Harinee asked me to share some thoughts on analyzing stocks, and I told her that my ideas would probably disappoint her because they are so simple but in any case, I’m writing some thoughts on the first step of investing which is akin to generating leads or just finding out which stocks should be researched further to see if they make a good case for a long or a short.
I would say there are five main ways that I discover which stocks to invest in, and I’m listing them here.
1. Great products:Â In the long run, behind every great stock, there is a great company that’s selling great products or services so whenever I see a product that wows me I try to find out if the company that makes it is listed and how big is this product to their revenues. Sometimes others give you the hint like when your sister in law yells at you for buying the wrong brand of glue. That should surely pique your interest to see if Pidilite is the one making it, and are they any good at making other great products that bring in profits.
2. An interesting theme:Â While the first point was about bottom up investing, this one is about top down investing. I’m a big fan of 3D printing and am always very interested to see if there are any companies in this space that can be invested in. So, this is an example where you think of themes or sectors first and then see if there are listed companies in those sectors. Drones is another theme I’m currently interested in as the Obama administration seems to have shown that they are the way to go and I feel other countries are going to catch up on this. I don’t think there are any companies that you can invest on based on this theme today, but that might change tomorrow.
3. Twitter: In recent times, Twitter has been a good source of lead generation for me because I follow a lot of people who are a lot smarter than I am, and in looking through their conversations you discover stocks that you wouldn’t have otherwise thought about.
4. Non stock market business magazines:Â I feel that business magazines that don’t focus on stocks do a great job of showcasing small companies that are doing well, and magazines like Business India, Business Today and Business World are very useful to do this in the Indian context.
5. Looking at what fund managers are buying:Â I do this a lot and while I admit that this is a lazy way and hasn’t worked all that well for me, somehow it is very tempting to invest in shares that bigger investors are investing in because it feels like they have spent so much time and money on it – how can they be wrong? They are of course wrong most of the time.
These are some thoughts that I had, and while it is easy to get carried away in the current market environment, if you are interested in directly investing in shares you should definitely read my post on the big risk on investing in stocks directly or more importantly read the comments on that post.
21 thoughts on “5 ways to get share investing ideas”
Another thing which has worked, at least for me is paid research. There are umpteen websites/brokers/agents who would give you “free” tip of the day,week etc. I have tried my hand at these too, but these hold no value. Most of the research sites charge a nominal fee, given the competition but they have to deliver value in order to stay in competition.
This is just a personal experience, but if one invests in each of their recommendations in the recommended proportion, over long term, one would make decent profits which would more than cover the cost .
I read ur article in TOI. Plz let me know that if the upper limit of tax deduction under 80DDB has been raised to 60,000 from 40,000 or it is still 40,000 and 60,000 is for senior citizens only
Dear Naveen, the limit is still Rs. 40,000 and Rs. 60,000 is only for senior citizens.
Hi All, can any one tell me about the job profile and key skills which is required to be an investment banker.
FMCG products- colgate or pepsodent (HUL), washing powder (HUL (surf), P&G (ariel)); in kitchen – prestige (cookers), electrical appliances (bajaj,philips) etc. Even the gas in cars, we use is of govt entities like HP, BP,IOC etc.
We can compare the above with general middle class and their avg spending over the years. e.g. I have been accumulating oil companies for a long time becoz when i compare Indian companies with others (overseas company) it is relatively cheap mainly due to control over pricing. Further, price hike is inevitable due to budget deficit. Such stocks will always keep on rising given that spending will increase going forward due to improvement in living standards.
e.g: We bought a family car when we could afford the same, resulting in more petrol consumption -> adding losses to the PSUs -> increase in deficit->Price hike -> Equity share price increases -> Capital Gain and Dividend income.
Those are some great examples – thanks for sharing!
I think apart from above, we should also learn from our daily experiences w.r.t products that we use in our day to day running and its relevance coupled general macro / eco. environment.
That’s an interesting point, do you have any examples you can think of?
Point (2) has to be carefully looked at. Take recent example of Arshiya international which came with different business model but failed. There may be other good examples as well.
Hi Atul – these points are just for generating leads so to speak, and all of them need to be looked at but specifically for point 2 it is not about a company doing something different but a whole new industry built around a new or different theme, so unmanned drones as opposed to pilots on a plane or 3D printing as opposed to assembly line manufacturing.
I think you are selling yourself a bit short here. If I remember correctly (I’m too lazy to search right now), in late 2011 you had a great list of companies that had had good dividends (or was it earnings?) and the price was comparitively low– I don’t remember the exact particulars of these lists you had made. Since it sounded very logical to me, I shortlisted about 10-15 scrips from those lists and bought stocks when the market had fallen in/around Dec 2011. In a year, I have made upwards of 45-50% on those scrips in average. I think you should add to your current list as well 🙂
WOW! I am certainly very happy to hear that you made good use of that post. This is the one you are referring to:
I will add this point to the post as I use it from time to time. Thanks!
Thanks! I have bookmarked it now for future corrections. But I hope you have a re-look at this list of the best-dividend yield shares when the market undergoes a major correction again. Like you, I only/mainly invest significant amounts during crashes and major corrections and such a list really helps selecting stocks to buy. Of course such a correction seems far off now.
That’s great to hear. What are some of the other ways you use to identify stocks?
My main criterion is your point #1 above, sometimes coupled with the environment– i.e., world view (eg with EU in doldrum, Suzlon is not good however low its price may be and however much your point #2 may be activated for me), politics (eg sugar scarcity, export to Pakistan, for sugar stocks), etc.
#2 also works for me, but to a rather minor extent– mostly for sectors I understand or also coupled with world/political situation.
For #4, ET (and your blog) being the only finance/money reading I do, I occasionally check out the logic and performance graphs of their long term suggestions, and if their argument sounds logical, I do some background reading and then buy the stock bit by bit.
I don’t do #3 and #5 at all.
Sheer luck (ok, perhaps slightly thought out guesses) and some amount of discipline to not be too greedy to follow the herd, also seems to have worked well for me.
I only started investing directly in stocks during the 2008-2009 crash, and did so really hugely. I had a major financial obligation (flat) in mid 2010, and so I had to sell (at very very decent profits), which was good, as I escaped the 2011-12 corrections. In fact I started properly investing again during the dip during dec2011-early 2012 with the help of your excellent lists, along with #1 & #4, and it has worked this time round as well.
Thanks for sharing your thoughts. Make a lot of sense to me as it echoes a lot of what I do myself and I’m really really glad to hear that OM and ET are the only two money related things you read 🙂
Thanks a lot Manshu. You will be disappointed to know I am not disappointed but some points were a revelation to me not simplistic. At present I was doing only 4 but your article has pointed me to a different direction now.
I’m certainly glad to hear that, you can put high dividend yield stocks in that list as well as pointed out by Aditya. I forgot about that.