You like everything you read about a company, so you buy the shares? No, wait, it's time to "phone a friend"…
When you've looked at all you possibly can concerning a company's finances, what it does and what its future prospects are -- and you've decided you can put an emphatic tick in all your requisite investment boxes, it's time to buy. Or is it?
It might be worth trying to cool your ardour a little. When times are as good as the last couple of months have been, it's all too easy to think you've cracked this investing game. But have you really got the patience to wait until the inherent value you've spotted is outed, even if it takes years? And would you truly be prepared to ride out the doldrums -- or, worse, another severe downturn where your mettle (and cash…) may be tested by an opportunity top buy at lower prices?
The value of lateral thought
Remember, too, that investors can fall into the trap of thinking in straight lines, concentrating on purely financial aspects, or following the herd-like instinct of the latest hot sector; tech stocks, oil, mining or whatever else may be flavour of the month.
One excellent investing tactic is to "phone a friend" before you buy. There are different ways of doing this.
Try to explain to a friend (preferably one who isn't particularly well-versed in investing matters) why s/he might like to invest in a share. If you can't explain the reasons in layman's terms relatively easily, this could well indicate a problem in your analysis. Try to pick someone who is likely to be challenging to your views and, of course, someone more likely to have some kind of insight into that particular market, if at all possible.
After all, the same financial information is out there for anyone to analyse, so if you're confident enough on that score, what about the future prospects? As Peter Lynch points out so effectively in "One Up On Wall Street" the best stock-pickers in reality are ordinary people with an ear to the ground.
Alternative viewpoints
So if everything you read about a fashion retailer, for example, makes financial sense, but your trendy teenage kids who are the target market, have taken a sudden dislike to the shop (even if branches still seem busy) don't go near it. Or if a friend is surprised on the downside by her experience with product X from previously successful company Y, leave it alone. But if the exact opposite is true, then great, your analysis has been reinforced.
Of course, it's usually difficult to find someone with direct experience of a company, particularly if it's a small cap, though it can be priceless if you can. As Peter Lynch explains, staff, customers, suppliers, lawyers, accountants, advertising agencies, contractors and countless others may all have clues that a company is going well long before the market.
Foolish analysis
But if there's no direct connection, "phoning a friend" via the Motley Fool's bulletin boards is definitely worth a try. True, you're generally talking to the investing community here, but you'll usually receive polite and constructive criticism of your investment ideas. You'll probably get some lateral viewpoints -- and maybe even some comments from people with direct knowledge of the company in question. Posters with an absolute wealth of experience from different disciplines and backgrounds will often debate the pros and cons of a potential investment at length -- particularly if they can see that you've made a good effort yourself to begin with and presented your "pro" case succinctly.
The trick is in then weighing the opinions and any hard data presented -- and making your decisions accordingly.
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