In last week’s article, I explained how investors would be much better served by generating their own ideas for further research rather than following tips. The benefit is that these will align more closely with an investor’s unique temperament and strategy.
Unless an investor is purely a quant, using a strategy similar to Ed’s NAPS, a company appearing on a particular screen doesn’t immediately make it a buy. Most stock-pickers, including myself, have a process similar to a funnel. Many ideas go into the funnel at the top, but relatively few make it into one’s portfolio:
Initial checks are likely to be around the financial strength of the company and if there is any risk of earnings manipulation or other underhand behaviour going on. A checklist can often be a useful tool to make sure all bases are covered here. The next level of analysis may vary between investors, but something like the framework we use for Stock Pitches on Stockopedia would be a good start for many investors. This may find that a company meets all of an investor’s investment criteria immediately. However, it is far more typical for a company to meet most but not all investment criteria. This is where a watchlist comes in. The point of a watchlist is to avoid having to screen for companies all the time. An investor can’t keep all potential investments in mind at once. A watchlist removes this mental load of tracking multiple investment ideas. While Stockopedia doesn’t differentiate between portfolios and watchlists, few investors will have ten separate portfolios, so it is easy to use one or more of the portfolios as a watchlist:
The ADD TO FOLIO button on the StockReport allows any company to be added to the watchlist:
Decide what are the most important factors
The best watchlists don’t just track a list of companies. They allow investors to make quick decisions by distilling down the critical information for an investment case. Different investors will be interested in different metrics, so it is worth spending time ensuring the most important financial information is visible in any watchlist. Some aspects to consider are:
Financial Strength
2023 has shown the peril of investing in financially weak companies, where many…
