How do you make your investment decisions?

Learn to invest
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Making an investment decision is often very challenging. Investment literature and podcasts are full of good advice, and there are plenty of gurus in the field. A novice investor gets completely overwhelmed when studying these.
As a beginner investor, I found it easiest to buy familiar and safe large companies that provide a reasonable return and dividends every year. In the past stock market year, this strategy didn’t work so well for me, at least. The return on new investments was around 10%, which isn’t a bad achievement either :slight_smile:

What are the most important criteria when you research a new investment target? How thoroughly do you examine previous annual reports and interim reports? What about Inderes reports? Discussion threads? What weight do you give to the company’s investor page strategies and visions / company stories

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My investment decisions are based on news and Inderes reports. I check discussion threads a bit. I give a frightening amount of weight to visions and goals. If something goes wrong in a discussion thread, I try to find information from reports, etc. Traditionally, I always browse websites and Wikipedia.

Simple, but it should be enough for me.

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My investment decisions are made by a computer algorithm, not me. I have two different algorithms, both running their own strategies. I update one on the first day of each month, and the other every Monday. The monthly updated strategy operates in the Nasdaq 100, i.e., US large-cap companies, and the weekly updated strategy theoretically operates across the entire US market, practically in US small-cap companies.

The strategies work essentially based on momentum, completely without fundamentals, which might sound crazy to many, but momentum investing is, in my opinion, very intuitive, and algorithm-based investing is also “my thing” as a computer science student.

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The most important thing is to look forward to how the company’s business could develop. For that, Inderes’ “Extensive report” and “Company report” are superior basic tools. Of course, all possible news flow must be under the radar.

So, which companies should one start to delve into? I look at revenue growth, EBIT margin, EPS growth, return on equity, and gearing. When these are somewhat acceptable, it might be time to start familiarizing oneself with the business.

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Have you already published the success of these two algorithms somewhere?

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You can find them here:

Large cap strategy: Large Cap Momentum - Google Drive

Small cap strategy: Weekend Trend Trader - Google Drive

I bought both of these strategies from here: https://www.thechartist.com.au/product-category/turnkey-trading-systems/

At first I thought they would be expensive, but they have already paid for themselves even though I’ve only been using them for 3 months (Large cap) and 3 weeks (Small cap).

A slightly simplified version of the Large cap strategy has been opened here: https://www.youtube.com/watch?v=gXNsKn5gKaA and if I remember correctly, at the end of that video there is also a link to a page where you can download the small cap strategy as an e-book.

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My investment decisions are made by a computer algorithm

Could you elaborate a bit on the practical aspects, i.e., what data sources and tools you use for this? I’d be interested in similar experiments.

My own investment decisions are mainly based on the following:

  • Staring at TradingView
  • News
  • Reading various investment forums to find potential targets

A large part of my investments are held for 1-60 days, and at least right now, I rarely consider periods longer than that. I do have longer-term holdings in mind, and I research those more deeply. I do read analyses of all my holdings if available, but often only after buying, when I’m considering selling and whether to leave some in the portfolio.

Fundamentally, even for short-term holdings, I aim to buy only companies with good long-term prospects, but recently, trading has focused on lottery tickets, meaning buying rumors, speculation, and SPACs.

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I make my investment decisions solely based on fundamentals. The two most important metrics for me have become a low long-term P/E ratio and a high return on equity (ROE), which is based on a good return on assets (ROA). Abundant data on companies’ past performance is available, which facilitates risk management. Generating profit regardless of economic cycles tells its own story of a strong market position and flexibility in cost structure.

For me, a growth company means that the equity per share is growing. Multiply this by ROE, and you get earnings per share and its growth. When the P/E is 10, the company can buy back 10% of its shares with its earnings, distribute generous dividends, or invest with a good return on equity.

Of course, each case requires a closer examination before making an investment, but these are the kind of green flags that lead me to read the annual report.

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When I come across an interesting company, I usually at least glance at the most common valuation multiples of the stock, as it usually doesn’t take much effort.

Then I move on to researching the company. I have quite precise criteria for what I qualify for my portfolio, so I start by using some kind of elimination method to determine if the stock is suitable for my portfolio. If it’s an unfamiliar company, I go to the company’s investor pages to find information. I pay attention to the appearance and clarity of the investor pages, even though it doesn’t have much significance. Generally, the more openly and honestly information is available on the pages and the more boring-looking the pages are without fancy pictures, the better. If the company is unknown to me, I find out about its basic business, i.e., what the company actually does. Then I read about the company’s financial goals. That is, what the company is aiming for, whether it’s growing much larger in terms of revenue or improving profitability to a certain level. This way, it’s easier to approach the company when I know what it’s striving for. If the company’s direction interests me, I check the strategy. Likewise, if I can’t quite make sense of the strategy, I usually leave it at that.

If everything has looked clean so far, I read, for example, the annual report. My clear goal is to find a company that I would happily own for 10 years. Of course, I don’t aim to see 10 years into the future, but this thought forces me to think a lot: about the company’s competitive advantages, the quality of its products, the need for demand, and the competence of its management. What is the company’s purpose, is there demand for its products/services in the future? How does the company create value for investors? I also try to research the industry a bit and get a grasp of the competitors. By thinking about the company 10 years ahead, all kinds of Finnairs and other quick-profit pursuits with high risk are left untried. Once the company has been superficially introduced, I also scroll through the latest financial statements and balance sheet as best as I can, checking if everything is roughly okay. If it looks good so far, I get to know the CEO a bit and perhaps the management in general, and how much of their own money they have invested in the company. I also check the largest owners and their potential interests in ownership as best as I can; are they at all aligned with the management in moving the company forward.

If it still looks good, I look at the valuation again. I try to approach stock valuation from many angles. From one angle, the stock may look expensive, from another, cheap. I try to use different methods to get an idea of what is baked into the stock price. I operate with the idea that I am buying the entire company. I also give weight to historical development.

If the company is followed by Inderes, this process is always easier for an average person like me. I definitely read Inderes’ reports too, but I don’t just stare at the recommendation. Last year, I bought Revenio at 20 euros on a ‘reduce’ recommendation.

(Of course, I don’t even try to examine the entire company thoroughly before the first purchase - although I probably really should, because then it would take an enormous amount of time before I could buy. It is enough for me that I know a little about the company, the industry, the situation of competitors, and the stock’s valuation, and thus the expected return, before I buy. I then research the company while owning it, simultaneously monitoring its development.)

And AT THIS point, I should have at least a small hint of what return I could get from this stock, and how that return will materialize for me; through strong growth, improved profitability, correction of valuation multiples, or something like that. If the expected return is satisfactory, then I just buy directly from the market with the buy button; I don’t really understand technical analysis, but I still glance at the price a bit before buying for some reason, even if just for formality. If the stock is in a terrible free fall, I’m unlikely to rush to buy immediately. I try to buy into an uptrend. I just wrote what came to mind, and I’m not re-reading my text a hundred times. This was just my way of scanning stocks, everyone has their own style.

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In the past, I bought companies whose share prices fell for no clear reason; sometimes the price corrected itself, and sometimes it continued to fall.

Nowadays, I buy stocks that are rising and are considered “trend stocks.”

If the price rises by several tens of percent for no reason, I sell, and if that same stock corrects downwards, I buy back or switch to another stock.

If the price starts to fall, I sell quite quickly because I don’t want to lose the gains I’ve made.

I no longer wait for a stock that has fallen significantly to recover.

I’d rather switch to a stock whose price I believe will rise in the short term, and I also follow stocks that I’ve become familiar with but had to sell because they fell too much. I buy back if I see the trend changing.

This has worked for me now, but 2020 was a year that might not be the new normal :face_without_mouth:

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These days, I buy small positions in pretty much any company that’s tipped on the forum or that I find otherwise… but a few years ago, I decided to invest in digital disruption, and that meant growth companies. Those were easy to find from Inderes’ watch list (Talenom, Revenio??, Qt, Efecte, Kamux, those kinds. New ones, like Leaddesk and of course IT companies. I even included Harvia.

Usually, I look at P/E if available, but if not, it doesn’t bother me if I understand how the company can become profitable. I like to look at the growth rate and how it has developed, and if the result is a loss, then I compare how that result has developed, whether the loss is shrinking, etc., and if the result scales.

Actually, I mostly just look at numbers, in a way. For example, NattoPharma suited me very well. Of course, I familiarized myself with what the company does. Vitamin K preparations.

The Finnish companies mentioned above are united by good growth, growing profits, net debt-free status or good cash flow, etc. Preferably, some industry with plenty of room to grow for a long time. If a company grows well and its profit scales beautifully, then usually they are doing something right. It would be best to find these early enough so that the multiples aren’t too challenging.

Small and Mid Cap probably account for most of my investments (except Sampo).

Many people probably research these much better than I do, and I gladly read analyst reports and this forum.

Renewables came into play at the end of 2019 / beginning of 2020, at which point a strong general view had formed, and the strategy evolved into broad diversification with relatively small stakes (i.e., we just took a stance on the development of the sector, of course also by getting to know the companies). It’s challenging now to keep track of what’s valuable and how, since everything has gone up…

In addition, I watch stock prices and often pay attention to those that have jumped significantly into the green. Usually, there’s some good news behind it (these companies are on my watch lists), and that’s when I usually get interested. I also often buy on good news, even if the price has already risen; often, it rises even more.

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I also started with TradingView, but it doesn’t allow for portfolio-wide strategy backtesting, so I switched to Amibroker, which does (Nick Radge, from whom I bought the algorithms, recommends and uses it himself). Amibroker needs a data provider to function, so I chose Norgate Data (again, based on Radge’s recommendation). One thing to note about Norgate is that they only have USA and Australian stock data; if you want to test strategies in European exchanges, you need to acquire data from elsewhere.

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I try to follow a small group of interesting companies quite actively. When I come across a new interesting case, I glance at the key figures, and if I’m still interested, I add a row for the company in Excel.

I make an investment decision when:
1.) I have saved a suitable amount of money for a stock purchase.
2.) There is such a good situation that I have to buy immediately, even on credit.

My investment goal is a 10% annual return, and at the time of purchase, there should be some vision of how this can be achieved other than through an increase in valuation.

Making the final investment decision is a really multi-stage process, but I will list the most common steps here. I believe they can be useful to someone, just as reading about others’ processes is useful to me. Before this, I have, of course, reviewed all P/Es and ROEs, etc.

  1. I read the latest company report and the comprehensive report from Inderes. I want to understand how the company makes its money, how it compares to competitors, and how its industry is doing.

  2. I add all Inderes videos related to the company to a YouTube playlist. This is an excellent way to find out what expectations the company has had in recent years and how it has met them. For example, in Nokia’s case, it would become clear that the same turnaround has been discussed for about five years.

  3. I listen to CEO interviews. He/she should project an intelligent and expert image. Daydreaming, excuses, and philosophical babble are frightening.

  4. I throw the company’s figures into Excel. I compare it to other interesting companies and those I already own. Would it be more profitable to buy more Titanium? Excel is such a rudimentary version that it doesn’t dictate anything to me, but if a company gets significantly better/worse grades than others, I will react to it.

  5. I buy the stock.

I have only been using these methods for a year. My YTD return on the investment savings account (OST) was 56%. I own smaller Finnish companies.

Edit: Although the process is Inderes-weighted, I don’t consider recommendations as gospel. Someone might have a “reduce” rating for a one-year horizon, but a “buy” for a five-year horizon.

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I try to stick to companies that have seen a rise in their earnings reports, or have even issued a positive earnings surprise. However, I don’t buy them immediately, but only when others experience tournament fatigue and the stock price has fallen without reason. Often, one would gain more by buying immediately after a positive earnings surprise, but I prefer the saving from the market overreacting to news or an earnings report, because then the drop doesn’t rebound, but might reverse the entire trend.

I also use these same methods for short-term trading, aiming for one percent gains. Current volatility offers even larger gains in just a couple of days. So, I’m not fishing for the biggest climber, but the “surest climber.”

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Good news often provides a cushion, limiting the downside for a while. Often, not everything is priced in on the first day, though this naturally varies.

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I started completely by accident, I roughly bought the Finnish ones I knew and understood what they do. Some are 400% in the black, 2 are 50% in the red, some of them have been sold off. They’re just hanging there now, waiting for me to sell off a few 10 funds that I’ll put into better targets. I’ve been going with a buy-and-hold method until now. Overall, I’ve doubled my money. Well, now I’ve bought more new ones and have time to monitor the situation more closely. Get rid of the bad ones faster and bring in new ones, and add to the good ones in suitable dips. I’m a slow-moving holder :squinting_face_with_tongue: trading isn’t my thing since I can’t/don’t have the energy for it. I’ve also found these sites etc. from which I pick up confirmation and views. “Rebirth” at the end of October, so the corona dips and QT have already escaped, here we come with a handcar :squinting_face_with_tongue::joy:

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The algorithm’s name is a hell of a job to delve into the company’s business content, find positive drivers, etc. Guessing the course curve has nothing to do with it!

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Partnership! That was a good way in these rising times.

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{“content”:“Sorry, the quote was supposed to go to the other green ball. @Esa1996”,“target_locale”:“en”}

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Now, young lady, keep your mouth shut, it’s ‘itchy butt’, isn’t it? :wink:

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