Investing is a competitive sport. Millions of investors are all aiming to beat the index returns and generate what we call an alpha. So how do we create this Alpha and win everyone else who is trying to do the same? Let me be clear: there are no shortcuts to hard work. If you want to beat everyone, you have to outwork them all. However, there are ways where you can optimise your efforts and find these wealth creators first. Hence, this blog will teach you a few methods of screening ideas which I, too, use. Before I begin, you will find multiple screening methods below. The idea is to not use all of them because I, too, can not regularly use all of these ideas. However, I want to share all the screening methods that have worked for me and have potential in them so that you can decide which works better for you! If you wish to learn more about them in-depth, please message me on Twitter, and I will be happy to help you. So let's begin.
Disclaimer: I have not been paid to endorse any products of anyone.
Screening using fundamentals
Screener
In my opinion,Screener is all you need to filter ideas using fundamentals. The data it provides is truly helpful and very simple to understand. So What screens do I use to find stock ideas?
GARP stocks: The easiest way is to search for the businesses that have delivered 25-35% PAT growth YoY and still trade below 30 PE. You can alter this idea by checking for businesses with a minimum growth of 25% and have a PEG below 1.5x.
Business quality improvement: I look for businesses that are actively reducing their debts and increasing their ROCEs. So a simple filter can be to check if debt or Debt/equity is less than previous year and ROCE is higher than last year. If these businesses are found at decent growth rates, the chances of rerating increase quite a bit!
Asset base increase: A forward indicator of growth potential is capex. A simple filter of checking asset base increase by xyz% compared to the last year can yield a lot of interesting opportunities.
Technicals
Bulk of my filtering relies on using technicals as entry signals. The reason behind this is that I aim to maximise my IRR. Moreover, I do not possess the capital which will reflect anything on the charts. Hence, I look for technical entry points for sound businesses with good growth! I use multiple apps and services to find these business ideas. So lets go through them all!
RRG charts
So what exactly is an RRG chart? RRG stands for relative rotation graphs. and it looks something like this below. The lines represent the trajectory of the stocks and the bigger the line, the bigger the timeframe it represents. Each stock will fall in one of the four quadrants which will help understand the relative strength and the direction of it!
Let's understand it in depth! Trust me, this is worth it because you will get a great idea of what sector/stock is leading and where it stands today.
X and Y axis: The X-axis represents the relative strength of an asset against an underlying asset. Let's take an example of the realty sector. If the realty sector is outperforming an underlying benchmark such as nifty, it will stay on the right side of the graph.
The Y axis, crucial in this context, represents the relative strength momentum. It's not just a line on a graph, but a powerful tool that tells us if the relative strength is constant, increasing, or decreasing. In simple terms, the Y axis measures the change in relative strength. If the realty sector is accelerating its relative strength, it will keep climbing, staying on the right side of the graph.
Now that you understood what the both the axis represents, it becomes easy to understand the quadrants.
Leading quadrant: This is in the top right of the chart. It means that any security in this quadrant is outperforming the underlying benchmark and is accelerating its momentum. For example, if prestige was outperforming Nifty by 50%, now its actually outperforming it by 52%.
Weakening quadrant: This is in the bottom right of the chart. When the security is outperforming the underlying benchmark but is slowing down. In this scenario, if Prestige outperforms by 50% but then drops to 48%, then you will see it going below to the weakening quadrant.
Lagging quadrant: This is in the bottom left of the chart. Securities in this area are underperforming the benchmark with negative momentum. It is a sign of weakness.
Improving quadrant: This is in the top left of the chart. This quadrant contains securities that are underperforming the benchmark but show increasing momentum. Being here suggests the potential for a turnaround.
I understand that this can be a new thing for many, so lets look at the current scenario. So this is the RRG of a few sectors for the past 10 weeks. We can observe that Media, IT and FMCG are picking momentum and moving towards the leading segment. Metal, Realty and Auto were in the leading segments but are now in the weakening segment.
So how do I filter these ideas in RRG?
Using RRG, I get the sense of direction of where the sectors are headed. Looking at the current scenario, I would want to study IT and FMCG and see if i find good fundamental businesses.
If I am a trader, I would stick to the businesses in the top of the charts. All in all, it gives a good visualization of the current trends and helps pick out the right sector to double down on. Website: I use Strike Money for this. However, I think stockcharts.com is better.
SOIC Stock scans
Stocks scans is a really well built tool. It can fulfill what screener does for me as well, but i mainly use it for technicals.
1.Weekly V-stop positive: This filter will give you all the stocks that have turned v-stop positive weekly. Ishmohit from SOIC has done a lot work on v stop, but I will explain it in a single sentence. V-stop turning positive means that the trajectory of the stock can turn upwards. I love stock scans because they give me the industry it operates in, the PE multiple and all the necessary growth metrics. So, I can get a good idea of what I can expect from this business. It simplifies investing for me! This is an example I have given below. This covers all the businesses which turned weekly positive.
2. Volume rocketing: This filter will identify all the businesses which are showing signs of high accumulation. This helps in finding ideas which are being invested in by the smart money. Smart money helps narrow down the businesses to study in and hence is quite helpful.
3. Breakout Horizon: This filter will businesses that are experiencing multi year breakouts. True story, it helped me identify Pharma sector as a potential sector to invest in as I found multiple businesses such as Glenmark, Marksans, Sun Pharma, Aurobindo pharma etc. It is very helpful in picking the right business and jumping at a point of inflection.
There are a lot of other custom scans you can make in SOIC stock scans, but these are the ones I use the most.
Some unique and different ways
The methods discussed above are very efficent and fast at picking the right businesses. However, these are not the only ways, there are a lot of methods that help filtering ideas and I will discuss the ones I use or am trying to get better at!
Special situations:Look for businesses doing a few things such as warrants, demergers, reverse mergers, preferential issue/warrants, first calls, investor presentations, etc. These rare opportunities can help you make a strong alpha if done right. I suggest that Tariq ( @itsTarH) and Dhruv Bajaj (@dhruvbajaj184) on X are really good at spotting these ideas. In fact, Raymond and its demerge was an idea Tariq discussed a while back, and we all know how that turned out. I could not act on it, but that's a different story. I have found warrant issues to be very helpful as well. I was able to spot Goodluck due to that( and Samit Vartak sir investing) and could make decent returns out of it.
ValuPickr: Valupickr is a must-read forum that will teach you everything you need to know as an investor. While it is beneficial for learning the basics, it is also beneficial in understanding new ideas and ideas that could do well in the future. Experienced investors discuss these businesses and can provide many insights you would not have known. Always look for Stock opportunities and the sub-thread: Untested but worth a look.' This thread will consist of multiple new ideas that can be the next multi-baggers. For example, Hariom Pipes is a business I spotted on ValuPickr, which helped me study this business, which is growing at 40%+!! And that too a 30 PE multiple. Moreover, I found the works of Donald sir, Hitesh sir, Harsh Beria and Sahil sir very helpful. People like Manhar Rao Yadav and Chinmaya have also helped me find good ideas.
Following the ace investors: Following the established names in the industry will help you short list the names to study. This is already talked about so I will mention the names and funds I track: SageOne, Abakkus, Nalanda, Vijay Kedia, Ashish Kacholia and Ramesh Damani. Using screener or SOIC stock scan can help track these investors.
Don't just follow the act investors guys: Individuals on twitter and youtube work very hard to find new ideas and research on the I would highly suggest following people like Equity Insights (@EquityInsightss), Rajarshi Shome (@shome_rajarshi) and @GanatraNandan on X have helped me quite a lot finding good businesses. On youtube, I follow SOIC and Dr. Sagar RV for new stock ideas and themes. There are many more you can follow and learn from, but these have been the most helpful for me!
The most important
Networking: When I started investing, I considered it to be a lonely sport. I did not think I needed to talk to anyone; I just had to study and invest. I could not have been more wrong. Investing is a game of independent thinking, but you will need to find a pack of hunters who are ready to search for the next business idea . I would suggest everyone reach out to other investors and share ideas. You will find a lot of multibaggers. EFC, a business I have grown to be very bullish on, was actually recommended to me by a friend. Interglobe Aviation, a company I had a strong bias against, was introduced to me by a friend. The best way to find stock names is this. You just need to find the right people with the same curiosity as
I tried to share all the methods I use to filter, some I rely on more and some less but all of them have a lot of potential to help you find the next best thing. I hope this was easy to understand helped you learn more. Shoot me a message if you have any doubts!
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