Doing Your Own Work

In school, teachers always told us to do our own work.  We were not to copy other students homework or cheat off their tests.  While not enforced in your investing life, it is a good practice to always do your own work.  What does this mean?  Never rely on any statistics published by a financial site when making an investment decision.  I cannot count the number of times these statistics have been off, or just flat out wrong.  The issue is that these statistics are generated automatically, and are not checked for accuracy by anyone.


A friend of mine once bragged about buying a company at 4x earnings, a low price for sure.  After a very small amount of research, I quickly concluded the 4x was closer to 24x.  Yahoo Finance did say 4x, but why?  The company had recently spun off a large division.  The share price was significantly lower because of this spin off.  But the earnings figure had not been updated and it still reflected the earnings of both businesses.  This is what happens when you rely on a program to do your calculations for you.


So where should you go for accurate information?  Go to the source!  Company filings are available on or can usually be found on the investor page of the company website.  Learning to calculate the PE ratio and dividend yield will help build your understanding of what these ratios mean.  There is no way to shortcut this process and making decisions based on faulty inputs can lead to disastrous results.  There is one shortcut I do recommend, which you can read more about on my recommendation for using Value Line.