109 - How much time should you research a stock before buying?

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By Trey Henninger. Discovered by Player FM and our community — copyright is owned by the publisher, not Player FM, and audio is streamed directly from their servers. Hit the Subscribe button to track updates in Player FM, or paste the feed URL into other podcast apps.
Mental Models discussed in this podcast:
  • The Pareto Principle (80/20 Rule)
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Show Outline

The full show notes for this episode are available at https://www.diyinvesting.org/Episode109

How much time should you spend researching stocks?
  • It Varies
  • As long as it takes to answer your questions
  • 80/20 Pareto Principle
  • 10 hours - I don't think I've ever spent more than 10 hours before buying a stock I like.
How to prioritize your research time
  • First ten minutes: Is it cheap?
    • If you can't answer in ten minutes, the answer is NO.
  • Next 1-2 hours: Is it good?
    • If you can't answer in 2 hours, the answer is NO.
  • Next 8 hours: Is it safe?
    • If you can't answer in 8 hours, the answer is NO.
  • The efficiency of research time is important:
    • The most important: Safe > Good > Cheap
    • The easiest to verify: Cheap > Good > Safe
  • All you need to know in ten hours:
    • Is this my best current idea?
    • Is it better than something I currently own?
    • You need to answer "YES!" to both.
    • If you hold cash, then the second question becomes:
      • Is it better than cash?
Summary:

The process of researching stocks requires a significant amount of time investment. You should optimize the time you spend researching by focusing on three questions: Cheap? Good? Safe? You should be able to answer in ten hours or less.

My personal process focuses on two additional questions: Is this my best current stock idea? Is this company better than something I currently own? If you can answer both questions affirmatively, you should probably buy the stock.

113 episodes