Andrew is a self-educated business owner and entrepreneur with plenty of free advice (which is worth exactly what you pay for it!).
Value investing is probably one of the most intuitive styles of buying stocks, but it does involve doing your share of research. The better researched your companies are, the more likely you are to know when to buy their stock at a price that's well below the company's intrinsic value per share.
The Internet is both a blessing and a curse for value investing research. The good news is that there's exponentially more information out there than existed even a few years ago; the bad news is that there's exponentially more information out there than existed even a few years ago! Being able to filter out the noise and gravitate toward great information—the curation of investing advice—is the name of the game, and that's what I'm doing for you in this article.
Researching Companies You Might Invest In
When I buy a stock, I generally start by getting an idea from somewhere (more on that later), then do research on the company in order to determine if it's a good fit for me at today's prices. I'm going to start here with the latter phase: analysis. While you don't have to use the same sources I use, I would strongly suggest looking at multiple different sources or opinions when considering valuation. Some of my personal, indispensable favorite resources to use are:
I like Morningstar because the valuation tends to be very conservative, generally based on discounted cash flow, and I can understand how to take action based on the information they provide. They use a five-star rating system for stocks that let you know immediately, at a glance, whether Morningstar regards the stock as cheap or expensive right now. If you pay the membership fee (around $30 a month with a discount if you pay for a year up front), you can access the star rating system, along with a full analysis of recent trends that have effected the company's valuation or operations. Whether or not you pay the fee, you can still get a lot of use out of the site, though: there's also a company summary for each business that you can see, along with some financial data from past years.
- Seeking Alpha
Seeking Alpha has a broader base of users than Morningstar, with multiple investing styles represented in the authors (although most tend to be value-oriented). I like their company summaries, like Morningstar's, but SA differs in their rating system. If you're a premium member (comparable in price to Morningstar), you can access quant ratings, Seeking Alpha author ratings, and Wall St ratings. All of these can provide additional context, but the main value for me comes from the articles the diverse team of authors writes for each company.
- Your broker
I use Vanguard and Fidelity for investing, so I have some experience with the platforms. With Vanguard, I can type in a company's ticker symbol and see what various analysts think of the stock, a company summary, and other recent financial data (a lot of this is covered with the other places I've typically already looked, so I'm probably looking at a second opinion on the analyst's valuation here: whether it's a buy, hold, or sell. Vanguard does a good job of making this really easy to see at a glance, so that's another small data point.
The morning before trading opens (or the night before), I'll usually take a quick look at the overall market futures. At a quick glance, I can tell if the S&P, Dow, and NASDAQ are going up or down. While I am always going to look at individual companies, I can sometimes get a good idea of what sort of day it's going to be (this was especially helpful during the insane volatility that followed the early days of the pandemic).
YouTube Channels of Reputable Investors
In addition to the websites for analysis, I will often get a fifth, sixth, or seventh opinion from a reputable investor who creates great content. Here, you have to be really, really careful to only listen to actual investors who have learned with their own money, and to tune out all the nonstop hype surrounding market crashes, 10xing your portfolio in a short time, and all the meme stock mania. These sources are vetted and trusted (at least by me), and I think they all provide a lot of value during both the analysis and the idea phases.
- Sven Carlin (deep value investor with a PhD who worked at Bloomberg, taught accounting at a university, and preaches the value investing strategy with every video)
- Scott Rubin (he uses Discounted Cash Flow while going through the financial statements of a company every video in order to determine if the stock is a buy or a sell according to his model)
- Dividend Diplomats (these guys use humor and pro-wrestling anecdotes to lighten the mood and get you excited about dividend growth investing; they cover undervalued dividend stocks that are growing over time, with a strong bias toward Dividend Aristocrat stocks. They buy the stocks they talk about, and they talk about the stocks they buy)
- Learn to Invest (Jimmy shows you how he goes through the process of valuing a company, talks about multiple methods he uses to value different companies, and is very transparent about the stocks he buys and owns, and why)
- Aswath Damadoran (An absolute guru of valuations. Here's what Aswath says about himself: "I teach corporate finance, valuation and investment philosophies at the Stern School of Business at New York University. I intend to have online versions of all three courses here, as well as other finance-related videos."
- The Swedish Investor (excellent summary of loads of investing books, distilled wisdom from some of the greatest value investors of all time, and plenty of additional great info)
- The Plain Bagel (some very good explanations that simplify concepts that seem dauntingly complicated at first)
- The Economist (a great look at the macro picture)
Books on Investing
Reading or listening to books on the subject of stock investing has been crucial to my understanding, and I've been fortunate enough to learn from some of the true all-time greats, along with some amazingly concise advice. Here are some very good sources for investing wisdom and insight.
- The Intelligent Investor (Ben Graham). This book needs no introduction to value investors, but if you're newer to the game, this is a seminal volume that happens to be very well written (you get to peek inside Ben Graham's mind and see how he thinks about investing). This is a must-read for any serious value investor.
- Invested (Danielle Town; a great book to get you motivated to invest; breaks down some daunting concepts into much simpler bites)
- Poor Charlie's Almanack (Charlie Munger and others). Munger tells it like it is, and is famous (or infamous) for doing so. Buffett's right-hand man has helped to build Berkshire Hathaway into one of the most successful businesses of all time, and Munger is one of the great thinkers of today (and yesterday!).
- Warren Buffett's Ground Rules (Jeremy Miller). This is a distillation of wisdom from Buffett's letters to shareholders, the must-read annual reports from Berkshire Hathaway.
- Winning the Loser's Game: Timeless Strategies for Successful Investing (Charles Ellis). This is one of the great investing reads of the 20th century.
- The Little Book of Common Sense Investing (Jack Bogle). Bogle founded Vanguard and revolutionized the way most people invest. Learn why this approach has been so successful for so many, and understand the market much better by reading this seminal tome.
Blogs, Letters, and Memos
One primary source for education for me has been reading what great investors have to say, and what people who work in finance are thinking. If you can read a letter, memo, or blog post every day from these authors, you'll be pointed in the right direction.
- Warren Buffett's letters to shareholders (annual). Buffett probably enjoys teaching people about investing nearly as much as the actual process of investing itself, and he is an open book about investing strategy. Read all of these. Seriously.
- Memos from Howard Marks (a few a year). Marks is an absolute legend in value investing, and is an astute observer of the way the market works. With over 5 decades of investing experience, his wisdom shines through in these observations on what's going on in today's markets.
- A Wealth of Common Sense (daily new posts). Ben Carlson is a CFA and institutional investor whose writing comes highly recommended by Tom, and whose writing style is direct and very easy to digest.
- Matt Levine's email newsletter. Matt posts a lot of content on a frequent basis, and he blends sharp humor with astute observations on what's happening this week or month.
How to Get Ideas
The whole investing process begins with an idea, and you have to start somewhere. I like to follow businesses I like that are reasonably close to the price range where I want to buy them, but aren't quite in the range right now. This way, if they drop into my range, I'm ready to buy them right now (although you can sometimes get ideas from just looking at what's on sale today). It's always a good idea to determine what something is worth before you look at the price, although that's not always possible. Some of my ideas come from an article I'll see in my Google news feed, which often means a Seeking Alpha article on a particular stock (wherein the individual author describes why they think the stock is a buy or not). I might see a similar article on Marketwatch or The Motley Fool, or even CNBC from time to time. Beyond seeing an article that piques my curiosity and encourages me to dive deeper into valuation, sometimes going backwards makes sense. This will usually mean starting with Morningstar's top stocks or best values, and sometimes Seeking Alpha's top stocks by author or quant rating. No matter what, this is just a first step, and the ideas always need to be vetted.
Another great way to get ideas is to take a look at what great investors (or people you respect) are buying or have bought recently. You have to be really careful here, though, and remember two things: first, that the investor may not have reported what they bought for some time, so the nature of the company, stock price, or something else might have changed; and second, you may have vastly different investing objectives than the person who bought the stock in question. Due diligence solves this, so be sure to research valuation after you get the idea (no matter where it comes from). Similarly, I might watch a video where a company is flagged as a great value, and that will cause me to research the same company from multiple angles, doing my own valuation.
No matter where your ideas come from, the entire process always works the same way for me. I will figure out what stocks are intriguing at the moment, follow them with Google or Seeking Alpha, and start learning about the companies. After learning how the company works (whether it has a moat, what the company produces or sells and how they make money, and whether it's a good fit for me personally and for my portfolio), I'll do a valuation (or amalgamate several different valuations from sources I trust). If there's a sufficient margin of safety, I'll buy the sucker. If not, I'll wait. Hopefully, these resources will help you to follow a similar process, and encourage you to continue learning about investing!