Whether you get your investment advice from an Investment Professional or do the research yourself, now is not a good time to place too much faith in historical performance statistics.  The Stocks in the Developing Markets bottomed-out on March 2, 2009, and the Developed Markets on March 9th–one week later. So, if you look at performance charts for the past five years, they were starting from a base of Zilch.  Just under 6,500 for the Dow Jones Industrials.  And for past three-years, the markets had already enjoyed smooth sailing.

Generally, Stock and Bond Markets trend in opposite directions; however, during the Great Recession (4Q07-1Q09), they were somewhat in lockstep.  During that period of “looking down into the abyss”, the credit markets had basically frozen over. Uncertainty abounded.  The prices at which people wanted to buy bonds (the “Bid”) and the price at which sellers were willing to sell (the “Ask”) were far, far apart–basically untenable.

So, as you study any sort of past performance, shy away from placing too much faith in Gross (Historical) Performance.  For mutual funds or ETFs (exchange-traded funds), check how well the particular funds did as compared to their peers within their respective “Categories” (large or small-cap stock, domestic or global bond, etc.).  Get a Morningstar Security Detail Report on each one, if you can.  Also, be sure to check how long the Fund Manager has been on-board.

For individual Stocks, check the S & P Stock or S & P “STARS” Reports.  They will, suggest an overall S & P Consensus Rating (Buy, Hold, Sell, etc.), as well as the overview of ratings assigned by the various stock analysts that follow that stock.  Check such statistics as: where the current Stock Price falls within its 52-week High-Low Range, and the current Price-to-Earnings (PE) and the Forward PE (FPE) Ratios.  Compare those statistics to other Stocks in their Industrial Sectors (Energy, Health Care, Industrials, etc).

The S & P Reports generally provide a one-page somewhat detailed Income Statement (Revenue less Expenses) and Balance Sheet (Assets less Liabilities). Your Securities Professional should be willing to give you a short Crash Course, or pick-up some sort of Accounting Review Book.  Check that Revenue (“Top Line” ) and Net Income (“Bottom Line”) are both increasing fairly steadily.  The reports should give insight as to what caused any aberrations.  And, check the Percentage of Long-Term Debt as to the Total “Equity Capital”,  and how do those numbers compare to other companies in the same Industry?

This might all sound like Greek to some readers; however, I can speak honestly that after some of my former clients went through my telephone explanations a few times they started to catch-on.  I guarantee you that, if you get the basics down, you might know about as much as your Investment Advisor.  I guarantee you that, if you begin to understand those basics, you will get better advice and assistance from whatever investment Professionals you consult with.

Just think about what you might do before you buy a new car: visit showrooms, take a look at the cars and get some brochures; review articles in several auto magazines; check Consumer Reports and, perhaps, check the Show-Rooms again before deciding which car to buy.  Then, you might visit several dealers to get the best price.  Right?

When you consider how much time and effort you put into buying a vehicle that you might use for, what, five-to-ten years, why not make that same time commitment to your Investment Portfolio?  Those Securities will hopefully be working for you for a lot longer than your car.  They represent your Children’s or Grandchildren’s College Plan, your Retirement Nest Egg or money for that special future purchase.  What I have suggested above is not rocket science: you can do it.

NOTE: When you are reviewing any potential securities Buys or Sells, always, always compare them to other stocks or ETFs in the same Industrial Sector or mutual funds within their respective Categories.  Just don’t compare apples to bananas.

Individual Bonds are a great deal more subtle and many Investment Professionals do not really understand the Bond Markets.  It’s a bit more than just Credit Ratings, Yield and Maturity; but at least they are a start.


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