A Watch List Review

Here's a list (click to enlarge) of stocks on one of my "watch" lists. The list includes a hypothetical share quantity based on a "purchase" of 04.24.06 and values through yesterday's (10.17) close. Many of these stocks came from the ValueLine small/mid cap picks. It is sorted through largest % loss to date. Picking any one of these (unless it was Pemstar which was bought out, but performed extraordinarily well) could have been devastating to a portfolio. Buying all of them would have resulted in a small loss.

My worst stock purchase mistakes were where I did not do any "due diligence" (or homework). I've realized my best performance from doing my homework. I did homework on BUCY, LUFK, OS, NEU, SMDI , NSS and made money on these. Reading 10-Q's/K's (Edgar.com) and listening to conference calls are two critical homework assignments. You learn a lot about a company through the conference call. The personality of the executive team, for good or naught, comes through. Also, hearing commentary on their industrial outlook is important. Caution: don't expect conference call material presentation to be the Rosetta stone. You are still being "fed" information. Listen to the analyst questions and the response. As always, treat the executives as you would in a cross examination with your teenager: what they do not say is often more important than what they do say. Companies with superb leadership weather temporary storms, and every company experiences blips--some major, some minor.

While some may not consider fast growth and profitability blips, they are. Exponential growth creates an enormous strain on company resources (financial, infrastructure and people). Unbridled growth can create large implosions. Therefore, having a smart, agile executive team is key. Listening to their conference calls is one way to gauge smartness and agility. It's important, though, to not let charismatic personalities fool you into thinking management is smart. Having said that, it is best that the team doesn't put investors/analysts asleep on the call.

For those that have time, researching attractive sectors and the company leadership in those sectors builds a strong foundation in understanding the thesis for why you want to buy an individual stock. If you are not willing to do this research, you will not have a good understanding of the risks. The risks are illuminated in red above.

For individual investors compelled to make their own decisions, lack of work will translate into lack of results. Not only do you have to pick the right sector and the right stock, individual investors need to develop a keen awareness on when to hold 'em and when to fold 'em. It's not a skill that I've mastered, and I'll post some mea culpas on this.