Last week, we spoke about investing in equities. In it, I suggested using dummy portfolios as a good way to get started, so I thought I might as well expand on the theme and give you a good starting point for tools and tips.
You need three things to get started:
- A portfolio tracker
- A news/results/notice/ conference call tracker
- A screener
Lets break these down.
A portfolio is a list of what you hold. Each time you buy or sell a stock, it changes your portfolio. For our game, we’ll start with a large amount of cash and no stocks, and start investing it over time.
A portfolio tracker is a site where you can enter your transaction details, and view a summary of your investments and profit and loss. They’re also useful in showing you summaries of financials for your portfolio - say the last quarters sales and profits, simple ratios like the return on equity, operating profit margin and so on.
If you pick a good stock investing site, then clicking on one of your holdings will take you to viewing its details - detailed financials, news and articles on the stock, holding patterns (i.e. - which funds or individuals hold large positions in it, what the distribution is, etc. ) and even forums where people discuss the stock.
While there are hundreds of sites that offer portfolio tracking, your choice of what to use is important. Pick the most popular one for your country. Maybe pick 2-3 of the most popular ones, and use them in parallel for a few months before you decide which is best. I am not being prescriptive here because what’s best in the US might not be the best in the UK or Japan or China or India.
If you’re lucky, the same site that you track your portfolio will also cover the market in enough detail for you to keep track of all relevant news, articles, reviews, results and notices. If not, you can pick a dedicated site for these. The key here is to make sure you stay abreast on everything that can impact the performance of your stock. This is not just the results of the stock, but also news around the sector it belongs to, changes in policy that can affect its future performance, changes in holding patterns - say an activist investor buying a large stake, or a bunch of mutual funds reducing their stake, to the number of analysts tracking it, and what their recommendations are.
Back in the day, we were limited to trade publications and the financial pages of the newspaper. You consumed what was printed rather than getting what you wanted. Today, an individual investor has a wealth of information at their fingertips.
The final tool in your toolbox is a screener. What is a screener?
You can think of a screener as a giant excel sheet or a database holding the financial data of all firms in a market. What it allows you to do is start filtering down companies based on criteria. You start with thousands of firms, then start applying criteria like ‘exclude firms that haven’t grown by at least 10% for the last 5 years’ and ‘ exclude firms that have not paid out at least 2% of their profits as dividends’, or ‘exclude firms that have a ROE of less than 10%’ and keep drilling down until you have a set of firms that match the performance criteria you care about.
You can also set specific screens to track performance within a sector, or for tracking firms with improving financials, or firms which are expanding their capacity, or match a particular investing mantra and many more such useful strategies. Screeners are very flexible tools and it pays to learn them well. A good screener can help you save valuable time and come across hidden gems. Most sites will allow people to share screens, so it’s easy to decompose and learn from the most popular ones.
That’s it for today. Happy investing!