Request for some help for all beginners (on researching)

Paul24 · 16 October 2010

A question that I'm sure all beginners have is about researching a company.
How much research do people actually put into a company before they buy a share?
Do people live and breath the industry, or does a couple of hours of researching on the net provide people with enough confidence to buy.

Would a kind soul here be able to provide an example of the process that they have gone through to buy a share. Obviously you don't have to name an exact example of something you did, but maybe an example like.

"Noticed on the news report a change in the xyz industry that could lead to a rise in prices for the sector.

Then second step would be to research the sector on commsec and have a look at what a company of X size would be worth, then trying to find an under valued one and then seeing if they have a bright future through research on its website and announcements.

Then if you feel like the company is worth it, purchase shares"

Now thats something that I would do (but I haven't brought any shares yet as I'm still learning), but I honestly don't know if thats an ok method or are there more things that should be done before a purchase?

white_crane · 16 October 2010

How much research you do generally depends on the length of time you will hold those shares.

As short term trader, the amount of company research I undertake is next to zero.

Perhaps some longer term traders can give you an answer from their aspect.

Julia · 16 October 2010

Paul, there are probably as many different approaches as there are members of this forum.

Have a read of the following which is a post made some years ago by Bunyip on this forum amongst a discussion on the comparative usefulness of fundamental and technical analysis.

Quote:
"Researching stocks takes a lot of time and it prevents me from doing other things."

I agree - researching stocks is time consuming.
But there's a simple solution to your problem.....don't do any research. There's no need to - tens of thousands of traders and investors have already done the research for you, and their findings are reflected in the trend of the stock.

AMP fell from $13 to $3 between March 2002 and August 2003. Shortly after it's downtrend began it was patently obvious, even to someone of little experience in chart reading, that the stock was heading south east on the chart.......a downtrend.
Why was it downtrending? Because traders and investors were quitting the stock en masse.
Why would they do that? Because tens of thousands of them had researched the company and found out that it was in trouble, and it's future prospects were none too bright.
In which case, you could have made money from the AMP downtrend by selling the stock short, or buying put options.
Or if you owned the stock, you could have bailed out long before it's value was decimated.
The point is that you could have got quite an accurate summary of the fundamentals of AMP without spending one minute of your time doing fundamental research. Just look at the chart.....all the information you needed was graphically displayed for you.

Look at the current price action of AMP. Nice uptrend in place, particularly when viewed on the weekly chart.
Why is it uptrending? Because tens of thousands of investors, having done their research, have formed the opinion that the stock has good fundamentals. No need for you to research AMP to profit from it - the research has already been done for you. If an uptrending stock shows temporary weakness by pulling back for a few days as profit takers bail out,
and then the uptrend resumes as buyers come back in, it presents you with an ideal opportunity to hitch a ride on the trend and make some money.

The same sort of simple analysis and trading strategy can be applied to any liquid stock that starts uptrending or downtrending strongly.
WPL is a good example.....uptrend began in early 2003. Three years later, the stock is more than four times it's 2003 value.
Once you saw WPL heading steadily north east on the chart, making higher peaks and higher troughs, did you really need to spend hours or days of your time doing fundamental research on it?
Thousands of investors had already researched it for you and their findings were very positive, otherwise why would they be piling into the stock and pushing it higher week after week?

A common fallacy among stock market players is that if you want to profit from the market, you have to read the financial papers, company reports, brokers newsletters etc to keep yourself up to date with the latest developments in the economy and within individual companies.
Its simply not correct.....I've been trading the markets for 10 years or so and for the last eight of those years I haven't read a financial publication, a brokers newsletter or a company report.
The most reliable information is in the charts. Learn how to interpret them, learn how to identify trends, learn how to recognise retracements, watch for the trend to resume following the retracement.
You won't need to spend your time doing boring company research, and you won't need to hand your hard earned money over to Fat Profits either.

If you want some good books on how to identify trends and how to hitch a ride on them, I'd suggest.....

"Dave Landry On Swing Trading" by Dave Landry

"Secrets For Profiting In Bull And Bear Markets" by Stan Weinstein

The trading methods espoused by both these men are simple to learn, easy to implement, and require very little time input from the trader or investor.

tech/a · 16 October 2010

Long (years) and short term (hrs./day/days.)
The only thing I know about most of my holdings are their/its code.
The only reason I'll be trading them/it is they will have satisfied an entry criteria.
The only reason I'll sell them/it is they will have been stopped out or satisfied an exit criteria.
Takes around 10 mins a day.

Synergy · 16 October 2010

tech/a said:
The only thing I know about most of my holdings are their/its code.

I'm in the same boat, and I imagine some people would find this hard to believe. Often I don't even know the names of the companies i hold. But that doesn't mean that time hasn't been spent researching.. It's just that the time is in the form of writing and testing the code that creates the buy and sell signals, which might be 100's of hours.

tech/a · 16 October 2010

Synergy said:
I'm in the same boat, and I imagine some people would find this hard to believe. Often I don't even know the names of the companies i hold. But that doesn't mean that time hasn't been spent researching.. It's just that the time is in the form of writing and testing the code that creates the buy and sell signals, which might be 100's of hours.

Yes that's right.

All we need to know is that "IT" is in demand (long) or out of favour (short---for me index futures) according to the criteria in our trading method/system.
We know that if we follow the signals of our method that we will gain an expectancy similar to that we produced from our data set---provided the market doest trade outside of the parameters of the data set we used for testing.

Simple really.

Paul24 · 16 October 2010

So just from following the trends, how much do people actually make from the market, say the market is growing at 5%, trading in this manner, would you expect 8% growth PA? or would good be considered double the market at 10% growth?
Just wondering what too good to be true is and what is actually obtainable over the standard market growth.

tech/a · 16 October 2010

Paul24 said:
So just from following the trends, how much do people actually make from the market, say the market is growing at 5%, trading in this manner, would you expect 8% growth PA? or would good be considered double the market at 10% growth?
Just wondering what too good to be true is and what is actually obtainable over the standard market growth.

Consistently (Year in year out) anything over 25% P/A is excellent.
At times multiple 100%s of capital allocated to a trade can be achieved.
Clever pyramiding and compounding of profit can add considerably to the raw return figures.
At the other end----many blow up their account in under a year.

Paul24 · 16 October 2010

So wouldn't this mean there are experts out their running funds that can return this type of profit to its customers?

tech/a · 16 October 2010

Trading Billion Dollar accounts is vastly different to trading small fry like you and I.
Liquidity for 1
Ability to move markets with trades 2
Some have achieved these results and more but consistency is the key here.

Sean K · 16 October 2010

Paul24 said:
So wouldn't this mean there are experts out their running funds that can return this type of profit to its customers?

I doubt it. There's a couple who claim like 20% or something, up until the GFC. Some have computer generated systems that get switched off during recessions/bear markets. The managed investments you and I can get into average around the industry long term return. The S&P ASX100 has returned 8% over 10 years, which is 'a' benchmark. I read a while ago that 11% was the XAO average return and anything beating that was good. Lonsec have returned 14.7% over the same period with their Model Portfolio, which is a decent effort through the GFC. Tech/a has returned above % gains and some full time traders like Trembling Hand seemed to be able double money in a day...

cutz · 16 October 2010

Paul24 said:
How much research do people actually put into a company before they buy a share?

None,

Only requirements (for me) are top20, gut feel and spare cash.

nooberator · 18 October 2010

cutz said:
None,

Only requirements (for me) are top20, gut feel and spare cash.

Sounds alot like Storm Financials investment strategy.

mazzatelli · 18 October 2010

nooberator said:
Sounds alot like Storm Financials investment strategy.

Dig around on cutz background and you may understand why

Request for some help for all beginners (on researching)

Paul24

white_crane

Jedi Master

Julia

In Memoriam

tech/a

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Synergy

tech/a

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Paul24

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Sean K

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cutz

nooberator

mazzatelli

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Request for some help for all beginners (on researching)

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