How do you pick the companies you want to buy stocks in? How do you even know which companies to look at? Where do you find your inspiration?
These are some of the questions I get asked most frequently.
Here are three ways to find your investments or to get your initial inspiration:
1. Read the Business News
As part of your daily routine, read the news.
You don’t have to read every newspaper from beginning to end, but it’s crucial that you stay up-to-date by skimming the major international and national news media.
You need to at least read the headlines.
When we invest as value investors, we buy stocks that are cheap. This means we often buy shares in companies that are experiencing some kind of headwind.
You can find signs of that headwind in the news.
Let’s say you read about a company that is filing for bankruptcy.
Don’t go directly for the troubled company, but what about researching other companies in the industry?
Stock price crashes have a tendency to spread like wildfire.
When, for example, an airline company files for bankruptcy, there is a high likelihood that many other airline stocks will become depressed. The investor will be worried for a while that there is a general problem.
Ask yourself: which company in this industry is the best? Look at the numbers. Success leaves clues.
Go for that one.
2. Look Around in Your Own Life
Make it a habit to be alert in your life and jot down brands and logos you come across.
Ask your friends why they prefer one brand of dog food over another.
Ask them why they’re flying with just that company or why they’re buying that headset.
Some of the best investments you’ll ever make are companies that you’ll come across as a consumer.
When you start thinking this way – as if the world is full of investments – you will spot wonderful companies everywhere.
When you notice something you want to research later, do something to remember it. You can take pictures with your phone or jot down a note or even set up a reminder.
Do it right away so you don’t forget.
Then you can google the company later on to find out if it’s investable.
How do you actually do that? How do you find out if a company is private or publicly traded?
You google the company name and “stock” or “shares”.
If no share price appears, it’s probably not a company that is listed on the stock exchange.
3. Look at the Fact List
This isn’t a third grade math book, so obviously there is not fact list at the back.
But there’s something even better.
There are websites collecting information about what the top value investors invest in.
One of them is called gurufocus.com. There, you can look up what Warren Buffett, Charlie Munger, Monish Pabrai, and many of the other value investors are investing in.
Warren Buffett began his career by imitating his teacher Benjamin Graham, so there’s no shame in copying the masters.
Stir the Pot
The best thing you can do is to combine the three methods.
You keep an eye on the media and see that a company goes bankrupt.
Then you research the industry and find other companies. You look them up and find out if some of the best gurus are investing in some of them. If you see that a guru has bought shares in one of them, you zoom in on that company.
Of course, you also use experiences in your own life.
Ask your friends whether they use products from the company you’re looking at.
Why do they? Why don’t they?
Next step is to try out their service or product yourself to see what you think.
To learn more about this method of investing in stocks, read my free e-book right here