led me to sell some of my investments that I thought were going to be for the long-term. It’s not always because a company’s fortunes start to change, or because they have a bad quarter or two. Sometimes, you just have to piece together all the information and decide if you want to deal with the heartburn of being invested in a company. Ultimately, the reason for buying/selling (or not) is a very personal decision, and one that should not be influenced by what I say or my personal thoughts on things.

Until next time…

Disclosure: Please see my full disclosure page regarding my stock ownership.

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