For those DIY'ers who invest mostly in individual stocks

[mijoy]

My question to you is; can you provide a brief a synopsis on your methodology for researching and choosing your stocks?

I know this is a loaded question. There can be so much to consider. My question is two-fold. By what resource do you perform your investigation and what aspects of the "fundementals" do you deem most important?

Any resources that you may point me to to help answer my two questions would be greatly appreciated as well.

 

[Montecfo]

I get my ideas from a wide variety of sources.

Wall Street Journal
Barron's
Forbes
Kiplinger
CNBC
Stockgumshoe
Morningstar
general news reports-various

I validate by reading earnings reports, press releases, analyst forecasts, general news reports, Morningstar, and others.

I like metrics such as price to book, price to earnings (PE), price to sales, price to cash flow, enterprise value multiples, price to earnings growth (PEG).

I consider each of these in context of the company's industry and stage. Not all are relevant to all investments in my approach.

In any given year I tend add or subtract relatively few positions to my portfolio, but tend to add to or subtract from existing positions more often.

 

[pops]

Check out the Motley Fool Stock Advisor
https://www.fool.com

 

[GreenEggs]

I found a very simple and easy-to-understand stock screener on a unique website called Obermatt. It has a free version that I was very impressed with, so I decided to subscribe to their full use version. Their screener is laid out in a very easy-to-understand design using bar graphs with 1-100 ratings for "Value, Growth, Safety", and a "Combined Score" rating.

They also email monthly themed lists of ratings for various sectors or markets, depending on which ones you've selected on their main list page. They cover dozens of world markets, but I just chose the US ones.

When I discovered the site last year I decided to make a small "Obermatt Portfolio" to test the performance of using it. I chose 22 different stocks and invested $1000 in each. I increased the positions of a couple of stocks to $5000 because I felt they would do well. It's been quite successful so far & has been exciting to watch, but of course, the market had a big rally last year. The portfolio is up about 98% today since 04/29/20 but has been up 120% at times.
I chose my initial group of stocks by using the list that the Obermatt screener generated and then cross-referencing the stocks using other data from various online free stock info sites.

At this point though, I'm a bit unsure how to increase my investments in individual stocks. Many of the stocks that I have aren't rated highly today because the numbers have changed, which obviously happens as prices increase. It's not advised to let your portfolio grow to too many different stocks. Obermatt advises that 20-30 is a good number to hold.

I don't have the time, the knowledge. or the stomach to invest in individual stocks with "big money". So, I'm sort of wondering "what's the point?" Personally, I think I'm better off just buying VTI, VGT, or QQQ and letting it ride.

 

[Montecfo]

Greeneggs,

Obermatt looks valuable. Thanks for that idea.

 

[GreenEggs]

Greeneggs,

Obermatt looks valuable. Thanks for that idea.

Glad you found it interesting.
It really simplified the selection process for me.

I also like to look at insider buying and insider ownership percentages. Here's a site that I watch insider buying on. https://www.insider-monitor.com/insider_stock_purchases.html There are probably better sites, or definitely better looking sites, but it claims to have real-time data.

I recently found these "IPO Performance" listings that seem interesting too. I haven't invested in IPOs, but it looks like you could do well with them if you get in early. Obviously, plenty of them flop but the winners sure can "take off".
https://www.nasdaq.com/market-activity/ipo-performance

(note: the column headers are "clickable" to change the order & timeframe preference.)

 

[thefist]

My 2 primary sources for 20+ years have been The Motley Fool and Morningstar. Having followed each for decades you see where they each excel. Mstar has a more large and value tilt, with TMF better for growth stocks.
Check out the MOAT ETF. This is a good example of Mstar’s use of moats and valuation. It’s easy to mimic it or to select your own stocks with similar criteria with a screener.

 

[Sojourner]

You might find this visualization tool helpful. I use it primarily to identify stocks and ETFs on which I can sell puts and calls.

https://finviz.com/map.ashx?t=sec_all

 

[Out-to-Lunch]

I am guessing you meant to post this thread in the "Active Investing, Market Strategy and Alternative Assets" forum?

https://www.early-retirement.org/forums/f44/refocusing-the-forum-read-before-posting-110405.html#post2646658

 

[braumeister]

Thread moved to Active Investing forum.

 

[Dash man]

1. They must be profitable.
2. I want to understand how they make their money and what the company does.
3. 80% have to grow their dividends each year.
4. I use screening tools from Schwab and do additional research on Morningstar.
5. I read company reports.

Most of the companies I’ve owned a very long time and have significant capital gains.

 

[chassis]

Formal education
Career experience
Natural ability (smallest and least important factor)
Bloomberg
WSJ
Fidelity
Schwab
Finviz
Portfoliovisualizer
Company financial reports
Barry Ritholtz podcasts
Writings of billionaires such as Buffett, Lynch, Dalio
Father in law
Brother in law
Spouse

 

[ownyourfuture]

I like to look at 5-year charts to see how a company is doing relative to their peers.
Every active investor screws up @ times. Hell, it even happens to Warren Buffett.
The Kraft Heinz merger has been an absolute disaster.

I did that around 2010 when I purchased ConAgra.

It didn't crater, just didn't do very well. Held it till sometime in 2013. At that time I compared it to a company called Pinnacle Foods using the aforementioned 5-year chart. Pinnacle crushed ConAgra.
Sold the CAG shares & invested the proceeds in PF.

In the following 5 years, it once again crushed CAG, & even outperformed the S&P 500 by a substantial margin. Ironically, in mid 2018, CAG announced an offer for PF. I went on the PF message board daily & tried to convince shareholders to vote against the acquisition. I was unsuccessful….lol

In late October 2018, my PF shares morphed into CAG shares @ a cost basis of around $36
Close to 3 years later, shares are trading at $33.30

As they say, past performances no guarantee of future results, but in this case it was.

So that's why I like charts when researching stocks.
Unlike people, they have no emotions, they can't lie.

 

[Thunder Up]

I have two simple criteria. First, I only invest in companies that I am familiar with. Second, the company has to be number 1 or 2 in their industry.

 

[travelover]

Dart board and monkey.

 

[Winemaker]

Common sense, some long boring reads in Forbes, WSJ, some websites and local paper. Invest in what you know, and in what you see. Years ago in his neck of the woods, the Marcellus shale was the big story. Big money made by families who had full time jobs and worked the family farms in morning and after work. All of a sudden they're raking in $20,000/month in gas royalties. You watch who is buying what. Locally, regionally, nationally.

Same thing for other industries. When the Covid Pandemonium broke out, you knew the travel/ hospitality industry was going to the dumpster, so you buy on the bad news.

In the '70's inflation, we invested in the raw commodities industries, as they could raise their prices to meet their costs. Same thing holds true today, with an expected inflationary environment. Residential REITS, gold, silver, lumber, grain, foodstuffs and energy are necessary items for a free economy to run.

Some folks are scared, so they're buying guns and ammo. Well, the price of ammo went from 8 cents/round to $1.00/round. Money to be made there.

 

[RetireeRobert]

I use Schwab's site tools for initial screening. I followup with data verification on candidate stocks at Yahoofinance, and at companies' own investor relations websites. I screen stocks in companies to gauge for profitability, financial strength, positive cash flow, dividend yield, and how long company has paid dividends and is dividend growing.

Factors I consider:
1) Return on Equity
2) Debt/equity ratio
3) Last four or five years cashflow--positive or negative
4) Dividend payout ratio, and dividend yield

 

[triangle]

Morningstar, SeekingAlpha, Forbes, CNBC, Yahoo for new ideas.

Attempt to value on metrics like PEG ratio, revenue trends, earnings trends, dividend growth rate (as applicable), debt level. Also personal perceptions about future earnings and growth.

However I find it difficult to identify metrics that really work, as the information is already known, and there is no magic formula. High growth seems to trump everything. For example I always liked Amazon as a business but not as a stock investment as Jeff Bezos would continually repeat how they would not earn any profits. That their competitor's margin was their opportunity, again implying they were going to be a razor thin margin business until they became a monopoly...and monopolies are forbidden (right?), so why invest. Decades go by while the stock continues to rise without profits until the point they make some small profit now. But that growth attracted investors and they have become a 1.7 Trillion dollar success. Still there were other Y2K high growth companies that crashed, which is why it is wise to diversify whether investing in individual stocks or an Index.

 

[target2019]

My question to you is; can you provide a brief a synopsis on your methodology for researching and choosing your stocks?

I know this is a loaded question. There can be so much to consider. My question is two-fold. By what resource do you perform your investigation and what aspects of the "fundementals" do you deem most important?

Any resources that you may point me to to help answer my two questions would be greatly appreciated as well.

You're right, this is a loaded question, and very broad. If you set a goal of growth & income, for example, then you can focus on a narrower stock market. If you have other goals, it would help to know them.

If you truly will only invest in individual stocks, then I think that diversity should be a key characteristic. You could look at sectors, and make sure you hit all the important ones. Ref: https://eresearch.fidelity.com/eresearch/markets_sectors/sectors/sectors_in_market.jhtml

 

[qwerty3656]

I like fastgraphs - the problem(?) is it stears you away from the high priced growth stocks because they always appear over valued.

 

[Bigdawg]

Dart board and monkey.

Steel tips or plastic? How long have you been playing the accordian?

 

[travelover]

Steel tips or plastic? How long have you been playing the accordion?

You really can't trust a monkey with steel tipped darts. He is a smart monkey, though, and plays his own trombone.

 

[Qs Laptop]

My question to you is; can you provide a brief a synopsis on your methodology for researching and choosing your stocks?

I know this is a loaded question. There can be so much to consider. My question is two-fold. By what resource do you perform your investigation and what aspects of the "fundementals" do you deem most important?

Any resources that you may point me to to help answer my two questions would be greatly appreciated as well.

I use Yahoo Finance to make my initial research. There is a lot of information gathered on a couple of pages in an easy to digest format.

First thing I check is the Summary page. I look at market cap and what stock exchange it is selling on. If it's not on the NYSE or NASDAQ I typically stop my search. I don't want to deal with delayed trade executions on smaller exchanges, low volume stocks, and/or penny stocks (Though I have dabbled...)

Still on Summary page I look at the graphs of Earnings and Financials. Yahoo has easy to read charts showing quarterly earnings and if they beat expectations and also bar chart showing revenues and earnings side-by-side (click on quarterly results)

Next up is the Statistics page. Here you will find various valuation metrics, summaries of the financial ratios, profit margins, quarterly growth rate, stock price and number of share information. I look for strong balance sheets combined with earnings growth and momentum. Of primary importance to me is quarterly growth rate and year over year growth rate. Profit margin is very important as well.

From here I go to the financial information--balance sheet, income statement, and cash flow. Quarterly results are more informative than annual results.

Of particular concern to me on balance sheet is current ratio, needs to be at least 1.5:1 for me. Long term debt is another metric I check but what defines a good number really depends on the industry. For example, financial stocks or home builder stocks will have a lot of debt. I also check to see how often a company issues shares. Maybe they have lots of cash because they sell more shares every year. I stay away.

These simple tests fufills about 90% of my stock screening. If they can't get past these tests I usually stop looking. If they pass, I get into the nitty-gritty of checking SEC filings, reading quarterly reports, insider trading records, majority stockholder info, etc. You can learn A LOT by reading the 10-Q reports. They list a lot of wheeling and dealing that you don't read about elsewhere.

Finally, I visit the company website, investor section and maybe read the press releases.

 

[jr6035]

Invest in what you know.

Fidelity.
IBD. But only the weekend version with the IBD 50.
I try to have every sector covered with at least two stocks of an industry. Except Materials and Industrials, too cyclical. Tech, I have three.
Holdings have to pay a dividend, and raise it yearly. Dividend Aristocrats work well.
But I'm retired. I sell covered calls on most of my holdings.

 

[BlueGreen]

I use the Schwab weekly equity list.