Part 5: Process or How the heck do I Invest in Equity Successfully?
5.3 Finding opportunities in real time by Fast-Tagging every stock
How do you select stocks to invest in? Is there a way to identify and manage stock opportunities in real time?
The first thing most investors think of is asking someone is which stock should they buy now? We have seen why you shouldn’t do this in the first chapter of this book. A better question is how should one find which stocks are worth investing in at current prices.
The common answer is by using a screener. A screener essentially requires you to set the criteria and it filters out the stocks that pass this. For example, if you set a criterion of “’sales growth of 15% or more in the last 3 years’ the screener will give you a list of all companies that pass this.
A screener helps create for you a shorter list of stocks to study or invest in. It has its uses. But the limitation of standard screeners is that it requires you to set the criteria and then it gives a list of stock and whatever data you chose to see. Every time you need to find the answer you need to run the screener. If you use multiple criteria in your search, you will not know which stocks have not passed which criterion.
We need a more dynamic system which can handle the fact that stocks are not static entities but are ideas that are that are constantly evolving. We need something that has a ‘finger on the pulse’ of every stock and tell us the best ideas when they are ripe for investing. And it should prevent you from chasing any and every idea and getting distracted. We need an Investing Opportunity Managing System.
Are such systems or frameworks in use elsewhere? Large companies and business leader use a framework called the Innovation Funnel Framework to manage the Research & Development ideas and initiatives.
They start with a large enough number of ideas and put them through different gates. The first gate usually rates ideas on key parameters to check whether it is worth developing further. Then teams are asked to develop the ideas that pass the first gate and see if they can pass through the second gate and then through a third one before the idea is chosen for commercialisation. This is the basic design of the Innovation Funnel Management System- a funnel with multiple...........Read More
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