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How do I pick stocks? (posted to answer david’s comment) June 28, 2007

Posted by deminvest in investment, investment strategies, My investing mistakes, risky investments, stocks.
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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.

Monkey throwing darts at a copy of the Financial Times

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:

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 stocks than most mutual fund managers.

Comments»

1. Nagel Family Website - June 28, 2007

I Influence Others?!?!

Wow… I just read that this guy over here reads my blog for stock picks! How cool is that??? Sure, I have a pretty good track record, and we use similar buy & sell techniques (wait for a %, sell the initial investment, keep the profits as a…

2. len - July 5, 2007

do u also use a trailing stop strategy in picking your stocks?

3. deminvest - July 5, 2007

I am thinking of using a trailing stop strategy to sell my stocks after they have reached my target, but this is not part of my strategy yet.

4. len - July 5, 2007

thank you for clarifying the use of the strategy.

5. Prashanth - August 29, 2007

I am planning to Buy Wipro (WIT) stok. This is an Indian IT services company. It has 0.50 12 month EPS, 12 month P/E Ratio is 27.4. Stock is worth 14.05 as of 8-29-07. Please advise if this is the right time to invest in this stock. I am planning to invest $500 in this stock.

6. deminvest - August 31, 2007

Prashanth, WIt seems an excellent choice. I may chose it as stock for September too:
Forward P/E: 20.90 is very good!
Qtrly Revenue Growth (yoy): 33.60% is good
Qtrly Earnings Growth (yoy): 15.70% is ok
Total Cash: 1.07B Juicy

I wanted to buy it on January, then I unfortunately forgot to:
https://deminvest.wordpress.com/tag/wit-wipro/
I think I will buy it in September.

7. mewayvogswesy - June 3, 2009

Sweet blog. I never know what I am going to come across next. I think you should do more posting as you have some pretty intelligent stuff to say.

I’ll be watching you . 🙂


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