What does Kicking the Tires mean in Investment?

FinanceBanking & FinanceFinance Management

A term that refers to undertaking just the most basic study into a potential investment as opposed to undertaking a complete and careful examination is "kicking the tires." A first superficial perusal of the business's annual report is frequently followed by an examination of the firm's past earnings and sales performance, consideration of the firm's useful assets and failings, and browsing news items or headlines about the firm.

Key Points Briefly

  • Before making an investment choice, it is necessary to undertake a minimum amount of research, which is known as "kicking the tires."

  • When used within the context of automobile purchasing, it is the polar opposite of completing serious, in-depth study or due diligence, which are both recommended.

  • Kicking the tires reduces the amount of time and effort spent on research and may be a useful strategy by doing quick research, but it may also lead investors astray by providing them with inadequate or incorrect information.

Kicking The Tires Example in Investment

Let us take the example of an individual considering investing in a hedge fund who may begin by reading promotional materials given by the investment management business but may not conduct a thorough search on the government regulatory website to verify if the investment past history of manager and the company.

While the individual may get away despite the inadequate research, there are more chances of the person incurring huge losses. It is therefore recommended to examine and investigate the past track record of the firm you’re dealing with, their past financial statements, income statements, and other records that are available in the public domain. Performing this deep analysis will place the person in a far better position to take an informed decision.

Similarly, if someone is considering a 12-month certificate of deposit searched up interest rates on the internet but didn’t bother to read the terms and conditions page that covers all important issue of fines, regulations, and limits of the policy. While the fine print can be tedious to read and we often skip it, it is highly recommended that before you sign or buy such policies to thoroughly perform your research or you will be left kicking the tires.

The Advantages and Disadvantages of Kicking the Tires

Kicking the tires often forms the first phase of analysis for investors who later on proceed to more rigorous analysis, that results in interesting discoveries, within their normal investment cycle or, in some cases, outside.

However, the investors must be aware that using this approach haphazardly could lead to poor choice of investment and a portfolio of assts that doesn’t yield good returns. The possibilities can be diversified smartly by doing thorough research.

raja
Published on 02-Jul-2021 07:39:23
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