How do you stock pick?

bigfreddiel

what criteria and information do you use to add an equity to your portfolio?

How succesful is your methodology for equity selection?

racing_blue

I have been investing in various vehicles since 2004. I started off as clueless, but now I'm just a muppet. My investments currently valued at £130k but I reckon I have put £150k+ in.

Tried value investing (price:book and price:earnings) but had some spectacular failures including complete write off of investments in ROK and Connaught. Tried investing for dividends (yield)... big holding in BP... then all that mess in the Gulf of Mexico. Tried buying blue chip stalwarts like EDF & Tesco & that hasn't gone very well either. Avoided companies that looked overvalued like Apple when shares were selling for $100... but look how well they have done!

My best performing investments have been corporate bonds and preference shares paying a fixed dividend of up to 8% but I appreciate that just one of these going pear shaped could wipe out a years profits on ten others.

So after 8 years I have realised I'm no Warren Buffet and have taken a decision in the last 2 years to move out of individual shares and towards low cost index ETFs. Planning to keep it really simple from here on.

My minimum investment in any one vehicle is now £5k. I only plan buy when the index is cheap (however that is defined) and plan to sell when the index is dear. I anticipate averaging about 4 trades per year. So far this year I have made only 2 trades- 1 sell of an individual share from the bad old days & 1 purchase of a global ex-UK value equity ETF.

Being a muppet, I'm certainly not recommending any of this to anyone!

Good luck.

srcandas

Racing Blue I think your minimum £5k block to lessen expenses is what I should look at even though it lessens the width of my share portfolio.

Should say my experience is piecemeal over 40 years starting in penny shares.

My stock pick is based on research on HL, press comment, market state, always companies I have known of or have followed for months, and gut feel.

My current strategy says - look for a specific percentage profit. If it happens in 5 mins take it. If it happens in 6 months take it. And set a stop loss and if you hit it sell. No long term hold for me at the moment (unless something specific changes my calculation).

6 share trades since Jan 1st.

coastline

If you're going to invest in individual stocks always invest in something you understand....like Tesco or Marks & Spencers...not that I'm saying those two are the pick of the bunch...but until you've learnt what the company is all about leave well alone..
Its also got to be cost effective to deal in shares...so I'd say at least £500 before you buy one stock...allowing for costs around £10 ?? online..
Theres plenty of free websites with company reports and estimates of future earnings and profits...you don't have to deal blind these days..
I basically look at the analysis on these sites to find the general view on future earnings for the next two years or so...its normally there from a list of brokers...
Then I load up a chart of the share to see how its moving over periods of months to years...with a bit luck you'll be buying if the price is off the boil...
Thing is with a few stocks it might be pot luck as you haven't got a reasonable spread of stocks...might need 10-20 ..
As posted ..I've used the FT100 ETF's in general recently as I don't want to be stuck in the market too long...but theres nothing wrong with picking up a stock like Tesco on a bad day and letting it run a few years..

srcandas

coastline wrote: »

Its also got to be cost effective to deal in shares...so I'd say at least £500 before you buy one stock...allowing for costs around £10 ?? online..

Based on hl £11.95 for buy and sell, stamp duty and a 0.2% allowance for spread I get cost percentages of:

5.5% on £500 investment
1.7% on £2500 investment
0.9% on £10000 investment

Certainly illustrates the benefit of bigger investments if that doesn't dilute your portfolio :cool:

Obviously there are ways to trade a lot cheaper if you're in for the long haul and don't want a precision price or if you trade a lot

kidmugsy

In the late 80s and the 90s we bought Investment Trust shares: mainly, but not entirely, big generalists with low running costs and usefully large discounts to asset value. Plus Far Eastern ITs. Then we sold the lot during 1998-2000. That all worked out rather well. I suppose we should have reinvested in the Spring of '03, but we were distracted by family concerns - the curse of the amateur investor, I dare say.

racing_blue

Back to individual stock picking I even got as far as copying the entire FTSE 350 financials and fundamentals from digital look each month, pasting into an Excel spreadsheet, and then screening for value shares. I was looking for a price:book of less than 0.8, a price:earnings of less than 8, a market cap of >£50m, a net operating profit in the last 3 years, and current assets equal to or greater than debt. Bought a few shares like this some months especially in 2008 /2009 but the data is always several months old and doesn't tell the whole story.

Some of these companies went bust- the market was valuing them accurately. Some of these shares rose, but so did the market- more. When I recorded my portfolio performance against the FTSE100, I was down every quarter for 6 successive quarters. Only by 2 or 3%, but enough for me to realise I was playing a mugs game. Also it was taking up a lot of time, because before buying anything I was downloading company reports and looking through LAST YEAR's balance sheet.

Not my finest hour all things considered. If I had just put the whole lot in a savings account and gone to the pub I'd be richer and happier!

Glen_Clark

I now buy shares in what I think are good companies when I think the market is low, and try to diversify into several companies and sectors for safety. In this I have beaten the market average a little. I take a look at the PE ratio - (if only the PE ratio showed future earnings instead of past earnings!!) I know the PE ratio is a very ambiguous guide and can sometimes be very misleading, but I don't know of a better guide. Other than that I don't do a lot of research, because the more I read, the more confused I get.

It takes courage to put your own money in at the right time when the market is low and you are already sitting on losses. It feels easier to put your money in it at the wrong time when the market is high and you are sitting on profits. Perhaps that is easier for the fund managers who are chucking other people's money in?

In the early days I was naive enough to take share tips from 'brokers' and 'analysts' writing in newspapers which have performed below the market average.
So my selections have performed better than theirs. I am sure that I am not smarter than they are. Just that I am acting in my best interests, and they are acting in their best interests.

Hargreaves and Lansdown started a business in a back bedroom and turned into a FTSE company so their financial acumen is beyond doubt. Nevertheless, all their share recommendations I can remember have been dogs. Of course when they gamble with other people's money, they can't lose their own