My Research Routine 4 comments
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To me, my competitive advantage is to search harder for good stocks than everybody else, read more about emerging trends than everybody else, and think more deeply about business fundamentals (see "My Investing Journey - Hypothetical Situations"). It may vary for different retail investors in different sets of contexts and holding different philosophies (I'm generally a fundamentals guy), and I don't suggest that what I do should be replicated wholesale; nor is it static, as I'm constantly sourcing for new ways and new investing tools to do things more efficiently, or to cast a wider net.
Let's assume that the investor is not-so-greenhorn and is already well-acquainted with the technical aspects/terms of investing eg. PE, NTA, dividend, cash flow etc. What follows is a routine process of news gathering/monitoring; this is increasingly important given that the world is so globalised that for example, plastics companies can be hit hard by oil prices, precision engineering firms by aluminium prices, Singapore properties by foreign investments etc. One either has to have a real zest for following the ebb and flow of various facets of global and local news, or he will find that active investing is not for him --- better to outsource to a unit trust.
Where does one start for such news monitoring? In order to monitor one's stocks, it makes sense to adopt a top-down approach -- understand world and industry trends, then you'll understand your stocks. Obviously the newspapers are a good way to start. In terms of the business news coverage our newspapers are definitely worth higher than a 147th ranking. In my earlier investing days, I used to read the newspapers in the morning on the bus and finish them before reaching my workplace --- it helped that my workplace was about one hour's journey then. Most of my understanding of world and local trends, including those written on my Trendspotting blog, were picked up from the papers. It is amazing how all this potential money-making information is just staring in front of you every morning, waiting to be turned into knowledge, while people ignore them and concentrate on watching the stock prices. It does take time, however, to figure out which articles are worth reading; as a rule I don't read articles repeating facts which I already know about, unless they show promise of relevant and alternative viewpoints. I've also started reading The Business Times in recent years, given that the benefits far outweigh the costs. Granted that the main idea is to cull the facts and trends, sometimes coverage by these papers even explains why certain stocks surge upon trading for the day (there was an article by Teh Hooi Ling in The Business Times today on this phenomenon)---- this often takes place in a sideways-market such as recently.
More breadth and depth in emerging trends can be covered in various periodicals since newspapers typically comprise huge doses of daily breaking news. The Economist has been called the finest economics analysis magazine in the world, but it's too much of a tedious read, is too analytical and goes several layers deeper than what I would like (given my limited time). In other words, it is too intelligent a magazine for me. I subscribe to Newsweek and Forbes Asia --- they give excellent worldwide coverage (the latter with good focus on Asia) with minimum fuss. They wrap up two weeks' worth of news in a concise summary with emphasis on the important developments in each region --- macro news that are important for the investor to take a pulse on the world (and the region), as well as highlighting various emerging trends in a large number of sectors.
Drill down to the company level and there are several mechanisms for monitoring the stocks, both those in your watchlist (you should have one) and in your current portfolio. I have mentioned several of the belowmentioned before and it's worth repeating them here, for completeness. First off will be various websites online: the Internet has reduced the information asymmetry between the retail investor and the "big boys" (the institutional investors) like never before and I am so thankful I'm living in this age. The SGX website is the newspaper equivalent for monitoring daily company-specific news, and I check it out at the end of every day. Online forums, if one knows how to use them, are an extremely useful source of information, both past and present. They are also useful for bouncing your views off others and getting their comments in return --- you get different perspectives, many-to-many interactions that compound the network effect. Some forums worth visiting are the Channelnewsasia Markettalk, Shareinvestor, Shareowl and Sharejunction forums (PS: for those who complain I always say negative things about stocks in my Hotstocksnot blog, I am not a sourpuss --- I do post positive stuff about stocks I like on these forums). I stop short, however, of subscribing to online newsfeed services like Dow Jones or AFX --- they encourage too much of a short-term mentality.
There are two company monitoring routines that I find useful. One is to simplify his stockwatch routine to the monitoring of one or two highly relevant general indicators, which might vary daily, monthly or quarterly; they could be input prices, product average selling prices, customer sentiment, even proxy share prices (ie. monitor peers or listed subsidiaries). I've mentioned this in an article "Watching Stock Holdings" and I think if one is judicious in use of these indicators, it can often give a good indication of any imminent change in industry fundamentals that will ultimately impact the stock. The second is a routine scanning of this very useful fortnightly Singapore shares periodical: Shares Investment, which allows me to contextually scan through the whole universe of Singapore stocks. Note contextually --- it is my view that valuation figures (eg. PE, P/B, dividend yield etc) as provided on some online sites have limited use in themselves unless accompanied by an understanding of their various business segments, their recent performance and track record, upcoming dealflow. Stock screening is not a matter of picking the lowest-PE or lowest P/NTA stock off a data screen, but a measured contextual consideration of all abovementioned factors --- doing this manually with a useful updated shares publication is the best.
Why am I sharing with you all this? A genuine competitive advantage does not rely on "secrets of the trade"; as I mentioned, it's all about working hard, working efficiently and amalgamating the different tools to improve one's judgment and decision-making. It is seldom that I find people who can do this better than me (in an unbiased manner.... that rules out the analysts) :-)