Finding Stock Ideas - Best Places to Look
Based on my limited experience, I've found the following to be the most effective ways to find new stock ideas.
Steal from The Gurus
Investing is the only game where an amateur can beat the master at its own game simply by copying the master. I consider myself fortunate to be an amateur. The nice thing about being an amateur is you get to copy the masters like Bruce Berkowitz, Seth Klarman and Joel Greenblatt. Sometimes, you get really lucky and you get the opportunity to buy below the entry prices of the masters. In this case, you might just beat the master. To help us steal ideas from the investing gurus, the US Securities and Exchange Commission (SEC) requires investors holding more than 5% of a company to file a Form 13D. And a 10% investor to file Form 13G. Once the ownership crosses the 10% mark, the investor is required to report all additional trades on forms 3, 4 and 5. That's a lot of forms to remember. Luckily for us lazy bums,
Even though stealing ideas from gurus is both enriching and noble, sometimes gurus have ideas that don't work out too. I fell into this trap once when I followed Mohnish Pabrai into Delta Financial. Despite losing quite a bit of money, Pabrai at least knew what he was doing. Me? I was clueless. But I was lucky to have invested with just play money. Lesson learned: Skipping homework was fun only when we were back in school.
bStudy Ideas From Value Investors Club/b
Another place to look for well researched stock ideas is the a href="http://www.valueinvestorsclub.com" title="Value Investors Club"">Value Investors Club (VIC), the brainchild of Joel Greenblatt of Gotham Capital. Greenblatt created the website to help him and peers discover high quality stock ideas. Message boards such as that on Yahoo! Finance contain more noise than facts. By creating an exclusive club of outstanding investors, Greenblatt and the members of the club get to cherry pick ideas from the smartest investors in the industry.
Since I can barely pass a Math exam, I was overjoyed to find VIC also offer guest accounts with a 45-day delay. So I don't get to see the latest ideas and some comments are only viewable by members. But I still get to read the full analysis of the ideas. Be very careful here. Some ideas may read like great ideas. They don't necessary turn out as promised. Make sure you read the annual reports and form your own opinion about the company before you invest. Even if you don't find ideas that you act upon, you can still learn a whole lot from reading the analysis on the stocks.
Scour Insider Trades at Form 4 Oracle
Both Peter Lynch and Seth Klarman have emphasized the importance of observing the signals from insider trading. There are many reasons insiders would sell a stock, but there is only one reason they would buy a stock - they believe it would go up.