Last year, I came across a stock with some unbelievable numbers. Sales looked good. Income had doubled. Return on equity was out of control. And it was a player in the growing body-armor industry. Its name? DHB Industries.
Based on what I knew -- which wasn't much -- I gave it a lot of consideration. But did I pull the trigger?
First, let me say that even the idea of making an investment without weeks of research is alien to me. I come from a value-focused hedge fund. We had all day to analyze stocks, and we used it, often burning the midnight oil. Hedge funds have a reputation as the gunslingers of the market, but I assure you, mine was anything but. We held just a handful of stocks, and we knew them cold. But staying abreast of them -- and finding new ones -- took a lot of time.
That kind of thoroughness is The Motley Fool's hallmark. When it comes to burning the midnight oil, David and Tom Gardner -- Motley Fool co-founders and lead analysts of the Motley Fool Stock Advisor newsletter -- could give the hedge-fund crowd a run for their collective money.
Hidden risks
No, I didn't buy DHB. And I'm glad I didn't, considering that the company has since dropped substantially and been delisted, for reasons a cursory browse on Yahoo! Finance wouldn't have revealed. But I'm not here to criticize DHB.
Risk exists for any investment, and it's important to know what you're betting on. No screen or quick peek-a-boo would clue you in to Honeywell's
Granted, these risks may all be on the obvious side, but have you ever been burned because you missed a material piece of information? Having the time to do some diligent digging is crucial in avoiding blowups.
The "Are you kidding me?" formula
There's more. Years ago, I read a book about theories underlying accounting and financial statements. It spent a lot of time on a common solvency formula: earnings available to pay fixed charges, divided by those fixed charges. Via several chapters of buildup, it replaced the simple version with a "corrected" formula that made several tweaks to the numerator and denominator.
Was it right? Yes -- it eliminated a lot of flaws in the raw accounting numbers. But that accuracy came at the expense of a formula so complex that individual investors would need days to calculate it.
Lack of time tends to pull investors in one of two ways. The first: making futile grasps in a blizzard of information overload. The second: tunnel vision toward stocks you've already researched. Either one can burn you.
Having time troubles with your investing?
The best investment you can make is an investment in your time management, and I've got ideas for you on that front. The first is simple: Develop screens and hone your criteria for investments. With 10,000 stocks out there, and a day job to go to, you absolutely have to develop efficient methods for cutting straight to the ones you're most likely to bite on. Second, spread the load among trusted compatriots. Start an investing club with like-minded investor friends with similar ability levels.
If you're still pressed for time, consider a free trial of Motley Fool Stock Advisor. Harried investors will like the two stock recommendations that arrive every month, and detail-oriented Fools will appreciate the investment theses, complete with counterpoints, provided for each selection. To date, David and Tom's picks are beating the market by an average of almost 40 percentage points.
And you're never far from an investing club of sorts, since a Stock Advisor membership comes with access to exclusive discussion boards, where members can share thoughts, insights, and questions without the plague of profane and inane comments typical of boards elsewhere.
Even if you don't sign up for the newsletter (or take a no-obligation, 30-day trial), I suggest you take a few moments to think about how time has affected your investing. If the answer is "negatively," consider taking some sort of action to get a better handle on your future. Investing is a critically important task -- one that should not be neglected.
This article was originally published Feb. 23, 2005. It has been updated.
James Early does not own any stocks discussed in this article. Washington Mutual and Bemis are Income Investor recommendations. The Motley Fool has a disclosure policy.
