So Microsoft (MSFT) had a bad quarter. Boo hoo.
It's just one quarter.
For me the results suck primarily because MSFT reportedly posted its first-ever drop in the annual sales of Windows - if you use Windows Vista, are you really surprised by this?
However, it's just one quarter...in a recession! Besides, MSFT's best quarters historically have been the first and second fiscal quarters, not the fiscal fourth quarter, which it reported earnings for.
Obviously, many of the institutional investors don't see it this way, and today they took Mr. Softee down 8%.
I feel this overreaction to MSFT's bad results indicates the gradual dominance of big, institutional investors in the ownership of stocks. The financial crisis and subsequent recession have driven many smaller investors out of stocks, leaving institutional investors to mop up shares in droves.
As these big investors have increased their ownership of stocks, they have also become more short-term focused, during this recession in particular. Therefore, quarterly results have taken on increased significance. It's all quarter to quarter hit-and-run investing right now.
Hopefully, as the recession recedes, the myopic madness will end, more self-directed and small investors will get back into the market, and institutional investors can start to look beyond the hullabaloo of "earnings season" - hello, CNBC.
Friday, July 24, 2009
4 Stock Picking Tips for Those Who Hate Numbers
Unless you want to be a day trader or a propeller head in technical analysis, you should always study the past, current, and projected financial fundamentals of a company before you invest in its stock for the long-term.
In self-directed investing, a little homework always goes a long way.
However, if you’re too lazy or too terrified to look at numbers other than those on your shopping receipts, then here are four non-financial indicators to consider before you buy a stock:
1. Institutional Ownership
Institutional investors are outfits such as pension funds, insurance companies, hedge funds, asset managers, university endowments, sovereign wealth funds, to name a few.
These Wall Street titans have better access than individual investors do to corporate decision makers, so they often see and hear what other investors don’t. They also have more financial muscle to conduct deep stock research and run all kinds of fancy computer models to no end.
Therefore, if you see a stock with heavy institutional ownership, especially a stock with many institutional owners, then it’s probably because the stock is worth holding for a good return.
Now, be aware of this. Sometimes, institutional investors pile in on a stock for short-term gain, for instance, to benefit from a dividend distribution. Therefore, you may want to get a historical sense of a stock’s institutional ownership before you put your faith in this indicator.
2. Customer Service
Before you invest in a company, try to experience its customer service. Pretend to have a problem, call customer service, and push your issue as far as you can up the ranks just to see how the company responds to you or treats you throughout the process.
If you already do business with a company, then you’ve probably had more than enough dry runs to make a good judgment. I had a checking account with Bank of America before I bought the stock. Similarly, I had an eBay account way before I got into the stock.
Admittedly, this indicator is very subjective and can be inconsistent. You may call up today and get someone in a good mood, only to call another day and experience someone hell-bent on showing you who’s boss. You just have to go with your gut feeling.
Anyway, I have found the overall quality of a company’s customer service to be a good indicator of how well the managers run the company. Obviously, a consistently well-managed company is likely, ceteris paribus, to earn you a good return on your investment in the long-term.
3. International Exposure
Ask yourself this question. In this age of globalized trading and communications, is there really a good excuse for a company not to conduct business outside its home country? I can’t think of one.
You wouldn’t put all your eggs in one basket, so never invest in a company that is scared of the outside world.
International exposure is not just a fancy term. There are real tangible and intangible benefits to a company - big or small - doing business overseas…bigger market, cheaper sources of raw materials, income diversification, multicultural workforce, etc.
Back when I was looking to add a discretionary stock to my portfolio, the final choice was a close call between Costco and Target. I picked Costco primarily because it has international operations and Target does not.
I think Target is being complacent, perhaps because they've done very well so far without international expansion. Their day of reckoning is coming though, because more and more of the world's GDP is being produced outside the U.S.
Some of America’s most successful companies – GE, IBM, Procter & Gamble – now earn more from their overseas operations than they do from their U.S. operations. They go where the money is.
4. Employee Benefits
If you study Fortune Magazine’s latest list of the “100 Best Companies to Work For”, you will notice most of the companies made the list based significantly on the benefits they offer employees.
Companies that offer very generous benefits attract the best employees. And there’s nothing like a motivated workforce to make a company thrive.
Furthermore, as you probably know, many of these benefits, such as 100% health-care insurance premium coverage, onsite child-care facilities, and tuition reimbursements for graduate study, are costly to maintain over the long-term.
Therefore, a company that offers generous benefits to many employees must be confident of its long-term financial health and is worth a closer look for investment.
In self-directed investing, a little homework always goes a long way.
However, if you’re too lazy or too terrified to look at numbers other than those on your shopping receipts, then here are four non-financial indicators to consider before you buy a stock:
1. Institutional Ownership
Institutional investors are outfits such as pension funds, insurance companies, hedge funds, asset managers, university endowments, sovereign wealth funds, to name a few.
These Wall Street titans have better access than individual investors do to corporate decision makers, so they often see and hear what other investors don’t. They also have more financial muscle to conduct deep stock research and run all kinds of fancy computer models to no end.
Therefore, if you see a stock with heavy institutional ownership, especially a stock with many institutional owners, then it’s probably because the stock is worth holding for a good return.
Now, be aware of this. Sometimes, institutional investors pile in on a stock for short-term gain, for instance, to benefit from a dividend distribution. Therefore, you may want to get a historical sense of a stock’s institutional ownership before you put your faith in this indicator.
2. Customer Service
Before you invest in a company, try to experience its customer service. Pretend to have a problem, call customer service, and push your issue as far as you can up the ranks just to see how the company responds to you or treats you throughout the process.
If you already do business with a company, then you’ve probably had more than enough dry runs to make a good judgment. I had a checking account with Bank of America before I bought the stock. Similarly, I had an eBay account way before I got into the stock.
Admittedly, this indicator is very subjective and can be inconsistent. You may call up today and get someone in a good mood, only to call another day and experience someone hell-bent on showing you who’s boss. You just have to go with your gut feeling.
Anyway, I have found the overall quality of a company’s customer service to be a good indicator of how well the managers run the company. Obviously, a consistently well-managed company is likely, ceteris paribus, to earn you a good return on your investment in the long-term.
3. International Exposure
Ask yourself this question. In this age of globalized trading and communications, is there really a good excuse for a company not to conduct business outside its home country? I can’t think of one.
You wouldn’t put all your eggs in one basket, so never invest in a company that is scared of the outside world.
International exposure is not just a fancy term. There are real tangible and intangible benefits to a company - big or small - doing business overseas…bigger market, cheaper sources of raw materials, income diversification, multicultural workforce, etc.
Back when I was looking to add a discretionary stock to my portfolio, the final choice was a close call between Costco and Target. I picked Costco primarily because it has international operations and Target does not.
I think Target is being complacent, perhaps because they've done very well so far without international expansion. Their day of reckoning is coming though, because more and more of the world's GDP is being produced outside the U.S.
Some of America’s most successful companies – GE, IBM, Procter & Gamble – now earn more from their overseas operations than they do from their U.S. operations. They go where the money is.
4. Employee Benefits
If you study Fortune Magazine’s latest list of the “100 Best Companies to Work For”, you will notice most of the companies made the list based significantly on the benefits they offer employees.
Companies that offer very generous benefits attract the best employees. And there’s nothing like a motivated workforce to make a company thrive.
Furthermore, as you probably know, many of these benefits, such as 100% health-care insurance premium coverage, onsite child-care facilities, and tuition reimbursements for graduate study, are costly to maintain over the long-term.
Therefore, a company that offers generous benefits to many employees must be confident of its long-term financial health and is worth a closer look for investment.
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