How do I pick stocks? (posted to answer david’s comment) June 28, 2007Posted by deminvest in investment, investment strategies, My investing mistakes, risky investments, stocks.
Thanks David for forcing me to think. Funny as it is, I never asked myself this basic question until I read your comment.
My main effort is to pick shares by thinking with my own head. I don’t believe in finance Gurus. IMHO a finance guru is someone who “tomorrow will explain why what he forecasted yesterday didn’t happen today”. I prefer to make my mistakes by myself.
First of all I try to figure out what simple people like me and you in every corner of the Earth want, do and think. The interaction of what we want, do and think with new technology, that make it possible, generates huge transforming forces toward:
- Lowcost society (Low cost airlines, supermarkets, computing, Internet Services, Trading Banking, Telecommunications….)
- Internet developments (Google, Ebay, Baidu…)
- Fast globalization and developing countries growth (China, India, East Europe, Brazil…)
- Environmentally sustainable growth
- User generated information (like this Blog)
- Rich countries becoming old because people want to live longer and do less sacrifice for children
- New technologies which may or may not make a difference any soon (Biotech and Robotics)
I usually want shares of companies that do use those forces at their advantage and I usually try to avoid companies that try to fight those main forces, but my main reason to buy a stock is good numbers!
I find those numbers on finance.yahoo.com where I check very carefully:
- Current and Future P/E (Price/Earning)
- Revenue and Earnings growth y/o
- Cash or Debts
- Dividend yield
I can buy shares that grow very slowly, but they have to be inexpensive (low P/E), not too indebted and dividend payers.
I can give up dividends, when I see great growth, like at Google, Ebay or Apple (scared of this last one)
Sometimes I even buy shares of lame companies like GM or FORD, when I see them as total bargain.
I get information about companies by:
- reading a newspaper 3 or 4 times a week
- using http://www.netvibes.com as news aggregator
- checking http://finance.yahoo.com and money.cnn.com
- looking at my Portfolio on finance.google.com : it has news about my companies and their partners/competitors underneath
- looking at blogs like Patient Investing, Eric Nagel‘s, Tech stock pick, or at technorati.com, that contains millions of Blogs
- Reading comments at my blog by people who know a specific industry better than me, like for instance D Pickard
None of this activity is scheduled or done daily. I can do it at home, in office, on a train on an airplane or talking to a friend. I am basically curious about the world around me, and I like to guess 🙂
Anyway, every-time i pick a stock I write down why on this Blog. By reading around you will see how I think, how I guess right and how I make mistakes. I suggest that you develop your own way of thinking. Don’t follow me because I am not a professional, I make many mistakes and I don’t even know whether, with all this reasoning and writing I did better or worse than the markets. My stock – picking is such a mess of money coming in and out that it is hard to compare it to any global index.
What saves me is a the fact that, according to “Efficient Market Hypothesis” and to some testing, a monkey throwing darts at a at a copy of the Financial Times can pick better than most mutual fund managers.