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TheStreet Open House

Dykstra: Show Me the Money

Sunday ended a great team's hopes, two months after the Giants' star receiver shot himself in the foot, so to speak. Plaxico Burress' absence at Sunday's playoff was a contributing factor to the Giants' lackluster loss to the Eagles, as New York failed again and again to gain on fourth downs.

There are many ways investors can shoot themselves in the foot. But the chief one is failing to do their homework.

Investors may be in for a fall whenever they hand their money to investment managers, who won't disclose their strategies or open their books to outside auditors. Investors who accepted Bernard Madoff's lack of transparency are ruing the day. Blind trust in a fund manager, based on reputation alone, now seems like a quaint idea.

Nails on the Numbers

As Cuba Gooding, Jr. says in Jerry Maguire, a classic movie about the business of football: "Show me the money." Investing starts with doing your homework, which means research. When picking a stock for potential options trading, I first want to see fundamentals that show me the company isn't built on a shell game. So my deep-in-the-money options trading system starts with a look at a company's balance sheet.

Finding stocks poised to move is as much art as science. But I always start with the science. In evaluating stock picks, purist investors lean toward either fundamental factors, or charting. I have achieved a 94-0 record by blending the best of both methods.

The fundamentals that I want to see are price-to-earnings and price-to-book ratios, return on equity, operating and free cash flow generation, and cash on hand to pay liabilities.

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