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Your Advanced Homework: Dig into the Details

Another part of scuttlebutt research is talking to people who are active in the markets. If my irritable bearish friend in Chicago is buying call spreads in Dow Chemical (DOW) at twenty-some year lows, I am going to look into it. When four or five different smart people tell me education stocks cannot continue to grow at the expected pace, I am going to go back and look at companies like Apollo (APOL) as potential shorts.

Doing the homework is critical. Dig into the numbers, be skeptical. Listen to what others are saying. Find someone who disagrees with you and argue your position to find the flaws you may have missed. Doing the homework helps you avoid many of the mistakes than can trash your portfolio.

Remember, do the homework now. There will not be time to do it when the market falls to more attractive levels.


Please note that due to factors including low market capitalization and/or insufficient public float, we consider Tecumseh to be a small-cap stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.

This was originally published on RealMoney on Feb. 4, 2009. For more information about subscribing to RealMoney, please click here.

At the time of publication, Melvin had no positions in the stocks mentioned, although positions may change at any time.

Tim Melvin is a writer from Stevensville, Maryland, who spent 20 years a stockbroker, the last 15 as a Vice President of Investments with a regional firm in the Mid Atlantic area. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Melvin appreciates your feedback; click here to send him an email.

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