By GLENN CURTIS
Oct. 19, 2020
Active investors need to constantly monitor their portfolio for changes. Passive investors, or those with a longer-term horizon, however, can afford to take a more laid-back approach. But all investors still have to do their homework from time to time.
The following five tips can help you manage your time and your investments properly.
Focus on Interest Rate and Commodity Trends (Daily)
You don't need to track market changes on a daily basis to be successful as an investor, but being aware of the trends in the marketplace can help you to cut down on listening to "hot tips" or rumor mills throughout the day. A good way to stop the anxiety caused by the investing gossip you hear is to chase the right kind of information now.
Two big areas to focus on are interest rates and commodity/labor costs.
Higher interest rates usually bring about lower stock prices, because generally as companies spend more money on loan payments, it depresses their earnings—and lower earnings equate to lower stock prices. Conversely, lower rates can mean that both companies and individuals will spend less on interest payments, bottom lines will increase, and higher earnings translate into higher equity prices. Knowing that most interest rate news is being accounted into the market prices now and being able to see how it can affect future prices will help you weed out any gossip tips you may receive now.
Investors should track fuel costs and other commodity prices to gauge how those fluctuations may impact their holdings. For example, some industries, such as trucking, see their profits drop dramatically when crude-oil prices increase. Others, such as oil-exploration companies, fare better when oil trades higher. Rising steel and lumber prices will adversely affect construction and manufacturing companies.
Rising labor costs will bury everybody, but particularly retailers that typically hire workers at minimum wage. If you know what's in your portfolio ahead of time, you can cut the anxiety in its tracks and adjust your portfolio accordingly.
Keep Abreast of Market Trends (Weekly)
You don't have to have your TV tuned in to CNBC at all times, but you should stay up to date with the latest news from the financial media, and try to watch finance-focused videos at least once a week. The web, including social media, is another terrific place to read about strategies for investing and get a feel for what the professionals are saying about the market's anticipated direction. To cut through all the excess reading, just make sure you get a handle on which industries are in or out of favor, along with the health of the overall market.
Remember that geopolitical developments can affect your portfolio holdings—so can news of higher taxes, or currency fluctuations. This means that you should at the very least, catch up with a recap of developments at the end of each week. The goal here is to get the big picture or the trend, and then to make changes to your portfolio accordingly.
Try not to get lured into making a decision because of the "news of the day," however. In other words, the financial commentary that you see on television or online is sometimes embellished in order to attract a larger audience. So, try to decipher the longer-term trends and weed out the day-to-day nonsense the financial media outlets use to hype their broadcasts. The question you should always be asking yourself when watching or listening to financial commentary is — how will this impact me or my portfolio?
Review Financial Statements (Quarterly)
This rule applies mainly to investors who buy individual stocks. Investors should review the Management Discussion & Analysis (MD&A) section of a company's financial statements, as well as the 10-K, 10-Q and proxy statement (which are filed with the SEC) to get a better idea of management's take on the opportunities and risks for the company along with its recent performance.
When you do this research, ask yourself the following questions:
- Is management optimistic about the company's future?
- Has it made any insightful remarks about future earnings potential?
- Is it pondering a large acquisition or asset sale that could impact earnings?
- Is the company's credit in good or bad shape? Might that impact the future growth of the company?
These are all issues that may be addressed in the financial statements and which are helpful to the investor's decision-making process. Be a detective, and try to dig past all the public relations fluff to see what management really is saying.
Sometimes the written word is the best means for investors to gain valuable insight about the inner workings of a company, because face-to-face meetings and some conference calls are highly scripted, especially given the rise in shareholder-initiated lawsuits.
Contact or Interview Funds or Firms (Once or Twice a Year)
Trying to catch up with professionals in charge of funds or firms can be a full-time job, so it's often best to choose when you attempt these types of correspondences. Pick a time of year when they are slower or more able to talk to you—and once you've got them on the line, pump them for information on where the market or a particular industry or stock is headed. Sometimes they will provide valuable insight that you hadn't yet pondered—or don't have the time to research.
When talking to these professionals, try to ask open-ended questions such as:
- Where do you think the company is heading?
- What are the biggest risks going forward?
- What do you think Wall Street analysts are overlooking or undervaluing in regards to the company?
You may be surprised by the candor of the responses you will receive—at no real-time cost to you.
Listen in on Conference Calls (Yearly)
Don't be intimidated. Call up the investor-relations representative at the company you own stock in to see if you can listen in on the company's year-end conference call. You can also check the company's investor-relations section on their web page, which will often provide information on the date of the next call along with a link to listen to the call online. Because of Regulation Fair Disclosure and the focus firms have these days on disclosing information to both individual and institutional investors at one time, many firms will allow individual-investor participation if the investor requests to participate in advance so that the company can arrange to set up a separate line.
What you are listening for in this call is what management says about the company's future, but also the way in which they say it. Do they believe what they are saying? Are they enthusiastic or merely going through the motions? This information may provide you with the desire to either buy more shares or to liquidate your position entirely.
The first part of the call will go over the company's financials for the time period along with any other pertinent developments. This is then followed by a question and answer session, generally with analysts, which is often the most important part of the call since you can see how management reacts to these tough questions.
(Note: As mentioned above, many calls are scripted, and management is sometimes tight-lipped about the future because they don't want to be blamed for any failures. With that in mind, the investor should not only be looking for what is said but what isn't said as well. If a company usually makes financial projections every quarter, but has suddenly stopped, then that may be a bad sign for the company, but also a good sign for you to get out.)
The Bottom Line
Determining when your information is the most valuable can help you cut down on the hours you spend sorting through reports and financials. Summer months are typically weak months in the market and purchased stocks may wane. September and October are also historically difficult months—and year-end tax-loss selling can depress stocks even further. If you are satisfied that the stock you own or wish to purchase is on solid footing, you can continue with your purchases, but make sure you consider seasonal factors when trying to time a purchase or a sale.
Being an investor doesn't mean that you have to read the Wall Street Journal each day or constantly check your mobile phone's stock trading app. But if you hope to fare as well or better than the market average, in the long run, managing your time as you manage your portfolio can make the most sense (or cents).