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How to Find Great Stock Picks

By Dr. Steve Sjuggerud
Thursday, May 1, 2008

How do I find my stock recommendations?
 
I'm asked that question all the time. You see, I've worked as a mutual fund manager and a stock broker, and I've done research for a billion-dollar hedge fund, so I've seen just about every strategy and resource to drum up stock ideas.
 
When I worked for the hedge fund, we had a budget that was just about infinite to find an investment idea. I'd fly to faraway countries on a moment's notice to size up an investment's prospects. And I'd crunch numbers using expensive computer gear.
 
What I learned in the experience surprised me, though... You'll be surprised, too...
 
What I learned was this: You don't need all those fancy things. Today, I'll show you three ways to help narrow down your universe of possible ideas... and they won't cost you a thing.
 
Even at the highest levels of finance, it's still a matter of scrounging for a good idea. The only difference with a billion-dollar hedge fund is your budget to scrounge.
 
For me, it all comes down to reading a lot. Newsletters, magazines, books, newspapers, etc... I know if I'm not coming up with great investment ideas, I'm not reading and listening enough.
 
Fortunately, my friend and editor of the Capital & Crisis newsletter, Chris Mayer, has put together a good list for you on how he starts the process of narrowing down his stock picks...
 
Chris is a great investment analyst, and he always does original, thorough research. I found his list in his new book Invest Like a Dealmaker this week. He explained how he finds an idea. I thought it was interesting to see that Chris does many of the same things I do.
 
Chris listed his eight favorite "hunting grounds" for finding investment ideas. I thought I'd share a few of those with you, ones you can easily use right now...
 
Chris says to start, you're basically on the hunt for possibilities to weed through. You want to narrow the list. Then, "be prepared to turn over a lot of rocks and say no to a lot of ideas before you settle on one."
 
Mayer Hunting Ground No. 1: Taking a Peek at What the Greats Are Doing
 
Chris says, "What the greats are doing is easily my all-time favorite hunting ground, and the source of countless good ideas over the years."
 
Thanks to the Internet, it's relatively easy to find out what the best investors in the world are putting their money into... and it doesn't cost you a thing. Try a site like GuruFocus for example.
 
Mayer Hunting Ground No. 2: The ValueLine Investment Survey
 
The ValueLine Investment Survey is usually available for free at your local public library. The ValueLine offers up lists of "screened" stocks every week... Chris likes the "discount to book value" screen and the "bargain basement" screen, which are near the beginning every week.
 
Chris says he ends up discarding most of the stocks from those lists. But you can definitely turn up some gems. The ValueLine screens are "another reliable place you can turn for a good list to research – a sort of sifter that makes your job easier."
 
Mayer Hunting Ground No. 3: Greenblatt's "Magic Formula"
 
Joel Greenblatt wrote a book called The Little Book that Beats the Market. In it, he divulges his "magic formula" – a strategy that, over the last 17 years, has returned 30.8% versus only 12.4% for the S&P 500.
 
Chris says the companies the Magic Formula turns up "are not popular names, and indeed many of them have short-term clouds hanging over their heads. This makes sense, since it explains why they are so cheap."
 
At Joel Greenblatt's website, magicformulainvesting.com, it couldn't be easier to get a list of stocks that meet his Magic Formula criteria. And it's free as well. Yet another good hunting ground.
 
Finding great investment opportunities is tough... so you want to at least start with a narrowed-down list of possibilities. Today, thanks to Chris' list, we've got three ways to get you on your way to finding the next great stock pick.
 
Good investing,
 
Steve
 
P.S. Chris's book, Invest Like a Dealmaker is out now... Chris is a friend and a darn good analyst. It's worth checking out. You can learn more about the book here.

Market Notes


THE STRONGEST STOCK MARKET IN THE WORLD

On February 14, we featured a chart of the iShares Brazil and mentioned how its big weighting in commodity stocks kept its share price near all-time highs while most world stock markets were struggling.

This week, Brazil didn't just remain near its high – it set a new one. The fact that U.S., German, Chinese, and Australian stocks are still well off their highs makes the action all the more impressive. And as we covered two weeks ago, it's all thanks to high commodity prices...

The strongest investment trend in the world right now is the increasing value of "real stuff" like iron ore, crude oil, and grain. Brazil has all of this in abundance, and its shares are acting accordingly.

– Brian Hunt



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