The Aleph Blog » Blog Archive » Four Sources of Buy Ideas

Four Sources of Buy Ideas

Presently, I have four ways of sourcing buy ideas in the stock market.  Here they are:

1) I read widely, and when I see something interesting, I either jot it down, or hit the “print” button.  I put it in the pile for the quarterly portfolio reshaping.

2) Preston Athey gave me this idea.  I set up a bunch of Googlebots to let me know when a CEO leaves a firm.  For companies with a lot of underused assets, that can be an incredible catalyst to unlock value.  Print, add to pile.

3) My industry studies produce a list of out of favor companies with better prospects than most — the challenge is to separate out the “buggy whip” industries, from those that are genuinely cheap.

4) Finally, I study 13Fs, and try to understand what bright investors are holding and buying.

After I assemble all of the companies that might be worthy investments, I try to forget where I got the idea from.  That forces me to analyze the company my own way, and not merely trust someone or some method that I think is bright.

After that, I engage Portfolio Rule Eight, and make my current portfolio holdings compete against the new ideas.  This is a much better way, a more businesslike way to choose companies to buy.  It forces managers to make explicit decisions that improve the characteristics of the portfolio, improving the probability of winning.

Do you have better ways of sourcing ideas?  If so, leave them in the comments.

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David Merkel is an investment professional, and like every investment professional, he makes mistakes. David encourages you to do your own independent "due diligence" on any idea that he talks about, because he could be wrong. Nothing written here, at RealMoney, Wall Street All-Stars, or anywhere else David may write is an invitation to buy or sell any particular security; at most, David is handing out educated guesses as to what the markets may do. David is fond of saying, "The markets always find a new way to make a fool out of you," and so he encourages caution in investing. Risk control wins the game in the long run, not bold moves. Even the best strategies of the past fail, sometimes spectacularly, when you least expect it. David is not immune to that, so please understand that any past success of his will be probably be followed by failures.

Also, though David runs Aleph Investments, LLC, this blog is not a part of that business. This blog exists to educate investors, and give something back. It is not intended as advertisement for Aleph Investments; David is not soliciting business through it. When David, or a client of David's has an interest in a security mentioned, full disclosure will be given, as has been past practice for all that David does on the web. Disclosure is the breakfast of champions.

Additionally, David may occasionally write about accounting, actuarial, insurance, and tax topics, but nothing written here, at RealMoney, or anywhere else is meant to be formal "advice" in those areas. Consult a reputable professional in those areas to get personal, tailored advice that meets the specialized needs that David can have no knowledge of.

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