This article was contributed by “Perdant.” a regular contributor to “Topstocks.

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The Internet has done great things for the private investor, but you need to tread carefully.

Information about companies and industries used to be expensive, hard to track down, or both and this gave institutional investors a huge advantage over the rest of us. But the Internet has leveled the playing field and these days, by and large, what the ‘institutions’ have, we all have. It’s just a question of using it wisely. So in this week’s Investor’s College, we’re going to offer some tips for researching stocks on line.

First of all, you should know, if you don’t already, that a lot of the information on the Internet is plain wrong. You should only rely on information from reputable sources and even then it’s best to find something to confirm it.

If you’re placing heavy reliance on something, then it’s best to check it outside the Internet. Quite often you’ll find that one website has put something forward as gospel and other sites have then found it and copied it. So what looks like a large body of evidence might in fact stem from one guy spouting nonsense in a dark room in San Diego.

Gumption.

A little gumption here can go a long way. Some sites have more to lose than others from getting things wrong, and these are likely to be more reliable. You can reckon, for example, that The Sydney Morning Herald or Reuters will spend more time checking their facts than www.trade2win.com.

You also need to be wary of free financial advisory sites and bulletin boards. I should know, because I used to work for one (The Motley Fool UK). There are good-natured and skilled investors out there offering their opinions free of charge, but not many and they’re pretty hard to tell apart from less scrupulous operators. If someone tells you a stock is about to go through the roof, it’s very likely because they own some and are hoping to push the price up.

Googling skills.

But despite these shortcomings, there’s a vast amount of useful information on the internet and to find it you need Google – www.google.com.au. The trick with Google searches is to use words that will appear in the information you’re after, but not elsewhere.

One way to narrow things down considerably is to place double quotes around a string of words, so that the exact phrase is matched. If you google for (ignoring the < and >), for example, you’ll find nearly 400,000 pages about goodness knows what. But if you google for < � �� ��cash cow dividends”>, you’ll find two pages, with our Investor’s College from 30 Jan 07 leading the way. There are lots more tips for improving your search skills behind the Google homepage. Click on and then , for example, or on and then .

If you’ve done a bit of googling, you’ll have seen Wikipedia cropping up a lot. That’s because it’s a site that a lot of others link to, and which Google therefore finds a lot (this is what underpins Google’s search technology).

These votes of confidence are well deserved. Wikipedia is a collaborative encyclopedia which anyone can edit. It doesn’t quite cover everything, but it’s getting there. Because anyone can edit it, you can’t take its word as gospel, but it’s pretty balanced and reliable – particularly for the mundane stuff that most investors are looking for. To get an idea of Wikipedia’s strengths and weaknesses, google for < � �� ��researching with Wikipedia”>.

Customers first.

Beyond the remarkable Google and Wikipedia, the next most important sites for company research are the company websites themselves. You can learn a lot about a company’s culture just by looking at its homepage. Does it look like it’s there to sell things to customers or to give management a pat on the back? Does it seem more interested in promoting the company’s shares or its products?

As an investor you want a company to provide financial information, but you also want it to put its customers first. Ideally there should be a small link on the homepage to a section of the website devoted to investors. Here you should find ASX announcements, press releases, annual and other financial reports, and sometimes product reviews and broker and industry research. You might also be able to sign up to an email alert service to notify you of new announcements.

Remember, though, that everything on a company’s website has been put there by the company itself, so it’s likely to be rather one-sided. For balance, you’ll need to stroll around the websites of competitors, customers and suppliers to see what they have to say about things. You might also be able to find industry magazines, task forces, action groups or goodness knows what – it can all help in getting to understand a company’s competitive position.

In the news

For news on the internet, the rule tends to be that biggest is best, because only the biggest sites have the economies of scale and bolt-on services to be able to offer plain old news for free.

A straw poll amongst The Intelligent Investor’s analysts brought up all the favourites, both locally and overseas, and like hardcopy newspapers, it really comes down to individual preference. A useful trick is to collect up a number of your favourite news feeds into a news feed reader or a customisable web page such as My Yahoo, using RSS technology. Just google for more details.

And talking of Yahoo, its finance site at au.finance.yahoo.com came out as a clear favourite among our analysts for stock quotes, historical price data and that kind of thing. You should be very wary of the financial data provided on these sites, though.

Quite apart from frequent errors, things like earnings per share aren’t much use unless you know how they’ve been calculated. For this information, you really need to go to a company’s annual report for the raw data and then make your own adjustments, as we’ve shown previously – look under ‘Financial Ratios’ in the Investor’s College section of our own website.



TopStocks.com.au

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