Moving from Shortlisted stocks to stocks for Deeper study

Hi all,

I have a doubt which I am seeking advice on. Thanks to the excellent screener tool it is relatively easy now to create a shortlist of 15-20 stocks that satisfy whatever is the filtering criteria. My problem comes once I have created this shortlist. As a working professional there is only so much time I can devote for investing. To minimize mistakes, I have a relatively long checklist that I run before deciding to buy - a process that takes a lot of time. As a result, I miss out on some really good stories among the shortlist.

My question to the gurus and seniors here is, is there any advice on how to take the 15-20 shortlist and filter into a 3-4 “hot” list that can be further studied. What are some of the top criteria that you seniors look at before deep-diving into a stock?

Thanks for any inputs!!

Warm Regards,

Once I know that fundamentals are great as per my filtering criteria I check:

  • If Dividend Yield is greater than PEG
  • PE should be ideally less than or equal to its industry peers
  • Current market price should be less than its 30 day moving average.
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Hi @varunrajwade

This is a key question that many times slips below the radar. There is no one way of doing it - you need to ultimately develop a process that fits with your personality and investment style.

Here are a few things I do once I have a first cut.

  1. Look at the industry/ sector. If this is something I can understand based on my interest/ background I proceed further
  2. Determine the play - is it a growth story, stalwart, slow grower (a Peter Lynch filter if you will)
  3. Based on #2 understand the drivers and construct a first level story
  4. Look at opportunity costs
  5. Check for biases that may be influencing my decision to look at that particular stock

At this point I do broad based research and scenario analysis to look at what future realities can play out. If I am convinced that there are compounding possibilities I do a deep dive (you can look at the post I made on the SH Kelkar thread with my research note for a concrete example)

Please note that I am a very long term investor. The average age of a stock in my current stock portfolio is at least > 5 years. So this works for me but may not be preferred way for everyone else. To paraphrase Sun Tzu from the Art of War:

  1. Know thy self, know Mr. Market - 100 victories in 100 battles :slight_smile:. Difficult if not impossible but you dont need to swing at every delivery
  2. Know thy self, but not Mr. Market - a defeat for every victory
  3. Know neither - invest in index funds :smiley:

Best regards

Once you get down to 15-20 stocks and still want to narrow your focus then it’s all psychological. Trick is to imagine how will you react if a stock in your shortlist makes a sudden move. In most cases a stock movement in the short term is not caused by fundamental factors but market noise.

Ask yourself how will you react if a stock in your shortlist reports a bad quarter and drop 20%. If you are likely to doubt your judgement and sell the stock at that point then take it out of your short list right now. Your conviction level is low. If you are likely to jump in and buy more then buy it now. If you are prepared to buy after a drop then your conviction level is high.

Similarly, ask yourself how will you react if the company reports a good quarter and stock jumps 20%. If you are likely to buy more for the fear of missing out, then buy it now. On the other hand, if stock jumps 20% and if you are likely to sell because at that price it would be overvalued then don’t buy now as upside is limited and you may end up holding an overvalued stock.

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Just adding my 2 Cents…

i put one more filter of am i willing to take this initial purchase to minimum 10% level of portfolio, if everything plays out well as i analysed including the projections.

It is a different matter if story does not go well as i thought and if it is a result of structural defect in my analysis and not a temporary problem, than i may exit.But otherwise i generally do not intend to enter the stock if i do not see my holding going to 10% minimum in future.

Reason being to be a little efficient for the time i need to invest per holding and particularly when at times i pass through a little tight time schedule due to various reason, i should be able to attend any thing happening around my stock story and be aware of it, especially in the result season.

Above excludes few very small tracking positions i take, while understanding/ working on the stock story. those positions i exit if not convinced at the end.