April 3, 2011

Where I steal my ideas from ?

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 !!


Nilesh said...

PE greater that 15 ? u mean its less than 15 i.e. 14,13 etc ?

kudva said...

Shouldn't it be PE less than 15 and ROE greater than 12?

Neeraj Marathe said...

Hi Rohit,
Extremely honest and genuine post..
Plz do chk out Edelweiss screener too (if u haven't already)..
it is much better than icicidirect imho..
do use the 'add criteria' section for adding numerous filters. (requires only free registration)

(P.S. i have no relationship whatsoever wid Edelweiss!)

Raj said...

Why do you go for a company having higher PE and lower ROE? You mentioned in your post that your criteria for PE is greater than and that for ROE being less than

jagbir said...

Thanks for this genuine post, very few people are there who reveal such info with so ease and honesty.
I'm also a great follower of TED, its full of smart people.

Sachin Purohit said...

I too, am a regular at TED, moneylife.in and suchetadalal.com. Thanks for the links to some other valuable blogs.

Moneylife, though picks stocks that generally have very aggressive debt/equity ratios, not to my liking. I generally visit their website because both Debasish Basu and Sucheta Dalal are pioneers in financial investigative journalism. So you know which stocks to avoid, by visiting them!

Rohit Chauhan said...

All - yes the PE should less than 15 and ROE more than 12%

guess had too many drinks after the match when i was writing this post :)

Rohit Chauhan said...

hi jagbir
thanks for the comment
yes, the quality of discussion on TED has improved a lot and there are a lot of smart investors in TED too


Rohit Chauhan said...

Hi sachin
i generally visit these sites just for some initial ideas. in a few cases the ideas are interesting enough to pursue further and in some cases as you said, gives you an idea of what to avoid :)


Anonymous said...

dear rohit.
many of ur stocks are discussed at length at valuepikr.com
u should lokk at that site too
and, still waiting for ur valuation of piramal , risk and safety margin.

Rohit Chauhan said...

Hi anon
yes i do visit valuepickr.com. just forgot to mention it. its a good site too


Anonymous said...

Hi Rohit, great posts. I have one question, forgive me if it sounds very basic - how do you procure the excel sheet with basic parameters for all scrips?