Generating and Evaluating Investment Ideas

Virtually all of my worst investments have been the result of an uncritical acceptance of "advice" from others - people who may have received compensation for promoting a company or individuals with inflated ego's, irrational levels of self confidence and the like - people you would probably not take home to see mother.  

Most of my best investments have been the result of hard work and independent study.  

In recent months, I have conducted research with the idea of taking a more rigorous approach to generating and evaluating investment ideas.  Judging from the performance of my recent investments, this work is beginning to produce some very satisfying results.  

On the basis of my previous experience, I will adopt a checklist.  I will present this in a series of posts, each addressing a component of the investment process. 

Before starting, I would like to set out some observations about my approach:

1. Investing takes hard work.  There are no short-cuts to understanding - the key to ascertaining the worthiness of a potential investment. 
2. Independent work, especially during the early learning stages, is extremely important.  Most of the financial media and stock advisories are suspect for a variety of reasons. The financial media is populated by talking heads, many with unjustifiably inflated egos,  and driven by a need to fill air time with anything, provided it is not too complicated for 30 second sound bites. The purveyors of many investment blogs, newsletters and many institutional analyst reports are often driven by self interest.  Most of this commentary produces "noise" and constitutes an "easy diversion" from the hard work of investing.   
3. I am a "slow investor" in the sense that I don't buy or sell all that often. Sometimes more than six months will pass before I even think about changing my portfolios. 
4. In researching an investment, I try to reduce the number of variables to a "manageable few" - the considerations which really count ... and which can be used to monitor the progress of one's investment should be decision be made to buy a stock. 
5. I am highly selective and actively research many potential investments before making a commitment.  

While researching this theme, I came across a really interesting and comprehensive approach which has been developed by a writer in India.  It is well worth reading: http://www.safalniveshak.com/how-to-generate-stock-ideas/

Vishal Khandelwal has a very nice blog and is well worth reading.  You can subscribe to his offerings by e-mail or RSS.