[bTo you guys that pick your own individual stocks, how do you guys even go about your research? Do you even have enough external information on the stocks to make accurate predictions?[/b]
I started by reading about the subject fairly exhaustively. I basically taught myself everything a business school would teach ( the important things). Than I found books on the subjects that seemed helpful and read / took notes on those. I have lost count how much I have read on the subject, but still have a lot to learn. However things are starting to become repetitive, so that means the learning must be working.
As for my own research, I use a combination of my own fundamental research and simple data analysis. As far as fundamental research, i'll read annual filings ( SEC form 10k's 10qs, etc). Next I'll read about the market the best I can and study how it works. I like to read about the simple stuff like what the business does, their competition, management, and that sort of thing. Next I'll look at the finances - this is where I have my own simple data analysis. Most sites like yahoo and google have 4 years of financial data...I have 6 because I collect it and store it in my own database. Every year I collect that years data since normally you need to pay for anything more that 4 years.
What I do with the financial data is simple. I determine if the company has made money, and will continue to do so. Do they have too much debt ? What returns on their invested capital does the enterprise enjoy? Lastly, I check for financial fraud.
As for if it works, most the stocks where I have invested on my simple principals, it works. For my speculative purchases, some have, and some have not. This is a work in progress. Many of my energy related holdings did well last year, but not well this year. My new purchases this year have been doing okay , but I expect them to slow down. I invest for the long term, and do not trade. Trading is a shorter time holding period, and too involved for what time I have to put into this.
The short answer to your question is (1) understand how to look at a business and (2) final public information about the company so that you can be convinced that you would want to own it ( not just buy the stock, but own the business as if you purchased it outright).
Example - Would I want to own Tesla motors? The answer is no. They do not make money, burn cash every year, and require new funding every year. They do not sell all that much, and many of their financial reports have been questionable. I feel like they are hiding something. I look at it as if it was my business...and I wouldn't be comfortable burning hundreds of millions per year. Now if you want to *trade* this company, I am sure many can and do and have done quite well!
