When looking at the universe of stocks, beginner or long-time investors sometimes make some interesting “decisions”. We talked to Ryan Irvine, President & CEO of Keystone Financial Publishing Corp, at the MoneyTalks 2012 World Outlook Conference for his take on the biggest mistake investors make.
According to Irvine, focusing on the stock symbol instead of the underlying business is a mistake many investors make. Stock symbols are just that: symbols. Even though investors are buying a stock via the symbol what they’re paying for is a business. In his opinion, it pays to get to know what it is about a business that makes it a strong business.
What does he look for? Three of the many things he looks at when doing his research are: a strong balance sheet (i.e. more assets than liabilities), positive cash flow (are they bringing in cash?) and sustainable growth. One other very important factor that weighs in is paying a “reasonable” price – and that is where the science gives way to the art – because what seems reasonable today may change tomorrow and is the trickiest part of the fundamental approach. For that reason, asking the simple question “do I really understand the business I’m buying?” is a good way to figure out if you’re paying the right price now and for the future.