There is a Reason We Say, “Do Your Own Due Diligence.”

My grandfather used to tell us a person should have enough sense to come in out of the rain.

Simple, plain advice from a not so simple man who in his lifetimes was, among other things, a WWII hero, a mining foreman, a clock maker, as well as an inventor of necessities. Not all of us can claim to be any or all of those things, but his message still resonates. It simply translates to “know when to practice common sense.”

Practicing common sense, among other things, includes doing your own due diligence.

In a Twittering and Tweeting world that my grandfather could have never imagined, we are overloaded with information and predictions about “the next big thing” or “what will cause the next big crash” on Wall Street. Yet amidst all this prognosticating, no one has all the right answers for everyone else. Tips and touts, hopes and doubts… everyone has is trying to sway your opinion. It’s worse than a Presidential Election year because the rumor mills churning out a continuous barrage of information and disinformation never, ever ends. And, that is the primary reason you need to do your own due diligence.

If you feel that I am preaching to the choir, then you are a better investor than most. However, if you are the one person who reads this article and walks away a little more cautious then I have done my job, if not my good deed for the day.

Here is the case in point. Even the most savvy investment professionals can get carried away.

Several years ago I wrote a lot of news articles about a company which by all accounts had the potential to be a golden parachute for any number of investors. A professional day trader and ex-stock broker called me one evening and told me he had heard a rumor that this company was to have “big news” in the morning. He asked me if I knew if this news was going to be what he hoped. I told him that I “hadn’t a clue” because that was the honest-to-God truth. My exact words were, “It’s not rocket science. With this type of a company it can only go one way or another. It’s a fifty-fifty proposition.”

I don’t know who else he called, or even if he called anyone else that night, but I do know he made a decision to hedge a bet that there would be very good news in the morning. As such he placed a great deal of money on a margined position. When the press release came out the next morning, the news was bad. In fact, the news was devastating. As a result, there was a margin call and this guy was out more money than he ever imagined.

Moral of this story is that even if the odds are 50/50, a bet is a just a bet. It’s gambling. The only thing that separates playing the market from gambling is that you have the ability to gather the facts and decide if you want to play those odds (i.e., do your own due diligence).

Just remember:

There will always be wordsmiths and silver-tongued brokers who are better than others at pleading the case for investment in an IPO or a particular security. That is their job.

There will always be some well-meaning government regulator probing the activities of one company or a one sector. That is their right.

There will always be wide swings in the market caused by factors beyond your control. That is how the market corrects itself.

There will always be that one sneaky corporate CEO who outright lies, or withholds information from, to investor relations firm so that brighter pictures are painted. Eventually, that will be his folly, but it doesn’t have to be your misfortune.

These are just a few good reasons why you need to do your own home work and make your own decisions.

Read SEC filings. Research the market sector. Look at the past versus present performance. Make your own technical analysis chart. Draw your own conclusions.

Over a century ago, George Santayana said in work “The Life of Reason, Volume 1” in 1905, “Those who cannot remember the past are condemned to repeat it.” I think this was Santayana’s way of telling us all to have enough sense to come in out of the rain.