Stock picking made easy

The HSI has fallen more than 10% in last Oct and despite today it has risen 400+ points but it is still far from the bottom yet because there is no blood in the street. One very good indicator I use very often is to listen to the radio programmes featured with stock commentators. When there are still many housewives like or old aunties like audiences phoning in asking if it is good timing to buy then the bottom is most likely yet to come.

Despite I am not a fan of value investing but I do like the idea of margin of safety and to buy when the general masses is panic. Apparently this is not the timing to buy yet when considering these two criteria. Perhaps it is good time to do homework now. Homework on what to buy when the right timing comes.

Apart from the above two ideas, in fact I also like the fundamental analysis of value investing like economic franchise and economic moat. However, the key point lies on that in reality not many stocks in the world truly meet all the traits that described by these criteria. On the other hand, it is also very time consuming to scrutinize each and every stock with these criteria considering we are not professional stock analysts whom are paid to do such job. So a faster yet effective way in stock picking is sought after especially for amateurs.

Before I move on further on the stock picking make easy, perhaps making clear what sort of stocks I am looking for is crucial because the targeted type of stock could has an impact on the way to pick stocks. I am in particular obsession in income type of stocks because they provide income stream that gives me bread and butter. So primarily my ideal stocks have to be with relative high dividend yield like above 5%. This is the primary criteria of stocks to be shortlisted in the radar. Having said 5% dividend yield is the primary criteria means this is not the essential requirement of my ideal stocks but this is the least only.

Having screened a pool of candidates but there is still a lot of work if they are to be scrutinized according to the fundamental analysis criteria so this is the time my made easy version of stock picking comes in play. Actually this made easy methodology is just the reversion of the normal screening process. In traditional screening process, candidate stocks are filtered through sets of criteria then see which ones meet the requirements layer by layer and at the end of the day narrows down to a few winners that fully meet the requirements. So the reversion is that I do not start from a pool of candidates but just set up my two must-meet requirements then to see which stocks can match with them.

Apart from the 5% dividend yield, one thing I do request is that the stock price maintains a steady growth over a long period, say at least 15 years. The remaining requirement is that the absolute amount of dividend paid out also exhibits a steady growth along the period. The rationale behind is that I assume a stock that with a steady price growth and with the ability to give out a steady growing dividend at the same time over a very long extended period is actually the manifestation of the fulfillment of the requirements of being a good stock that laid down by economic franchise and economic moat. When we require a stock with economic franchise, economic moat, ROE, honest and capable management....etc are actually the means only. The end is what we really want and the bottom line is while we can gain from price appreciation and also be benefited from the dividend income. This is the end we are looking for. People spend much time on the screening process but at the end of day they are just looking for stocks with these two attributes. So just make it simple, stupid. Just start from the end to look for our beauties and why waste time on doing the back-breaking and time consuming screening process?

I also hold the believe that it is easy for a stock to pretend to be performing for two three years, or even five years but it is literally impossible to cheat over 15, 20 or even more years consecutively. When the stock price grew steadily and consecutively over 20 years, it is the recognition from Mr. Market whom could be wrong in a given time period but he is always right in the long run. While giving out growing dividend steadily and consistently over 20 years is the prove that the company has been doing its business very well thus it is in financial good shape to reward its shareholders continuously. Having said so constant review on such stocks is still needed to ensure they are moving on the right track as what they did.

My idea is that buying such stocks resembles buying a rental property. At one end you want the property price goes up and on the other other hand you also want the rental income can increase every year. It is just as simple as this. It is not scientific nor serious enough but it is just good enough.

Simple, stupid but works.