So you just attended a course recently that taught you about stock investing. Or perhaps you just read extensively on some articles on investing, which explains to you how to win when buying stocks.
You are ready to jump right in.
The next part of your journey will put what you have learnt into action. You will need to execute what you have learnt.
How do you go about selecting the ideal stocks your trainer or the mentor in your books wants you to pick?
There are usually 2 ways to go about stock selection:
- Screening for stocks that matches a certain criteria
- Becoming familiar with the majority of the businesses listed in Singapore and decide which of these businesses you want to invest in.
Many readers have asked me how to quickly become familiar with majority of the stocks in Singapore.
My answer to them is: Evaluate enough stocks on a consistent basis and soon you will be able to identify some good businesses to invest in.
Successful stock investing does not happen overnight. It happens when you do a little at a time, over a period of time.
To be successful, you have to be willing to treat investing as your second job, and spend enough time on it. At the start, it can be tedious and strenuous. Your brain will strain from trying to make sense of the financials of each company. And there would be many companies that you need to take note of.
When you are starting out, your competence level over stocks prospecting will be quite low. However, over time, with recurring effort, you will become more competent in a lot of tedious, strenuous prospecting tasks. The more you do it, the easier it will become. After some time, it would become a habit.
With that, here are some daily or weekly habits based around what I do, and those that I observed around me. You can also follow some of these tips to help you develop a habit that would improve your investing strategy over time.
1. General Screening for Prospective Stocks
I tend to not do this activity often these days, but when you are starting out, it is invaluable to get to know some of the stocks that match what your mentors taught you during your course or from the books you read.
The objective of screening is to identify stocks that meet certain criteria.
One of the tools that allows you to do a fast screen of prospective stocks is provided by SGX Stock Facts . It’s free open for all to use and you don’t even need to sign up for it.
In this screen above, I sought to find companies that pay at least a 5% dividend yield, and which have share price trading near a 52-week low. I am also looking at companies that are not trading at a PE of more than 20 times.
You can customize the display to show more data from what I have screened for. In this case, I prefer to see some growth of revenue and also the companies’ price to book ratio.
One caveat when making use of screeners is that you shouldn’t trust the numbers completely, especially the dividends yield. Always verify the numbers by computing it yourself.
This is because the machines sought to aggregate the dividends paid in a year which sometimes don’t work out well when some listed stocks do not have a full year contribution, or that going forward, their earnings and dividend outlook will look rather different.
2. Reading the Announcement Section of SGX
Build up a daily habit of going to the SGX Announcement section, and read through the entire announcement for the day.
This sounds time consuming, but if you think about it, it makes sense. If you are not familiar with companies, what is the best way to know more about them? Through this method of course!
Most of the announcement for the day takes place after 5 pm and here you will see new acquisitions, share buyback, not to mention the release of financial statements issued by the company.
It is difficult at first to try to identify which is which, but as you get used to it, you will slowly learn to identify them much more easily.
3. A Quick Snapshot of Prospective Stocks
Whether you identified a stock via the stock screener in #1 or discover a stock that becomes newsworthy, or mentioned by a respected source, you have to build the habit of doing a quick snapshot of the company.
You can use the same SGX dashboard for most of your work here.
For example, suppose I hear someone mentioned that one of the better food stocks out there, Japan Food have fallen a fair bit during the recent market drawdown. I would want to find out more.
Go over to StockFacts, and key in “Japan Foods” in the search.
You will be able to find Japan Foods, and be brought to a dashboard showing some information on Japan Foods.
Here are a few things I will do a quick glance of to help me decide if this is a stock we should further look into.
I explained previously why it is dangerous to trust the dividend yield shown on the stock screener sometimes. In this case, Japan Foods would have shown to provide a historical dividend yield of 7%++.
If you take a look at the Dividends tab, you can observe the recent past dividend history, and that in the recent year it only declared $0.02 in dividends. Based on the latest price, the dividend yield is closer to 5%.
If you are looking for yield, the dividends tab will show you the nature of the companies reward to shareholders, or sometimes the lack of.
If you click on View recent financial data, you can see the past 4 years summary financial figures. This summary enables you to have a quick view of the profitability, financial strength or the quality of the business.
In my case, I can see if the revenue is performing well, whether the profitability shows attractiveness, how leveraged or deleveraging the business is over time and the return on asset and capital.
The valuation tab shows you some of the conventional valuation metrics. Since most of us would not want to overpay for stocks, this gives you a rule of thumb if you should examine the data in detail.
In this case for Japan Foods, if you see a 7% yield, and an EV/EBITDA of less than 6 times, perhaps there are some things to examine further.
For an unfamiliar stock, I would be interested to see who owns the business and how is the float. In the case of Japan Foods, you can see that the top 3 shareholders held 75% of the outstanding shares, indicating that the stock might not be very liquid.
The share ownership of StockFacts shows the shareholding more clearly for a lot of companies as it cuts through the nominees account, presented in company’s annual report.
If you repeatedly do this step, and then ask the hard questions and clarify with mentors, you will be able to identify your ideal companies.
4. Allocate weekly X number of hours to examine stock businesses
The first 3 habits are done frequently in a week, but you should allocate 3 to 4 hours on a weekend to review prospective stocks after you pick them out through the first 3 habits.
This is to review the financials in more detail, but also to find out the more qualitative aspect of the business.
At SGX.com Annual Report section, you can review some recent year’s annual reports
For a longer list of historical annual reports, sometimes dating back to 1999, you can go to MorningStar.com with the company’s stock quote.
While the financials in the reports over time gives you a good idea about the quality, or lack of quality in the company, don’t ignore the narrative of the business changes over the past years.
You will be able to see how the stock does in challenging times such as 2000-2002, 2008 and how they did during the boom years.
Learning about investing is the same as many other discipline. You need good knowledge from materials and mentors, but you also need to spend time to execute and reflect.
You can’t devote 100% of your effort as it is not your primary job, but you can devote a fixed amount of time daily, and weekly to build these habits.
Doing this builds your wealth muscles. The only way muscles grow is when you keep putting it under controlled stress. Over time as you build up these muscles, the simpler things becomes easier. The same thing applies to investing.
I used what I found on the SGX website since I started investing and while many may ask me whether there are easier methods, I think one of the reasons I know most listed business off my head was because of the effort put in building these wealth . In fact, I take stock prospecting as a second job and ensure that I invest enough time to keep up to date with what is happening in the market, and to monitor the performance of my current holdings.
With StockFacts, it adds another dimension to what is available for free. Best part is that it is convenient for the Singapore stock investor , since you can find announcements and get important financial ratios pertaining to the companies through one single website.
SGX will be organizing a My First Stock Carnival at Ngee Ann City on 7th and 8th of May from between 11am – 9pm to educate investors how better to make use of StockFacts, as well as the information in SGX.com to kick-start your stock investing journey.
Do join them and like them on Facebook if you wish to learn more of how to take advantage of this platform!
This article is written in collaboration with SGX. All views expressed are the independent opinion of InvestmentMoat
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Tuesday 26th of April 2016
For companies who are listed for 5 years or younger, read the prospectus.
It is one of the most informative material but many give it a miss because of it sheer volume
Thursday 28th of April 2016
hi sillyinvestor, very true.