Stock-picking - The Semi-Easy Way Out

I like direct stock investment. It's exciting, it gives you a sense of control (well, only a little bit), the sense that you are making money is enhanced (compared to "just" investing it in an equity fund) - and again, it's exciting.

Done "right", it could also be more profitable. However, doing it "right" (whether through technical or fundamental analysis) is also tedious and difficult.

Doing it lazily, is much easier. Though in a bull market you'll still be able to make money.

But doing it "right" isn't for everyone: Not everyone has the time to monitor charts daily or read voluminous financial reports (and actually understand; let alone pick up on unmentioned/hidden factors).

Stock-picking - The Semi-Easy Way Out  I like direct stock investment. It's exciting, it gives you a sense of control (well, only a little bit), the sense that you are making money is enhanced (compared to "just" investing it in an equity fund) - and again, it's exciting.  Done "right", it could also be more profitable. But doing it "right" isn't for everyone: Not everyone has the time to monitor charts daily or read voluminous financial reports (and actually understand; let alone pick up on unmentioned/hidden factors).  So if you are not averse to a little work, here's how you can pick stocks without being an expert (yet)


There is a sort-of-in-between approach. I'm not a fan of in-between approaches, but in this case it might be useful if you have limited time but really would like to invest directly in stocks, it's better than an educated guess.

That said, you can subscribe to a service an essentially do the same thing. Much less hassle, but the subscription price does tend to eat into your returns.

So if you prefer either to keep your profits for yourself or are not averse to a little work, here's how you can pick stocks without being an expert (yet):

  1. Go through your broker's research on the various companies listed in PSE. If you have an online broker (COL, BPI, First Metro, etc.) It should be on their website somewhere.
  2. For now just take note of "target" or "fair" value - this is what the broker thinks the company/stock is worth. Then note the current market price (what it's selling for in PSE). The higher the "upside" (how much higher the "target" is compared to the current market price), the better. But don't stop there.
  3. Of the largest upsides, pick the companies you trust. This is probably the most important yet most ambiguous steps. You shouldn't really trust based on name alone. Make sure you know the company, are familiar with their product, and it is somehow demonstrable that they are better than their competition (JFC for example is a relatively "easy" comparison. When it comes to real estate though, it might not be as clear. Best to stick to areas and companies you really know)
  4. The next step is to phone a friend.  Or if you have more than one broker, get the data from that other broker. You're basically verifying the info you've gotten. If they all think a company is selling lower than it should, they might be right. What you're trying to do here is not put your money in a company/stock that only one broker thinks will do well (or at least know that you are doing that). (Again there's a service that collects the recommendations of a lot of well-known brokers. It costs money to subscribe, of course; it's up to you to decide if it's worth it or not.)
  5. After that it's basically picking the stock that looks best. Of all the companies you trust, with high upsides, which one is commonly expected by stock brokers to do very well? How high, do they they the upside is? Getting the average, might not be a good idea. But are the ranges of their expectations consistently high?


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photo credit: Deciding Which Door to Choose 2 via photopin (license)

2 comments:

  1. Forgive me, but are you into this thing of talking about financial matters for a living?

    I don't begrudge you, but I admire you.

    I am really afraid of going into direct stock buying and selling, what they call 'day trading'(?).

    I put all my idle cash in investment funds, now all into uitf equity funds, still I do not know as much as I should about investment funds; but enough to know that in the long term I will earn more cash, than by putting my idle cash in bank deposits whatever.

    Right now for already some weeks the volatility of the funds are into a downward trend, I am affected; but I have never done the act of redeeming just to save from further loss, even eating already into my original amounts put into the funds.

    Let's say that I put all my idle cash instead into direct buying and selling of stocks, in the long and big picture, what about in five years time, will I make more cash from the original amount of cash I put into, like say originally one million pesos some five years back?

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    Replies
    1. Hi odrareg,

      No, I don't make living by talking about financial matters. Unless you count whatever ad revenue this blog may scrounge up.

      Day trading should really scare you. It's just for folks with a lot of time, experience, money to burn, and a big appetite for the "thrill" of it.

      But to answer your last questions: yes, it is possible to earn more from direct selling and buying of stocks. However, it is also possible to lose more.

      And, since it is entirely up to you, you could lose money even when the market is going up.

      And since it is entirely up to you, it is quite possible to be more stressed from it.

      A relatively straight-forward though definitely not easy remedy is to "go long term".

      For example, buy Jollibee stocks and stick with it for a few years rather than day trade. But even then, the effort and stress is greater than if you had just bought an equity fund.

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