What Is Kicking the Tires?
Let me explain what kicking the tires really means in the world of investing. It's a casual phrase that describes doing just the bare minimum research on an investment, rather than diving into a full, detailed analysis. You might skim the company's annual report, glance at its past earnings and revenue, think about its strengths and weaknesses against competitors, and maybe read a few news headlines about it.
Key Takeaways
When you kick the tires, you're basically doing a quick check before deciding on an investment. This comes from how people shop for cars—it's the opposite of serious, deep research or proper due diligence. That said, it can be a useful tactic because it saves time and effort with some basic analysis, though it might steer you wrong with half-baked or incorrect ideas.
Understanding Kicking the Tires
The term comes straight from car buying. If you're interested in a car, you probably won't pop the hood or compare it rigorously to other models. Instead, you walk around it, give it a once-over, and maybe kick the tires. That makes you not a serious buyer yet.
In investing, it's the same idea. You're not ready to pull the trigger on a stock or other investment. You might check the balance sheet, old cash flow and income statements, and read some reports, but you're not committing. Often, you just look at simple things like the price-earnings ratio compared to peers.
This minimal approach usually includes eyeing the price chart for past performance. If you're into technical analysis, you scan for patterns and possible buy or sell points based on price and volume. And it applies to all sorts of investments—stocks, bonds, mutual funds, hedge funds, closed-end funds, money markets, CDs, private equity, even real estate.
Examples of Kicking the Tires
Take someone considering a hedge fund. They might start by reading the promo materials from the management company, but they skip checking the manager's disciplinary record on the FINRA site.
Or think about a 12-month CD. You look up the interest rates online, but you don't bother with the fine print on penalties, restrictions, or how it rolls over automatically.
Pros and Cons of Kicking the Tires
This method is often how real analysis kicks off. Sometimes, if you start with a quick look, you end up doing more in-depth work and find something worthwhile, maybe even outside your usual hunting grounds.
But depending on your strategy, doing it too much can distract you and lead to bad picks. It wastes time jumping from one idea to another. That's why it's better to begin with clear criteria to filter potential investments, instead of randomly checking things out.
