What does the term “kicking the tires” mean?
The term kicking the tires refers to learning only a very minimal amount about an investment before deciding whether to invest or not. The investor only scans and skims a company’s past sales performance, annual report, strong points, weak points, articles, or news-related instead of thorough study and research. We can encounter the term “kicking the tires” in broad ranges of investments like stocks, shares, bonds, mutual funds, hedge funds, money markets, private equities, real estate properties, and the like.
A little history on how the term kicking the tires got its name
It all started in cars and automobile shops. For example, James entered the car store showroom and looks at the model displays, but he does not make a thorough check. He does not check the engines and hoods or inquire too much about the car’s performance. He walks around and only looks at the whole exterior of vehicles, then kicks the tires later on.
The store manager and crew can assume that James is not serious about buying or not yet ready to buy. He is just merely looking.
More on kicking the tires
Now, since we already know where the term came from, we can take this analogy to the world of investments. We can compare James to a stock investor who only looks at a company’s summary of essential facts. This summary only includes the company’s price-earnings ratio and the valuation compared to its competitors. He may also make a quick look at the company’s price chart to understand its performance during the past. He is not yet ready to invest, or else it just got his attention that is why he is looking. Investors must not make kicking the tires a habit to avoid acquiring poor-performing investments and wasting too much time.
Typically, serious buyers would take the time and effort to read and study a company’s financial health data like balance sheets, income statements, and other related researches. They immerse themselves in doing a technical analysis which offers price and volume information to know a good entry and exit point strategy. However, investors also do rigorous research even when they are not ready to buy yet.
Should we ever consider tire-kickers?
While it is true that some investors who kick the tires may not be serious buyers, for now, sellers and owners must still take everyone seriously. Why? Some tire-kickers may change their minds and become interested in an investment that they do not even think they will be interested in before. A simple scan and skim may spike a rush of interest that can lead to further research and finally purchase an investment even if it is unexpected.
A tire-kicking scenario
Kate is scrolling posts on social media when she suddenly saw an advertisement about life insurances. She read the description, but she did not bother to send a message to the life insurer to get advice and secure the life insurance investment.
