I am not asking for advice and certainly no low effort jokes (or any jokes for that matter), this is more of an exploration of what you guys' strategies are. All I am asking is what process (from the very start to the very end) you go through when trying to find a good buy for your portfolio. Be as detailed as you want, I am very interested in knowing how the people of this subreddit go about investing.
I guess I'll go first as an example of what I am looking for:
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I use stock screeners. The most important screener is ROIC > 10%. I also use stockrow as they have tonnes of accurate financial data that updates as often as the data does. I specifically look at ROIC (return on invested capital) because this, along with the reinvestment rate (the rate at which a firm takes earnings and spends it on capex and working capital to fund growth) is the most consistent method of forecasting growth in the company's future. Expected Growth = reinvestment rate × ROIC.
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I look for a company with some history. This is mostly for the data, but also to make sure that (a) there is something that I can read up on for the firm and get a feel for the business, and (b) its trajectory is positive (i.e. stock price has been either flat or up over the last 5-10 years).
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I also look for a company in a sector I understand. I am much more understanding of tech and utilities, than oil and financial. This step won't necessarily eliminate a stock, but it does make me more careful.
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The most time-consuming step is the initial DCF analysis I do on the company. I do a Damodaran-style DCF because I think the man is brilliant, all his resources are, free, up, and available online, and I agree with all of his thinking. This process usually takes me 5-10 hours spread over a few days as I comb over a stock's 10-Ks and 10-Qs, and make adjustments to prices and rates. If I like what comes out of the analysis (a healthy upside >20%), I continue. If I get mixed results (10-20% upside), I am more guarded, but move on to step 5. Obviously if I don't like the outcome (<10% upside), I leave it alone.
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If I have made it this far, I do a lot of reading about the company and its history, and read what its future prospects look like, and what management is like. Think of typical value-investing guidelines. I also take this phase to look at what others are saying.
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I go back to my DCF analysis and make any necessary adjustments from what I have learned from step 5.
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If I have a good upside, I enter the position.
I know I have a very detailed procedure, and I don't expect every answer to be like this, but I am interested in seeing what you all do.
PS: I mainly index because if I can do something like this with free online resources and data, I can only imagine the data and resources available to the big wall street market moves. I am a firm believer in the efficient market hypothesis, and mainly do this because I enjoy it.
Submitted September 15, 2020 at 07:30PM by MrMineHeads https://ift.tt/2ZBsyph
