How To Choose Stocks

When you are interested in buying a share, there are a few metrics you can use to help you decide.

- Simon Brown

I was recently chatting to a friend about a stock he had been researching. He has done a large amount of work on the stock; forecasts, emailing the company’s management, checking out the competition and doing a detailed valuation. Then, after about two weeks of digging, he decided not to invest in the company as the investment case was not compelling enough. Yes, the stock looked good and the valuations decent. But at the end of the day it did not add up to enough of a great stock.

This is important, the ability to walk away even when we’ve put the time and effort into the research. That is why we do the research, to make sure our initial attraction to the stock stands up under scrutiny. Otherwise, we may as well just buy every stock that catches our attention.

Personally, I have a bunch of metrics that help me quickly discard any stock that may catch my eye. The first is the sectors a stock operates in. For trading, I am sector agnostic, but for my long-term investments, I want them to be in the broad consumer growth story.