Where does a regular person get investment ideas and how does he or she differentiate between the good ideas and the bad ones? I will present 10 tools that can help. And you don't have to be an investment professional to understand them.
Getting good investment ideasGood investment ideas come from many sources. The key is to always be on the lookout. The five sources below cover a lot of ground:
1. Stocks with unusual behavior - this is one of my favorites. This category could include stocks with higher than normal volume, price spikes, options activity, crossing moving averages, breaking trend lines or resistance/support lines, gaps up or down, etc. There are a number of sources for lists of most active stocks (Schaeffer's Research, Wall Street Journal Online, Quote.com, etc.) Briefing.com's InPlay feature (available here at Yahoo Finance) is great for stocks showing unusual price or volume activity, breaking resistance/support, reacting to various corporate news events, etc. Unusual options activity (at Schaeffer's Research) is another indicator that can be useful but requires perhaps a bit more sophistication. News feeds from these sites as well as MarketWatch.com and others are a good way of keeping up with stocks undergoing unusual activity.
2. Stock Screeners - with a screener you can search the stock universe for investments that match your criteria. Many sites also provide pre-built screens that make it easy to generate lists of potential investments. These lists are a great starting point in the hunt for investment ideas. Just be sure to do your homework (see the heading below). Screeners can be found at AOL, Morningstar, MSN Money, CNBC, Zacks.com, etc.
3. New highs or new lows lists - looking to ride an existing trend? New highs lists can identify stocks in a strong uptrend. Know a good stock that is being unfairly punished? New lows can help you identify stocks to watch and wait for until they begin to turn around. The same sites that provide unusual activity or stock screeners also list stocks making new highs and lows.
4. Articles on new trends - these might turn up anywhere. The Wall Street Journal and Investors Business Daily are good sources but any newspaper, magazine or web site might have an article that catches your imagination and gets you thinking about companies that will benefit. You don't have to be an investment professional to do this. Trust yourself!
5. Analyst Recommendations - analysts are often criticized for being late to identify buy or sell opportunities and some are more successful than others. Still, it's generally worthwhile to read what they think if for no other reason than that it helps provide good background on companies and industries. Analysts are quoted in many places, especially the financial newspapers (WSJ, IBD) and various financial web sites (Zacks.com, MarketWatch.com, TheStreet.com, Briefing.com, etc.) Keep an eye out for them.
Doing the homeworkTo determine if your investment idea is good enough to commit money to, you should do some basic research on your own, even if it is just to validate the information you read in an analyst research report. You should be comfortable with the fundamentals of the investment as well as the chart. The following five sources provide more than enough to give you an idea of whether you are on the right track:
1. Finance pages at Yahoo or MSN Money - Read and understand the company profile. This is important! If you don't understand a company's business, you probably shouldn't invest in it. Check a few basic numbers like valuation, PE ratio, a few highlights of the income statement and balance sheet. Is it a large company or a small company? Is it even profitable? Check the list of competitors; one of them might be a better investment.
2. Charts at BigCharts.com or StockCharts.com - what's the trend, is the volume telling you anything, is it above or below its moving average, are there other indicators that confirm your opinion? Also check StockConsultant.com and AmericanBulls.com for automated chart analysis.
3. Search blogs at Google or at BlogLines and be sure to search SeekingAlpha.com - blogs are good places to find out what are others saying about an investment or industry. Bloggers can run the gamut from amateurs to seasoned investment professionals but it always helps to hear a few different opinions. Some of the social investing sites (ClearStation.com, CAPS at MotleyFool.com, StockPickr.com, SocialPicks.com, etc.) serve a similar purpose and it can be fun to participate in their communities.
4. Check EDGAR - company SEC filings are available online. Get the details on the revenues, expenses, income statement, balance sheet, cash flow, debt, risks, stock option accounting, etc.
5. Google search - You never know what might turn up just by doing a general search on the name of the investment. Articles on your potential investment might be on lesser known industry-oriented web sites; these can often be quite informative if you can handle the industry-specific language.
With these 10 tools in hand, investment success should be a little less mysterious. If 10 seems like too many, a few that you become good at using will certainly help keep your portfolio in shape.
I will be writing a series of posts over the coming weeks where I will go into a bit more detail on each of these 10 tools and look at some examples. Come back to this blog or subscribe to the TradeRadar feed so you won't miss any of these future installments.
By the way, all of these tools are available on the Investor Toolbox page at the Trade-Radar.com web site.