Investing Lesson: When examining companies, I try to judge their past performance on factors that were within their control. For example, a manufacturing company may have limited control over their raw material costs. Will their misfortune one year, flip the other way next year?Finally, let's consider Arian Foster, a running back with the Houston Texans. I did not value Foster in the chart since he missed half of last season due to injury. Foster was the 3rd highest scoring running back in 2012, so why did I drop Foster from my keeper league in 2013? Foster took a pounding in 2012 on 391 touches and his career low 4.1 yards per carry ranked 21st among running backs. He also entered 2013 with known back pain that ultimately derailed his season. Investing Lesson: Understand the life cycle of the industry a company operates in. What are the warning signs for problems? Don't look at rising net income and assume everything is okay going forward. Is a retail company aggressively expanding while same store sales plummet? Two more things to consider: Ignore media hype and do your own research. Since there is little sports news to talk about during the dog days of summer, ESPN will inevitably spend 90% of their airtime talking about a player they love. Later, fantasy sports analyst Matthew Berry will come out with his list of sleepers, who eventually become overvalued because everyone picks them as their sleepers. Do your own research and forge your own path. Famed Fidelity Investments fund manager Peter Lynch was a master of this concept. He looked for companies with boring names and little analyst coverage. Fertile ground is found where the stampede has not yet trampled. Every year it seems that one or two players in our fantasy league will load up on players from his favorite NFL team. This almost always leads them to being the worst in the league.
Beginner investors often make this same mistake. They invest because a company sells their favorite product, or is located locally. Worse yet, they invest in their employer's stock to show loyalty. The stock market is a secondary market. If you overpay for a stock, the only person who benefits is the person who sold it to you.I hope this article helps bring context and clarity to your investment decisions whether it is Lockheed Martin (LMT) or Doug Martin. DISCLAIMER: The investments discussed are held in client accounts as of May 31, 2013. These investments may or may not be currently held in client accounts. The reader should not assume that any investments identified were or will be profitable or that any investment recommendations or investment decisions we make in the future will be profitable. Past performance is no guarantee of future results.
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