Early Retirement Extreme Forums

I know from lurking the forums that many of you here are trading individual stocks. Before buying you hopefully both understand the business as well as do some homework to try understand why the stock is priced as it is (and why the price discrepancy is not a problem in your view). This can mean a lot of effort. I'm curious: how much time do you usually spend researching a stock before buying (I mean a meaningful position, say >1% of portfolio)?

Anywhere between few minutes and maybe half an hour. I'm using Stockopedia so all important fundamental metrics are in one place and it only takes a couple of minutes to review them and decide if I like the company or not. I might have a look at the most recent trading update to check headline figures and outlook statement. I also usually have a quick glance at their website. But most time is spent analysing charts in various timeframes. I never bother trying to beat accountants by reading annual reports, model future cashflow, PE and stuff like that.

And what about the amount of time spent in ongoing "maintenance" research before selling?

I believe an average investor's answer would be that they spend several minutes researching before buying and hardly any time researching whether to keep it on an ongoing basis. At least until they are no longer "into" the stock and want to trade it in for something newer and more exciting. After all, this is how most consumers research any other purchase. However, it might not be ideal to treat the stock buying/selling research process the same way one treats the consumer product buying/selling research process.

On the flip side, based on the way Jacob has described his decision making process on buying and selling his own stuff, I would trust that he commits an appropriate amount of time to build a value stock portfolio that doesn't significantly lag the market over the long run (as opposed to the average investor who lags the market by several % per year). But since he also seeks efficiency in all his endeavors - often around 4x the efficiency of the average person - I reckon a novice investor would need to spend on the order of 4x the amount of time he spends doing stock research to achieve similar results.

Maybe an hour or two.

I check my preferred key metrics to reflect what I want to know from the income statement, balance sheet, and cash flow. Then I look at the chart to see where the trend is (I really just want to see if the MACD lines are moving up). Next, I'll google around to see what the narrative / sentiment is. Lastly, I'll check the most recent 10-Q and ctrl+f on 'risk disclosures' to see if their anything that will scare me away.

I spend time occasionally tracking sentiment (what people are saying about the stocks). In short, the important part here is setting price targets (buy / hold / sell) on your stock to limit emotions if the stock gets volatile. These targets can be revised accordingly. It is also important to avoid wishful thinking...very easy to only accept the information you wanna see (confirmation bias) and downplay what you don't want to see.

Also, I used to do discounted cash flow analysis on my stocks as well but unfortunately found this practice quite useless....everyone and their mom is overvalued right now