what is your method on picking a stock

treva84 wrote: ↑ A few tips:

- Time is your friend - pick a strategy you can stick with for the long haul
- Think like a business owner - buy stocks in businesses that you would want to own
- Don't buy something simply because you think the price will go up - often the price will go down and if you have no conviction for the underlying company you will panic sell
- It's often easier to screen out stocks than screen in stocks (i.e. have pre-determined rule out criteria)
- Keep an investment journal and document what and why you buy and really try and think about what could go wrong. It's also useful to think about why you would sell, and write that down too.
- Regularly review your investment journal and pay attention to what you do well and what you don't. You will always make mistakes (we all do) and they give you an opportunity to improve.

raptors87 wrote: ↑
- I'm surprised how limited the selection in the canadian markets ... every time I think of a company, most of them are on NYSE... it seems like canadian markets got way too many banks, utilities, industrial and telecomm (not too bad on telecomm) companies ... pretty boring or companies I never heard of ... it seem like canadian markets doesn't have a lot of companies that people easily know in day to day life... am I wrong?

raptors87 wrote: ↑ - seen too many strategies here lol... dividends, growth, value or their own version of it
- I'm surprised how limited the selection in the canadian markets ... every time I think of a company, most of them are on NYSE... it seems like canadian markets got way too many banks, utilities, industrial and telecomm (not too bad on telecomm) companies ... pretty boring or companies I never heard of ... it seem like canadian markets doesn't have a lot of companies that people easily know in day to day life... am I wrong?
- I'm a pastry chef so I know a little bit about food like restaurant brands international QSR that own BK, tim hortons and popeyes or restaurant corporations like recipe unlimited (cara) or SIR
- why not buy a stock I know it will increase in price to sell in the future?... isn't that kinda the whole point? buy stocks that you know it will increase in price to make a profit when you sell?
- will do the investment journal... so far I only have baytex 1500 shares at 1.99 and currently 1.88... it went down on the same day the quarter earning report, the report was good but then the orange guy messed it up with the stupid 10% tax... the day of all days to do it on (big sigh)

So you think a stock should go up just because you buy it;
what makes you so special?
~ James Dines

Stryker wrote: ↑ Well it's these same old boring Canadian companies that some of us have thrived on over the years.

Chance7652 wrote: ↑ Canadian stocks are a bit boring but I don't see that as a bad thing. You get steady growth with high dividend yields in industries that have limited competition. These stocks aren't Amazon but its possible to get 12%+ yearly returns with a stock like TD or RY if you buy it at the right time. A 12% rate of return can double your investment in 6 years.

I'd just look at the list of the 30 biggest Canadian companies and then buy them when they are reasonably priced (I'd probably avoid energy and material). Out of this I'd get 2-3 Banks, 2 railways and 2-3 Telcos. I'd then probably also pick up 2-3 Utilities and 2-3 REITs. Valuation is pretty important when buying and I use fastgraphs.

There is no guarantee that the stock you buy in the future will go up, but if you buy great/good companies that are fairly/undervalued and have growing earnings the stock price should go up in the long term.

IrwinW wrote: ↑ There will always be an "orange guy" to blame. Count on it.
Most of the time he's in the mirror.

treva84 wrote: ↑ Canadian stocks are indeed boring but many are regulated monopolies which bodes well for long term returns.

Thalo wrote: ↑ Quite the opposite, actually. Those regulated monopolies (in banks and telcos) explain their past returns and will likely have a detrimental impact on future returns.

Monopolies are made to be broken. Those companies relied far too long on being able to fix prices thanks to their oligopolies. Not only is the threat of disruption high (think: fintech disrupting the bank's business lines, new communication technologies disrupting Bell/Telus/Rogers...), but because these companies have been so comfortable for so long, just raking in the dough, they won't know how to react when the disruption comes.

Compound that all with the fact that Canada has the most overvalued real estate in the OECD and some of the most indebted consumers. Doesn't bode well for banks anyway.

Thalo wrote: ↑ Quite the opposite, actually. Those regulated monopolies (in banks and telcos) explain their past returns and will likely have a detrimental impact on future returns.

Monopolies are made to be broken. Those companies relied far too long on being able to fix prices thanks to their oligopolies. Not only is the threat of disruption high (think: fintech disrupting the bank's business lines, new communication technologies disrupting Bell/Telus/Rogers...), but because these companies have been so comfortable for so long, just raking in the dough, they won't know how to react when the disruption comes.

raptors87 wrote: ↑
how do you determine the stock got a fairl/undervalue price?

treva84 wrote: ↑ I agree and disagree. Complacency is an issue, but there are laws in place to protect these regulated monopolies. Certain industries (those that are capital intense - telecos, utilities, railways- and those that are protected by legislation - banks) have built in competative advantages that exist within the sector. A start up can't just come in and lay a bunch of new track, pipeline, build new cell towers, etc and just expect to disrupt the incumbent. The only way this would happen would be with a fundamental technology change or legislation change where the existing infrastructure becomes obsolete or useless. No one ever really sees disruption coming, but I would like to think that these specific industries are some of the least likely to be disrupted.

Consider Fortis, a regulated utility. They have billions worth of power plants, transmission lines, transformers and they serve people all through out Canada, the US and the Carribean. They are legally required to sell electricity at a fixed price with specific, predictable escalators. This leads to about a ~6% near term earnings growth that is highly predictable. From a business point of view, who is going to come in and disrupt Fortis? Now imagine you bought this at a reasonable valuation and you held it for a long time.

Consider Enbridge, a pipeline company. They operate on a toll bridge business model, where they move hydrocarbons from one place to another and charge a fee for being the middle man. To disrupt Enbridge either 1) the market for hydrocarbons would have to cease to exist or 2) Someone would have to come in, lay a bunch of new pipe, and charge less. How likely are either of these factors in the next 50 years? Enbridge reported earnings on Friday - revenue is up 20% year over year. Their competative advantage is so strong that they want to change their model to be even lower risk - they want to lock producers up to long term contracts on their Mainland pipeline (when at present it's spot prices). This is a sign that their moat is increasing, not decreasing, as time goes on. Despite this, the share prices are still fairly depressed, which bodes very well for future returns.

Consider a "disruptor" - Shaw - they bought Wind, rebranded to Freedom, and are throwing piles of money at their wireless business. Even so, their infrastructure still lags Rogers, BCE and Telus and they haven't been stealing a great deal of market share from the big 3. Maybe margins have shrunk a bit on the big 3 but Canada still has some of the priciest cell phone plans on the planet. Wind hasn't changed this - it's still chasing Rogers, BCE and Telus. The government also controls who can enter the market and who can buy spectrum. The only way this industry will be meaningfully disrupted is via legislation changes - do you foresee this happening? Personally I don't.

Speaking about the banks, there are indeed macroeconomic risks. These risks are priced in - aka the market anticipates this. Discordant price moves (in the positive, or the negative) would be if the expectations differ from the actual reality on the positive or negative side. Speaking of disruption, the big 5 so far have been relatively immune and the disruption narrative has been around since at least 2015. Despite this, and the macroeconomic conditions, they still keep cranking out high single digit earnings growth and maintain double digit ROEs. Banking is a pivotal part of the modern economy and the big 5 control 90+% of the market in Canada. As businesses, why bet against them now?

If an investor can pick the creme of the crop in these regulated monopoly sectors, buy at reasonable valuations and hold them for a long time (letting compounding do the heavy lifting) then he or she should do well. It's boring, but it will give a high probability of future success.

Indexing is a completely fine way to invest. If the OP wants to index, that's no problem. However based on the fact he asked about stock picking one would anticipate he'll get responses about stock picking.

raptors87 wrote: ↑ oh boy I don;t want this thread turn into an index vs stock battle like the other thread lol

I thought stocks make more money than index over time ... index funds have probably have some pretty bad stocks that bring down the average price of the funds comparing to the individual stocks... am i wrong?

raptors87 wrote: ↑
I thought stocks make more money than index over time ... index funds have probably have some pretty bad stocks that bring down the average price of the funds comparing to the individual stocks... am i wrong?

Stryker wrote: ↑One thing I learned to do very quickly in my amateur career is to completely ignore the predictions from highly intelligent people. They were no better at figuring out this unknowable future through that murky cloud ahead than I was. This goes back to when investors were saying it’s the end of the economy as we know it, inflation was at an all time high and with bonds paying 18% it was bound to get worse. Exchange your assets for gold krugerrands, maple leaf gold coins, Swiss Francs and go find a cave somewhere and protect your stash with a shotgun.

I still ignore predictions to this day in my investing, it doesn’t matter if it’s individual equities, industries, sectors or markets and it’s served me well.

I only replied to the OP based on his saying Canadian equities were boring.

If the OP wants to buy equities like Amazon and other big name brands as he calls them and wants to get all that excitement south of the border, it's not a problem for me.

As for the mention of index funds, I fail to see where the OP mentioned anything remotely close to an index, and yes, as I’ve said in the past, I do indeed own a few of those as well.

To the OP's original question of picking a stock that's going to increase in price, perhaps Will Roger's quote is just as good as anyone else's.

"Don't gamble; take all your savings and buy some good stock and hold it till it goes up, then sell it. If it don't go up, don't buy it."

Thalo wrote: ↑
Every thread is an index versus stocks battle!

I think it's an important read though for the OP. From the sound of his post he seems fairly novice to stock investing and the absolute best advice anyone can give him, for his long-term benefit, is to not invest in stocks at all. There was a recent study done looking at all stock history in the U.S. back to 1926 that found that among all stocks (including the many that sprung up and de-listed over that period), only around 4% actually outperformed the rate of 30 day T-bills over that time period. Some stocks are super-growers, like Amazon, many many more simply fizzle and fade. Buying and holding a basket of stocks chosen at random you have a slim chance of actually beating the index, will most likely underperform, and maybe if you're lucky will perform as well as the index.

What's more, investor behaviour skews your returns even more to the bad. Dalbar's studies examining mutual fund flows show that the average stock mutual fund investor underperforms the index by some 2-5% annually (depending on which time frame is used) because they keep pulling out of mutual funds when they're down, going in when they're up. The same behaviours are compounded with individual stock investors, because there are just many more opportunities to screw up.

Bottom line to the pastry chef: index and move on. Also, don't ever consider the money you put into the markets as "liquid" that you can just access whenever you want. That money has to be considered very long-term, 10 years+, for retirement. If you're saving for shorter term goals, stick with savings accounts.

treva84 wrote: ↑ Yes. The majority of the stocks within an index underperform the index - in reality the index returns are driven by a small fraction of the overall stocks. The minority of the shares drives the majority of the returns.

Capt. wrote: ↑ The Canadian market is very thin on tech and healthcare names. You can find a pretty good selection in the other sectors though.

I think the brands are well known for the most part too, other than those two. The only big tech name that's somewhat recognizable is Open Text.

I'll try to get into my strategy on picking stocks in a later post when i have more time.