This WheelieBlog follows on from the one I posted recently called ‘How I find Potentially Great Stocks…’ from 9th February 2015.
Now that I have found some Potential Stocks to look at, how do I ‘process’ them through my Analysis System? (wow, that sounds really structured and impressive - it ain’t really….)
The first step is a very fast ‘Triage’ process. This probably just takes me a very small amount of time, and to some extent is a 3 minute Quick Judgement - although it does run the risk of ruling something good out - but I think I have had enough experience now to be aware of this possibility. Although of course, Cognitive Bias can creep in at this stage and mislead me - as it can at any time.
Tools for Triage
I have my Fone by me at all times and I have the ADVFN App on it. So, whenever I stumble over a new Stock, I am able to quickly Search for it on the App and look quickly at things like Market Cap, the Chart and whether or not it pays a divvy etc. If the Fone is not handy, then I will grab one of my Tablets and use that.
The other Key Tool I use is a good old fashioned notebook……..made out of Paper and Cardboard, believe it or not !! This year it is Black and purchased from my local Tesco round the corner for about a quid - expensive Trading Systems? My arse………
Last year the Book was Blue. I like variety.
During Triage, I look at the following factors very fast, sometimes with the use of ShareScope on my Laptop for Earnings Forecasts and Debt etc., but I tend to only turn my Laptop on in the Evenings so I sometimes have to make my initial judgements on limited information - but at this Stage it is not a great issue. If I am getting the idea from Investors Chronicle, there is usually enough information on the Page to run some basic checks. Many of these are the kind of things covered under the ‘WheelieBin‘ bullet points on that webpage (or perhaps, rather, the opposite !!):
In the unlikely event that a Stock gets through my Triage Process, it is then popped into my ‘Little Black Book.’ I tend to write a very short description of what is going on and the Valuation aspects (p/e, divvy, PEG) as I see them and any Debt concerns. If I really, really, really, like the Stock, then I sort of put loads of Pen Scribbled asterisks around it or maybe draw a box around the entry. As a result, my Book is now full of great ideas that have been through the Triage. When I have some cash and feel a need to buy a Stock, I have a look through here first to see if anything leaps out for proper deep Analysis.
Obviously some Stocks don’t quite meet all the Criteria but still have a lot of appeal - in this case I will bend the rules a bit as I have still not made a decision to buy. Passing the Triage Process merely means that they earn the right to be popped into Wheelie’s Little Black Book - no more than that. Some honour hey?
Sometimes a new stock that I find will be able to ‘jump the queue’ and I ‘fast track’ it because it looks so good and it fits a particular need I have in my Portfolio. For example, I did not buy it, but XL Media (XLM) was exactly this kind of stock a few weeks back. It was (and still is) clearly very undervalued and a Screaming Buy - I did not buy as I am trying to be disciplined and reduce my Number of Holdings. However, once I had realised the Value on offer, I was shouting about it to everyone.
Quite often I decide on a particular niche that I want to play - for instance, I don’t really have much, if anything, in IT Security - this is not good as it is obviously a great place to be. If I am in this mood, then I will be on the lookout for a Stock or two in order to fill the gaping hole in my Portfolio. By the way, Accumuli (ACM) might be worth considering in this space.
In a similar way, I have two big Holes in my Income Portfolio that arise because I want to hold 12 Stocks (for adequate Diversification) and only have 11 and also because BRIT has received a Takeover Bid and I sold out of it this morning. So I have a need to fill these two ‘Slots’ and I am on the lookout - however, with my concerns over the General Election uncertainty, I will not be rushing to buy anything.
It is fair to say that this is a pretty meaty list and perhaps unrealistic (and a downright lie !!) to say that I do all of these checks prior to popping them in the Book. However, these kind of thought processes can happen pretty fast once you are used to working in this way and Experience helps enormously. In practice, I often find myself staring into space with a cup of PG’s Finest (ok, Asda Value), thinking about Moats, Competitors, Opportunities, Trends, etc. Obviously, when you are first starting out it is hard to have such Experience - but don’t worry, it comes with Experience !!
I will soon add a Section for ‘Wheelie’s Little Black Book’ onto the WheelieBin, WheelieWatchlist etc. webpage on WD2 www.wheeliedealer2.weebly.com The intention is to keep this updated and effectively enable Readers to see the Stocks that I have popped into the Book as possible Investments but which require Final Detailed Checks and lots of brain power.
Gotta dash, future gazing to do……WheelieD
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