Every time you speak with a stockbroker about any equity he always says, I will send you a prospectus. My question to you is do you know how to read it? Probably not.

I am not being critical of you. Thats just the way Wall Street wants it. Yes, everything the company has to tell is told in that document provided they told the truth, but it is presented in such a way that it is almost meaningless. The person who thinks he understands it is the lawyer in his Dilbert cubicle at the Securities and Exchange Commission.

Reading a prospectus from the most successful company in the country and one that is on the verge of bankruptcy is almost the same. The facts are laid out and unless the reader is a professional accountant it will be difficult to determine any difference.

Much of the information in any prospectus is old, 6 months to a year because of the statistics. What you want to know is not where the company is now, but where will it be 6 months from now. No prospectus will tell that. Enron proved it.

There will be an evaluation of the managements performance record, where they worked before and how each one did. One thing never addressed is whether this mutual fund manager has ever been through a major bear market. Most havent. This is extremely important.

There will be an expense ratio if it is a mutual fund. Now many funds are charging redemptions fees if you sell out before a certain period of time. Thats a rip off.

A stock company will tell you about their product and how it is superior to their competition. (You dont think they are going to tell you they are average, do you?) Mutual funds talk about sectors in which they specialize and especially how they have done over the past 3, 5 and 10 years. You didnt buy this 3, 5, or 10 years ago so you want to know what they are going to do in the next 3, 5 and 10 years.

The SEC requires that all prospectuses add a sentence that says, Past performance is no guarantee of future results or something similar. In other words you pays your money and takes your chances. There are no guarantees in stock market investing and this document is most likely not going to be much help.

A prospectus does tell you all the facts that are required by the SEC and that is what Dilbert looks for. He has no way of knowing if these are correct. They usually are and all footnotes are very important. It is the old story of they give it to you in the big print and take it away in the small print.

If you are going to rely on a prospectus to buy any equity the best person to read it is a securities attorney. Dont rely on a broker as he probably doesnt know much more than you do.