Last year, Lashambi Britton started working as a shareholder services representative for a Wall Street firm that deals primarily with mutual funds and large-cap stocks. A big part of her job entailed learning about prospectuses (information on policies, past performance, risks, and costs).
This helped the 21-year-old student, who is working on a master’s degree part-time, become more knowledgeable about stocks.
But it wasn’t until last fall, when her father revealed that he had purchased $5,000 worth of AT&T (NYSE: T) stock and set up a custodial account for her while she was a pre-teen, that she was really inspired to invest more aggressively. She received shares of Lucent Technologies (NYSE: LU) and shares of AT&T Wireless Services (NYSE: AWE) when the telecommunications company spun-off the two companies in 2000 and this summer, respectively.
She has since bought additional shares of AT&T in a separate online account to add to shares of Eastman Kodak (NYSE: EK), John Hancock Financial Services (NYSE: JHF), and Sprint Corp. (NYSE: FON). Britton uses Sharebuilder.com to dollar-cost average, investing $200 each month in companies that she believes have growth potential. She uses research compiled from company sites such as Yahoo.com as well as prospectuses and proxy statements. She pays particular attention to potential lawsuits, significant changes in management, competitive firms, and the past year’s earnings performance.
Britton, who also contributes 15% of her salary to her company’s 401(k) plan, was hit hard when hot tech sectors fizzled out. “[Because of my age], I had about 90% of my money invested in aggressive growth technology funds,” says Britton, whose portfolio tanked early this year to about $300, down from $4,000.
This loss prompted Britton to put into practice DOFE Principle No. 2: To be a proactive and informed investor. Every year, shareholders receive an information packet that contains an Annual Report, 10-K, 10-Q, press releases, and analysts’ reports. These documents are provided through a company’s “investor relations” or “shareholder services” department. Here’s how to use these documents effectively.
A company uses its annual report to deliver voluntary and mandatory (under the Securities Exchange Commission rules) information to shareholders. A more detailed version is Form 10-K, which discloses total sales, revenue, and pretax operating income, as well as sales revenues for separate product lines from subsidiary businesses. By evaluating the 10-K you can see if management is putting investors’ money into product expansion, research, and new factories. Form 10-Q provides financial statements and summarizes corporate activities that took place over the course of the first, second, and third quarters. Moreover, companies must file an 8-K report within 15 days of an event that could affect the value of the firm’s securities.
All of these documents can be found at the SEC’s Website: www.freeedgar.com. Examine financial statements such as the balance sheet (assets and liabilities), which will tell you if cash assets are diminishing and if accounts receivable, inventories, or total debts are rising. The income statement will show how much money the company made over the last year and operating expenses to help