10 Ways to Improve Your Investment Process – #5. Improve Your Search Strategy

The fifth idea to improve your investment process is to improve your search strategy. First, you want to increase the number of ideas you’re looking at. The more rocks you turn over, the greater your chances of finding a great investment.

Second, you don’t want to miss an obvious investment because you weren’t paying attention. That’s Buffett’s famous sin of omission.

I maintain four checklists to help me do this.

First, I have a checklist of great investors whom I track for new ideas. I limit the list to investors whose process and philosophy is similar to my own. I track their 13F disclosures and their investor letters, if available. Caution: any idea you find this way is only a starting point. You still need to do your own work, otherwise you won’t have the necessary conviction to buy a meaningful position and hold the stock through periods of volatility for big gains.

Second, I have a checklist of publications, forums and blogs that I follow for new ideas.

Third, I keep a checklist of my daily routine that includes basic screens I look at – like the 52-week low list – to make sure I don’t miss something.

Finally, I keep a growing watchlist of stocks I follow which includes a valuation estimate and a target price to buy the stock.

It’s easy to get away from this discipline because most days there’s nothing there. This is a common error with checklists. You get complacent and skip steps even when you remember them. For example, think of an airline pilot who always finds that a given gauge gives the correct reading. He may be tempted to skip the step of checking it. With investments, that might be the day an elephant decides to tiptoe by.

You can also improve if you focus your time on ideas that are obvious. If it’s too close to call, the investment may not be worth it. You’ll get better returns over time if you do this. You’ll also save yourself a lot of time.

Improve your search strategy and you will improve your results.

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3 thoughts on “10 Ways to Improve Your Investment Process – #5. Improve Your Search Strategy

  1. Oliver R.

    Hi Greg,
    your blog is on my checklist. what other publications, forums and blogs would you recommend for my checklist?
    You look on a 52 week low list. Is it a sector or industry specific list or is it a broader list? How do you stay in your circle of competence while searching?

    At the moment I (try to) analyze “Deutsche Post AG” (competitors: UPS, Fedex) (in DAX 30 index). I value it because it has good analyst coverage and therefore provides many valuations I can compare my own valuation with. My problem with D. Post AG is, that I can not value 3 of 4 business units because I do not understand the business mechanics of international logistics. (The greatest risk: What happens with D. Post AG and its competitors if international trade slows down?). Would you recommend me to skip the valuation or to invest more time till I understand the mechanics of international logistics? Could you recommend a company which is easy to analyze and I can compare my valuation with the valuation of other value investors?

    Reply
    1. Greg Speicher Post author

      Oliver, a good place to start is the list of blogs in the right-hand column. Also, see this post for a good list to follow: http://gregspeicher.com/?p=25.

      I look at the entire 52 week low list. It takes little time and I don’t want to miss anything. With time you become generally familiar with a lot of companies so I generally know what I am interested in on the list.

      There are a couple ways to approach your valuation problem with Deutsche Post AG. The first is to pass because you can’t value something you don’t understand. Second, if the value of the units you do understand is so compelling that it makes the whole company attractive you can disregard the other part and treat it like a free option (unless, of course, you have reason to believe it’s a liability). You can increase your circle of competence with study but in general I would avoid industries where you are likely to always be at a knowledge disadvantage.

      Regarding your last question, I recommend you sign up for Value Investors Club guest membership. The write-ups are done by professional investors. Study ones of companies you know and compare it to how you would approach it. This will bear fruit if you stay with it.

      Reply

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