They deliver a great deal of information in an easy-to-understand format, showing trading ranges, volume, daily closing prices and, of course, buy and sell signals. So charts are a large part of the research I do before taking a position and adding a new company to the Confident Trader Portfolio.

However, it would be imprudent to ignore other company information available in another form – say a prospectus or annual report. This is where you’ll find information not readily available in chart form. Of course, with all of that fine print, it takes a while to chew your way through one of these documents. So, you can do it yourself or find an analyst who does his or her homework and considers a company’s fundamentals before moving in.

There’s lots of information in a prospectus, a quarterly or annual report. Here are just some of the things I look for in a company’s fundamentals – regardless of how the company’s chart looks.

I look for companies that are about to bring a new product to market. When I buy, it isn’t a household name – yet. But the potential is there based on the need for the product or improvements over existing products. If I recognize the potential demand for this product, whether it’s consumer-driven or B2B, I add that company to my watch list and follow company news through feeds to my email inbox.

Next, I look for small-caps that are significantly off their highs and then determine the reason for the lower share price. Often, you’ll discover stocks that have shown winning performances and continued growth quarter after quarter that have yet to appear on the radars of brokerages and tea-leaf readers.

If the company’s performance improves but the share price drops, you know there’s room to grow once the rest of the market catches up with you. Buy in early and hold. The rest of the market will eventually find the gems in the small- and micro-cap sectors. And when it does, you make money.

Next, I look at insider trading activity. All company owners, principals and managers must report their own buying and selling of company shares. Why buy a company that has a lot of insider selling? Sure, a board member may need cash to send his kid to college but if I see widespread insider selling, I run for the hills.

I prefer optimistic and confident managers – owners and managers willing to put their own money on the table by investing in their own company shares. These insider buyers believe the share price is going to increase and who am I to argue.

Next, I weigh the company’s P/E to determine prospects for growth. There are experts who believe that buying micros with stratospheric P/Es is an indicator of expected growth. But remember, those are market expectations, which may not be in line with company expectations. When you see a company with a total capitalization of $5 million and a P/E ratio of 125, you have to give pause and determine what the market sees that you and I don’t.

If you’re a speculator and you can afford to take a flyer (and risk losing it all), small and micro-caps with huge P/Es do indicate growth expectations. However, I prefer companies with P/Es I can live with for months and even years. This way, I’m not driven by the herd mentality that drives up growth expectations and P/Es.

Another factor to consider is market capitalization versus book value. I look for companies with book values in excess of market capitalization. Why? Market cap is what the market says the company is worth. Book value is the actual value of the business including any profits, facilities, equipment, patents – anything of value.

When you find a company with a higher book value than market cap, you’re buying that stock at a discount. You pay less per share than what the company would be worth if it ceased operations and sold off all its assets – book value. Market capitalization changes based on what stock pickers believe. Book value is a hard number you can count on. So buy below market cap based on book value. It’s a company on sale, but usually for a limited time only.

Well, we certainly do live in interesting times. Here’s to your investing success.

Timothy C. Schewe