In a stock market where there are over 6000 listed stocks, finding stock ideas is not just difficult but also an extremely complex affair. Investors need to seriously thing about how to get good stock investment ideas. You will be surprised to know that stock ideas could actually come from the most unlikely places. The legendary Peter Lynch once mentioned that he had got more multi-bagger ideas by observing the world around him rather than scouring through reams of annual reports. Let us look at some unique methods of how to generate stock ideas. Here are 8 such instances that are illustrative but not exhaustive..
Going through the advance tax numbers..
You will be surprised to know that you can get good stock ideas from something as simple and mundane as the advance tax numbers. Try to keep a quick database of advance taxes paid by top 100 companies in the last 8 quarters. Do you see some sharp increases in advance taxes paid? More often than not, this is an indication of a structural revenue shift happening! You may not hit bull’s eye but this can be a good starting point.
Your neighbourhood supermarket
You can actually get good ideas by just observing something as simple as the super store near your home. Are you seeing a new product launched by a company vanish from the shelves in no time? Is the shopkeeper complaining that he is struggling to keep pace with the demand for a particular product? Are you suddenly people flocking around a new product launch? These are all early indications of a potential multi-bagger.
Attend dealers' conferences
Irrespective of the product that is marketed, it is the dealers who have the best handle of what is actually selling. Make it a point to attend a few dealer conferences and you will be surprised by the number of product insights that you can get. Apart from the presentations, draw the dealers into conversations over a cup of coffee. You will be surprised that you will actually get more stock insights than all the balance sheets can provide you.
Listen to the market grapevine
Market grapevine can be a double-edged sword for two reasons. Firstly, many companies have mastered the art of managing the grapevine and using it as a publicity tool. Secondly, there is a lot of unsubstantiated gossip which may amount to nothing. But shorn of these shortcomings, grapevine can be quite useful in that it is a summation of what hundreds of people have been hearing about products and companies at various forums. Use your discretion to separate the wheat from the chaff.
In the world of the internet and social media there are a plethora of discussion forums. You need to apply the same level of discretion as you apply to the market grapevine but discussion forums also manage to throw up that odd idea for you. Remember, both the grapevine and discussion forum have utility only if you genuinely distil the limited valuable ideas that are thrown up. You at least come to know that a particular stock is seeing a lot of block deals, or bulk deals, or is seeing sudden spurt in volumes. All these can be a trigger point for your eventual investment decision.
Management Discussion and Analysis
The moment you get the annual report, the first thing you normally do is to read the financial statements. From the perspective of investment ideas you can glean a lot more by reading the Management Discussion and Analysis (MDA). The MDA is authored by the board of the company and has a historical analysis as well as a futuristic perspective. The MDA is useful in the sense that it tells you how the company proposes to take on competition, introduce new products, use disruptive technologies etc. All these can have good investment value.
Read futuristic technology ideas
Talk to any successful fund manager and they will tell you that there is no alternative to extensive reading. Try to also read up some futuristic magazines and journals that will give you cues on how a particular product or sector is evolving. Use of digital technology, use of genetic engineering, applications of nanotechnology, practical use of artificial intelligence are all examples of futuristic ideas which could become big news in the coming years. Try to focus on companies that are trying to do something really different or thinking out of the box in such areas.
Auditor qualifications and rating changes
There is a lot of wisdom on companies if you start reading the fine print in a lot of areas. When auditors qualify a report, it is indicative of a larger challenge for the company which it does not want to acknowledge. Similarly, when companies get downgraded or upgraded in ratings, it is indicative of its emerging underlying financial position. Watch out for delays in interest payment, postponement of debt deadlines etc. All these can give you cues about when to enter and exit stocks.
So, open your eyes and ears and start observing the environment around you more keenly. You will by surprised by the amount of stock ideas that are available all around you!