Investing is about generating profits from the money you put in.
However, finding a good stock is not easy.
There are 632 companies listed on the Singapore Stock Exchange at the end of 2023.
Meanwhile, the Hong Kong and Chinese markets have over 7,200 companies on their three exchanges. Over in the US, the New York Stock Exchange and the NASDAQ have another 7,300 or so businesses.
If you add them up, that’s almost 14,000 companies from these three markets alone.
The question is: how do you choose?
It’s akin to finding a needle in a haystack.
In my mind, there are three ways you can narrow down your search for the best investment ideas.
Focused reading
The first and most obvious method is for investors to read extensively.
Being a voracious reader opens your mind up to a wide range of investment ideas as you scan through news headlines or financial blogs.
But hold on.
The same problem arises as there are numerous headlines popping up daily on your mobile or laptop.
So, what should you focus your attention on?
For starters, you can zoom in on familiar businesses that you use daily.
If you browse social media, Meta Platforms (NASDAQ: META) comes to mind.
If you use Google to search for something on the internet, you are using one of Alphabet’s (NASDAQ: GOOGL) products.
Something as simple as typing a Word document or opening a PDF file means you are using the products from Microsoft (NASDAQ: MSFT) and Adobe (NASDAQ: ADBE), respectively.
You could also be using a device manufactured by Apple (NASDAQ: AAPL) or playing a game designed and released by China’s Tencent (HKSE: 0700).
From this list of familiar corporate names, drill down further into headlines that tell you how the business is performing (i.e. earnings updates and results summaries) and the strategies they are undertaking to grow.
By doing so, you can slowly build up knowledge and competence of the business and build these names into a repository that you can tap on for valuable investment ideas.
Another method of focused reading is to filter out headlines that could indicate either a major acquisition or merger, or those that provide detail the problems a company is facing.
Why is that so?
Acquisitions or mergers help you to identify a transaction that could materially boost a business’s revenue and profits, thus giving you a potential investment idea.
As for businesses that stumble and meet with obstacles, such troubles may be temporary, possibly opening up a valuable opportunity to buy the stock cheaply.
Either news category could make for an interesting investment proposition that should spur you to do further research to ascertain if the business in question deserves a place within your portfolio.
Personal observations
Ideas need not be limited to just reading.
You can easily pick up a few good ideas just by keeping your eyes peeled when you head out of your house.
Whether you are visiting a mall or park, there are many brands and businesses you can watch for.
Singapore malls have been accused of being one and the same, but that familiarity can be a boon for you if you are looking for a brand you trust and frequent.
Perhaps you bank frequently with DBS Group (SGX: D05) and head to their ATMs periodically to withdraw cash.
The lender is one major business you can dig deeper into.
Or maybe you are waiting in line at the checkout at a Sheng Siong (SGX: OV8) outlet.
The big crowds and heavy footfall at the supermarket may prompt you to find out more about how the retailer is performing.
Even a casual walk in the park may open your eyes to joggers or exercise buffs using footwear by Nike (NYSE: NKE) or apparel by Lululemon Athletica (NASDAQ: LULU).
And when you visit a friend or relative, they may invite you to sit in the living room to watch a Netflix (NASDAQ: NFLX) movie or TV series.
The streaming giant is doing well as it fends off the competition from Amazon (NASDAQ: AMZN) and Disney (NYSE: DIS) and reports strong numbers for its ad-supported service.
The key is to be open to brands and businesses that you utilise or purchase in your daily life to find inspiration for investment ideas.
This practice can even extend to the meals you eat – you could be enjoying sushi at Ichiban Boshi, one of the brands under RE&S Holdings (SGX: 1G1), or be savouring a delicious chilli crab at Jumbo Group (SGX: J40).
These two restaurant chains are listed and should offer you sufficient food for thought as to how they are growing their businesses.
By observing where you shop and the brands you frequent, you can easily add more names to your repository of ideas.
A friend in need is a friend indeed
Friends and peers are the third effective source for investment ideas.
Search for like-minded friends who share the same investment philosophy and process and bounce ideas off them.
My circle of investor friends has been instrumental in giving me interesting investment ideas, either through chat group discussions or the forwarding of news bits on specific companies.
A word of caution, though – choose your friends carefully.
Those who go for hot tips and quick money should be eschewed as their behaviour is more akin to gambling rather than investing.
Instead, look for friends (also) read extensively, actively research their investments, and make the effort to dig up interesting snippets on businesses.
Rather than just limiting such sharing to mobile phone chat groups, you can arrange to meet up and discuss investment ideas in person.
Face-to-face interaction enables better sharing that can promote a deeper understanding of a business within a shorter time.
In other words, your research effort may be dramatically reduced if you can leverage your friends’ knowledge to get up to speed on an investment idea.
These friends can also be appointed as Devil’s Advocate, helping you provide an alternative viewpoint for your best ideas and helping you to avoid confirmation bias.
Don’t forget the stocks you already own
The three methods above should garner you a fair bit of ideas to work with.
But remember that a great investment idea should not be limited to new stock ideas.
After all, there are only so many stocks you can realistically track as you only have 24 hours a day.
Hence, it is useful to search within your portfolio for stocks that you already own.
Your best investment idea may be a stock that you have thoroughly researched and are comfortable owning.
Rather than being constantly bombarded with new ideas, you can always revisit your existing ideas to assess if they could make compelling investments to add more capital.
Get Smart: Updating your parameters
As you progress as an investor, remember to adjust your search criteria accordingly.
Not only does this help you whittle down the list to a more manageable one, but it also sharpens your focus and saves you valuable time.
You could have started out looking for a broad mix of stocks early in your investment journey.
Over time, as you get a clearer idea of what you wish to include in your portfolio, you can then adjust your search parameters accordingly so that you end up with just a handful that you can look at more deeply.
Remember that this search process should be a continuous effort to allow you to optimise your portfolio and position it for the best risk-adjusted return.
And an all-weather investment portfolio, I may add, is the Holy Grail of what every investor is searching for.
Note: An earlier version of this article appeared in The Business Times.
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Disclosure: Royston Yang owns shares of DBS Group, Apple, Nike, Meta Platforms, Adobe and Alphabet.
