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Berlin Bailey closely followed the Microsoft antitrust trial last year. “At one point,” recalls Bailey, 51, a urology consultant in Walnut, California, “the CEO of Sun Microsystems stated that he was afraid Microsoft might put his company out of business. When the trial seemed to turn against Microsoft, I thought that might be good news for Sun Microsystems.”
However, Bailey didn’t rush out and invest in the company. “I’ve done that in the past and gotten burned,” he says. “As a result, I’ve learned to do a lot more homework before investing. Fortunately, there’s a tremendous amount of information easily available on the Internet.” One site he consults frequently is Wall Street Research Net (www.wsrn.com).
Bailey eventually learned enough about Sun Microsystems that he decided to buy the stock in 1999. It doubled in price soon after. He’s still holding on to it in hopes of long-term gains.
“The World Wide Web levels the playing field,” says Bailey’s financial advisor Jim Hatcher of American Express Financial Advisors, Irvine, California. “Formerly, professionals had a corner on information. Now it’s all available to individual investors.”
With access to this wellspring of information, personal investors can now take the reins of their portfolios firmly in their own hands. But learning to invest like the big guys means just that-taking the time to educate yourself about both broad market concepts and individual companies you may want to buy into. Here’s how to access the tools that can help garner pro-sized returns on your investments.
PROFILE OF A WINNER
What makes a good stock good? There are a number of ways to answer this question, but much depends on the investment style you’re most comfortable with. Bailey, for example, likes to find stocks selling for between $30 and $70, because this makes buying round lots of 100 shares affordable. He looks for stocks with good earnings potential yet modest price-to-earnings ratios. Once he finds a good prospect, he’ll track the stock for a short period of time before buying it, watching to see if its price trends upward. He’ll also ask professionals for their insights into the company.
In broad terms, there are three approaches to stock analysis. Fundamental analysis is based on a stock’s price relative to sales and earnings, growth rates of sales and earnings, and corporate assets-factors that are fundamental to the enterprise. Making good long-term judgments generally involves fundamental analysis.
Technical analysis is the use of past patterns to try and predict future price movements based on long-, intermediate-, and/or short-term trends. Charts are often used.
Sentimental analysis tries to gauge the mood of individual and professional investors. Some analysts believe in momentum investing (“don’t fight the tape”), so favorable sentiment is a bullish sign. Contrarians believe that overwhelmingly favorable sentiment is a sell signal and the time to buy is when gloom and doom are pervasive.
Specifically, what does a pro such as Hatcher look for in a stock? He insists on strong management and a product or service that’s in demand. “I like to a see a company