Due Diligence Or Dd
Due Diligence or "DD" as it is often referred to for short, is simply this: do your homework BEFORE you trade. It is the review and examination for potential of any stock or security you plan on buying. It is disclosure of the information out there that is pertinent to an investor to know and understand for risk. Generally speaking a persons Due Diligence (DD) refers to the care and concern a reasonable person should always take before entering into any trade, and the research they should do before they buy so they can verify and learn all pertinent information they need to make an informed decision, so they know what they could reasonably possibly expect from their investment.
If its not clear yet, DD is the research you do on a company or stock for background, news, speculations, mergers, splits, acquisitions, holdings, sales, contracts or other influences that may effect a stocks price in the term you plan on keeping it for. Ideally this is to be done before you click BUY. It is to make sure you have adequate disclosure to understand and know the risks you are getting yourself into when you buy or sell.
The term "due diligence" first came to use as a result of the United States Securities Act of 1933 where the Act included a legal defense referred to as the "Due Diligence" defense which could be used by Brokers when accused of fraud or inadequate disclosure to their investors of material information with respect to the purchase of Securities. The same DD principle is applicable to any trader to be informed and aware of what they are risking their money into. Do your research. There is NO EXCUSE not to.
Doing your DD is not a guarantee of success by any means, but it is as close as you can come to checking out legitimate claims and being an informed trader who can take a risk fully knowing what is publicly available to know. You would not buy a car without doing a test drive or some background info checked out; you would not buy insurance without knowing what is covered and what the company has for record of payouts vs denied claims; and you would not purchase a food item without checking ingredients to make sure it IS food and not filler or all salt and fats--so make sure you do your "DD" on any security you plan to trade. Its your money, its your risk, and its YOU who end up holding the bag, so make sure you understand and accept the risks you take.
How do you do you DD? Check your brokers info, call the company. search the SEC for info and reports the company files, check the many things on a chart for history and market cap and so on, search the internet for news; Also read what others may have to say and take it with a grain or ten of salt. Always remember it is YOUR decision to get into a security. Don't blame someone else because you listened to a random post on a web forum from someone you didn't know and lost - the trader has the ultimate responsibility to know what they are getting into.
Being an INFORMED trader is the only way to go.