there is no one way to do it.
some folks like buffett look at fundamentals, esp owner earnings and moats.
others screen for stuff like roic, roa, roe, peg, free cash flow yield, etc
others get their ideas from everyday life (sbux, amazon, netflix, etc)
some folks specialize in distressed situations
others specialize in a certain industry like raw raw and bs (rip) (financials, oil, etc)
others specialize in different parts of the capital structure besides equity like preferred,debt and baby bonds.
i get ideas from a bunch of different ways. i look at stocks at 52 week lows or industries and businesses not in favor. yahoo publishes all this stuff.
BUT the ONE thing they all have in common is they READ ALL THE TIME. there is no hard rule but most folks usually read the last few 10-k and 10-q. Also read industry articles, management reports, company filings, earnings calls, etc.
if you cant explain what the business does, how it makes money, the industry structure, and its durable moat you should not invest in a stock, an index fund will be better.
my favorite quote is “an investment operation is one, after through analysis, offers safety of principal and adequate return” otherwise its speculation.
another important thing i learned is to invert. by that i mean try to come up with reasons why NOT to invest after your analysis says its a good investment.
i also have a checklist for every stock that i look at…it keeps me in check so i dont make irrational decision.
in summary its def a lot of hard work and takes a lot time, you need to understand the company as well as the industry very very well. you need to spend a lot of time and most ppl dont want to or cant so they just invest in an index fund. you can def beat the index but you have to decide if all this extra work is worth the sacrifice.