Sizing up investments

By Yale BockMarketsCovestor

When you’re an active money manager, you need some skill at sizing up individual companies.

During quarterly reporting periods, it’s mandatory you track what takes place on the conference calls of the stocks you own.

Continue Reading Below

The same goes for presentations at investment conferences, which detail the future business outlook.

Softballs

In both of these situations, management teams typically will get a softball question about why they think their stock is attractive.

And what executive doesn’t think their stock is a buy?

The challenge for the active manager is to find stocks that are undervalued and carefully differentiate among levels of attractiveness among the stocks you’re analyzing.

Fool’s Gold

In essence, you’re trying to separate, shall we say, gold from fool’s gold.

Above all, you don’t want to end up being the fool.

Slick Pitch

A slick sales pitch from a CEO can turn into disappointment six months later if the business doesn’t deliver as promised.

That can cost you a lot of money.

The best companies earn their returns either through operational execution, or some kind of structural transaction of which the market approves.

Outlooks Matter

That could include buying another company, merging or pulling off a big buyback.Investors look at both current results and future prospects.

If what you own does not have these elements, usually investors aren’t interested, and shouldn’t be in my opinion.

Photo Credit: Michael Coghlan via Flickr Creative Commons

The post Sizing up investments appeared first on Smarter InvestingCovestor Ltd. is a registered investment advisor. Covestor licenses investment strategies from its Model Managers to establish investment models. The commentary here is provided as general and impersonal information and should not be construed as recommendations or advice. Information from Model Managers and third-party sources deemed to be reliable but not guaranteed. Past performance is no guarantee of future results. Transaction histories for Covestor models available upon request. Additional important disclosures available at http://site.covestor.com/help/disclosures.