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How to pick a stock

Hi

So what type of model are you using or screener? I just sign up to ‘stockopedia’ which has lots of data but it’s a bit overwhelming. Getting deep into the fundamentals across a bunch of stocks is pretty hard. I just want a few decent growth small caps I can pick up and add to my portfolio..

How do you guys filter through all the info and stocks out there? You just go with news reports, or look at the fundamentals or techinicals?.. What’s your starting point?

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I have a spreadsheet that pulls in data and produces a list of companies that match the criteria of businesses I’d want to own. And then I look at cheap valued ones and read the filings and presentations.  It helps I’m looking in one industry with lots of standardized data. 

rawraw wrote:

I have a spreadsheet that pulls in data and produces a list of companies that match the criteria of businesses I’d want to own. And then I look at cheap valued ones and read the filings and presentations.  It helps I’m looking in one industry with lots of standardized data. 

So you just screen for things like market cap, industry, EPS etc and then it lists like 50 stocks and you choose from one of those?

No, I know my industry ahead of time. So then I run a screen on balance sheet and income statement metrics that give me an idea of what kind of business it is. I don’t pull in things like EPS, but sources of revenue, expense structure, etc. 

morningstar and gurufocus is cheap way to go about what u want

i usually start with the numbers. if the numbers look good. then i will learn what they actually do.

I love my cheese. I got to have my cheddar.

I think screens are a great starting point if you’re trying to whittle down what would otherwise be too many names to research in any meaningful way. I like Joseph Piotroski’s F-score work on screening for attractive value opportunities. Portfolio123 offers great screening and backtesting capabilities to those of us (i.e., me) who have ‘retail’ pockets. 

"Between stimulus and response there is a space. In that space is our power to choose our response. In our response lies our growth and our freedom." -Viktor Frankl

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.

"You want a quote? Haven’t I written enough already???"

RIP

Nerdyblop wrote:

morningstar and gurufocus is cheap way to go about what u want

i usually start with the numbers. if the numbers look good. then i will learn what they actually do.

pro tip: M* is free with a library mempbership in most cities. if not you can get an “online” library membership for out of state for like $30 a year. IMO its worth it.

"You want a quote? Haven’t I written enough already???"

RIP

igor555 wrote:

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.

Good post.  The first step for me is always “What is my edge?”  If I cannot clearly explain why I know more than the person selling the stock to me, I invest in ETFs.  Before you start looking for stocks, what is your edge?  That will govern how you find ideas.

I kind of use everything to find stocks… A lot of my investing has to do with what I’m interested in. For example,  I used to be a hardcore gamer, so I tend to pay attention to companies like Microsoft, Sony, Nintendo, Activision, and Gamestop. I usually know how new game consoles/games/updates will affect those companies because I understand how the customer base thinks. I also follow the Global Forest and Paper industry very closely.

Thanks for these posts. 

I guess a starting point for me is to pick an industry or 2 that i’m already fairly familiar with and work from there. I have pretty good coverage of financials given my job so will keep that on my radar… and i am ok on retail given my wife likes shopping a lot!

I’ll use some of my intuition and screens and see what i can come up…