Fundamental Analysis - Challenges in the stock picking process

[dreamxite]

I guess I haven't been clear when i made a post previously about the challenges and obstacles in stock investing.

Basically I like to find out if others have come across any challenges, obstacles or frustration during the process of stock picking. That is from finding & screening opportunities or ideas, research, analysis to valuation, making buy decision, portfolio allocation/composition etc. This process also include decision making in every stage of the investing from when to buy or sell, to buy or not to buy etc.

Personally, I think the challenging part for me is the research part. Trying to understand the business side and do a deep research, the ability to find information is a frustrating one and analysing those information after you got them.

Just want to see if others have any challenges in any stage of the process or the whole process is an obstacle that prevent you from starting at all, i.e. not time to learn etc. Cheers

[mrpercentage]

Traditional valuation is being hijacked by a strong favor for momentum. I think it will or already has begun to end in disaster. Once you see it the crazy market sways really begin to make sense. This a good article showing the trend.

http://bit.ly/1LL3bCY

[DoubleDown]

Research shows unequivocally that stock picking cannot reliably be done over buying index funds, except by a very, very small number of notable exceptions that you could count on one hand (people like Warren Buffett and Peter Lynch and John Bogle). And those guys recommend that you buy index funds. Even if you could become one of those rare individuals, it would be a full time job and more, and you'll have to somehow become better than the PhD's who work full time on Wall Street and make it their lives. So, not to be an ass, but I'd say the biggest challenge in picking stocks is in overcoming the thinking that you can reliably pick stocks in the first place. It's far easier and just as profitable to pick a broad index fund, invest in it regularly, then relax and wait for your money to grow over time.

[mrpercentage]

There are certain truths one must accept if you stock pick

1. Individual stocks are much more volatile
2. Individual stocks can on occasion go to zero
3. Individual stocks can still be strongly influenced by etfs and indexes that they can't opt out of

Provided you can handle a rough ride they can be vastly more rewarding. I made 15% off of Receptos (thanks Jim) in two weeks. Best trade of the year. It's too crazy for me to attempt any trading now.

Stock picking if done right can have a better psychology. I see it as a partial ownership of a business in all my longs. Would I buy a business and sell it just because people won't pay me full value right now? No that's stupid- but people do that with funds and indexes all the time, because they don't see it as a business they see the equity as their money. It's not. It's what the market is willing to pay for those businesses right now.
The track record of studies depends on your behavior. If you pull money when the market goes down individual stocks are not for you.

[innerscorecard]

It is challenging that the future is unknown.