Due Diligence (Researching Investments)

Researching Investments:

Before considering any type of investment, it is prudent that you conduct what is called due diligence. Due diligence is generally defined as the care that a prudent person exercises to protect their property. Due Diligence is much easier to perform when dealing with public companies. Even then due diligence is difficult , if you are not trained in such matters. Consequently, it is recommended that you seek a qualified professional to assist you in performing your due diligence.

Public companies must provide certain information when they initially offer stocks or bonds for sale to the public. Companies and bond issuers must also must provide certain information to the public periodically. These disclosures provide investors with information to judge whether a particular security is a good investment. If a company is not registered with the SEC, or a bond issuer is not registered with the Municipal Securities Rulemaking Board (MSRB), it could be a red flag. Scams often involve unregistered companies.

If you are attempting to perform your due diligence relative to a public company, there are a few tools that can be easily accessed to help you. They are:

Using EDGAR – Researching Public Companies

How to Read a 10-K

Using EMMA – Researching Municipal Securities and 529 Plans

Attempting to evaluate a private investment is much more difficult. It is for this reason that the average investor should shy away from such investment. Research tools such as those listed above are not available to help you. In the event that you are considering a private investment, you should retain a qualified professional to perform the necessary due diligence for you. Just make sure that the professional that you retain is not the one that suggested that you go into the investment in the first place.