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Like Warren Buffett have said, you don't need a dozen stocks in your portfolio, you just need a few good ones. Please be aware that individual stock picking is not for novice investors as 95%+ of the people will lose money. This is my approach and hopefully you'll find it useful.
1. Pick disruptive companies with low market share penetration and high pace of innovation. Know what the possible TAM(total addressable market) is, and make sure it's valuation(not stock price as this does not matter) is very low vs similar companies with dominate market share.
2. Look at the financials and listen to a few past conference calls as you need to see a vision for where the CEO is taking the company. Make sure you agree with how CEO is handling the company. A bean counter does not belong in a growth company. It's a red flag if the CEO is constantly trying to cheap their way out of a bind vs innovating and making bets that make sense.
3. You have to be interested in the company. If you have zero interest or understand technology, then there's no reason to invest in technology. <--There is where most of you guys will falter.
4. Do NOT look for dividends or profits. A truly innovative/disruptive company that is on track to gain marketshare quickly SHOULD NOT POST PROFITS. GAAP profits are probably one of the worst ROI for a growth investor. A 1 billion dollar GAAP profit for Tesla(which would at least stop all the naysayers) has a 220 MILLION dollar tax bill (22% corporate tax rate). Think about how many supercharging stations/service centers Tesla can build with 220 million dollars. How is this a good use of capital paying uncle Sam? Remember it is the growth's company job to invest so they can turn that investment into more $$$ down the road for the investor. Do understand what gross margins, operating margins, and cash flow is. The higher the gross margin, the higher the multiple they give the stock. A good way for news site to create fear is to tell you x, y, and z will never be profitable when they obviously have a strong positive gross margin. Growth companies will have a hard time being profitable as they should.
5. If you are interested in the company, then great let this company be your hobby. Spend a few hours PER DAY studying and understanding the company. Go on reddit and find investor clubs for this company(or other forums). Look constantly at what the competitors are doing. The more you learn about the company, the more you can dismiss MIS-Information. There will be plenty since these stocks are very volatile and hedge funds love to fabricate news to make a quick buck from weak longs.
6. Hold until said company becomes the dominate player and has over taken more than 50% of that TAM. Don't sell in between, don't worry about the up and downs, don't try to time anything. If there's a FUD(fear uncertainty doubt) storm which cause your company's stock to drop 10%, look at these as OPPORTUNITIES to BUY more(not be scared that it will drop more). When your company is at a 1-10% market share penetration, it's full potential is not even closed to being realized so who the F cares if it drops more. You think people who bought amazon at 45 before it dropped down to 38 is crying today when the stock is worth 3300? You know who are the real criers? Those who sold at 38 thinking it'll drop more. Or those who sold at 45 thinking it couldn't go any higher which leads to...
7. There is no peak. No matter what they tell you, there is no peak. If your company is disruptive and is changing the industry, there is no peak UNTIL it stops becoming innovative and you see another company about to take its place. If the company has fast PACE OF INNOVATION, then it'll never have a peak. Yes, there will be clones, there will be thefts of intellectual secrets. But as long as the CEO doesn't spend their time suing but spend their time innovating, there's nothing to worry about. Whatever the Chinese will clone up with always be 5 years behind as long as your company continues to innovate.
8. Apply first principal thinking in evaluating a company. This means break the product into parts, and break the parts into schematics. Analyze how this company is innovative from the ground up and see if it has the ability to be that disruptive player. If you were invested into Apple, then you had to understand the chips they were making, the software platform they were making, the batteries they were using, the manufacturing process they were using, and compare all of that to EVERYONE ELSE. It's not just "oh I like the iphone, let me invest".
So why do people not win at this game? Because it's a very difficult game. Fear of losing money should be #1 when it comes to why people lose. Taking profit is probably #2 as investors probably owned Amazon one time or another but sold it way early. The rest is attributed to a lack of understanding of the company you invested it. Some just throw some money into a stock because x, y, and z told them. But you'll see these same people sell at a loss during a large FUD storm because they have zero clue. Granted some companies are not very easy to figure out.
Example: Tesla has to be the hardest company to understand, and I have probably a thousand hours sunk into learning the company. Someone who has zero interest in technology will never be able to understand or care that a Tesla's FSD chip having the ability to inference 144 Trillions of operations/s(TOPS) while using 100 watts is 2x better than Nvidia's AGX's 300 TOPS using 500 watts. But understand information like this gives you the conviction you need to ride out the FUD storms. When people tells you how Volkswagen can very quickly become the next Tesla because how hard can it be? You think to yourself, can they really when a small Tesla team of engineers built a FSD chip that Nvidia still couldn't compete with? And it turns out Volkswagen ID3 can't be sold due to software issues, and each car must be manually updated via usb stick which takes 7 hrs per car. But this is first principal thinking approach. I study the chips, the infrastructure, the software, and the manufacturing process for every Tesla sector. This means I have to understand how their solar panels are made, who they are sourcing it from, what about the nickel for their batteries? Electrodes manufacturing process? How's the casting done for their cars? What about power walls? Mega packs? Energy software ecosystem? Man the list goes on and on and it's rough...hence take thousands of hours.
1. Pick disruptive companies with low market share penetration and high pace of innovation. Know what the possible TAM(total addressable market) is, and make sure it's valuation(not stock price as this does not matter) is very low vs similar companies with dominate market share.
2. Look at the financials and listen to a few past conference calls as you need to see a vision for where the CEO is taking the company. Make sure you agree with how CEO is handling the company. A bean counter does not belong in a growth company. It's a red flag if the CEO is constantly trying to cheap their way out of a bind vs innovating and making bets that make sense.
3. You have to be interested in the company. If you have zero interest or understand technology, then there's no reason to invest in technology. <--There is where most of you guys will falter.
4. Do NOT look for dividends or profits. A truly innovative/disruptive company that is on track to gain marketshare quickly SHOULD NOT POST PROFITS. GAAP profits are probably one of the worst ROI for a growth investor. A 1 billion dollar GAAP profit for Tesla(which would at least stop all the naysayers) has a 220 MILLION dollar tax bill (22% corporate tax rate). Think about how many supercharging stations/service centers Tesla can build with 220 million dollars. How is this a good use of capital paying uncle Sam? Remember it is the growth's company job to invest so they can turn that investment into more $$$ down the road for the investor. Do understand what gross margins, operating margins, and cash flow is. The higher the gross margin, the higher the multiple they give the stock. A good way for news site to create fear is to tell you x, y, and z will never be profitable when they obviously have a strong positive gross margin. Growth companies will have a hard time being profitable as they should.
5. If you are interested in the company, then great let this company be your hobby. Spend a few hours PER DAY studying and understanding the company. Go on reddit and find investor clubs for this company(or other forums). Look constantly at what the competitors are doing. The more you learn about the company, the more you can dismiss MIS-Information. There will be plenty since these stocks are very volatile and hedge funds love to fabricate news to make a quick buck from weak longs.
6. Hold until said company becomes the dominate player and has over taken more than 50% of that TAM. Don't sell in between, don't worry about the up and downs, don't try to time anything. If there's a FUD(fear uncertainty doubt) storm which cause your company's stock to drop 10%, look at these as OPPORTUNITIES to BUY more(not be scared that it will drop more). When your company is at a 1-10% market share penetration, it's full potential is not even closed to being realized so who the F cares if it drops more. You think people who bought amazon at 45 before it dropped down to 38 is crying today when the stock is worth 3300? You know who are the real criers? Those who sold at 38 thinking it'll drop more. Or those who sold at 45 thinking it couldn't go any higher which leads to...
7. There is no peak. No matter what they tell you, there is no peak. If your company is disruptive and is changing the industry, there is no peak UNTIL it stops becoming innovative and you see another company about to take its place. If the company has fast PACE OF INNOVATION, then it'll never have a peak. Yes, there will be clones, there will be thefts of intellectual secrets. But as long as the CEO doesn't spend their time suing but spend their time innovating, there's nothing to worry about. Whatever the Chinese will clone up with always be 5 years behind as long as your company continues to innovate.
8. Apply first principal thinking in evaluating a company. This means break the product into parts, and break the parts into schematics. Analyze how this company is innovative from the ground up and see if it has the ability to be that disruptive player. If you were invested into Apple, then you had to understand the chips they were making, the software platform they were making, the batteries they were using, the manufacturing process they were using, and compare all of that to EVERYONE ELSE. It's not just "oh I like the iphone, let me invest".
So why do people not win at this game? Because it's a very difficult game. Fear of losing money should be #1 when it comes to why people lose. Taking profit is probably #2 as investors probably owned Amazon one time or another but sold it way early. The rest is attributed to a lack of understanding of the company you invested it. Some just throw some money into a stock because x, y, and z told them. But you'll see these same people sell at a loss during a large FUD storm because they have zero clue. Granted some companies are not very easy to figure out.
Example: Tesla has to be the hardest company to understand, and I have probably a thousand hours sunk into learning the company. Someone who has zero interest in technology will never be able to understand or care that a Tesla's FSD chip having the ability to inference 144 Trillions of operations/s(TOPS) while using 100 watts is 2x better than Nvidia's AGX's 300 TOPS using 500 watts. But understand information like this gives you the conviction you need to ride out the FUD storms. When people tells you how Volkswagen can very quickly become the next Tesla because how hard can it be? You think to yourself, can they really when a small Tesla team of engineers built a FSD chip that Nvidia still couldn't compete with? And it turns out Volkswagen ID3 can't be sold due to software issues, and each car must be manually updated via usb stick which takes 7 hrs per car. But this is first principal thinking approach. I study the chips, the infrastructure, the software, and the manufacturing process for every Tesla sector. This means I have to understand how their solar panels are made, who they are sourcing it from, what about the nickel for their batteries? Electrodes manufacturing process? How's the casting done for their cars? What about power walls? Mega packs? Energy software ecosystem? Man the list goes on and on and it's rough...hence take thousands of hours.
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