How Do I Find NEW STOCKS to Invest In?
Someone asked me how I find stocks to invest in. Let me walk you through my straightforward process, and I'll touch on one question I was asked on this topic: What if you get to the stock late? How do you find stocks BEFORE they become huge?
This is my method. It might sound absurdly simple, but time and again, it has worked for me.
Over the years, I've made dozens, if not hundreds, of investments into the same handful of companies, buying Apple at record highs only for those highs to eventually be surpassed by new highs. I've added to my Apple position during market downturns and crashes. I've added after strong earnings and after weak earnings when talking heads on CNBC were saying Apple was finished.
What's the theme there? I'm not waiting. I'm not waiting for a crash. I'm not rushing to buy BEFORE earnings. I'm not timing markets. I'm not playing games.
We can play a thousand games of What If.
What if you buy before earnings and they're really bad and the stock drops? Shouldn't you have waited?
We can't know everything. The should haves DO NOT MATTER. We can't go backward.
If I'm really unsure what a stock will do around earnings, my preferred approach is a hybrid one. Say I want 100 shares. What if earnings are bad? What if I buy today and the stock drops 20% tomorrow?
Hindsight games like this are stupid.
So I'll go half and half IF I want to buy ahead of earnings (I usually don't). I'll buy 50 shares before earnings and, if the stock drops, I'll buy the other 50 after. If earnings are good and the stock pops, well, at least I already have some skin in the game.
In other words, I'm not overly worried about the short-term price. If I'm buying a stock, it's because I think it'll go up A LOT over the long term.
Anyway, I'm already getting off topic.
CONSIDER INVESTING IN WHAT YOU KNOW
In 2003, I got an Apple computer as a high school graduation gift. I noticed all my friends were getting Apple computers, iTunes gift cards, iPods — all Apple gifts.
Hmm, maybe I should invest?
I asked my mom if I could call the stock broker. I made my pitch.
He said, "Apple has always been a joke of a company. Nobody wants to listen to music on the computer. They want tapes and CDs."
It was $9 per share. I begged and begged.
He said, "Call me in a week after you think it over. You're wasting your money."
A week later, it was $11. I called back, furious.
At $9 per share with $3,000 in my savings account, I could have purchased 300 shares. At $11? I could afford around 272 shares.
He still told me I was wasting my money.
We compromised at 100 shares.
Some time later, Apple issued a stock split. My 100 shares became 200. I called and said, "Sell half!"
He sold 100 shares and then asked why I wanted to sell them.
I said, "I doubled my profit!"
He explained, after the fact, that I was wrong. That's not how stock splits worked and I probably should have kept the shares.
NOW you tell me.
Some time later, Apple rocketed past $200 per share. I was already kicking myself for selling half. I was angry with him for not explaining stock splits BEFORE he sold my shares. I was angry with him for talking me out of the 300 shares I originally wanted.
He was old. I was 19.
He should have been teaching me this stuff.
When the recession hit in 2008, Apple dropped to $69. I called him in a panic.
Here's what he should have said:
"You were right. Apple is what we call a disruptor. Do you know what that means?"
After the definition, he should have said:
"Listen, you're very young. Apple has become a massive growth company. This sounds crazy, but it's a fundamentally strong company that has lost a lot of value due to the recession. You should consider buying more here."
Instead, his direct quote was:
"Are you crazy? Sell it! The market is tanking! Sell it all now before it drops even lower! You bought it at $11! You still have a nice profit! Take it!"
I listened.
$69 was the lowest it got.
After that, the recession ended and Apple was off to the races. It eventually climbed past $700 per share before issuing another stock split.
This time, I had taught myself how to invest and was ready to start scaling in and buying more shares after the split.
I still hold those shares today, along with many, many more.
In 2012, I was excited about another company that I used constantly: Facebook.
What's the theme here?
I used Apple products.
I used Facebook.
Over the years, my portfolio has become a reflection of the brands I personally use.
Amazon.
Netflix.
Cava.
Chipotle.
Google.
Apple.
Nvidia.
People will say, "Well, anyone could pick some of the Magnificent Seven stocks and make money!"
Okay, to that I say:
"Did you?"
And:
"True, but I bought them long before we were calling things the Mag 7."
Now, this doesn't mean every company you invest in becomes a winner, which brings me to my second point.
SCALING IN
Nobody knows ahead of time that they're buying the next big thing.
In the early days, many of these stocks look like high-risk gambles. That's exactly how you should treat them. That's what I do.
When I first come across something interesting, I read analyst reviews — good and bad. I don't seek out confirmation bias, and I don't blindly trust the analysts either.
I look for insights, opinions, concerns, and things I may not have considered.
I go on the company's website.
I look at their products.
I look at their services.
I look at the companies they work with and who uses what they sell.
I fill out my own fundamental analysis template.
I look at earnings.
I look at projections.
And if everything looks good, I STILL start small.
Maybe it's 100 shares.
Maybe it's 10 shares if the stock is expensive.
Once I have a position, I keep an eye on the company. Then I do what I've been talking about this entire post: I scale in.
I add during good times.
I add during bad times.
I build positions over years, accumulating hundreds or even thousands of shares.
I BUY and I HOLD.
I don't make silly mistakes anymore like selling after a split.
I don't sell because I'm scared of earnings.
In fact, if earnings are temporarily bad because of something like Covid, supply chain issues, or geopolitical events, I often buy more.
A LOT MORE.
HOW DO I FIND NEW COMPANIES?
I remember many years ago hearing all this talk about smart tech.
Smart lights.
Smart microwaves.
Smart appliances.
Smart cars.
I started Googling.
Nothing complicated.
Nothing advanced.
Nothing you can't do.
You don't need a finance degree.
You don't need to work on Wall Street.
You don't need a financial advisor.
I started asking:
"What is smart technology?"
Over and over, I kept seeing the word semiconductors.
Next Google search:
"What is a semiconductor?"
Next Google search:
"Who makes semiconductors?"
One name kept jumping out:
Nvidia.
Next Google search:
"What companies use Nvidia?"
Amazon.
Google.
Microsoft.
Large tech companies and cloud providers kept showing up everywhere I looked.
I looked at earnings.
I read analyst reviews.
I started small and began, you guessed it, scaling in.
And yes, scaling in is also part of my risk management because investing in what I use doesn't ALWAYS work.
In 2017, Snapchat went public.
I used Snapchat.
I liked it.
I bought 100 shares.
It was pretty flat.
Up a little.
Down a little.
Earnings were often very whatever.
I locked in a small profit, took my money, and ran. If Snapchat ever changes down the road, I can always buy it later.
So now we get to the part where everyone starts asking:
"What are your next stocks?"
What MY next stocks are is irrelevant.
I'm not here to share my portfolio so it can be copied.
I'm here to share the methods I use so YOU can be SELF SUFFICIENT.
Look around.
What is everyone talking about now?
Back then it was smart tech.
Today, what is it?
Artificial Intelligence?
I know what you're thinking:
Bubble.
Bubble.
Bubble.
But you know what?
Ten years ago it was smart tech this and smart tech that. There were plenty of people saying it was a gimmick and would never go anywhere.
Back in 2003, my broker said:
"Nobody wants to listen to music on the computer."
There will ALWAYS be winners and losers.
Some smart tech stocks flopped.
Some AI stocks will too.
The goal is to do your research and diversify.
You can pick a great-looking stock early on that fumbles or gets mismanaged.
If you're 100% all in, you're screwed.
If you scale in slowly, diversify, and maybe stick mostly with ETFs, you limit your downside risk.
Everyone wants to buy low and sell high.
But to me, it's more important to scale in early and then later buy high and sell higher.
Every single stock in my portfolio has, at one point or another, been added to while it was hitting ALL-TIME HIGHS.
And I am ABSOLUTELY CERTAIN that after many of those purchases, the stock dropped.
Was I worried?
No.
Should I have waited?
No.
Nobody could have known.
And anyway, what's the magic word here?
I SCALED IN.
Here's one example with META:
On 9/22/21, I bought META around an all-time high at $344.
On 2/2/22, I bought META at $249.
On 10/27/22, META had terrible earnings and the stock was $99.
I bought more.
I remember when I added to the position, everyone was saying META was doomed.
Facebook was a joke.
Instagram couldn't compete with TikTok.
It was a garbage company and it was going to zero.
But the earnings didn't paint a doomsday scenario.
Since then, I've added more shares to my META position over THIRTY TIMES.
I didn't KNOW META was going to become what it became when I first started investing.
If I had known, I would have gone all in.
Instead, I scaled into a relatively new company very cautiously at first and added more and more as my confidence grew.
That's how I invest.
