An investor buying stock in a company is part owner of that company (business). As a business owner, the investor needs to pay attention to the activities, and news of the company. Perhaps not as much attention as the CEO of the company, but enough attention to protect the money invested. Remember, when you buy stock you are a business owner.
Before you put down your money buying a business, you do your homework. Homework is studying a company as if you were planning to own the company for 10 years and you expect to make money on your investment for that amount of time. To do this we look at the company's financials to see how the company is doing business, and handling its money. We look for evidence of how the company performed in the past, and with that information we can determine how the company can be expected to perform in the future. From this information we can determine what the company is worth, and therefore, what we are willing to pay to be part owner.
The shareholder's of Toyota don't understand their responsibilities to themselves. Shareholders have the responsibility of checking up on the company's progress by reading quarterly reports, and listening to the media. We are looking for the reasons you bought the company to continue or get better. If something changes for the worse, then we need to determine if the information is true or false, and in either case, how will the information affect the value of the company's stock. Good information raises stock value, and bad information lowers stock value.....This is easy!
Toyota's name is associated with quality and safety in its product. Recently the news has been negative about both quality and safety. Negative information can lower the price of a company's stock. With Toyota we had time to listen, learn , and finally do something with our investment in Toyota.
The Bad News
"Toyota cars have unintended acceleration problems, Toyota claims it's a mechanical problem."
"Toyota has problems, it can't get a break, now the Prius has brake issues."
"People are claiming the car has a mind of its own and acccererated without warning, could not be stopped."
"I stepped on the brake, but the car accelerated until it hit the wall."
"I don't like Toyotas following me" (fear of being rear ended).
An off duty CHP officer driving his family called 911 stating that the car he was in, continued to accelerate and there was no way of stopping the car. Soon after, I'm sorry to say, all in the car died in the accident that followed.
After all this, the news is of Toyota ignoring the problem, or having the belief that the problem is due to a floor mat, or the linkage is just hanging up, and not returning to idle.
All these stories sound like bad press and are very negative news items about a product that prides itself on quality, and safety.
Due to all the continuing car problems Toyota was having, soon talk was of people not willing to make Toyota a first car. Others decided not to buy a second Toyota, due to the question of reliability.
It is expected with all this bad news, lower sales, cost of recall to correct problem, questionable product from the public's point of view, and the cost in legal battles in court, that Toyota's stock value would lower. Things like this can happen at anytime. Changes in the company affect the stock price, and that is the reason that an investor needs to keep an eye on the company that was bought, to prevent, or minimize financial loss to the invstor.
Unlike Worldcom, Enron Energy, and Lehman Brothers, that provided false information to the public, shareholders had no advance warning that the stocks in these companies needed to be sold to prevent huge loses. Toyota's problems were very well known. Over time the problems kept getting worse. An investor in Toyota only had to pay a little attention, and ask in the news I'm hearing good for a company or bad?
Time and news were on the side of investors as problems increased. The day of the floor mat recall, shares were at just over $75. Then on January 21, shares were at $90, when Toyota announced another recall over gas pedals "that can stick." At this point investors in Toyota , (1) could have taken some of their money out of Toyota, (2) put a "stop loss" to limit loses, and (3) sold all of Toyota shares and buy again at a cheaper price later if they wish. After the second recall announcement, the stock price fell, dropping 16 percent to $79.34. Point to remember; stock prices rise on good news (lots of buying), and on bad news, price lowers (lots of selling).
No matter what company (business) you own, always pay attention to the things that may affect the value of the business, in the news and quarterly reports. When you buy a business, buy a business that you understand, so you will know what is important for positive growth. You are a business owner when you buy stock, so treat your business as a business owner, and at least be willing to take 15 minutes a day to see how your business is doing, and take control of your investment as needed. When investing don't lose money!
Shareholders wanting to sue Toyota for the loss of share value is wrong. All the information was present for all to see. As things got worse the stock increased in value for a short time till the stock dropped in price. As I explained, there was ample warning of what was to come. Those that did nothing to prevent the loss of their money, need to wait for the price of Toyota stock to rise again in a few months. This is what investing is! Take the time to learn how well the business you will be buying is doing, then keep a vigilant eye on your business. Keep looking for changes that may indicate continued profits, or the start of stock reducing loses.
To have control of your investments and lower your expenses in commissions, learn to do the investing yourself in your free time. We provide a teacher to answer your questions as needed by you. Investing is not hard to learn, and the financial rewards are great. You do have control of your financial future.
See us at http://www.youcontrolinvesting.com/ and ask for lesson #1, free to you to get to know us, and prove to yourself how quickly our course will make you a qualified investor in your financial future.
Bruce Cortez, instructor
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Not a good trend buyer beware.
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