With 2014 coming to an end, and with the S&P 500 on track for its third consecutive annual double-digit gain, I'm getting back to basics. More specifically, throughout the month I'll be commenting on and reviewing the most basic objectives of investing.
If you consider yourself above the basics, consider this: 85% of all active money managers fail to beat the market index. Also consider that Warren Buffett, the best of the best, admits that he likes to read The Intelligent Investor by Benjamin Graham every couple of years to make sure he never forgets the fundamental lessons that Graham first taught him more than 60 years ago.
Today, I look at the most basic task in all investing -- how to find attractive stock ideas. The answer is simple, though the task is not. In order to find attractive stocks, you have to have an insatiable appetite to search, search, search.
Four times a year, 45 days after the end of each calendar quarter, I pore through dozens of 13F filings with the Securities and Exchange Commission, looking at what other investors have been buying or selling.
That's the easy part.
After that, your job is to look at each company in more detail in order to find any hidden gems. I'm not saying you need to read every annual report, per se. But, at a minimum, you should do an initial scrub, which usually takes five to 10 minutes: what the business does, valuation ratios and a quick review of the financial statements. Still, spending 10 minutes on 100 stocks means nearly 17 hours of work, so it is a commitment.
Every week I try to flip through two volumes of Value Line in order to keep abreast of its universe of stocks. I read Barron's every week, as well, paying close attention to the section on 13D filings, which highlights companies in which professional investors have taken a keen interest.
I quickly read a lot of articles by my colleagues on Real Money, as well, from which you can get dozens of stock ideas on any given day. That's a great start, because it means beginning with dozens of stocks, instead of the thousands of publicly traded companies that exist.
In today's online world, it's not difficult to find stock ideas. The work comes in finding attractive ones. If this were a quick task, we would all be fantastically rich investors.
In any case, December is going to be a slow month thanks to the holidays. So take the time to rummage through those ideas, and look closer for some potential winners for 2015 and beyond.
Tomorrow, I'll throw out a few names that appear interesting to me.