In Investing, What Does "Kicking the Tires" Mean?

"Kicking the tires" is a phrase that refers to researching a potential investment before sinking money into it, to determine whether it is a good buy. This can include a variety of background checking activities to learn more about a company, the management, and the competition. Investors ranging from venture capitalists interested in a new entrepreneurial endeavor to people who want to purchase a certificate of deposit may conduct research before they buy. Researching can identify issues that might cause a problem with the investment.

One important aspect of kicking the tires involves reading statements from the company involved, including annual reports and other documents. These provide information about how the company is doing, and include reporting on topics mandated by the government. Such disclosures can help investors identify problems like falling profits or poorly organized managerial structure. It is also advisable to look at and research the managers, to learn more about who is in charge. Someone with limited experience, for example, might make a bad chief executive officer.

Performance can be another criterion to review while kicking the tires. This includes not just the stated numbers in the annual report, but also documentation in articles about a company. Trade journals and related publications can provide additional insight into how the company has performed and what kinds of activities to expect in the future. Columnists can offer their thoughts on the usefulness of an investment, and this information can be useful for investors preparing to make a buy.

Looking at the competition can also be helpful. Investors kicking the tires might want to compare quotes on financial products from different companies, or contrast the performance of two firms in the same industry. This can help them determine if an investment will be sound when compared to the competition. If one 10-year certificate of deposit offers 3.4% interest and another offers 4%, for example, the investor would probably want the option with higher interest unless it came with unusually restrictive terms.

The same goes for investors preparing to work with a specific broker, financial advisor, or other financial services professional. Kicking the tires includes making sure the person is fully licensed to practice, and is in good standing with any professional and trade organizations. Prospective investors can review reports on performance and other criteria that might be important considerations when deciding who to invest with. A hedge fund manager who returns consistent, stable results, for example, can be a sound choice, in contrast with someone who incurs losses or has suspiciously perfect financials. These might indicate falsifications.