Your crash course in market investing

Jean Chatzky TODAY Financial Editor • Profile • E-mail

As someone who travels the country on the speech circuit, I hear a ton of excuses for why people don't have full control over their finances. One of the most common is a fear of investing.

I can certainly understand why. The stock market just seems way too big for most of us to wrap our heads around — it's certainly not as easy as balancing your checkbook or paying your bills on time, and because there are no absolutes -- even people who claim to know which stocks are going up and which are going down are often wrong — it can be pretty scary.

That's why, at one point or another, the market has mystified most of us. I certainly have been. So has Karen Blumenthal, who admits that even after two decades as a Wall Street Journal reporter, she still didn't quite get it. So she put herself through a crash course of sorts. She decided that for a full year she was going to follow one of the country's hottest stocks — and then write a book about the experience.

Her pick? Starbucks. The book? "Grande Expectations." Why did she decide on America's favorite coffee shop as a model? For starters, the never-ending chain of stores is hard to avoid, especially in a big city. But Blumenthal says she really chose the company because of the returns it generated for early investors — those who purchased the stock when it went public in 1992 have experienced a gain of about 6,500 percent on their initial investment. Not bad.

Of course, she acknowledges, not everyone has that kind of luck. But her year in the trenches did yield a few lessons that all investors should take to heart when they're ready to dip a toe in the market (or as Blumenthal might say, take a sip of the cappuccino).

Consider your options
That doesn't mean you have to wade through each and every stock on the market. "Stick inside your circle of competence," advised Toan Tran, editor of Morningstar GrowthInvestor.
One of the most important things is to understand the company you're investing in, and that'll be a whole lot easier if you choose something that already makes at least a bit of sense to you. Think retail over biotech. Then, get to the bottom of a few questions:

Is the company and its products or services likely to be relevant for a long time? How does the company compare to its competitors? Does the stock's selling price accurately reflect what it's worth?

Do your research
Check out the annual report, which will give you the last year's earnings summary as well as an overview of the goals they've set for the future.

It'll outline how and where they plan to expand (Blumenthal says Starbucks is making China a top priority), and any new products they plan to launch in the near future. Beyond that, another good way to get a close look at the inner workings of the company is by listening in to investor conference calls that are often re-broadcast over the Internet. This will give you access to the same information the big-timers get.

At the same time, be skeptical. You can't rely solely on information straight from the horse's mouth -- it would be a bit like letting your kid fill out his own report card. To get a balanced view, check out other sources as well. In addition to Morningstar, Toan suggests browsing Yahoo! Finance and the company's Securities and Exchange Commission filings on www.sec.gov.

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