"Good Company"

[takeback]

In everything I've read about investing or stock fundamentals, the advice is to pick "good companies". Sounds simple enough. I can understand big companies with a strong foothold in their sector, but that's about it.

Where does a beginner look to form a system for evaluating companies?
I've started to pay more attention to the business section of my paper...any other recommendations on where else to get news related to investing?
Not sure where to start with the overwhelming amount of info out there.

[gambler2075]

I am not an investor, so take what I say with a grain of salt.

I know that when people start trying to pick individual stocks, they tend to be a bit overwhelmed with the available information.

Investing is completely different than trading, which is what I do. When you invest in a company, hopefully you can find fundamental reasons for a company to be underpriced (if you go long), but the problem is that these things can take many months, or even years to become apparent.

However, during this timeframe, a company's stock can undergo many ups and downs, as the sentiment of people buying and selling the stock changes. As a trader, it doesn't matter what the fundamentals of the company are in the long term, and I really don't care. All I really care about is that people are going to want to buy the stock more strongly than when I bought it (i.e. at a higher price), so I can sell it to them. As a matter of fact, most of my trading profits are made of these companies which are basically never going to amount to anything, and as I like to say about trading "I would buy a company that made a device that un-coiled dog turds, if I knew that is what people wanted to buy"

As a trader, I see several significant drawbacks with investing on this timeframe.

1) When you (as a new investor) get information, it is almost already widely known, so it has been factored in, mostly. I do believe in the efficient markets hypothesis for the most part, when it comes to longer term investing.

2) In order to capitalize on a fundamental investment thesis, it may take years for that to become evident. The problem is that you won't know that you are right until that year-long thesis plays itself out. But a year is a tremendously long period of time. In order to get 20 trades, we are talking decades, unless you are trading many stocks simultaneously. So, basically, the drawback of trading here is that it takes much longer to gain sufficient experience to know if you are beating the market or not. With trading, you get answers within weeks, usually, depending on what type of trading you are doing.

2b) During that 1 year you are waiting for the stock fundamentals to justify your position, things can change. The fundamental picture may change, profitability may change, etc... so you are trying to predict things way out in the future, and hit a moving target, so to speak. This is another reason why I like trading.

In my case, I like to trade biotech stocks, buying underpriced stocks and selling them when they are either fairly, or overvalued. You would think that someone could just buy low and sell high, but people are hard-wired to want to go along with the crowd, as this buy low/sell high philosophy requires that you essentially become a contrarian (if you are buying when everyone else is selling, then you are a contrarian). However, if you buy when everyone else is buying (like most people do, who lose in the stock market) then they quickly realize that everyone has already bought and are likely selling their overpriced stock to them.

Anyway, enough rambling... I might write more later if I feel like it. Hope this helps.

g

[gambler2075]

In everything I've read about investing or stock fundamentals, the advice is to pick "good companies". Sounds simple enough. I can understand big companies with a strong foothold in their sector, but that's about it.

Where does a beginner look to form a system for evaluating companies?
I've started to pay more attention to the business section of my paper...any other recommendations on where else to get news related to investing?
Not sure where to start with the overwhelming amount of info out there.

Just one more bit of advice... If you think about it, you really don't want to buy a 'big company with a strong foothold in the sector', if everyone already knows about it, and that has been factored into the share price. Take a look at DELL over the past 10 years. What has the price per share done in that time? Nothing. As a matter of fact, it has gone down
Why is that? because everyone KNEW it was 'the next big thing' 10 years ago, and that was already factored into the price.

What you really want is the next big thing... the company that is GOING TO BECOME the next DELL... not one that everyone already thinks is great.

g

[jpg7n16]

Start by watching this video. 1 1/2 hours and worth every minute.

Warren Buffett MBA Talk

You can get that very question answered by the most successful investor of all time.

At 24:40 - "Can you talk to the students about the companies you like? I don't mean names, I mean - what makes a company something you like?"


Better to start right at minute 24. That's a good lesson there too.

[Mr Nice Guy]

Start by watching this video. 1 1/2 hours and worth every minute.

Warren Buffett MBA Talk

You can get that very question answered by the most successful investor of all time.

At 24:40 - "Can you talk to the students about the companies you like? I don't mean names, I mean - what makes a company something you like?"


Better to start right at minute 24. That's a good lesson there too.

Great video. Thanks.

[KTP]

look for values in sectors that have been beaten down.

I did this recently in the shipping, oil and solar energy sectors and have picked some real winners. Actually all of the stocks are up significantly from where I bought them. My guess was(is) that as summer 2011 approaches, these sectors will return to favor and fly. I will probably sell then

[EEinNJ]

Do you have a brokerage account yet? Schwab, for example, has stock screeners, ratings, and research reports. These tools can help you identify well-rated companies.

Before you start assessing stocks, though, you need to assess yourself. How much tolerance for risk do you have? Can you afford to buy 10 different stocks to be diversified? Can you keep your money invested for at least 5 years, or are you looking to make quick money on trades?

As an individual investor, the game is rigged against you. In a rising market everybody looks smart, but if you buy 5 stocks, be prepared for a couple of them to be losers, even in good times.

Buffett has been very successful, obviously, but he doesn't think in terms of buying stocks. He thinks in terms of buying entire companies, and because of who he is, he gets direct access to management, etc.

[Mr Nice Guy]

After watching that video jpg posted, I definitely looked into KO. Warren Buffet has a way of making coke sound like a great investment!

[Snodog]

I prefer bad companies. Seriously. If you are cooking spaghetti- which spaghetti have the chance to rise the most? The ones on the top or the ones on the bottom?

Small beaten down "value" stocks have historically outperformed the market. But you need 100 or more to be diversified as any one stock is extremely risky.

[takeback]

Thanks for the video link. Funny- I was at UF when John Lombardi (first guy in the video) was president.
I like Buffett's model of "staying inside your own circle". Keeps the overwhelming amount of information out there at bay if you stay in focus about what you know and what your goals are.