Secrets of investing success: creating an effective watchlist

In last week’s article, I explained how investors would be much better served by generating their own ideas for further research rather than following tips. The benefit is that these will align more closely with an investor’s unique temperament and strategy.

Unless an investor is purely a quant, using a strategy similar to Ed’s NAPS, a company appearing on a particular screen doesn’t immediately make it a buy. Most stock-pickers, including myself, have a process similar to a funnel. Many ideas go into the funnel at the top, but relatively few make it into one’s portfolio:

Initial checks are likely to be around the financial strength of the company and if there is any risk of earnings manipulation or other underhand behaviour going on. A checklist can often be a useful tool to make sure all bases are covered here.  The next level of analysis may vary between investors, but something like the framework we use for Stock Pitches on Stockopedia would be a good start for many investors. This may find that a company meets all of an investor’s investment criteria immediately. However, it is far more typical for a company to...