I have posted this question somewhere else also. How do you guys pick stocks, is there a fixed strategy to it?

There are many factors each investor considers before picking stocks. Fundamental ratios like P/E, Market cap., balance sheet debt, market leader in its segment and many others.

The above post was originally posted in Prudent Investor's Portfolio thread.

I moved it to this section as I didn't want the portfolio thread to go off-course. .

@ rajeshs_in1

You mean

- how we find stocks to analyze?

or

- how we actually analyze the stocks?

I will answer the first question for now.

There are 1000s of stocks listed on the exchanges. It is always better if an investor first makes a list of stocks to analyze and then analyze them.

Till now, I didn't have any method to shortlist potential investment candidates.

I used to randomly look at stocks and then buy some of them and avoid others.

Since the last few days, I have started using stock screeners. I have mentioned a few good ones here:

Stock Screener?

I wished I had started using screeners earlier.

These screeners makes stock picking much easier, provided one knows what to screen for.

Randomly analyzing stocks means a lot of good stocks are overlooked.

However if an investor makes a shortlist using parameters best ROE, lowest PE ratios, fastest growing revenues, fastest growing profits, best dividend yields, best dividend payouts, lowest leverage etc and then analyzes stocks in the list, the probability of overlooking good stocks is reduced considerably.

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Of course, blindly following these screeners is not advisable.

Firstly the data provided by these screeners isn't always correct. One should always crosscheck from the annual reports, exchange announcements etc.

Second, a stock that looks good on one parameter may be bad on another parameter.

Third, stock screeners just give us past data and don't tell us about future prospects. Stocks are valued on future earnings, which may be very different from past earnings.

Fourth, stock screeners don't tell us about the quality of management. e.g. Compact Disc (BSE only) is trading at PE of 1, but the reason for this low valuation is obvious to anyone who knows about the management of Compact Disc.

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Other than these screeners, investors should keep an eye of fast moving, high volume stocks. Aggressive buying is sometimes aggressive for the right reasons.

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What I do is to select few sectors based on fundamental or macro factors and the chose the known ones and compare the PE to industry PE or the top performer. Next will check the PBV, share holding pattern, 52 week high and 52 week low.

Will finalize them after searching if there are any negative news about the company.

The fun part is I end up investing less amount in the stock I finalize and zooms up and then regret thinking I should have invested more . However this gives confidence on stock selection.

@Alchemist thanks for moving this to a thread of its own, I didn't know where to put it.

My question whether you use a strategy in picking stocks for your portfolio. I was thinking of using strategies like CAN SLIM, GARP Investing , Dogs of Nifty Strategy etc. Dogs of Nifty seems to be the easiest to manage, it is like portfolio managing on auto pilot .

I am of the opinion that technical analysis is a much more superior form of analysis when compared to fundamental analysis. The markets are rarely rational and mostly emotional (however, the do tend to unconsciously behave rationally over longer periods of time - possibly by the "invisible hand which guides them" as described by Adam Smith). Its impossible to capture the emotional aspect by fundamental analysis.