Crucial to any successful investment process is having a good quot;searchquot; or quot;originationquot; strategy, i.e. ensuring that you are constantly seeing a good quot;funnelquot; of investment targets. Part of that search process is having a well-through through set of investment checklists so that you can quickly filter out the low probability time-wasters. But equally, it's important to think about the top of the funnel - how to find new ideas? Are you getting enough good investment ideas coming in? Are you losing out because you don't have the right sources? Or are you missing out because you're not paying enough attention? A famous example of this kind of quot;sin of omissionquot; was given by Warren Buffet who said he committed a major mistake by not buying Wal-Mart at the right time - he suggests that this oversight may have cost his company, Berkshire Hathaway, more than US$8 billion!Where can I find the good ideas? That's the million dollar/pound/euro question and unfortunately, there is no one deﬁnitive answer. It just requires a lot of hard graft but, as ever, having a systematic approach helps. In no particular order, here are 7 search paths that may be worth building into your process, if you aren't already. Using others? Let us know in the comments below. The 7 Best Places to Look
But Do Your Own Research (DYOR) No matter how you find any idea, remember: this is only a starting point. You still need to do your own work, otherwise you won’t have the necessary belief to hold the stock through the inevitable periods of volatility for those big potential gains.And Use a Watchlist Finally, it's worth having a watchlist to help you to create discipline around your buying process. As Buffett has pointed out, compelling values are like fast moving elephants so you need to stay alert. A watchlist is essentially just a list of the most attractive companies you’ve found in your research. It's advisable to keep one (or more) religiously, including a valuation estimate and a target price at which you'd be willing to buy the stock. That way, you’ll spot when your stocks hits an attractive price point, rather than being distracted by market noise. On any given day, Mr Market won't necessarily be offering you a price that matches your watchlist valuation but don't let that discourage you (and don't lose the discipline of maintaining and checking it). A close eye on your watchlist will pay off in the fullness of time! A more automated variant of a watchlist is to place ‘limit orders’ a broker at your quot;buyquot; prices - this enables you to automatically buy a share should it fall below your calculation of intrinsic value, regardless of whether you happen to be watching the market. The serious risk with this approach, however, is that the price could fall for a reason that impacts intrinsic value, e.g. company-specific news of a failed drill or flawed product launch, so you may live to regret that buy order going through, after all! Got any other suggestions for how to find stock ideas? We'd love to hear them.Further Reading
updated Feb 15, 2012
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