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Simple pointers to invest in individual stocks
#1
Every time I read an article or follow a discussion on “how to choose an individual stock”, I come back with several pointers. For example, look at the
P/E ratio, if PEG is under 3, its a good buy, check Debt to Equity ratio, read a 10K etc etc... So, most of the times I have shied away from individual stocks and just stuck to some index investing and a few stocks I buy during euphoria...
 
To people who have been investing successfully in stocks for so many years, please share your wisdom. You will help a lot of savers like me who are kind of lost with overload of “complicated” information around.  What are the few things that you have looked at when you bought a stock in all your investing years? I am looking to learn from you and make a buying list when a bear market comes around(long haul)
 
Thanks so much!
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#2
I'm with you; there is real data overload out there, complicated by various analyst's different opinions based on the same data. Weigh it all together and you often come up at 'neutral,' or, 'your guess is as good as mine.' Not very helpful.

Personally I try to understand the company's story; where are they going and how will they get there? Plus whatever historical performance data is available - year-over-year sales, profit and cash flow numbers, and growth of same. Harder to do with IPOs or young companies. In that case it may turn more on technology and where the target company is in patent protection, capitalization and even the quality of leadership. This is much harder to evaluate.

I was persuaded to invest in (V and MA) in 2008 and beyond based on their business plans as much as anything else. Those plans just made sense to me, looking at growth of credit card use, especially in the RTW (Developing nations), plus the fact that these companies bore virtually no credit risk. To me it said 'these guys have a license to print money.' To date, retailers have little option but to accept the leading credit cards.

Thinking about others, in the case of GLW, I originally invested in them because I thought fiber-optics would propel the business. Well, not so. Turned out that glass for TVs and phones, and 'gorilla glass' were way bigger. Now they look pretty good, after a long dry spell waiting for fiber-optics. Then CSCO. Why did I buy into them? Frankly it was a vague belief that they were dominant in network hardware, which could only grow. But I never considered there would be upstarts nibbling at their business, or contemplated the inexorable nexus with software - in retrospect, dumb of me. However, it seems they have figured out the need to advance proprietary S/W development and acquisition.  

Then there's BRK/B. It is a conglomerate that defies detailed analysis. I bought it based on history and the Buffett/Munger philosophy. I especially liked the idea that they bought companies that were successful but left them alone to manage their businesses without undue corporate interference, providing huge capital backing.  Helping but not impeding; what a novel idea! I've personally seen the effects of corporate meddling in successful businesses they have acquired, and generally it is not pretty.  

Then, there is serendipity; stock I acquired in T, FOX, RTN out of mergers and acquisitions among GM/Hughes, Raytheon et al, just came to me via employee compensation. No analysis involved. If someone GIVES you stock, take it! And don't sell prematurely, like I did with too many shares of RTN and DirecTV.

Don't know if any of this might be useful to you. My bottom line is to use best judgment, try to cut through the clutter to the real business story.
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#3
Systems101: I like your narrative and I identify with it since I had about 50% of your investments at one time or another including GLW.

I sold it almost immediately when I found out exactly the competition you mentioned. I also had CSCO on and off.

Just sold it before the earnings and I heard from a friend in South America. He was right ! they did well.
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#4
petdereves - You mention that you are "...stuck to some index investing...". It sounded to me as if for retail investors (like us), it's a bad idea and picking individual stocks is the road to better result.

Did you mean it that way? If so, what makes you believe that is true? What "edge" do you think retail investors can really have over professional stock analysts/researchers that would lead to consistent and sustained success in stock picking/evaluation?
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#5
You mention that you are "...stuck to some index investing...". It sounded to me as if for retail investors (like us), it's a bad idea and picking individual stocks is the road to better result.

Did you mean it that way? If so, what makes you believe that is true? What "edge" do you think retail investors can really have over professional stock analysts/researchers that would lead to consistent and sustained success in stock picking/evaluation?
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#6
(11-21-2018, 02:40 PM)adamvet Wrote: You mention that you are "...stuck to some index investing...". It sounded to me as if for retail investors (like us), it's a bad idea and picking individual stocks is the road to better result.

Did you mean it that way? If so, what makes you believe that is true? What "edge" do you think retail investors can really have over professional stock analysts/researchers that would lead to consistent and sustained success in stock picking/evaluation?

When I see my puny returns compared to what the talking heads show on CNBC-  e.g--> if you invested 10K in stock A in 2009, then you would have 600K today or whatever, I feel very frustrated that I did have money but did not invest it in individual stocks at that time...The very thought that we work so hard for our money and our money is not working as hard for us, makes me feel like a "failure" in the investment sideSad If I made prudent investments in stocks or even index funds instead of keeping cash on the sidelines, I guess we could have retired right now...) Don't get me wrong -We make very good money and also save over 60% of what we make without really trying. But our work involves a lot of travel, staying away from family and not always getting to eat healthy home cooked meals, or even getting time to exercise etc...
 
To really go in depth in to my psyche- We were conned in to a Variable annuity with a fee north of 3.6% by a so called "family friend" at the height of stock market in October 2008....We had given him almost all of our life time savings at that time.... We learnt our lesson and since then began our journey in to learning to invest by ourselves....But by the time we really learnt well we already accumulated a lot of cash and had come in to the bull market phase thus losing out on riding this market......
 
Hope you understand where I am coming from...
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#7
Thanks petdereves, I completely understand where you are coming from. I can relate to some of your thinking/learning-the-hard-way feelings as I personally went through similar thought process as I realized that I was unable to fully capitalize my income-stream and good financial/savings habits simply because of one small thing: lack of awareness of basic investment knowledge. This shortcoming led to keeping bulk of my assets in Savings or CD. I don't call it keeping cash on the sideline, I call it as mistaking the "sideline" for the playing field and ignoring the actual playground of long-term investments.
 
The good news is that, once my eyes were opened, it wasn't too hard to learn the basics and get back on track. Thankfully this happened when I still had a sufficiently long period of earning potential. Consequently, I was able to become financially independent last year (i.e., in a position to completely stop working anytime I want to) sooner than 90% of people (Average Retirement Age in the United States). None of this needed stock-picking skills, taking unneeded risk, pursuing obscure/unconventional investment vehicles, etc. The reduced cost and increased ease of investment vehicles has a lot to do with it. My own eye-opening personal experience has made it a passion for me to share my experience, even in an unsolicited manner , to the people I know and care about.

 

About talking heads show - did you know that almost every single stock-picker in such shows, including some famous names, has a track record of less than 50% of the predictions working out? It's expected that those people will brag about the successful ones, and be less pro-active about reporting the ones that fell-flat. That is why the talking heads are in the business of "selling investment ideas", as opposed to using there own ideas themselves to become super-wealthy. While there are many benefits to paying attention to such shows - getting the "I missed out this opportunity" feeling isn't one of them and can be safely ignored IMHO.

 

While the "get-rich-quickly" scheme is a frequently traveled path with very little proven rate of success, the "get wealthy slowly" is a much easier path to choose, with a much more predictable result. Diversified, low-cost funds, regular investments, periodic re-balancing, etc., are some of the simple steps for the latter.

 
I do have interest in stock evaluation and picking, and make trades (mostly through options), but I do that for the "fun" part of my portfolio, not the core part of it. I also use a strategy that accommodates a large margin of error in my assessment. I cannot count on either my self-acquired stock-picking skills or my luck to make any substantial impact on my financial situation.
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#8
Where's that "words of wisdom" chain?
 
"I don't call it keeping cash on the sideline, I call it mistaking the "sideline" for the playing field."
 
I nominate for The Best Seven Words Of 2018
 
Not that the rest of the post is not good, but once in a while something great shows up.  I salute you.
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#9
(11-28-2018, 03:12 AM)Dee18 Wrote: Where's that "words of wisdom" chain?
 
"I don't call it keeping cash on the sideline, I call it mistaking the "sideline" for the playing field."
 
I nominate for The Best Seven Words Of 2018
 
Not that the rest of the post is not good, but once in a while something great shows up.  I salute you.

I was recently walking my daughter through some of her personal-finance related things (trying to get her "earn, save and judiciously invest" flywheel in motion) and told her how I personally did most of the right things for my finance, except this one thing that led to the "necessary but not sufficient" condition. She thought it was for the better, because me retiring a few years sooner would've resulted to more supervision on her at the height of her teen-age .
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#10
OK, I will let you know my facts to success in the last 10 years. It will be even more helpful if  you are young an/or close to retirement.
Back in the 1970's I was advising several friends from another country about what the newspapers were suggesting (been a college kid).
They followed my advise and made a fortune. I didn't have enough money nor the time to invest but later on, 1980's, I invested in Mutual Funds that my employer offered and invested conservatively. By the time I retired I had a 40% gain in 20 years. I decided that it is time to change the type of investing I did so I asked myself to think about what I should invest in after I rolled over my 401K to an IRA.

A) I saw that some banks were suffering like C and BAC. I read about their problems and their status in their sector. I invested in both. To my surprise, C decided immediately after to have a reverse split 10 to 1. I sold it immediately and bought more BAC at $2.5.

B) When FB went public, I waited to see what will happen. I did not rush. I thought of the weird ambitions people have, bragging or fulfilling their desire for companionship and also observed that every business was referring to FB or Tweeter. I did not trust Tweeter as much as I did FB due to the popularity contest I imagined. When FB was $18.75 I went in with 1K shares. I knew neither of these stocks would probably loose or go under. I was happy when I bought them and I am happy when I see the results after so many iterations of selling and buying- quadrupling my investment. I did the same with stocks like AAPL, LUV, EXC and others based on information I had with fairly good gains.

Here is what I look overall:

1. Do people care for the product or service?
2. Are the fundamentals promising or is there potential for growth before competition takes over? ( this is kind of hard)
3. Is there a possibility the stock will double or even triple or increase well enough so my risk is worth it?
4. Is it influenced by other governmental regulations or controls? (like foreign stocks and fees....)
5. Do I feel comfortable with the company and its services or products? (e.g. I don't feel comfortable about several lab types ...)
6. Does it have legal challenges? (like the FANG may have now.....)
7. Am I interested on dividends or growth only?
8. Where is the price now with respect to the past and what is the prospects for PEG?
9. When you do not feel comfortable about a security you own, do not panic but do not hesitate to cut your losses by unloading it.
 
There might be other reasons, personal or not, but that is what I look besides my age and life expectancy throughout......
All the above rules are for any type of investment as far as I am concerned since there is a number of businesses behind funds, etc.
A fund may contain couple of major investments that may hold it back in gains.....though diversified  and less fluctuating.
This has worked for me!
Good luck!
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