Blog : 6 Things You're Doing Wrong!

December 22nd, 2008

This is Part One of a special report for Peter Leeds subscribers. To view Parts 2 - 6, you need to start your FREE Trial to Peter Leeds Penny Stocks (regularly $195 to get started).

The majority of investors are guilty of these costly mistakes, and that probably includes you. Even subscribers of PeterLeeds.com, who have access to industry leading guidance and trading articles, will fall victim to many of these issues identified below.

However, by identifying these dangerous errors, you can stop repeating them, and become a greatly improved trader.

Here are the 6 things you're doing wrong with your investments:

1. Not calling the company.

2. Poor position sizing

3. Buying without scaling in

4. Investing too soon

5. Failing to recognize the true competitors

6. Being a "fickle fish"

1. NOT CALLING THE COMPANY

"Ask questions and be a fool for fifteen minutes. Don't ask, and be a fool for life." - Chinese proverb

This is simply the most powerful tool to give you an investment edge, yet the vast majority do not take advantage of it. Call the company, ask them questions, make sure you understand management's strategy and outlook, and see what to expect in the coming months.

Just about every publicly traded company has a designated Investor Relations contact. Their job is to speak to current and prospective investors and answer any questions they may have.

You might be surprised how much you can learn about a company, and how quickly, that you could never have gleaned through reading the financials, press releases, or their web site.

So why do so few take advantage of the Investor Relations contacts? My guess would be that people aren't sure of what to ask, or they don't feel entitled to do so. Maybe they are concerned that they might sound stupid. I can't really know, but I will tell you that it makes a lot of sense to make a quick 15 minute phone call to get an idea of the prospects and direction of a company that you are about to invest in. Even better, follow up once or twice over the following year, checking in just to make sure everything is still on track with the business plan.

Before you do make that call, you should:

know what you intend to ask
know who you are talking to (name, title)
have a thorough knowledge of the company

You shouldn't ask things that you could learn from their public releases, financials, or web site materials. That is just being considerate for the time of the Investor Relations contact.

When you are ready to take it a step further, you should even have similar conversations with the IR contacts of their closest competitors. Don't say you are calling to see if you should invest in the other company, but rather pretend to be an interested investor in their shares.

Here are some examples of good questions:

You have had increasing revenues over the last couple of years. Do you expect this trend to continue, and what will be the key drivers to make that happen?

Your employee count has gone up from 10 to 20 in the last year. How many employees did the company have 5 years ago?

Of your 8 salesmen, how many have been with the company for less than a year?

If the company has a million dollars in excess capital, would that go towards R+D, paying down debt, or elsewhere?

Your competitor is putting out press releases about their upcoming release of their newest technology. What do you know about that technology, and how will your company respond to it's release?

2. POOR POSITION SIZING

"You eventually lose all that you gamble with." - Chinese proverb

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Blog : 6 Things You're Doing Wrong!