In your investment career, you must have received stock tips and recommendations from your brokers, friends and family. Many a time, on asking the rationale behind the same, the person giving the recommendation would state the tip is received from some 'reliable' source. Investors make decisions based on certain factual information. Subsequently, they make future assumptions based on and in support of those facts. As such, knowing how an industry and a company functions is very important. In addition, it is equally important for one to gain such information from proper and reliable sources.
In this article, we present a basic idea of where you can go about looking for information on companies you wish to invest in.
- An investor should gather information on a company he/she wants to invest in from proper and reliable sources
- Offer documents of a company are the best source to understand the sector the company belongs to
- Do not blindly believe what media reports, rather look for announcements and company press releases
Sources of information on companies
1. Offer documents: For a novice investor, it is always recommended that he should understand a sector before jumping to understanding the working of a particular company. One of the best sources for understanding a particular sector or industry is the offer document of the company, if one can get hold of one. Every company which gets listed first needs to file an offer document with the Securities and Exchange Board of India (SEBI). Apart from facts and figures about the company and its promoters, this document also contains information relating to the working of the industry (the company is involved in).
2. Annual reports: In case of a company for which you cannot get hold of the offer document given that the company has been listed on the stock exchanges for long, the annual report comes in handy. The director's report and the management discussion and analysis (MD&A) sections of an annual report provide good information related to the company and industry. However, as compared to the offer document, this information is usually related to the past year and the management's views on the outlook for the next year. It may be noted that one should not blindly take the management's views into consideration as more often than not, it tends to paint a rosy picture.
3. BSE/NSE announcements and company press releases: Even if an investor gets some 'inside information' on a particular company, how factual and accurate it is, is something that cannot be determined. Apart from annual reports (which are published on an annual basis), it is the official company documents such as press releases, announcements and presentations which are released in regular intervals. The source for such information is the BSE or NSE web sites (in their respective corporate announcement sections) and the particular company's web site.
4. Business dailies and other media: Newspapers and news channel are great sources for gaining updates on companies. Interviews with managements provide good information on the company's views, plans and strategies. However, information divulged from sources who do not wish to be named can be dicey. Reporters and journalists may get such news printed as they try to snoop around and find out stories relating to a particular company. But there have been a handful of cases wherein companies (covered in the news) have made announcements stating that the information is speculative or not true. As such, it would only be possible for an investor to judge the piece of news/information provided he/she is well acquainted with the company and its working.
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