First of all – yipeeeee !!! No I didn’t win the lottery, but India won the Cricket World cup. Wow, what a match ! it was thrilling and exciting to say the least.

Now, coming back to more mundane things, I am often asked – where do I find my investment ideas ?. I would say that I find my ideas via two methods – Find and borrow (or steal).

Finding ideas
I have a fairly low tech way of finding ideas. I have a simple spreadsheet in which are listed companies by PE, market cap, profit etc. I use the following screener to generate a list based on the following criteria

Criteria : PE greater than 15, ROE less than 12%, and debt/Equity ratio less than 1.2
Correction : PE less than 15, ROE greater than 12%

Once I have the initial list, I eliminate some companies based on following the criteria
–        Any company with losses for more than 2 years, sales degrowth or management issues etc.
–        Micro-cap finance/ retail/ commodity companies as these companies are too risky and one has to analyze a long list, before one can find a  good idea.

The above step has its shortcomings such as filtering out turnaround situations, but one has to have some cut off to get a manageable list

Stealing ideas
I am no Albert Einstein or a physicist trying to come up with the theory of relativity. There is no Nobel prize for finding an original idea. The market will reward an idea if it is good, irrespective of the source.

So where do I steal my ideas from?

For starters from other fellow value investors such as
–        Ninad Kunder
–        Ayush mittal
–        Amit arora
–        Neeraj marathe
–        TIP blog              
–        Prof bakshi’s blog

I usually read their blogs on a regular basis and if there is an idea posted by them, I will start investigating it further. These are smart investors and I would be stupid to ignore the ideas posted by them. These ideas have already been analyzed, so I know that they are very likely to be attractive.

I will not buy these stocks blindly, but it’s a good starting point for further analysis

In addition to the above sites, I also look at the follow general sites/ forums or magazines for any interesting ideas
–        TED ( The equity desk)
–        Moneylife
–        Livemint and other papers

Now, if you were expecting me to be sitting in splendid solitude and contemplating about original stock ideas, you must be disappointed 🙂 . Why should I only buy good idea which I find on my own, when there are other smart investors sharing their ideas freely ?

The only additional principle I follow is that if I steal – sorry borrow, an idea, I will recognize the source.  

Accidental timing
I discussed about deccan chronicles and Geojit securities last week . These stocks have since then gone up by 5-10% in a week. Talk about accidental timing !.

Just as I have absolutely no hand in India’s world cup win, I also don’t have any ability in picking a stock just before a sharp upmove. In both cases, I have been a spectator. I have yet to invest a single rupee in these stocks – So much for my timing skills !!

4 Comments

  1. Joseph says:

    Criteria : PE greater than 15, ROE less than 12%

    Is it a typo or real? You look for PE > 15?

  2. admin says:

    Hi joseph
    sorry ..a typo. too many drinks after the world cup 🙂

    rgds
    rohit

  3. Jagadees says:

    Hi rohit
    Have u gone through prof bhakshi recent idea on piramal healthcare? what is ur thought process on it?
    Will u consider ROE or ROIC? will u filter company based on current ROE>12% or track record of >12% for 3/5 years?

    Thanks

  4. admin says:

    i saw prof bakshi’s post and still analysing it. i generally look at low debt companies, so ROE works as good as ROIC. sometimes i look at both numbers, but for a low debt company ROE is a good number to follow

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