How do you find an investment idea?

This year, I saw two articles in related to get an investment idea/find an investment opportunity. Two came from John Mihaljevic and Nate Tobik. They have valid discussions.

When I started, I tried screening stocks on the simple basis of value investing criteria. I found that I get same results in different point of time within 1 year period. I never bought them straight away because they are not in my circle of competence.

When my personal investing fund was small, I limited myself into looking small caps stocks. I was fine with that. One day, while I was studying each company, that are within certain (small) market size criteria I set myself, in the same industry, I saw a recent news related to that industry. A company, outside the aforementioned criteria, has its stock price being risen in response to a result of law case. At that point, I questioned myself whether it is worthwhile to limit like that while missing such investment opportunity. Unfortunately, I cannot remember the name of the stock.

I can say no to any stock name which I happen to hear or see over the conversation with a friend such as Petrobras. I cannot say no to stocks which are outside my market size criteria as per my screening.

Last year, someone told me that Petrobras is undervalued. My mind said no because I cannot quantify and verify the unforeseen risks even though I have not seen the financial statements. If I can quantify and verify the variables (I am concerned with), it shouldn't be a problem to invest in stocks with any market size in case that they offer better risk-reward profile than others.

Although screening has its merit, I decide not to use screening to weed out stocks that may appear to be investment opportunity through my investing lens. Anyone will balk going through stocks from A to Z as what Buffett said in an interview many years ago. True enough that it can waste your time and is inefficient.

Before we internalize these in our habits, we should remember one key attribute that is a must-have for a successful investing. It is patience. Patience is required to hold stock that initially give us bad paper loss and eventually give us great realized profit. In addition, patience is also required to understand the financial statement and variables of the company you are about to invest in.There are more merit of being patient. We need time and patience to read a lot of books to enrich ourselves before we can easily spot red flags or identify the hidden value in the companies.

Therefore, I started going through A to Z in the Singapore market (SGX) in 2014 since it is relatively smaller than American markets. I completed this task by February 2016, not counting IPOs. Basically, I do speed-reading the most recent annual reports.

1. I discover a lot of interesting companies which I shortlist and do further investigation and reading.

2. I start to connect Company 1 to Company B when I see something similarity.

3. I learn more about the dynamics of the industries which I am not familiar with by putting the pieces of puzzles provided by the annual reports of different companies in the same industry.

This journey is worthwhile for me even though every company i read didn't lead to immediate stock purchase.

It is one thing for me. Another thing is to learn more when I often see a company name within short time interval each time I stroll after work or during lunch. 

In one out of 10 attempts of the above two things, I found an investment opportunity. I would like to discuss about it once I sold it. It is still early to discuss how beneficial and how bad they are because things can change any time during our holding period.

In short, I didn't like the idea of missing an easy investment opportunity with superior risk-return profile but I am happy to miss out investment opportunity with little return and high quantified risk.

I will be at Omaha, NE on late April and early May, you are welcome to drop me the message on my linkedin for the meet-up if possible.

Disclosure:

I have long positions in BRK and MKL.