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I think there is a lot of great information on this forum, however, one area I feel most new investors (and some veterans) may question is how to select their stock. No forum or book I have read ever goes into great detail. Essentially, what do you look for? I think this is the fundamental inquiry for most new investors and your advice would benefit greatly. I think this should be a sticky for all new investors as a guideline in to the market.

When you pick a stock, what quantitative and qualitative data do you primarily look for when researching a company?

Do you stick to your plan for every stock?

How much time do you plan on researching a stock?

How many stocks should one hold in each sector?

How do you read a companies report and select which information is most useful?

When do you buy/sell?

Thanks for all of your help in advance. Please feel free to add any additional questions. Happy investing.
 

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Yes and no. What you should be taking from that line is there are "signs of improvement" and "rushed" supply. Not all supply is in need of being rushed, especially in the early stages of an economic recovery. Sounds supiciously like an overshoot and downside correction for the not too distant future if that demand, those powers that be of questionable intellect are rushing to fill, doesn't materialize.

Now we can get on to the level one answers. I haven't the time now so others feel free to jump in.
 

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Of course there is no right/wrong here. I am top-down picker.

* I look at the industry sectors with the best promise of health as long as my existing portfolio is not already way over-weight it.
* I look at the list of businesses I already know in that sector, or look up the competitors.
* Once you have been doing this a while you will already have looked at and discarded most of the companies on that list, so review the remaining only.
* I don't care about whether I get dividends or capital gains, but I do demand that I buy companies that grow my book value per share from operations - not from share issues.
* The rate of that growth divided by the Price/Book ratio, plus the rate of the dividend, must be anticipated (based on past performance and knowledge of economy only) to equal 10%.

Then I consider safety metrics like Debt/TangibleEquity, TimesInterestEarned.
Then I look at the behaviour of the stock's price.
 

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When you pick a stock, what quantitative and qualitative data do you primarily look for when researching a company?
Less than $2B market cap, 10 year history of ROE, debt/equity, earnings, 25% shareholder-CEO.

Do you stick to your plan for every stock?
Not all, but the vast majority. I bought Berkshire Hathaway which has a market capitalization of over $2B.

How much time do you plan on researching a stock?
Only a small handful of publically traded companies fall within the criteria so I'm constantly reading. Since I only make 1-3 purchases a year 99.9% of the time I'm just reading. Sometimes I've made no purchases in the year.

How many stocks should one hold in each sector?
Not important to me.

How do you read a companies report and select which information is most useful?
Financial statements. Income statement and balance sheet. Cash flow statement I focus less on, but I should probably change that.

When do you buy/sell?
I buy when the aforementioned companies hit bumps in the road. I have rarely sold. I prefer to never sell.

Oakley was 'sold' because they were bought out. King World Productions was 'sold' because they were bought out.

However I will sell if the financial statements appear to me to be critically impaired. I do not consider a downturn in earnings to be critically impaired.

My criteria are outlined further on my web site in my previous letters.
 

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I think the most important thing is to understand and follow the world economy and what the different sectors will do in the economy of the future.

Then I choose sectors that will do well in the economy that I foresee and run metrics to see which companies in those sectors are selling at a discount and try to find out why and if it's justified.

Each sector can have a unique way of comparing companies. For example, I like gold right now so a quick way to compare gold companies would be to compare enterprise value : ounces of reserves/resources in the ground. Just a quick way to narrow down choices, then you can go more in-depth on certain companies of your choice.
 

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Discussion Starter #8 (Edited)
Thanks for those who have responded already. Please keep the posts coming.

What I find quite common around forums and blogs is that those seeking modest and 'safer' returns (value investors) for the long term, primarily 3-4% yielding dividend paying stocks, is that they are picking large, well-established companies, just like everyone else. It's almost too obvious which those are these days. While those individuals may purchase these companies at what they believe is fair market value, they will continue to purchase more once the share price plummets - dollar cost averaging. What is my point? Regardless of all of the research one may put into one particular stock, I find most still hold the assumption that these buy and hold companies are going nowhere - so why do any research and just buy the large companies like everyone else?

I am aware alot of individuals may prefer to invest with a different style in mind, however, I am just making a general comment on what I have observed for the conservative style investor who does not like alot of risk with a new company. Rip apart my comment if you wish.
 

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This is my selection criteria:
1) I am only interested in large and highly liquid companies so I can get in and out fast.
2) Because I am not an economist, I listen to a lot of different opinions and use my common sense to assess the long-term (10 years) prospect of the industry and the company I am interested in.
3) I check rapidly the company's fundamental provided by my TD Waterhouse discount broker such as: debt, cash flow, profit margin, sales, EPS, dividend, P/E ratio ...
4) I go into the site stockcharts.com to check the long-term (3 years) trend of the stock (Note: I don't always base my buy and sell decision on charts). Is the trend up or down? Does it show sign of trend reversal?
5) Be a contrarian: When everybody was extremely pessimistic, I divided my money and bought slowly every month from last November to last March eventhough in the chart the trend was down. I stopped buying since April because the market was up fast and furious. Now I am waiting for the market to go near March low or November low to start my buying program again. I will hold them for probably a few years until the economy recovers, inflation returns and interest rate increases. I will start my monthly selling program when long-term interest rate is above 5% because high interest rate will choke the economy again.
6) I only buy stocks that pay some dividend because I want to get paid while waiting.
7) I trade around my core portfolio, I buy and sell parts of them, I do it gradually, incrementally. I don't close all positions at once unless the company is broken. In that case, I admit my mistake, close all positions, take a loss and move on.
 

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- Never buy a company that competes on price (equates to competitive suicide)
- Fat margins
- Trades at a discount to some assessment of value
- Strong management
 

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a little levity never hurt. I'm working my way through the 5 chinese elements :) Fire, water, earth, metal, wood. So far in '09, energy, shipping, fertilizers, railroads & transports have been good to go. Wood is the wild card.
 
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