Yesterday was Valentine's Day -- a holiday when some give and/or receive chocolates or flowers or greeting cards, while others heave a sigh and flip through the personals, hoping to glance an advertisement from Prince or Princess Charming. I admit that I've long been a reader of personal ads (largely out of curiosity). I've yet to run across one compelling enough to make me respond, though. Such an ad might read:

Smart, funny, kind gentleman, late 30s/early 40s, more couch potato than outdoorsman, hopes to meet neurotic Fool. Love of the Simpsons, Nanci Griffith and Astrud Gilberto music, John Waters and Doris Day movies, and novels set in colonial India a plus.

Instead, what I often find, in magazines such as New York Magazine or Washingtonian, are ads from frighteningly self-assured people. Consider these examples (fret not, I'll eventually return to the topic of investing):

George Clooney type -- Casting for leading lady. 40-year-old physician with GQ looks, athletic, romantic, charming, very successful, in search of one special lady who can turn my head, turn my mind, and turn my heart.

Strikingly masculine -- Handsome, fit, charismatic and romantic man, age 50, would love to show you off and indulge in you. Very successful senior executive of a leading corporation... You should be beautiful, sexy and romantic, with a magnificently defined, toned body, with long hair and beautiful face. You should be between the ages of 32-40...

Now perhaps these ads are accurately describing the advertisers. I wonder, though. Methinks there may be a bit of exaggeration going on. Or at the least, some very selective disclosure. (Are you ready? Here comes the investing connection.)

When pondering the odd nature of personal ads (how powerful your words must be, to attract a lifemate with just 40 words!), it occurred to me that we often approach companies the way we do personal ads. Especially in our pre-Foolish days. For example, some people may invest in a company like (Nasdaq: AMZN) based on merely the following information (albeit not packaged as a personal ad):

Fast-growing, ambitious company, very successful, expecting to be profitable. Revenues and membership growing like crazy, consistently ranks among top Internet firms. Looking for individual investors. Invest in me before you miss the Internet boat!

or imagine that of Celera (NYSE: CRA), which hit a new high today:

Beautiful dreamer. Let me map your genome and revolutionize health as you know it. Very young company, with almost unparalleled computing power, is decoding earth's life forms with hope of great biotechnology deals and profits. Grow with me and we might go to the moon!

These words aren't necessarily incorrect -- but they're just the tip of the iceberg. Just as there's much left unsaid about anyone in a personal ad, there's much unsaid in these company descriptions, too. Yet people often jump into an investment on not much more information than this. People probably jump quickly at personal ads, too, but at least with personals, you can cut your losses quickly and not end up risking thousands of dollars.

Spend some time researching any company you're thinking of investing in, and you may discover that it chews very loudly at meals, or that it's been divorced four times, or that it talks too much about astrology and past life regressions. These details are important. They may not necessarily snuff your interest in the company, but they need to be taken into account when you make decisions.

It's in our nature, I think, to look for enough good points in a company to justify our decisions, without seriously considering the investment's possible downsides. It's true that Rule Breaker investing doesn't pay much attention to company valuations. I think, though, that this means we should be paying extra attention to company risks. If you're going to pay top dollar for a compelling company, you don't want to end up surprised by some unexpected negative turn of events. At least go in with your eyes open.

How can you learn about a company's risks? Well, many ways. Here are a few:

  • Just by thinking. Consider what the company's business is. Where do its revenue dollars come from? What might threaten that income stream? What are the company's competitors up to? How quickly can the company reasonably grow?
  • By hanging out on our message boards. Many of us, when we spend time on a company message board because we think highly of the firm, get annoyed by detractors. If you're bullish on America Online (NYSE: AOL), it can get tedious reading posts by AOL bears. But most of the people who disagree with you aren't insane (although a few of them may be). You owe it to yourself and your portfolio to occasionally think hard about the points they're making.
  • By reading the company's 10-K report. Once a year, along with its annual report, every publicly traded U.S. company issues a "10-K" report. This is a totally unflashy, extremely boring looking document that includes extensive discussion from management about the firm's operations. Included is a discussion of risks. This can be very enlightening stuff.

Again -- you may still invest in the company (or not), but if you do, you'll be aware of some risks to look out for. As an example, consider the latest 10-K report of eBay (if you click, scroll down to roughly the middle). The section discussing risks goes on for about 20 pages -- and this is not that unusual. You may be surprised at how frank and comprehensive management's discussion of the company's risks is. Part of this is to protect themselves legally. Here are just some of the items discussed in more depth in the eBay's report:

  • Our operating results may fluctuate.
  • Our failure to manage growth could harm us.
  • We may not maintain profitability.
  • Our business may be harmed by fraudulent activities on our website.
  • Government inquiries may lead to charges or penalties.
  • We are subject to intellectual property litigation.
  • System failures could harm our business.
  • Unauthorized break-ins to our service could harm our business.
  • New and existing regulation of the Internet could harm our business.
  • Our business has been seasonal.
  • We are dependent on the continued growth of the online person-to-person commerce market.
  • Our business may be subject to sales and other taxes.
  • We are dependent on key personnel.
  • We need to develop new services, features and functions in order to expand.
  • Our growth will depend on our ability to develop our brand.
  • Acquisitions could result in dilution, operating difficulties and other harmful consequences.

If only personal ads came with 10-K reports available! Imagine being able to flip through 20 pages of honest admissions from someone, upon request. If it's balanced out by 20 pages of bragging about personal (and perhaps financial/professional) successes, it could definitely assist in decision-making, no?

I recently stumbled onto a periodical with some refreshingly different personal ads, ones that don't shy from mentioning negatives. It's the London Review of Books. Here are some sample ads:

Penniless male, 24, seeks cheap date.

Shy, ugly man, fond of extended periods of self-pity, middle-aged, flatulent and over-weight, seeks the impossible.

Cyclopic old fart. Full of spleen and thoroughly unpleasant. Wants to meet soothing woman who hates books.

Tall, funky librarian, female, in denial, 33, seeks tall, cute, slightly nerdy intellectual, (M), with dead mother (optional).

Sinister looking man with a face that only a mother could love: think of an aging Portillo with a beard and you may have my better looking twin. Sweetie at heart, though. Nice conversation, great for dimly lit romantic meals. Better in those Welsh villages where the electricity supply can't be guaranteed. Charitable women to 50 appreciated.

These ads are much more to my liking. They make me think that the ad-placer is getting the negative stuff out of the way first. These advertisers set expectations low, so that the more you learn about them, the more positive your impression will be. That's not a bad way to learn about companies, too.

Happy Post-Valentine's Day Fools!

P.S. Ready to get personal? The roses are starting to wilt, the champagne has gone flat, but those financial issues continue to linger, so the Motley Fool Radio Show wants to hear from you. It's time for our Motley Fool Radio Post-Valentine's Special. Do you and that special someone have some differences over money? Are you in need of some Foolish relationship mediation? Or do you just have a question you'd like to ask about investing? Fool Radio wants to hear your questions, confessions, and concerns on love and money. If you'd like to participate, e-mail with your question and a daytime phone number.