Why are tires kicking off?

The phrase “kicking the tires” describes the informal process of doing a cursory investigation into an investment rather than a comprehensive and analytical one. A brief review of the company’s annual report, an examination of its past sales and earnings performance, a discussion of the company’s competitive advantages and disadvantages, and a perusal of news items or headlines about the business are typical steps in the process.

Comprehending “Kick the Tires”

The phrase “kicking the tires” originated with car shopping. When a car buyer expresses some interest in a vehicle, it’s unlikely that they will take the time to carefully compare the automobile to other models or go under the hood. But before kicking the tires, this customer typically walks around the vehicle from front to rear to get a closer look. This customer isn’t regarded as a hot prospect or a serious buyer.

In the realm of investments, a tire-kicker is also someone who isn’t prepared to make a decision. When a stock investor isn’t quite ready to invest, they frequently look over the company’s balance sheet, prior cash flow statements, and income statements, in addition to wanting to read multiple research papers. When evaluating a stock, a novice investor may compare its price-earnings ratio and other fundamental valuation indicators to those of its competitors. Kicking the tires usually entails glancing at a company’s price chart quickly to get an idea of how it has performed in the past. Using a study of both price and volume, technical analysts can look for trends and possible entry and exit locations. A wide range of products, including equities, bonds, mutual funds, hedge funds, closed-end funds, money markets, certificates of deposit, private equity, and real estate, are also suitable for “kicking the tires.”

Illustrations of “Kick the Tires”

For instance, an individual considering investing in a hedge fund begins to learn more by perusing promotional materials supplied by the investment management firm. Still, they do not yet check the investment manager’s disciplinary record on the FINRA website.

Comparably, a prospective 12-month CD buyer checks for interest rates online but neglects to read the fine print about penalties, restrictions, and the policy of automatic rollover.

Benefits and Drawbacks of Kicking Tires

Serious analysis usually starts with kicking the tires. Investors who initially begin by kicking the tires may move on to more in-depth research that yields intriguing discoveries, sometimes even outside of their typical search parameters.

However, depending on the investor’s strategy, frequently kicking the tires can lead to diversions and poor investments. Additionally, wasting time on novel concepts requires constant experimentation. Because of this, rather than just kicking the tires, investors may find it more advantageous to start with a precise set of criteria to reduce the pool of possible investments.

Conclusion

• Before making an investment choice, “kicking the tires” means studying.
• Looking for a car is the opposite of doing a serious, in-depth study or due diligence.
• Even so, “kicking the tires” can be a good strategy because it saves time and effort by only doing a quick analysis. However, it can also lead buyers astray by giving them incomplete or wrong information.