Weekly thoughts #17
Where do I find the investment ideas?
Disclaimer:
Eloy Fernández Deep Research publishes equity reports, and analysis posts periodically. All reports are subject to the following disclaimer.
Eloy Fernández Deep Research gathers information from public (free and paid) databases, company reports and media releases. This information is used as available basis.
Eloy Fernández Deep Research reports should only be taken as guidance. They don’t suppose an investment recommendation. Any investment decision should not be based on the Eloy Fernández Deep Research Report. Eloy Fernández Deep Research is not responsible for any investment decision or later consequences.
The opinion expressed in the reports and posts is my current opinion. This opinion is based on the prevailing market trends and is subject to change.
This post is not a BUY or SELL recommendation.
I have sometimes been asked where I look for investment ideas. The answer is always the same: I do not look for them; I find them.
The best ideas come once you have created a universe of knowledge and a network of contacts that practically turn the process into a “passive search.” Therefore, in this post, I want to list those sources that could be useful for investors.
Blogs and Sites
Fortunately, we live in an age where we can access knowledge with just a click. Access to low-cost technology also means that content creators have fewer barriers and ideas can spread more easily. However, this brings with it the need to filter the good from the bad, separating the wheat from the chaff. Without meaning to be pretentious, EF Deep Research is a good start to find good quality businesses or small opportunities. 😎
Twitter
I like to say that X (formerly known as Twitter), can be either a garbage dump or a garden of opportunities. It depends on the community that you create. The true value of X is not the number of followers you have, but the quality and value you bring to those you follow. In finance, it is particularly important to remember this.
X, a valuable tool for investors.
Investing community, fund managers and institutional investors.
This source should be taken with a grain of salt. It can obviously be a good start, but again you have to do the work. I have had very good results taking ideas from fund managers or financial community members, but I have also lost money.
The key is: “Think for yourself and take responsibility for your gains and losses”.
You should not copy blindly. That is always a bad idea when things get tough, because you are left with no roadmap.
As I always say, investing is not a contest of originality. If you see a good idea that comes from a third party, you find it interesting and after an adequate analysis you believe that it meets your criteria, invest! Think that ideas are like air, we all use them, but they really do not belong to anyone.
Your portfolio, your risk tolerance and your assumptions when valuing a company are unique and non-transferable. Remember that.
Stock screeners
A stock screener is a tool for investors based on specific criteria, such as valuation ratios, debt, margins, returns, etc.
Stock screeners can be useful by nature but always as a support for qualitative research work. That is one of the weak points of this tool, the lack of scope in terms of business quality. Another problem is that based on quantitative criteria, we could discard ideas that could actually be good candidates.
In the case of filtering only companies with positive equity, we could lose excellent companies with negative equity. In the case of filtering by FCF generation, we could discard exceptional companies in a high growth phase that currently invest heavily in CAPEX, giving us negative cash flows.
So we must always use these tools in conjunction with others, as a complement, and using our knowledge.
Knowledge base (Sharpen the Saw)
Most of my ideas come from a broad knowledge base accumulated over time. Often, a discarded idea can lead to another within the same industry that may be a candidate.
Sometimes an idea may emerge from stocks that have been part of the portfolio in the past.
It is like a snowball: as you learn about different industries and business models, the ball gets bigger and heavier. If you're a rookie, it is important to keep in mind the Stephen Covey’s words.
“Dull or rusty tools are much less effective than clean and sharp tools”.
Build a good lists of excellent stocks and you will never run out of ideas.
Radio, TV, newspaper
“You can get out of error, but you can never get out of confusion”. Antonio García Trevijano Spanish lawyer, and political activist.
News can be a good way (with filters) to follow current events, but a very bad way to assess reality in a deep way. That is why I never use TV or newspapers to find investment ideas. The media are essentially noise generators, have a high level of conflict of interest, and do not analyze reality in a deep way.
Never, never, never invest based on fundamentals that were presented in Bloomberg or that you read in Barron's.
To sum up, there is no magic source or tool for finding ideas. Investing is much more art than science.
Greetings and have a good week.
Eloy.
