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Researching Shares March 5, 2006

Posted by CamdenKiwi in : Investing , trackback

These investment blogs are more my notes than anything else. It’s a diary of my sharedealing experience.

I had better point out that I’m a real newbie to all this with little more than some basic management accounting training behind me. If you’re daft enough to take anything I say here as advice without doing your own research and employing your own powers of critical thinking, you deserve to lose your money.

At the moment, I’m looking at Aim shares with a strong green focus - renewable energy, waste disposal, pollution prevention or control - as well as tech stocks, particularly interesting newish comms companies. Many of these are hard to evaluate in the way the books suggest, because they’re small, new and not necessarily in profit. When I’m researching a possible investment, this is what I do:

  1. Get and read the annual report (from the company’s website, or through one of the free report services)
  2. Look for some of the fundamental financial points mentioned in Peter Temple’s book. I’m particularly keen on some positive cashflow, even for companies that are still in loss-making stage. Burn rates are interesting too. Fundamental ratios like P/E don’t mean much if the company isn’t in profit yet, but if it is, its worth seeing.
  3. Try to identify some sort of unique advantage of the company over it’s competitors, thinking of competition in the wider sense, not just others in the sector. Are they in the rail business or the business of transporting people and freight.
  4. Review other shares in the same sector (the Aim list is good for this for Aim shares)
  5. Look at the share’s green credentials. I am particularly interested in companies that are doing something positive to create alternative sources of energy, reduce pollution, carbon emissions etc, rather than ones which are just ‘not bad’. That’s why I’m not investing in the so-called ‘ethical funds’.
  6. See what the Investor’s Chronicle has to say. You need to be a suscriber to get at all of the content, which costs about £33 per quarter, and gives the paper magazine as well.
  7. Check for liquidity. Most of my single stock investing is likely to be on the Aim market, and some of those shares have very low daily average volumes. I invest in £1000 units, and want to see an average of at least £10k per day. This info is shown on my broker’s site.
  8. See what’s happening now, by checking the discussion boards on III, and the recent news, from the broker’s site. I might also do a quick google, just in case.
  9. Check the charts. Nothing fancy here but it’s worth seeing if there is evidence of a share topping out, or any cyclic behaviour.
  10. Cross my fingers, offer up a prayer to the gods of chance, and buy
  11. Set a stop limit order at (price - 20%), because I don’t trust those gods of chance very much.

Comments»

1. Steve C - August 10, 2006

Thanks so much for this blog on share research..I agree that critical thinking skills are mandatory as so much in a balance sheet is BS and PR. I also believe DIY green shares have a chance to save the world from full on capatalists.
Steve

2. Camden Kiwi » A coffee for your portfolio? - October 9, 2006

[...] Back in March, when I first started my SIPP, I put together some guidelines for myself in picking shares.  I think the mistake I made was not to consider whether the share I was contemplating adding to the portfolio was at a peak price anyway.  Most of the ones I bought were at alltime highs, and that may be part of why they haven’t recovered although the market itself has. [...]