“I’ve had smarter people around me all my life, but I haven’t run into one yet that can outwork me. And if they can’t outwork you, then smarts aren’t going to do them much good. That’s just way it is.” – Woody Hayes
In order to be a successful investor, you need an effective search strategy. Having a good search strategy presupposes that you have an investing process and philosophy in place. If you don’t know where you’re going, any road will take you there. Also, being consistent is important. It would be better, in my judgment, to have a simple and broad strategy and use it consistently than to have an elaborate strategy that you fail to follow. As, Buffett has pointed out, compelling values are like fast moving elephants. The opportunity cost of being asleep at the switch can be high.
With that, here are some ideas of where to look:
- New Lows – Look at the new low list every day.
- Value Line – Scan each issue of Value Line on a regular basis. If you are not in the habit of doing this, you can catch up by going through each back issue and flagging all the good businesses that are within your circle of competence.
- 13F’s – Follow the disclosures of great investors. A few sites such as gurufocus.com, marketfolly.com and dataroma.com aggregate this information making it easier to follow. Pay attention to the investment process of the investors you choose to follow and whether they run a focused portfolio, in which case their purchases are more meaningful. Also, pay attention to how recent a given purchase is. In addition, be aware that a small position may still have significance if it comprises a large stake in the investee company.
- Mutual Fund Letters – Similar to 13F’s with the added benefit that the investors often lay out their case for making a given investment. Hand pick the best: Yacktman, Fairholme, Longleaf, First Pacific Advisors, Akre Capital Management, Third Avenue Value, etc.
- Hedge Fund Letters – Pick investors whose process you understand and that fits with what you’re trying to accomplish. Similar to mutual fund letters, the hedge fund managing partner often details his investment theses for various investments.
- Business Press – Read the The Wall Street Journal, The New York Times and the The Financial Times on a daily basis. Following Michael Price’s advice, read with purpose, looking for changes that could drive an investment opportunity: new management, restructuring, restatements, acquisitions, busted deals, lawsuits, etc. Also read Barron’s, Forbes, Fortune, BusinessWeek, and The Economist.
- Blogs – There are a growing number of high quality blogs with research that equals or, at times, surpasses that available from Wall Street. Seek them out and pay attention. See my “Useful Sites” sidebar as I will be adding to my list of these blogs/sites from time to time.
- Screens – Run select screens on a regular basis. Here is a list of screens that Mason Hawkins would run when he started in the investment business: 1) ROC > 12% and less than 8x earnings, 2) < 10x free cash flow, 3) below net asset value, 4) below net asset value plus 20% of PP&E, 5) below book value after taking out intangibles. Follow stocks that meet Joel Greenblatt’s magic formula criteria at magicformulainvesting.com. Also, Value Line publishes several screens of possible cheap stocks – low P/E’s, low P/B’s, high dividend yield, etc. – in each issue.
- Top Businesses – Make a list of the top 100 or 200 business in the world and revalue them on a regular basis.
- Trade Magazines/Sites – Seek out and follow trade publications in every industry you understand.
- Social Investing Sites – Value Investors’ Club (information delayed 90 days for non-members), Seeking Alpha, BloggingStocks, Motley Fool, etc. The Corner of Berkshire & Fairfax Message Board has well-informed posters and high quality discussions.
- Subscription Services: Outstanding Investor Digest, Value Investor Insight, The Manual of Ideas are a few examples.
- Early Buffett – Following Buffett’s example from when he started his partnership, find a comprehensive database and go through all the listings from A to Z looking for undervalued gems with no analyst coverage.
Here’s hoping that between all of the above you can find a handful of ideas each year that will allow you to reach your investment goals.