Thursday, November 09, 2000 1:03:24 AM
What is Individual Due Diligence (DD)?
Due Diligence is basically a best effort process by an individual to accumulate all possible information in reference to a public company PRIOR to investing hard earned money. The importance of DD can hardly be overestimated or overstated. However, it can also be quite overwhelming and time consuming, especially when it comes to the SEC filings. This can lead to laziness on the part of the individual investor.
It is a known fact that people can be motivated despite the odds. People have a tendency to become more motivated once they taste the rewards of their efforts, whether it is profit in material measures or knowledge. Where profit may not readily transpire, the knowledge acquired is priceless. This increased knowledge of the market gained from performing due diligence can be used to avoid the pitfalls of speculation and redundant money pits that exist in the market in order to gain economic advantage eventually.
DUE DILIGENCE METHODOLOGY
DD methods and techniques are always different to each individual as it relates to their investing objectives. Such as, a long-term investor looking down the road as compared to a short-term trader just looking for a pop, DD has a different meaning. Another words, reading the SEC filings and digging in deep into the overall picture is too much work to just simply capitalize on a pop in the stock price. However, regardless of training, exposure or investment styles, performing basic DD can discover certain information that obviously exposes red flags of a poor investment.
Certain basic methods and procedures for DD that are common sense are in this brief example of four (4) preliminary phases. The first (1) and foremost phase is looking at a "Historical Trading Summary" for front-loading. Paying particular attention to the Average Daily Volume (ADV). Should there be a recent volume increase out of the blue, then check for a recent news release or reason. A lot of times a "Tip" or recommendation exists that has hit cyberspace. Whereas the second (2) phase before you just jump in is, it is always wise to search management names and the company name on the SEC site: http://www.sec.gov/cgi-bin/txt-srch-sec. The third (3) phase is reading the available information supplied by reputable sites such as Market Guide or Bloomberg, Inside Trader http://www.insidertrader.com/, etc. Finally phase (4) is at lease scan the list of SEC filings http://www.freeedgar.com for red flags such as SB2 registration statements, NT filings, S8 filings especially, and amendments, etc. This can take maybe just a few minutes and is time well spent before buying into a security, thus finding out later that your laziness just cost you.
INTRODUCTION TO DD
To someone not accustomed to reading SEC filings, which are definitely confusing and complex, so much so, it is wise to break the DD process down into phases for simplicity and focus. This phase method aims at a uniform, standardized focus where the DD results can be verified to substantiate its accuracy. This can only be realistic if the DD can be conducted objectively, without emotional involvement, and without attempting to "prove" or "disprove" some particular point of view.
To some it is very difficult to divorce themselves completely from their own views, opinions and beliefs, however, that could prove later to be a "costly" mistake. Another words, the investor’s DD appears to be conforming to a view instead of forming an opinion based on the DD. Proper DD should be approached with an "open mind" and not aimed to justify or dispute a particular point. Once the DD process is complete each phase will stand on its own.
DD should be limited to the search for facts, regardless of the fundamental data, "good" or "bad" or “ugly” because there is going to be a bit of each most likely. The primary effort should be to focus on whether the DD is either true with verifiable facts and sources or not true. This deliberate focus should be all that concerns the investor.
Everyone should realize that an investor’s DD is only as complete as his or her own time, money, and knowledge permits. This means that the results of the personal DD is a Best Effort and stated accurately, and verified thoroughly with sources when they have shared it. However, there is no assurance the DD is without flaws or omissions.
A feedback to DD is no one attacks the DD only the messenger. Where guesswork is out of place in performing and presenting of an investor’s DD, baseless guesswork will be very much the vessel to dispute it. The more thorough the DD the less chance of convenient interpretation disputes.
Above all, the results of an investor’s DD must be accurate and clearly show a "Best Effort" endeavor. This way when the investor shares their individual DD, the underlying facts are clear, which allows less room for misinterpretation of the data. Also, the more underlying facts and sources that are given assists the investor performing his own DD the ability to base their opinions and investing on solid conclusions. When an opinion is drawn from the results of DD then the only limitation is logical reasoning.
Of course, wild interpretations of an investor’s DD will be made in an attempt to invalidate the entire process, which is aimed at precise information with an exact meaning and underlying basis. Once the DD is clearly laid out for review and consideration and all the facts presented, personal attacks will be the counter because the DD automatic disputes a particular interpretation, theory, and/or belief.
Obviously, in order for an investor’s DD to stand on its own, it requires a systematic approach and deliberate phases. The only requirement to yourself is that the expense of DD be justified by the value of its results. Why go through all the trouble if you are not investing long-term but trading for the short-term?
Now I am not an authority on DD, nor an analyst nor anything, as most small investors, but someone who takes the time to make the attempt. Of course, there are lots of numerous and different styles posted throughout the Internet. However, it is always wise for each individual to develop their own DD procedures.
To be continued …
Hey this is my opinion and I could be wrong.
Gary Swancey
Due Diligence is basically a best effort process by an individual to accumulate all possible information in reference to a public company PRIOR to investing hard earned money. The importance of DD can hardly be overestimated or overstated. However, it can also be quite overwhelming and time consuming, especially when it comes to the SEC filings. This can lead to laziness on the part of the individual investor.
It is a known fact that people can be motivated despite the odds. People have a tendency to become more motivated once they taste the rewards of their efforts, whether it is profit in material measures or knowledge. Where profit may not readily transpire, the knowledge acquired is priceless. This increased knowledge of the market gained from performing due diligence can be used to avoid the pitfalls of speculation and redundant money pits that exist in the market in order to gain economic advantage eventually.
DUE DILIGENCE METHODOLOGY
DD methods and techniques are always different to each individual as it relates to their investing objectives. Such as, a long-term investor looking down the road as compared to a short-term trader just looking for a pop, DD has a different meaning. Another words, reading the SEC filings and digging in deep into the overall picture is too much work to just simply capitalize on a pop in the stock price. However, regardless of training, exposure or investment styles, performing basic DD can discover certain information that obviously exposes red flags of a poor investment.
Certain basic methods and procedures for DD that are common sense are in this brief example of four (4) preliminary phases. The first (1) and foremost phase is looking at a "Historical Trading Summary" for front-loading. Paying particular attention to the Average Daily Volume (ADV). Should there be a recent volume increase out of the blue, then check for a recent news release or reason. A lot of times a "Tip" or recommendation exists that has hit cyberspace. Whereas the second (2) phase before you just jump in is, it is always wise to search management names and the company name on the SEC site: http://www.sec.gov/cgi-bin/txt-srch-sec. The third (3) phase is reading the available information supplied by reputable sites such as Market Guide or Bloomberg, Inside Trader http://www.insidertrader.com/, etc. Finally phase (4) is at lease scan the list of SEC filings http://www.freeedgar.com for red flags such as SB2 registration statements, NT filings, S8 filings especially, and amendments, etc. This can take maybe just a few minutes and is time well spent before buying into a security, thus finding out later that your laziness just cost you.
INTRODUCTION TO DD
To someone not accustomed to reading SEC filings, which are definitely confusing and complex, so much so, it is wise to break the DD process down into phases for simplicity and focus. This phase method aims at a uniform, standardized focus where the DD results can be verified to substantiate its accuracy. This can only be realistic if the DD can be conducted objectively, without emotional involvement, and without attempting to "prove" or "disprove" some particular point of view.
To some it is very difficult to divorce themselves completely from their own views, opinions and beliefs, however, that could prove later to be a "costly" mistake. Another words, the investor’s DD appears to be conforming to a view instead of forming an opinion based on the DD. Proper DD should be approached with an "open mind" and not aimed to justify or dispute a particular point. Once the DD process is complete each phase will stand on its own.
DD should be limited to the search for facts, regardless of the fundamental data, "good" or "bad" or “ugly” because there is going to be a bit of each most likely. The primary effort should be to focus on whether the DD is either true with verifiable facts and sources or not true. This deliberate focus should be all that concerns the investor.
Everyone should realize that an investor’s DD is only as complete as his or her own time, money, and knowledge permits. This means that the results of the personal DD is a Best Effort and stated accurately, and verified thoroughly with sources when they have shared it. However, there is no assurance the DD is without flaws or omissions.
A feedback to DD is no one attacks the DD only the messenger. Where guesswork is out of place in performing and presenting of an investor’s DD, baseless guesswork will be very much the vessel to dispute it. The more thorough the DD the less chance of convenient interpretation disputes.
Above all, the results of an investor’s DD must be accurate and clearly show a "Best Effort" endeavor. This way when the investor shares their individual DD, the underlying facts are clear, which allows less room for misinterpretation of the data. Also, the more underlying facts and sources that are given assists the investor performing his own DD the ability to base their opinions and investing on solid conclusions. When an opinion is drawn from the results of DD then the only limitation is logical reasoning.
Of course, wild interpretations of an investor’s DD will be made in an attempt to invalidate the entire process, which is aimed at precise information with an exact meaning and underlying basis. Once the DD is clearly laid out for review and consideration and all the facts presented, personal attacks will be the counter because the DD automatic disputes a particular interpretation, theory, and/or belief.
Obviously, in order for an investor’s DD to stand on its own, it requires a systematic approach and deliberate phases. The only requirement to yourself is that the expense of DD be justified by the value of its results. Why go through all the trouble if you are not investing long-term but trading for the short-term?
Now I am not an authority on DD, nor an analyst nor anything, as most small investors, but someone who takes the time to make the attempt. Of course, there are lots of numerous and different styles posted throughout the Internet. However, it is always wise for each individual to develop their own DD procedures.
To be continued …
Hey this is my opinion and I could be wrong.
Gary Swancey :=) Gary Swancey
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