Four Ways To Generate Investment Ideas

Where do I get investment ideas? How to generate investment ideas?

Generate Investment Ideas 1) I get them from articles I read.  I print them out and put them in a stack, and then I wait.

Generate Investment Ideas 2) I get them from my industry ranks and Value Line.  I use Value Line’s screener to screen for my favored industries, subject to a financial stability limit and minimum expected returns.  Then I wait.

Generate Investment Ideas 3) I look through the 13Fs of 77 clever investors every quarter.  I look at all of the new names that none of them have owned in the prior quarter.  I look at all of the companies that my clever investors own 5% of, which they have added 2% of the market cap to their holdings.

Generate Investment Ideas 4) I look for indicators of change.  I look for companies where management is changing dramatically, and add them to my review list.  Then I wait.

Once I have have part 3 done, my waiting stops.  I quantitatively score all the companies in my portfolio against their competitors, using fundamental, technical, sentiment and other variables.  The main idea to generate investment ideas is this: buy companies with better prospects than those being sold.

Four Ways To Generate Investment Ideas

The quantitative process aids my qualitative evaluations, as I analyze new attractive companies.  Many get thrown out because there is a reason for the cheapness.  Others survive and get added to the portfolio, as I sell names that are less attractive.

Now ordinarily when I do this analysis, I don’t share my results.  This time, I will share the competitor list.  Here it is:

AA AAMRQ ACNB ADS ADT ADTN AEGN AEO AFCE AFL AGRO AGU AKAM AL ALSN AMH AMX ANF APC APD APO ARCC ARII ASC ASIA ATHL ATI ATVI ATX AVB AWRE AZSEY BA BAGL BALT BANC BAP BBRY BERK BH BID BIDU BIOF BIOS BMR BNCL BODY BRE BYD CACB CACH CACI CAG CAM CBI CCI CF CHK CHS CLDT CLDX CLR CMCCMSB CNHI CNP CODE COH CPN CPSI CREE CRI CRK CRMT CSBK CSCO CTO CTRP CTSH CTWS CUBE CVC CVI CVS CXO DD DDS DEG DF DISCA DMD DNR DOOR DOV DRC DRI DRIV DRYS DSW DVA DWA EA EBSB ECTE ENDP ENZN EOX EPAM EPL EQIX ESLT ESRX EVBS EVTC EW EXP FCX FDML FI FIVE FL FLIR FLTX FOXA FUR GACR GCBC GD GES GEVA GIL GOGO GRH GTAT GTS HBAN HBI HCBK HCN HCP HDB HDY HFFC HLF HOG HOS HP HPP HUN HW HXM IACI ICA ICE ICUI IDIX IEP IGTE INFA INFY INGR INS INTL INVN IP ISBC ISRG JACK JAZZ JCP JCS JDSU JKS JONE JPM KAMN KFFB KLAC KMT KRNY LEAP LGF LMT LNN LORL LPI LPX LRN LSBK LSTR LVLT LYB MEI MGA MGYR MIND MLR MNK MON MRO MSM MU MYGN MYL NAV NBL NECB NEU NKTR NM NMM NRG NTES NTI NTK NUAN NUE NVAX NWS NWSA NX NYLD OFED OIS OMED OPK ORAN ORIG OUTR P PACB PCLN PCRX PENN PETM PKX PMT PPC PTRY PVA QCOM QLGC QSII QTM RAX RBS REIS RESI RFP RH RHHBY RLD RNWK ROMA RPXC RT S SALE SB SFM SGMS SHOS SIFI SIX SNBC SODA SPRD SQM SRC SRNE SSLT SSNC SSTK ST STC STND STPFQ STSI STZ SUSS SWI SWN SWRL SYKE SYNL TA TCPC TDG TEVA TFSL TGI THOR THR THS TPH TPX TRW TSCDY TSM TSO TSS TTEK TUP TXI TXTR UEPS UIL UMC URS UTHR UTSI VAR VIVHY VLRS VMC VSAT WCG WLFC WMPN WPO WR WSBF WSM XON XOOM XPO XXIA XYL YRCW YUME Z ZIGO ZNGA

Oddly, there are exactly nine competitors for every company in my portfolio.  That should give me a good set of companies to analyze as I sell three or so companies and buy three replacements.  Remember, it is always easier to make binary choices — do I like this better than that, than to try to maximize over a wide realm of choices.

Full disclosure: I own none of the above mentioned companies.  I will probably buy 2-5 of them in the next two days.

By David Merkel, CFA of Aleph Blog




About the Author

David Merkel
David J. Merkel, CFA, FSA — 2010-present, I am working on setting up my own equity asset management shop, tentatively called Aleph Investments. It is possible that I might do a joint venture with someone else if we can do more together than separately. From 2008-2010, I was the Chief Economist and Director of Research of Finacorp Securities. I did a many things for Finacorp, mainly research and analysis on a wide variety of fixed income and equity securities, and trading strategies. Until 2007, I was a senior investment analyst at Hovde Capital, responsible for analysis and valuation of investment opportunities for the FIP funds, particularly of companies in the insurance industry. I also managed the internal profit sharing and charitable endowment monies of the firm. From 2003-2007, I was a leading commentator at the investment website RealMoney.com. Back in 2003, after several years of correspondence, James Cramer invited me to write for the site, and I wrote for RealMoney on equity and bond portfolio management, macroeconomics, derivatives, quantitative strategies, insurance issues, corporate governance, etc. My specialty is looking at the interlinkages in the markets in order to understand individual markets better. I no longer contribute to RealMoney; I scaled it back because my work duties have gotten larger, and I began this blog to develop a distinct voice with a wider distribution. After three-plus year of operation, I believe I have achieved that. Prior to joining Hovde in 2003, I managed corporate bonds for Dwight Asset Management. In 1998, I joined the Mount Washington Investment Group as the Mortgage Bond and Asset Liability manager after working with Provident Mutual, AIG and Pacific Standard Life. My background as a life actuary has given me a different perspective on investing. How do you earn money without taking undue risk? How do you convey ideas about investing while showing a proper level of uncertainty on the likelihood of success? How do the various markets fit together, telling us us a broader story than any single piece? These are the themes that I will deal with in this blog. I hold bachelor’s and master’s degrees from Johns Hopkins University. In my spare time, I take care of our eight children with my wonderful wife Ruth.