What is Kicking the Tires?
Kicking the tires refers to researching multiple aspects of a prospective investment in order to become as familiar as possible with the potential risks and rewards.
How Does Kicking the Tires Work?
Derived from the practice of outwardly examining the quality of a car by kicking the front tires, kicking the tires of a potential investment refers to learning as much as possible about it. This might involve reading company prospectus, reviewing annual reports, interviewing current holders, and consulting an investment advisor. The end result of kicking the tires should be to understand to the fullest extent possible the pros and cons of investing in a particular security, and is critical in bottom-up investing.
Why Does Kicking the Tires Matter?
The practice of kicking the tires is an advisable course of action for any investor despite the convenience of investment advisors and numerous online resources for quickly evaluating all manner of securities. The more information obtained about a potential investment, the more informed a decision an investor is able to make.