Picking individual shares on the stock market can be a financially rewarding, but do-it-yourself investing is a time-intensive activity.
Most private investors, including me, earn a crust doing something else as well as their investing, which leaves many short of time for researching. Managing a small watch list of potential investments is within the grasp of most time-strapped investors, but constructing that watch list in the first place involves considering hundreds of firms listed on the stock market. That can take so many hours that there's no time left to make a decent job of the detailed evaluation of a company before we buy its shares.
One way forward
Should we give up and buy an index-tracking fund or entrust our hard-earned cash to a fund manager taking his or her charges on the chin? I think there's a better way.
One solution involves outsourcing the time-intensive part of investing. Rather than putting hours into scouring the market for opportunities, we can use others that we trust to do that work for us. Only a few firms listed on the stock market have the quality, prospects and value that's necessary to make a decent investment. If we can find a source of supply that can find these few good ones our universe of potential investments will be much smaller. By picking candidates from such a short list of quality firms, I think it's possible to focus limited investing time so that it has more impact.
I think of the outsourced supply of ideas as the first filter in my own stock picking. At that stage, it's just a universe of shares. It's not even a watch list, and it takes focused research and analysis to build a watch list from there. The great advantage, though, is that I'm dealing with scores of shares by then rather than with hundreds.
Where to look for ideas
One source of ideas I use is the share holdings of successful fund managers. My two favourite active stock pickers in that arena are Neil Woodford and Mark Slater. Both run their own investment firms and a little Googling will take you to their websites. Helpfully, both investment companies disclose the shares they hold in their various funds and they're a rich source of quality ideas. I'm also keen on The Motley Fool's own subscription share tipping services Share Advisor, Pro and Hidden Winners.
In each case, a small army of analysts does all the tedious legwork for me. From there, I can apply a stage-two filter by analysing and selecting some of the ideas they generate for my watch list. Then, when the timing seems right, stage three is to invest in just a few of the possibilities from the watch list.
Nothing can replace my own research and judgement when picking shares, but I find this three-stage method helps me to focus my efforts effectively.