What is an "underlying basis"?
We've seen them so many times...the posts that scream "this stock is going to the moon!" or "the stock is going nowhere" with no other commentary whatsoever. We ask "why do you say this?"
What we are looking for is the posters "underlying basis", the reason they think the stock will go up, down or nowhere.
But what is an underlying basis?
Does it require hours of research, reviewing the filings with a magnifying glass?
Does it require visiting the company? Talking with the CEO? Touring the facilities?
Or can it come from reading tea leaves?
The answer for these questions is yes. For different individuals any one or any combination of the above could be sufficient research before buy or selling a position. There are many ways one can evaluate a stocks suitibility for investment. As varied as the investors are themselves, there are many forms of underlying basis. Some will research every scrap of paper available and others will find the date of the company's inception and plot it's astrological chart to try and come up with a reason to buy or sell a particular stock. Still others with consult psychics, review the stocks trading history or ask friends and family what they think. SOme of the most successful investors of all time based their investment choices on the items they had in their pantry!
Is any one form of what is often called "due diligence" right or wrong?
No, an investor may have been sticking pins in voodoo dolls for years to try and gain an upper hand on the market. If that person is convinced that his "system" is working then, at least in his mind, it is a valid means of evaluating investments.
Some folks have been enormously successful with some truly off the wall investment strategies. How can you argue with someone who's investment style is based on the outcome of his favorite sports teams games, when he has made a million dollars doing it?
Of course, here on the internet we often don't know what a particular persons investment strategy is. Unfortunately many are unwilling to share their personal styles, either to protect the preferred style's effectiveness or out of embarrassment. Given the cruelty expressed by many so called human beings on the internet this is entirely understandable. Of course many of those heartless folks don't reveal their strategies either!
Some folks may base their investment decisions on what they find on stock message boards. While many would consider this the epitome of foolishness, a few have been successful doing so. My point in presenting this is that regardless of one's personal investment style...you could be right! Don't fear the bully's, make them reveal their "underlying basis". What you may discover is that they don't have one or their style may lead you to more successful investing. Either way you win!
In conclusion, before you make that "to the moon" post...think about "why" you think it's going to the moon...and say so! After all one of your readers may be reading tea leaves to pick stocks and the leaves say it's going down!
David Weed
aka the Bird of Prey
www.warp-drive.com
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