Tips for Making Good Investments

Investment analysis is tricky because everyone who provides information needed in the analysis has ulterior motives.  Professional stock market analysts have reputations to protect and are slow to change their rating of a stock preferring instead to “pretend” everything is fine while a company may be tanking. According to Thomson Financial/First Call When Enron had already dropped 99%, only 1 of 14 analysts rated it a sell, and 5 still rated it a buy or a strong-buy.

Furthermore because all investors want a definitive opinion, analysts tend to over-rate calling what should be a buy a strong-buy right down the line to those stocks that should be sold being called instead a hold. But if you can’t trust the pro what can the small investor do? Take everything the professionals say with a grain of salt and do your own homework before investing.

Books and magazines do not fare much better. People buy them to be told what is a sure thing, but because there is no such thing as sure winner in stocks the print media must either go out of business or fudge their recommendation to make them appealing.

One must take into consideration, however, that companies will do everything in their power to make themselves look as good as possible to investors. There are a number of tricks used to insure they show only their best side to the public but there are some ways to uncover their tricks.

Check to see if cash flow is increasing or decreasing at nearly the same rate as the net income. Manipulating the net income is one way for a company to look more stable then it really is. Look for large sums which may have moved from the company’s general fund. Sales growth that is slower then increases in inventory or accounts receivable is another red flag.

Companies can also use FIFO (first in, first out) or LILO (last in, last out) to manipulate the appearance of their company’s strength. They do this by increasing or decreasing inventory in relation to sales.

Remember relying on experts is little better then going to a psychic and you can do just as good, if you are properly prepared. There is no one who will care about your financial investments as much as you will ,and while the company and the professional investors will have the priority of their best interests, you must do the same.