Investing: How To Find Great Stocks

Warren Buffet, one of the greatest investors, bought thousands of Coca Cola shares in his earlier life because he knew that everyone drank their drinks frequently.

Stocks which have highly inelastic demand are typically very large, a safe investment but also, growth limited. Wealth managers will include safer, large-cap stocks in their client’s retirement portfolios as they offer lower risk.

Your first step in finding a great stock should include a reflection on your everyday habits. What do you normally buy, what are your hobbies and what do think the new global trends will be in the upcoming years.

Visionary leaders drive a business, its employees, and its vision. At the end of the day, you’re investing in a CEO and his vision; it is important to research who the current leader is and the management team who run the company.

Another intangible asset that you need to look into is the company’s culture. How happy are the customers, employees, and how does the business deal with environmental issues? If you didn’t know, there is a metric that can track the social, environmental, and governance of a company; the ESG metric.

In addition, a competitive advantage is a fundamental tool that a business has to outperform others in the same industry. If a business is not competitive it will fail to keep up with its competitors and fail. Competition in any industry is important because it allows companies to improve their efficiency; whether It’s a division of labour or develop economies of scale. You can find this information on Stock Club and other news outlets.

Finally, a competitive business is just as important as a growing industry. Warren Buffet sold all his shares in U.S airlines because he believed Covid-19 will change the way the airline industry operates, and the new social distancing measures won’t help either. From an excessive supply of planes to beaten-up demand to travel, the airline industry will most likely take two steps back and one step forward.

So How Do you manage Your Investment Portfolio?

Understanding that no matter how well you research investment, there is always an idiosyncratic risk.

You can lessen this risk by appropriately managing your portfolio and investing in excellent growth companies- like those listed in our ‘Buffet Portfolio’. Diversifying your risk by investing in several large-cap companies such as Apple or Amazon is a great idea.

​A balanced portfolio will not only be diversified but also, cyclically positioned. That is, a market crash is expected very 8–12 years, and therefore, rotating into more large-cap and less correlated stocks is always a good idea to protect against the downside.

The best approach is to maintain a consistent monthly payment and to constantly review your portfolio; and which assets you’re invested in, every 6 months. That means you should have a fixed amount that you are willing to invest every month; no matter what the market is doing. Compound interest is your best friend and it will allow you in ‘average’ out when your stocks are performing well and poorly.

You should rebalance your portfolio once a year!

Stock Capital is mainly invested in stocks and credit. Every week we invest a fixed sum equally into all our currently invested assets. After the crash, we bought into some value stocks. Soon, we will reduce our portfolio weighting in stocks as we believe another fall could occur until October 2021, and we will, therefore, shift our portfolio weighting to include more commodities such as Gold and Silver. Depending on OAS and credit spreads, we might reduce our weighting on corporate bonds too. ​ It is important to understand that your portfolio is based on time in the market and not timing the