... If you believe that the share price alone or share price movements alone tell you anything about the underlying quality of the company or its business:
All too often people buy low-priced shares with the idea that they are cheap, only to find out that they are low-priced because the underlying business sucks.
... If you couldn't write down a list of why you bought and what might make you sell:
If you don't know why you bought a stock in the first place, how can you know when to sell it? Bad scene. Avoid it.
... If you cannot tell the difference between a balance sheet and an income statement:
Especially if you don't even know where to find a copy of either.
... If you cannot make a rudimentary assessment of the underlying quality of a company.
... If you cannot define any of the following words:
Gross margin, operating margin, profit margin, earnings per share, costs of goods sold, share buyback, revenues, receivables, inventories, cash flow, estimates, depreciation, amortization, capital expenditure, market capitalization or valuation, shareholder's equity, assets, liabilities, return on equity.
... If you only have one source of information about the company:
I don't care whether it is your best friend, a message board, or some content provider.
If you cannot independently verify the facts, you are bound to get unintentionally bamboozled.
No one likes to admit he is wrong. If you only depend on one source of information, odds are when it finally coughs up the conclusion that it made a bad call it will be too late!
... If you cannot name the major products a company makes or the company's major competitors.
... If you don't use the Internet:
Seriously folks, come on!
Almost all of the disadvantage of being an individual investor from the information side was erased by the Internet. If you aren't on it, you are at a major disadvantage to all of the other players.
It is like trying to wrestle with no limbs!
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