Process

[Homestead31]

I'd be curious to hear about your process for idea generation.

 

I am in the midst of trying to refine my own, and the collective wisdom here can surely be a great help.

 

I know most value investors say, "i just read and find ideas where i find them" and that is great, but I often find myself getting off track and not using my time in the most efficient way possible.

 

I am currently thinking of something along the lines of spending 1 day a week reviewing new lows, 1 day a week reviewing recent insider buys, 1 day a week reviewing valueinvestorsclub.com/cornerofberkshire, and 2 days a week for spill over from the other 3 days.

 

is anyone doing something simlilar?  or BETTER?

 

please share your technique for finding ideas

[Guest notorious546]

- 13-F disclosures

- manual of ideas (recently cancelled the subscription, couldn't justify the cost anymore)

- return on equity/return on invested capital rankings/screens

- sell-side research

[bookie71]

Read, read, read, then some more reading. They will show up in the dangest places.

[Guest Schwab711]

Download all OTC stocks and look them up one at a time. I go through them A-Z. Sometimes I want to change it up and I go Z-A.

 

Other, less work-intensive methods are:

- reading value blogs

- barron's/forbes/wsj

- manual of ideas

- looking at the manufacturer of items in your house

- 13-f

- seeking alpha (be wary of author's reasoning)

- value investors club

- this site

- Stock screeners work great for listed stocks.

 

I don't stray outside Canada/US very often. Most international stocks I look at are from recommendations.

 

It's been said but this hobby/profession comes with the requirement of a lot of reading. Just read everything possible about companies and be patient. If you have 50 homerun ideas in your lifetime then you're kicking ass. That's ~1 good idea a year + several decent ideas a year.

[netnet]

Excellent question.

 

Nevertheless, the most important process is the winnowing of ideas, how and why you choose out of the companies in your 'funnel'.

 

I think that idea generation is the weakest part of my process, but so far I am comfortable with that.  What do I do?

Screening and reading value blogs, WSJ, Fortune, Forbes, Valueline (cover to cover)  etc.

 

Now after being on Twitter for years, I have started to follow various investors, but the amount of noise there is overwhelming.

 

I also maintain a list of companies that I want to buy but the current prices are too high.

[ScottHall]

I don't really have one. I used to research quite a bit when I was into making massive bets on just one or two companies, but these days I'll just occasionally see something on Twitter I like, or something mentioned by a friend or coworker.

 

I have a longer term style now; buy and hold quality operations run by smart people. Less taxes, less work, and less need for new ideas all the time.

[Jurgis]

I have a longer term style now; buy and hold quality operations run by smart people. Less taxes, less work, and less need for new ideas all the time.

 

This is one of the big benefits of Buffett style.

 

You can sit in Hawaii Omaha and sip mai tais Crappy Cola instead of spending days and nights researching yet another company.  8)

 

I'm trying to get there too.

 

I still have a portion of portfolio in theme cheapo stocks (oil and MU) and lottery tickets (Fannie+). I'll see if I will keep doing these or whether I'll get out of these totally at some point.

 

Research:

- CoBF

- Silicon Investor

- Barron's

- Some blogs

 

I think international screeners are worthwhile since markets internationally are less efficient than US (IMO). But even after screening international research takes a lot of time, so I never did thorough DD on international screens.

 

My biggest question now is sizing of the long-term holds. As theoretical example, I don't want to sell some BRK to buy some FFH - if I do, that's no longer long-term holding. On the other hand, if I don't, I might have not very good ratio of the two... :/ Ideas how to deal with this?

[Packer16]

One area I would add to above is a focus on a particular segment of the market so you can understand valuation and the key value drivers in that segment.  If you study the areas under distress you can find some interesting companies.  HK-based real estate companies are an areas like this now.  Some interesting ideas to get you kicked off are Shun Ho Resources, Asia Standard and Keck Seng.  I like the first two over the later but at today'e prices I think they all will do well.

 

Packer

[ScottHall]

I have a longer term style now; buy and hold quality operations run by smart people. Less taxes, less work, and less need for new ideas all the time.

 

This is one of the big benefits of Buffett style.

 

You can sit in Hawaii Omaha and sip mai tais Crappy Cola instead of spending days and nights researching yet another company.  8)

 

I'm trying to get there too.

 

I still have a portion of portfolio in theme cheapo stocks (oil and MU) and lottery tickets (Fannie+). I'll see if I will keep doing these or whether I'll get out of these totally at some point.

 

Research:

- CoBF

- Silicon Investor

- Barron's

- Some blogs

 

I think international screeners are worthwhile since markets internationally are less efficient than US (IMO). But even after screening international research takes a lot of time, so I never did thorough DD on international screens.

 

My biggest question now is sizing of the long-term holds. As theoretical example, I don't want to sell some BRK to buy some FFH - if I do, that's no longer long-term holding. On the other hand, if I don't, I might have not very good ratio of the two... :/ Ideas how to deal with this?

 

This will depend on your situation and thoughts on the return potential, of course. If you think the two will earn roughly comparable returns going forward and most of your money is taxable, it probably wouldn't make sense to sell one to buy the other, because if you've turned a profit your after-tax return will be lower than if you had just maintained your positions. This is even true if you think one will modestly outperform the other.

 

If your money is not taxable, then that is not an issue.

 

The other alternative is, if you have a source of income, to balance it by selectively adding to the one you view as more palatable at the time, or the one you have less exposure to if the ratio is important to you. Once your portfolio size grows too large, unless you're broadly diversified, this becomes much harder to sustain, of course.

 

Just a few thoughts on how I'd handle it; not "the one way" to handle it, or necessarily what makes sense for you.

[Jurgis]

Thanks, Scott.

[Homestead31]

thanks for the responses... as for the "read read read" comments, that is already what i do - i'm just seeking to do it more efficiently b/c sometimes (alot of times) i wind up down a rabbit hole.  that is fine, b/c as others commented, you never know where your next idea is going to come from - but there are certain areas that tend to be more fruitful than others, like insider buying, new lows etc as i mentioned.

 

as for packers comment, that is definitely something i should be better about - ie expanding the circle of competence. 

 

one other issue i have is that i often find myself reading too much "investment porn."  it is all helpful, but at some point time is better spent on reading new 10-ks than reading old interviews with super-investors etc.  this is more of a self-discipline issue i guess - its just more fun to read about past successes than to do the hard work on new potential successes for me.

 

more opinions welcome!