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Idea Generation


voyager
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This is something that I've been spending a lot of time thinking about recently.  How do you all come up with ideas?

 

The standard ways include 52 week low lists, reading the Wall St. Journal, spin-offs, 13Fs, reading Barrons, screening, ect. 

 

However, it seems like the really great investors do one of two things.  1) They have differential insights 2) They have a circle of competence that they stick to.  Some examples of investors that I'd stick in bucket 1 are Edgar Wachenheim, Seth Klarman, Li Lu, Warren & Charlie.  Bucket 2 examples would Tom Russo with consumer, Alexander Sacerdote with technology, and nearly all the folks at Oaktree. 

 

It's understandable how one could build and stick to a circle of competence over time.  How do you come up with differential insights so that you're ahead of the curve though?

 

What Warren has said before is start with the As and end with the Zs, which is absolutely valid.  If you know the companies from a high level, that doesn't mean you have differential insights.  What mental models have you found to be extraordinarily insightful?

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Guest Cameron

I pick a stock exchange and go through a to z, (Pakistan Exchange was probably my favorite followed by Athens) anything that looks cheap whether it be a net-net, low p/e or a growth company with a cheap valuation or a company that could go bankrupt soon. I keep in a list I don't really care what it is as long it looks cheap from a quick look, you can tell pretty quick whether or not something is cheap. I use Interactive Brokers fundamental window on one side on my screen and an excel file of the symbols on the other and type them in. 98% of what you look at won't warrant further research so I want to look at everything.

 

I only like using a circle of competence when its a growing company. I would never pass up on a company that trades at 3-5x p/e if its not in my circle of competence but if I read a couple of annual reports from the company and the business makes sense I'll buy it. There is something like 25,000 companies in the United States and 100,000 in the world, looking at all of them with a mental screen I feel gives me an advantage.

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I pick a stock exchange and go through a to z, (Pakistan Exchange was probably my favorite followed by Athens) anything that looks cheap whether it be a net-net, low p/e or a growth company with a cheap valuation or a company that could go bankrupt soon. I keep in a list I don't really care what it is as long it looks cheap from a quick look, you can tell pretty quick whether or not something is cheap. I use Interactive Brokers fundamental window on one side on my screen and an excel file of the symbols on the other and type them in. 98% of what you look at won't warrant further research so I want to look at everything.

What are you using to trade these? Will you have to set up an account with a local bank or do you have a local bank that will do it? IB doesn't look like it offers those particular countries for me. Also how will you read the financials? There's an old video on the internet that I can't find of Jim Rogers buying shares in China with cash back in the 90s or so...

 

I've had good luck with international microcaps, but have mainly done Australia and UK. Seems like they may get less attention than US microcaps.. not sure. To answer the original question, I've found those mostly through screens (one came through a blog that I tried to track down later to thank the writer but couldn't find... stock was Northern Bear Plc if anyone knows who profiled that one...).

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Hey all:

 

One way I've been generating ideas for decades is to use Value Line.

 

I use it in a few different ways...

 

Obviously, I use it to keep track/research companies that I own or am interested in. 

 

Take it a step further....Value Line has a one page overview of 90+ industries (autos, retail, mining, restaurants, etc.)  That is a GREAT way to get an overview and to see kind of what the industry does in terms of sales, profitability, etc.

 

Then look at the other competitors in the industry.  How does your target company compare?  Many a time I was doing research on a target company and found a BETTER competitor.  Conversely, you can find worse competitors too.

 

Sometimes, you might come to the conclusion that an entire industry is a "dog", or maybe a great place to be.

 

So I think doing comparative research is a great way to generate new ideas...

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Guest Cameron

I pick a stock exchange and go through a to z, (Pakistan Exchange was probably my favorite followed by Athens) anything that looks cheap whether it be a net-net, low p/e or a growth company with a cheap valuation or a company that could go bankrupt soon. I keep in a list I don't really care what it is as long it looks cheap from a quick look, you can tell pretty quick whether or not something is cheap. I use Interactive Brokers fundamental window on one side on my screen and an excel file of the symbols on the other and type them in. 98% of what you look at won't warrant further research so I want to look at everything.

What are you using to trade these? Will you have to set up an account with a local bank or do you have a local bank that will do it? IB doesn't look like it offers those particular countries for me. Also how will you read the financials? There's an old video on the internet that I can't find of Jim Rogers buying shares in China with cash back in the 90s or so...

 

I've had good luck with international microcaps, but have mainly done Australia and UK. Seems like they may get less attention than US microcaps.. not sure. To answer the original question, I've found those mostly through screens (one came through a blog that I tried to track down later to thank the writer but couldn't find... stock was Northern Bear Plc if anyone knows who profiled that one...).

 

I use Fidelity for Greek stocks, I didn't purchase any Pakistan stocks because of the risk I couldn't get past it to follow through but if their macro picture keeps improving I might in a few years but if your a US citizen (I only know the info for US citizens) you can open a brokerage account in Pakistan with proper ID. They have started to control inflation, and terrorism is down there. For the financials in Pakistan I went to their website, the financials were in English. For Greece they have a regulatory body https://www.helex.gr/web/guest/financial-statements-in-pdf-format this is what I used. You can use the company websites but they are sometimes in Greek rather than English.

 

If your interested in Australia they have an OTC market like ours I just can't remember the name of it right now, if I do I will post it.

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