Stock Market Research

Stock Market Research: How to Find Winning Stock Ideas on Your Own

by David Fessler, Advisory Panelist, Investment U
Friday, August 29, 2008: Issue #847

Last week, I had the pleasure of joining some of my fellow editors from The Oxford Club at the Grove Park Inn, located in Asheville, North Carolina. The occasion was the Club’s Smoky Mountain Chapter Meeting. I spoke on the Energy and Infrastructure sectors, something you’ll be hearing more from me on in future Investment U articles.

At the cocktail reception, there were many questions put to me on Energy and Infrastructure, but a number of members wanted to how I conducted my stock market research on any given company. It’s a question Oxford Club editors get asked all the time.

We all have our methods, and they’re tailored to the sectors and types of investments we’re focused on. Since we are always preaching “do your own research,” I thought I would tell you a little about how I conduct mine.

Stock Market Research - Finding the Next “Big Idea”

First of all, when doing your own stock market research for the next “big idea,” there’s no substitute for reading… a lot of reading.

This involves sitting at the computer for hours at a time (I have a very comfortable chair). I routinely read The Wall Street Journal, Investor’s Business Daily and Barron’s. Most newspapers are also available in electronic format, which - in addition to saving trees - is great if you want to save an article. It also gives you access to the publication’s archives, most of which have reasonably good search capabilities.

When I come across an article I’m interested in, I save a copy of it on my computer. I have a detailed hierarchical folder setup to store everything. How you set up your computer’s filing system will determine how easily you can find something later.

I also read several monthly magazines, financial books and more than a few investment advisory newsletters. Many of those are available in electronic format as well. All are great sources of ideas, but the one thing you need to do when deciding where to invest is try to figure out what the next “big idea” is.

Finding Companies For Your Stock Market Research

Let’s assume you have a sector you’re interested in, and you’d like to get a list of the companies in that sector for your stock market research. Yahoo! Finance has a great stock screener, and it’s free. You can enter sector information and let it pick the stocks for you. Then it’s easy to refine your search based on annual revenue, profits and dozens of other parameters.

Other great stock screens can be had from ValueLine Investment Survey and Investor’s Business Daily.

IBD offers a “Screen of the Day” for subscribers, and it also rates or grades publicly traded companies on earnings performance, relative price strength and a number of other criteria that should be considered when choosing a company.

(Of course, you can save yourself a ton of time and money by joining The Oxford Club. That’s where we distill all of our stock research and present specific investment ideas each month.)

Stock Market Research - Looking At The Big Picture

Once you’ve collected all your stock market research, it’s important to see how the company you’re researching fits into the big picture. I start asking myself lots of questions:

Will it resist downward movement if the sector tanks?
How does it stack up to the competition?
How will the state of the overall economy affect the company and its share price?
What about Wall Street?
What do they think of the stock? Should we care?

I always check out analyst ratings, but rarely use them as part of the decision-making process. Some stocks aren’t followed heavily, and one or two analysts can easily get it wrong.

Once in awhile, an investment opportunity comes along that is so compelling that it seems too good to be true. Often it is, but sometimes it bears further investigation. I did just that earlier this past spring, when I flew to the company headquarters and met with the CEO. It was only after that meeting that I decided it was a worthwhile investment.

Bottom line, researching companies is hard work, but it can be lucrative if you do your homework. Test your thesis by asking yourself (and others) lots of questions. It’s what all professional analysts do.

And a few of the good ones even do it well.

Good investing,

David

Today’s Investment U Crib Sheet

To learn more about The Oxford Club, here’s a full list of benefits.
Recently, Floyd Brown walked us through the stock screening process for deep value investments and how to find your portfolio’s next superstar with the Yahoo! Finance screener. But picking great companies is only part for the picture to investing…
Alex Green showed us that position sizing is just as important, and that by not using a strategy for reducing your risk to any one stock is the best way to lose everything. And, as many investors will tell you, anyone can buy a stock, but few know when they should get out. It’s important to have a strategy for selling and the discipline to stick with it. Using trailing stops to know when to sell is the true art of investing.