Choosing Stocks: What are your processes?

Being new to the stock market and investing I’ve been feeling really overwhelmed by the sheer amount of stocks out there! Also the huge amount of information available on each of them.

I’m wondering what kinds of processes do you go through when finding stocks to monitor, monitoring stocks and selecting stocks to buy?

How long do these processes usually take you?

Also any hints or tips on how to develop processes of my own will be greatly appreciated.

Re: Choosing Stocks, What are your processes?

Jono S said:

Being new to the stock market and investing I’ve been feeling really overwhelmed by the sheer amount of stocks out there! Also the huge amount of information available on each of them.

I’m wondering what kinds of processes do you go through when finding stocks to monitor, monitoring stocks and selecting stocks to buy?

How long do these processes usually take you?

Also any hints or tips on how to develop processes of my own will be greatly appreciated.

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best to ignore the noise and go for the real stuff..

Company Financial Reports, Company Management, Business model and structure, access to capital, cash flow etc...

If I don't understand any of that or any of that stuff ring alarm bells I assume I know nothing and better not get involve....

world is full of Financial Pornography, and you know Pornography only give you temporary satisfaction but not a life enduring one

some company I follow for 2 or 3 years before I got involve ..

I think you best first have to educate yourself so you can sort out the real stuff from the fiction stuff and after a while it becomes a second nature.

it takes times and you shouldn't rush in, let your cash sit in the banks and accumulate interest while you learn and sort out your process.

If I read a report I can spot if someone is telling porky by the way they
word their reports and certain metrics they use.

There are metrics I know by heart and I can spot a good report from a bad one and every now and then there are company that you research to buy and when you read the report it jumps at you on how good this company is because you read so damn many of the thing and you know the in and out and this one just stand out from the lot.

I happen to encounter one this year and I'm buying in number I rarely give to small cap stocks that how confident I am of this company because of the way it reports...no bull..as straight as a man can get..

reports only tells one side of the story, there are other matrix I do put in place to confirm what I read is the truth and nothing but the truth.

Once it qualify, a thousand brokers say SELL I still buy

To get you started.

List reasons why you want to own this particular stocks, remember its a part of a business u own
not some piece of paper so you want to be sure you want to be in this business for a long hall.

can you easily understand how it make money or explain their business in a few sentences.

does it has figures or thing in the reports that look like a black hole to you?

I never understand any of the investment banks financial reports in simple term so I never own any of their shares, maybe I'm a little dumb than other but that's ok I stay within my smart spots

each person do it differently so you have to come up with your own..

OK my advice is break the market into sectors, and then sub-sectors.

Financials- banking, insurance, investment funds etc
Commodities- precious metals (sub-sub sectors- gold silver platinum), base metals (copper, nickel, zinc, iron ore etc)
Energy- oil, gas, coal (ucg, csm, thermal), uranium, solar, wind, geothermal etc
Bio techs- not my area of interest, maybe someone else can fill in the blanks here?
Media- see above

Hopefully you get my point, you cant research and scrutinise absolutely everything. So pick your areas of interest and compare companies, look for value. Try to look ahead of the market at technologies or demands that are undiscovered, undervalued or even unloved.

Dont take everything you read on here as gospel, but there are brilliant members on here who if you take note on their posts or areas of interest, that may help.

At the end of the day its YOUR hard earned, assess your risk profile and trade/invest accordingly.

As ROE says, learn to read INTO reports, not just READ them.

Hope this helps, best of luck

I'm a little like ROE in that i like to understand what a business does, where's the money/profit come from and what's the cost of that cashflow/profit and where's the potential...can that business grow? is the company/business predictable and consistent? i tend to like simple 1 or 2 revenue stream business.

Should of started with that fact that if the stocks not cheap im not buying, no matter how much i like there story...look at the 5 and 1 year charts of any stock and you can clearly see where you should be buying.

based on those philiosophies youll be the same as everyone else in 2008 down %%%%

seriously why are you wantign to trade stocks ? to make a profit !! isnt it not self interest or i like that one or il study this one !

its about making money or investment wether its short or long term , should be dependant on how much profit you make and where your last resort of holding them is .

so you need to plan and build a database of stocks to test your plan on , prefer say the asx 200 or 500 looking for changes techncially that allow you to enter and gain on ... hell if you read papers and fundamentals as all ocmpnaies do you wil fed wahtever you want to hear , look at ABC learning as example , 2 times the stock told you to exit take your money and find somethign else , instead people bought on the high or worse bought lower thinking to "dolar cost average" or spread risk.... dont be caught up with information , there is som uch out there you will overload and you cant possibly pick it all up

so i suggest soemthing like a MA maybe intilly test your market plan, say on a 60 MA stock moves above buy , stock moves below sell !!! regardless of what you think.

anyway u must find something or buy something or invest into a fund who may get some % Down , up at the moment most are stil down , dont expect to many this year to be +ve

top 20 in FR are all _ve lol funny as thats the top 20 looking at worse 20 its -30% down

anyway take it it or leave the info i give , the question you have to ask why am i buying shares, if its not "to make a profit " then i sugest you bet on horses or give your moeny to the poor or soemthign ...

enjoy

Jono S said:

Being new to the stock market and investing I’ve been feeling really overwhelmed by the sheer amount of stocks out there! Also the huge amount of information available on each of them.

I’m wondering what kinds of processes do you go through when finding stocks to monitor, monitoring stocks and selecting stocks to buy?

How long do these processes usually take you?

Also any hints or tips on how to develop processes of my own will be greatly appreciated.

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I really do not believe in finding gems through stock-picking in a reasonable amount of time. Hence I follow a bit more straight-forward process:

1. Choose sector alloacation weights based on historical return/covariance estimates (i.e. whether I should invest 100% in raw materials or alternatively 50% biotech, 20% IT and 30% construction etc...);

2. Perform mean-variance optimization within the sectors (produces a stock portfolio with risk profile of my preference);

3. Repeat 1 & 2 every 3 months or so;

4. Have some pints while not in 3 .

The first 2 steps can be automated surprisingly far.

Jono S said:

I’ve been feeling really overwhelmed by the sheer amount of stocks out there!

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You could trade the market rather than individual stocks.

I tend to be open to most areas, and have bought into financials, commodities, energy, biotech, media, and food, almost all with some good results and some bad.

I definitely find it to be an advantage to focus on what you know about. Biotech makes sense to me, I have a background in science and biology, so I can follow what is going on. I have no idea about oil drilling, so have trouble following exactly what is going on there, but I am still open to it if I get a good tip, which is why I bought ADI quite blindly on advice from a friend and it is looking very nice for me so far. Of course, in general, blindly taking tips is very dangerous!

There are countless companies and you can't possibly look into them all. Sometimes I just choose a few to take a look at based on a name I like or something similarly random. Generally when doing that I don't spend more than a few minutes before looking away, but it doesn't hurt to just browse though, it's not like you're making a commitment by reading up on a company.

So_Cynical said:

Should of started with that fact that if the stocks not cheap im not buying, no matter how much i like there story...look at the 5 and 1 year charts of any stock and you can clearly see where you should be buying.

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Could you expand on that? What are you talking about seeing in five and one year charts which give you clear messages?

Sdajii said:

Could you expand on that? What are you talking about seeing in five and one year charts which give you clear messages?

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A good example of a couple of stocks i looked at for the first time this week was HSP and PRY both making the financial news due to poor results and both health stocks and both prob considered to be defensive and somewhat out of favour.

Now from a pure price point of view and without looking any deeper into the stocks, the 5 and 1 year charts tell me i likey...because they appear to be good value at the moment...lets have a look at the HSP 1 and 5 year charts.

Both charts tell me clearly that buying at today's price over the last 5 years has given many opportunity's to exit with good profits...simplisticy buying below the green line (today's price) is where i want to be buying, its historically proven to be profitable so why not today and into the future?

On the 5 year chart the green line is still looking good, the blue area is the top of the bubble and subsequent decline so that's a non issue...the orange marked areas will require explanations that can be found in the relevant announcements....based on the value i see i would look further.

If i couldn't see (green line) value i would look no further.
~

Thanks for the response.

What if the reason for the decline was that the company's main drug had become obsolete or banned from use due to a discovery that it was carcinogenic or something? Your reckoning seems to be based on the assumption that the price has simply dropped for some random reason and will recover. Maybe I'm missing something or misinterpreting you, or perhaps you only apply this to larger companies and wouldn't bother with the smaller ones which may only be focussing on a small number or even just one product.

Are you assuming that if a company has a track record of getting good results it will probably do so again, and so you have faith in a generally good company with a recent slump and will assume it only to be temporary?

Cheers.

Sdajii said:

Thanks for the response.

Your reckoning seems to be based on the assumption that the price has simply dropped for some random reason and will recover.

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Yep that's right.

Sdajii said:

Are you assuming that if a company has a track record of getting good results it will probably do so again, and so you have faith in a generally good company with a recent slump and will assume it only to be temporary?

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And right again...good company's with good management and good products/services do good business and make good money....once this is accepted its then simply a matter of buying at the right time IMO.

Looking at the 1 year HSP chart again, People were buying and selling at all levels from 3.65 to 5.15 now i don't know HSP well enough to comment on there business in depth but the chart says buy to me....i mean the price can only go in 2 directions, and assuming alls well with the underlying business then i would think the chart suggests that there is more potential to go up from this point than down.

Of course disasters do happen and there's always the possibility of further falls due to many reasons, and really that's just another reason to make sure you don't pay too much and get the lowest entry possible.

Thanks again for taking the time to respond.

So would you call yourself a knife catcher? I know a lot of people would be terrified of buying in at the point you are suggesting, but as you say with every post, you are not a trend follower.

I assume if you looked at ADI's chart lately you would think it was an awful time to buy in (it's zooming up, up, up, up), but looking at the underlying reasons for the price movement I still think it's a great time to buy in (though could be wrong). It has approximately doubled since I bought in a few months ago, and if I had to guess I'd say it will probably double again over the next few months (in a nut shell, they are testing new oil wells they are producing lots of lovely oil, and it is expected that the new wells they dig in the area will probably be similar because they are in the same area). How would this case fit into your analysis method? Would it be something you would avoid simply because it is going up, would you consider it a good buy because of the reason for it going up, or would you just say that it doesn't fit into your own style of trading so ignore it without caring?

Another company I bought into which is doing almost as badly as ADI is going well is CSS (down about 30% on what I paid). According to your chart method, they would be a great buy (and indeed, at the moment they may well be). They have basically plummeted down (which is why I bought in, quite similar to your method really) and for the most part that continued after I bought in. Would you say this is a good buy, or would you say it doesn't count because it is too new a company without an established record?

Sdajii said:

So would you call yourself a knife catcher?

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Yes and its not without its hazards, i tried to catch SUN and MRE as they fell during the middle to late stages of the crash - ouch...thanks to well timed buys at the bottom was able to pretty much rescue both positions...im in a trade now with CTN where i brought just before the latest correction, and ive already added to the position after the SP fell about 13%.

Sdajii said:

I assume if you looked at ADI's chart lately you would think it was an awful time to buy in (it's zooming up, up, up, up), but looking at the underlying reasons for the price movement I still think it's a great time to buy in, Would it be something you would avoid simply because it is going up, would you consider it a good buy because of the reason for it going up, or would you just say that it doesn't fit into your own style of trading so ignore it without caring?

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Just had my first ever look at the ADI chart and ill immediately pass...the good buy ins are gone, not for a moment saying it wont continue to rise as im sure the trend's are all over it....good for you - you got in at a good price.

Sdajii said:

Another company I bought into which is doing almost as badly as ADI is going well is CSS (down about 30% on what I paid). According to your chart method, they would be a great buy (and indeed, at the moment they may well be). They have basically plummeted down (which is why I bought in, quite similar to your method really) and for the most part that continued after I bought in. Would you say this is a good buy, or would you say it doesn't count because it is too new a company without an established record?

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I've been following CSS for about 15 months...never actually tried to buy it just been watching as i like there story and there is clear potential and crazy upside if it all works...and that's a big IF. At the moment iam concentrating on buying bigger more established company's, i believe we are still at a point in the market where there's great opportunity's for low cost entry's into solid, income producing company's.

That Opportunity wont last forever so im making the best of it while it lasts...besides my portfolio is full now at 20 stocks, ive got 2 to cull and be replaced then is just a matter of building into those stocks i hold....buying the significant dips.

There are obviously lots of different methods which work well, yours isn't entirely typical, but I can see the sense in it. Thanks for your time