Chosing which company to analyze?
Chosing which company to analyze?
I'm trying to teach myself how to invest intelligently and i'm a simple person who likes to do things in a simple chronological order, but ive never heard any talk of this except for that one should always chose a company within a sector of which one is already somewhat familiar with, and that blue chip stocks rarely are undervalued or have any extraordinairy potential of growth within normal circumstances so as a general rule these should be avoided.
But then what? when you chose your industry based on what you know, how do you decide spesificaly which company you will investigate from then on? i would be surprised to hear this is done by hazard.
But then what? when you chose your industry based on what you know, how do you decide spesificaly which company you will investigate from then on? i would be surprised to hear this is done by hazard.
Re: Chosing which company to analyze?
What I do is invest in VTSAX, Vanguard Total Stock Market Index Admiral Fund. That way I benefit from the collective genius of all the buyers and sellers of stock in the world to determine how much to put in each company's stock.
Right now that collective genius has my largest holding as AAPL (Apple). My top ten holdings are:
1 Apple Inc.
2 Exxon Mobil Corp.
3 Google Inc.
4 Microsoft Corp.
5 Johnson & Johnson
6 Wells Fargo & Co.
7 General Electric Co.
8 Chevron Corp.
9 Berkshire Hathaway Inc.
10 JPMorgan Chase & Co.
Ten largest holdings = 14.6% of total net assets
I don't need to know anything about these companies or the industries they operate in because the collective genius of the market is way smarter than I am.
If I were to choose companies to invest in based on where I am knowledgeable, I would have to limit myself to the chemical industry. Then I would be overweight basic materials and I would be in effect making a bet that basic materials was going to outperform the entire market. I am not smart enough to know that.
Right now that collective genius has my largest holding as AAPL (Apple). My top ten holdings are:
1 Apple Inc.
2 Exxon Mobil Corp.
3 Google Inc.
4 Microsoft Corp.
5 Johnson & Johnson
6 Wells Fargo & Co.
7 General Electric Co.
8 Chevron Corp.
9 Berkshire Hathaway Inc.
10 JPMorgan Chase & Co.
Ten largest holdings = 14.6% of total net assets
I don't need to know anything about these companies or the industries they operate in because the collective genius of the market is way smarter than I am.
If I were to choose companies to invest in based on where I am knowledgeable, I would have to limit myself to the chemical industry. Then I would be overweight basic materials and I would be in effect making a bet that basic materials was going to outperform the entire market. I am not smart enough to know that.
Last edited by dickenjb on Sun Aug 10, 2014 3:36 pm, edited 1 time in total.
Re: Chosing which company to analyze?
I'm sure i could benefit greatly over the long term from mutual funds, however my goal is to develop personal expertice for myself so that i can make those decisions without to much help, and also better know what advice should be taken and which not. Maybe i will leave a portion of my allocation to a fund, but as for now i'm interested in gaining knowledge really. I'm only 18 so i think my best bet to one day develop a large fortune would be to actually develop skill and gain experience, as for now.
Also i notice a large portion of those companies are well known large blue chip stocks, which may be indeed very stable. But from what i know if one is looking for a significantly undervalued issue, mid-cap companies is a better bet.
Also i notice a large portion of those companies are well known large blue chip stocks, which may be indeed very stable. But from what i know if one is looking for a significantly undervalued issue, mid-cap companies is a better bet.
Re: Chosing which company to analyze?
Go read the bogleheads wiki. For additional information that is more in depth read 'Bogleheads guide to investing'. perhaps also 'A Random Walk Down Wallstreet' by Burton Malkiel. These are my favorites, and there are many more on the reading list on this site.
The entire philosophy of this forum is that picking stocks individually is a loser's game, and an individual will never come out ahead of an index fund. This would be especially true when taking into account taxes, trading costs, and risk factor.
If you want to learn how to pick stocks, then this likely isn't the place for you, even though it is chock full of brilliant people. Additionally, I suggest you read books, as it will be the only way to learn initially. Asking people on the internet forums for answers to random specific questions without knowing background knowledge isn't really learning.
Good luck!
The entire philosophy of this forum is that picking stocks individually is a loser's game, and an individual will never come out ahead of an index fund. This would be especially true when taking into account taxes, trading costs, and risk factor.
If you want to learn how to pick stocks, then this likely isn't the place for you, even though it is chock full of brilliant people. Additionally, I suggest you read books, as it will be the only way to learn initially. Asking people on the internet forums for answers to random specific questions without knowing background knowledge isn't really learning.
Good luck!
Re: Chosing which company to analyze?
Valid point, and i agree, but limiting myself to mearly investing within my knowlege base is not my intent; i mearly wish to pick myself when it comes to what i already know. example say i am knowlegable in the chemical industry, then i would prefer to pick those stocks myself, and then giving the task of futher diversifying my portifolio to someone who knows others better. eg a fund.dickenjb wrote: If I were to choose companies to invest in based on where I am knowledgeable, I would have to limit myself to the chemical industry. Then I would be overweight basic materials and I would be in effect making a bet that basic materials was going to outperform the entire market. I am not smart enough to know that.
Re: Chosing which company to analyze?
I was not aware of that. But where you said i should read books, i already am, however i personally learn far quicker when i can trade ideas on the topic of which i am trying to teach myself, and as for now i do not know anyone with any significant knowlege about investing or economy at all so a forum is in my opinion a good place for that. but if this forum has nothing to do with individual stock analysis then i probably am in the wrong place.TFinator wrote:Go read the bogleheads wiki. For additional information that is more in depth read 'Bogleheads guide to investing'. perhaps also 'A Random Walk Down Wallstreet' by Burton Malkiel. These are my favorites, and there are many more on the reading list on this site.
The entire philosophy of this forum is that picking stocks individually is a loser's game, and an individual will never come out ahead of an index fund. This would be especially true when taking into account taxes, trading costs, and risk factor.
If you want to learn how to pick stocks, then this likely isn't the place for you, even though it is chock full of brilliant people. Additionally, I suggest you read books, as it will be the only way to learn initially. Asking people on the internet forums for answers to random specific questions without knowing background knowledge isn't really learning.
Good luck!
Re: Chosing which company to analyze?
There are a wide range of forums on the Morningstar website and some explore individual stock analysis. Look for the "Discuss" tab on the Morningstar website banner bar.
Re: Chosing which company to analyze?
Thank you for the information i think i might still keep this account so that i can learn more about using funds as i know very little about it currently. and then i will register with another forum aswell.Jazz56 wrote:There are a wide range of forums on the Morningstar website and some explore individual stock analysis. Look for the "Discuss" tab on the Morningstar website banner bar.
- nisiprius
- Advisory Board
- Posts: 52215
- Joined: Thu Jul 26, 2007 9:33 am
- Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry
Re: Chosing which company to analyze?
I don't know, because this isn't Boglehead-style investing, this is "fundamental analysis." If you want to go this route I think the first thing to do is to read Security Analysis.PeterPan wrote:I'm trying to teach myself how to invest intelligently and i'm a simple person who likes to do things in a simple chronological order, but ive never heard any talk of this except for that one should always chose a company within a sector of which one is already somewhat familiar with, and that blue chip stocks rarely are undervalued or have any extraordinairy potential of growth within normal circumstances so as a general rule these should be avoided.
But then what? when you chose your industry based on what you know, how do you decide spesificaly which company you will investigate from then on? i would be surprised to hear this is done by hazard.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
Re: Chosing which company to analyze?
I suggest you read Ben Graham "The Intelligent Investor". Get the edition with commentary by Jason Zweig. Also read "Common Sense on Mutual Funds" by John C. Bogle.
These books are MUST READS before you embark on the "which company to analyze" question and will actually answer the question in a very thorough way.
These books are MUST READS before you embark on the "which company to analyze" question and will actually answer the question in a very thorough way.
- Taylor Larimore
- Posts: 32842
- Joined: Tue Feb 27, 2007 7:09 pm
- Location: Miami FL
Re: Chosing which company to analyze?
Peter Pan:
I spent most of my life in the federal Small Business Administration analyzing companies and their financial statements. I also taught Commercial Lending to the largest bank in Florida. I know I am unlikely to "beat the market" by analyzing individual stocks for purchase.
Best wishes.
Taylor
I spent most of my life in the federal Small Business Administration analyzing companies and their financial statements. I also taught Commercial Lending to the largest bank in Florida. I know I am unlikely to "beat the market" by analyzing individual stocks for purchase.
Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
Re: Chosing which company to analyze?
+1livesoft wrote:I suggest you read Ben Graham "The Intelligent Investor". Get the edition with commentary by Jason Zweig. Also read "Common Sense on Mutual Funds" by John C. Bogle.
These books are MUST READS before you embark on the "which company to analyze" question and will actually answer the question in a very thorough way.
I am reading this book right now and what Graham has implied way back in the dark ages of investing is to forget about individual stocks. Even if you get the research correct, the stock could (and often times does) go in the opposite direction of what the data said.
Never in the history of market day-traders’ has the obsession with so much massive, sophisticated, & powerful statistical machinery used by the brightest people on earth with such useless results.
Re: Chosing which company to analyze?
Peter Pan,
I suggest (very strongly) that you focus your efforts on college and not stocks.
And if you tell me you aren't going to college I am going to tell you to focus your efforts on getting to college. If you think you can outpick the people at Goldman Sachs, you can't.
I suggest (very strongly) that you focus your efforts on college and not stocks.
And if you tell me you aren't going to college I am going to tell you to focus your efforts on getting to college. If you think you can outpick the people at Goldman Sachs, you can't.
Re: Chosing which company to analyze?
Perhaps the best book I have read on individual company investing is "The Five rules for Successful Stock Investing" by Pat Dorsey. Dorsey was a Morningstar Director of Stock Analysis before leaving a few years ago.
Dorsey gives advise on what to look for in successful companies. He even provides a 10 minute test in which one can determine whether or not a company will pass the initial exam.
This is a a very good book for those interested in branching out. I would strongly suggest using low cost mutual funds for a portion ( if not majority) of your investments. However, understanding what makes businesses successful is a good tool to have.
Ed
Dorsey gives advise on what to look for in successful companies. He even provides a 10 minute test in which one can determine whether or not a company will pass the initial exam.
This is a a very good book for those interested in branching out. I would strongly suggest using low cost mutual funds for a portion ( if not majority) of your investments. However, understanding what makes businesses successful is a good tool to have.
Ed
Re: Chosing which company to analyze?
I think what you have primarily on this forum is what Graham call defensive investors, folks who want to save and invest and maximize their return with not that much effort in terms of time and the interest is not there to value individuals companies. The good news is this was achievable in Graham's day and is today via indexed mutual funds. The three-fund portfolio or some derivation is probably the easiest way to do this.
Graham also describes what he terms the "enterprising" investor. This person analyzes stocks as businesses and looks for discrepancies between price and value. A good amount of time is expended and he recommends that if a person does this that the person look on this as a business (akin to a real estate rental business). A good number of professional investors do this for large and mid-sized US firms so this segment of the market is pretty efficiently priced most of the time. That is why when it comes to mutual funds the cost savings of index funds more than overwhelms any stock selection any manager can provide. However, for smaller US firms and in some overseas markets there can be some mispricings found. These areas do not have as many or in some cases no interest from professional investors. If you are in the "enterprising" camp, I would suggest you read the Intelligent Investor by Ben Graham without Jason Zweig's footnotes (as they are written from a defensive investors viewpoint - his primary audience), You Can Be a Stock Market Genius by Joel Greenblatt and visit more "enterprising" investor site like the Corner of Fairfax and Berkshire. I value companies in my day job and am an enterprising investor and enjoy this site as it provides great information on subjects beyond asset allocation and stock selection.
Packer
Graham also describes what he terms the "enterprising" investor. This person analyzes stocks as businesses and looks for discrepancies between price and value. A good amount of time is expended and he recommends that if a person does this that the person look on this as a business (akin to a real estate rental business). A good number of professional investors do this for large and mid-sized US firms so this segment of the market is pretty efficiently priced most of the time. That is why when it comes to mutual funds the cost savings of index funds more than overwhelms any stock selection any manager can provide. However, for smaller US firms and in some overseas markets there can be some mispricings found. These areas do not have as many or in some cases no interest from professional investors. If you are in the "enterprising" camp, I would suggest you read the Intelligent Investor by Ben Graham without Jason Zweig's footnotes (as they are written from a defensive investors viewpoint - his primary audience), You Can Be a Stock Market Genius by Joel Greenblatt and visit more "enterprising" investor site like the Corner of Fairfax and Berkshire. I value companies in my day job and am an enterprising investor and enjoy this site as it provides great information on subjects beyond asset allocation and stock selection.
Packer
Buy cheap and something good might happen
- nisiprius
- Advisory Board
- Posts: 52215
- Joined: Thu Jul 26, 2007 9:33 am
- Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry
Re: Chosing which company to analyze?
Just thinking out loud here. You wouldn't choose just one company to analyze unless this is just kind of practice exercise.
If the idea is to find undervalued companies to buy stock in, then "choosing an industry based on what you know" wouldn't be something casual or superficial. You'd have a fairly deep knowledge of the industry. You would be receiving some of the trade publications as freebies already. You might just have magically started to receive them because you are in the business, and you'd be paying for subscriptions to others. (I don't know how this is evolving in the electronic age, but I still see the paper publications--when I'm in a waiting room I LOVE it if there some weird trade magazines in the heap).
By the way, I have personally found that you can get free subscriptions to many trade journals pretty easily even if you answer all the qualifications honestly.
https://en.wikipedia.org/wiki/Category: ... _magazines
"Fish Friers Review" (British trade association for the fish and chips trade)
"Inspectioneering Journal" (a technical publication that focuses on mechanical integrity and reliability issues in the chemical and refining industries)
"RFID Journal" (radio frequency identification and its business applications)
So I'd be getting a bunch of these in the industry I knew, greedily devouring each one as it comes out, absorbing the press releases about product introductions, going to trade shows, and of course talking to people in the business. And I'd try to spot promising new developments choose companies that are on to something that might not be generally appreciated.
Presumably, the professional analysts are already looking at the annual reports and balance sheets and 10-K disclosures and such, the idea has got to be to choose a company that has something extra that you know about that the professional analysts wouldn't know.
If the idea is to find undervalued companies to buy stock in, then "choosing an industry based on what you know" wouldn't be something casual or superficial. You'd have a fairly deep knowledge of the industry. You would be receiving some of the trade publications as freebies already. You might just have magically started to receive them because you are in the business, and you'd be paying for subscriptions to others. (I don't know how this is evolving in the electronic age, but I still see the paper publications--when I'm in a waiting room I LOVE it if there some weird trade magazines in the heap).
By the way, I have personally found that you can get free subscriptions to many trade journals pretty easily even if you answer all the qualifications honestly.
https://en.wikipedia.org/wiki/Category: ... _magazines
"Fish Friers Review" (British trade association for the fish and chips trade)
"Inspectioneering Journal" (a technical publication that focuses on mechanical integrity and reliability issues in the chemical and refining industries)
"RFID Journal" (radio frequency identification and its business applications)
So I'd be getting a bunch of these in the industry I knew, greedily devouring each one as it comes out, absorbing the press releases about product introductions, going to trade shows, and of course talking to people in the business. And I'd try to spot promising new developments choose companies that are on to something that might not be generally appreciated.
Presumably, the professional analysts are already looking at the annual reports and balance sheets and 10-K disclosures and such, the idea has got to be to choose a company that has something extra that you know about that the professional analysts wouldn't know.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
Re: Chosing which company to analyze?
+1 thisdickenjb wrote:What I do is invest in VTSAX, Vanguard Total Stock Market Index Admiral Fund. That way I benefit from the collective genius of all the buyers and sellers of stock in the world to determine how much to put in each company's stock.
Right now that collective genius has my largest holding as AAPL (Apple). My top ten holdings are:
1 Apple Inc.
2 Exxon Mobil Corp.
3 Google Inc.
4 Microsoft Corp.
5 Johnson & Johnson
6 Wells Fargo & Co.
7 General Electric Co.
8 Chevron Corp.
9 Berkshire Hathaway Inc.
10 JPMorgan Chase & Co.
Ten largest holdings = 14.6% of total net assets
I don't need to know anything about these companies or the industries they operate in because the collective genius of the market is way smarter than I am.
If I were to choose companies to invest in based on where I am knowledgeable, I would have to limit myself to the chemical industry. Then I would be overweight basic materials and I would be in effect making a bet that basic materials was going to outperform the entire market. I am not smart enough to know that.
Why spend countless hours per day analyzing companies to spend more on commisions and make less money generally.
Max out your tax sheltered retirement accounts with inexpensive, well diversified, index funds and you will beat 90% of all investors.
Re: Chosing which company to analyze?
You are correct in terms of industry selection. What I have done is focus on one sector, examine all the publicly traded firms in that sector and estimate a value for each one by applying a fair value multiple. This multiple is based upon in part what folks have purchased firms in the past for and what firms are currently priced at. I will typically find an industry group selling a discount versus an individual company. As an example, I did this with all the US TV and radio firms in 2010. I found they were cheap based upon past transactions and the thesis that the internet was going to kill radio and TV. I did not believe the thesis and was able to pick up some of the best radio and TV operators for good prices. Now they are more fairly priced but also up a few hundred percent a piece. When I bought these firms they has market caps of less than $350 million (micro cap today) and did not have much analyst coverage. The only US-based segments I see priced at a discount today are some small telco/cable cos, medical equipment leasing and lottery/gaming machine cos. Again all the cheaper names have market caps below $350 million. Not to say that these will repeat the TV and radio firm performance but the fact pattern is similar.
Packer
Packer
Buy cheap and something good might happen
- cheese_breath
- Posts: 11786
- Joined: Wed Sep 14, 2011 7:08 pm
Re: Chosing which company to analyze?
I'm a simple person who likes to do things simply too. That's why I only invest my equities in broad based index funds such as S&P 500 and Total Stock Market index. Trying to analyze specific companies or sectors is too complex for me, and I'd be fooling myself to believe I'm smart enough to identify the ones that would give me an edge over the index funds.PeterPan wrote:I'm trying to teach myself how to invest intelligently and i'm a simple person who likes to do things in a simple chronological order....
The surest way to know the future is when it becomes the past.
Re: Chosing which company to analyze?
I think a valid method for choosing which company to analyze would be to do the following:
1) Winnow the universe of 5,000 to 6,000 potential companies down by 92%;
2) Of the remaining 400-500 companies, determine the 90% which have been covered pretty well by other analysts
3) Now you are down to 40-50 companies.
4) Buy a dartboard with 40-50 spaces; blindly assign a company to each space.
5) Throw 10 darts; analyze those companies.
That's the most reliable method I can come up with.
At least you have eliminated any bias in your selection process.
1) Winnow the universe of 5,000 to 6,000 potential companies down by 92%;
2) Of the remaining 400-500 companies, determine the 90% which have been covered pretty well by other analysts
3) Now you are down to 40-50 companies.
4) Buy a dartboard with 40-50 spaces; blindly assign a company to each space.
5) Throw 10 darts; analyze those companies.
That's the most reliable method I can come up with.
At least you have eliminated any bias in your selection process.
Don't gamble; take all your savings and buy some good stock and hold it till it goes up, then sell it. If it don't go up, don't buy it. - Will Rogers
Re: Chosing which company to analyze?
If you invest in what you know, you are still likely to do poorly. There are too many unknowables, even for those that think they are in the know.
Disavow yourself of this notion or get ready for probable losses.
JT
Disavow yourself of this notion or get ready for probable losses.
JT
Re: Chosing which company to analyze?
You have caught my interest and many here are bringing up some good arguments. I'm reading up on mutual funds at the moment and will most likely hire one for a large portion of my portifolio. To the one who asked me if i am going to college, yes that is my intent once i'm finished in high school(i live in norway). I'm deciding weather to study mechanical engineering or economy.
But i have another question how then do people develop large fortunes largely based on stock investments? i assume mutual funds chose mostly the same stocks for all of their clients, don't they all then make just about the same interest?
But i have another question how then do people develop large fortunes largely based on stock investments? i assume mutual funds chose mostly the same stocks for all of their clients, don't they all then make just about the same interest?
Last edited by PeterPan on Mon Aug 11, 2014 12:18 pm, edited 1 time in total.
Re: Chosing which company to analyze?
Ok from what ive understood so far when investing in a mutual fund your share depends on your contribution and the way the fund earns money is by also getting a share if their investments for you is successfull. am i correct?
- InvestorNewb
- Posts: 1663
- Joined: Mon Sep 03, 2012 11:27 am
Re: Chosing which company to analyze?
In order to make a lot in the stock market you also need to invest a lot... that is unless you get lucky and pick the next Microsoft.PeterPan wrote:But i have another question how then do people develop large fortunes largely based on stock investments? i assume mutual funds chose mostly the same stocks for all of their clients, don't they all then make just about the same interest?
We Bogleheads believe that by buying the whole market at a low cost we will do better than average. In fact, research supports this statement. Personally I would not dabble with individual stocks because it is inherently risky.
My Portfolio: VTI [US], VXUS [Int'l], VNQ [REIT], VCN [Canada] (largest to smallest)
- cheese_breath
- Posts: 11786
- Joined: Wed Sep 14, 2011 7:08 pm
Re: Chosing which company to analyze?
Yes, but there are managed funds and there are index funds. With managed funds a manager or management team chooses which stocks to include in the fund based on their best analysis. That's basically the same as you want learn to do. Then there are index funds which track the total stock market or specific part of the market (such as sector indexes) by holding a representative sampling of all the stocks in that part. Historically index funds have outperformed managed funds about 75%-80% of the time.PeterPan wrote:Ok from what ive understood so far when investing in a mutual fund your share depends on your contribution and the way the fund earns money is by also getting a share if their investments for you is successfull. am i correct?
The surest way to know the future is when it becomes the past.
- cheese_breath
- Posts: 11786
- Joined: Wed Sep 14, 2011 7:08 pm
Re: Chosing which company to analyze?
If it was as easy choosing individual stocks as we would like it to be there would be Warren Buffetts on every street corner. It's a lot easier to get poor than it is to get rich with individual stocks.InvestorNewb wrote:In order to make a lot in the stock market you also need to invest a lot... that is unless you get lucky and pick the next Microsoft.PeterPan wrote:But i have another question how then do people develop large fortunes largely based on stock investments? i assume mutual funds chose mostly the same stocks for all of their clients, don't they all then make just about the same interest?
We Bogleheads believe that by buying the whole market at a low cost we will do better than average. In fact, research supports this statement. Personally I would not dabble with individual stocks because it is inherently risky.
The surest way to know the future is when it becomes the past.