The first step all beginning investors should take is to do research about investing and the market. The fundamental background and knowledge of the market is vital to their success.
This process often involves learning several new words. One term that all investors should become familiar with is the term ‘due diligence.’
Due diligence refers to the audit of a potential investment. In reference to managed futures this refers to doing enough research on firm that you become comfortable with their strategies, the manager, and the history of the firm.
This kind of research includes a full review of the disclosure document, the subscription agreement, the manager’s website, and asking questions but is by no means limited to these few sources of information. Developing the required background knowledge is going to take a significant amount of time, but due diligence is vital to investing successfully in managed futures.
Unsuccessfully putting enough time into due diligence is one of the leading problems among beginning investors. Failing to give due diligence to their investment will result in problems soon after the investment is made.
One of these problems could be difficulty accepting the decisions of the manager and his or her strategies. Due diligence should continue after the investment is made.
The market is constantly changing. As a result it is important that you are up to date on the variances so that you can wisely monitor the handling of your investment and be able to make the correct decisions.
Due diligence is something you may want to keep up even if you stop investing simply so that you are aware of the markets. There is so much you can learn about life from the markets.
The first step in due diligence should be to visit the website of a managed futures firm that you are potentially interested in. The website is similar to how a company is dressed.
It gives the first impression of the company and how professional they are. If the site looks like it was put together poorly or cheaply, it is likely that you will want to find a different site.
Even if the manager seems nice and put together, the fact that he is unwilling to put effort into his website states that he does not believe in what they do or is not proud of what they offer investors. The website should also have a wealth of information on the company.
It should be fairly easy to find out about the manager’s background, his strategy, what types of people are on his team, and the company contact information. The website may also have a downloadable PDF of the disclosure document (DDOC).
The disclosure document should not be more than 35 pages long, but it contains valuable information concerning an investment made with the company. Many parts of the DDOC are similar across various firms because the National Futures Association (NFA) requires that certain things are put in every disclosure document.
This document should detail the firm’s strategy, the manager’s background, and risks involved with an investment through the firm. These details of these parts are the most important and if there is something that you are unsure of or concerned about, it is important to discuss it with the manager of the firm.
Some firms will not post the disclosure document on their website because they prefer to meet a new potential investor in person to gather more information and help him or her get a feel for how their company runs.
After reviewing the disclosure document and if you are still satisfied with the company it is time to talk with the manager. The manager knows exactly what goes on with each investment and will be able to explain the process the best.
It is important when the manager talks about the strategy to think about any differences between what he is saying and the disclosure document. These differences indicate that he may not know what is going on or how to properly make the investment successful.
If this is the case, do not invest through his firm. It will only result in the loss your money.
By properly doing due diligence, you can make the difference between a successful investment and a severe loss.