The first thing self-investors need to realize is how they can find stocks for their portfolio. The first thing that comes to mind is: Ask your banker or asset manager, read the financial press or discuss hot stock ideas with experienced friends. All these sources have a big problem: Only credible information is believed, but credible information is already known and therefore no longer helps.
For investing professionals, this problem is even more acute: investing professionals such as bankers, asset managers or financial journalists cannot provide you with contrary information, because this would cost them their job. Contrary information is information that helps you act more intelligently than the market and thus lets you profit from widespread false opinions. Contrary information is a big problem for the investing professional. He only needs to be wrong a single time to lose his job. Therefore, the investing professionals prefer to tell give you information that everyone finds credible and is widespread, and this information is actually worthless for you as an investor. Investing professionals are therefore a bad source for new investment ideas.
Your friends are also a bad source, because either they have no idea what they are talking about or they are so into stock investing that they take big risks. Money can only be made by focusing on a few but good stocks but this increases the risk significantly. As a self-investor, you usually don't want that, because asset preservation is more important to you.
Therefore, not all roads lead to Rome but some will lead you astray. You could decide to do the whole analysis yourself as the big stock professionals do. However, this costs as much time as a part-time job. Many people don't want that, including me.
For this reason, we have opened up another path that, in our opinion, leads to the goal. We analyze the stocks according to their financial facts. The professionals call this factor investing or smart beta investments. Each stock is ranked according to its financial indicators. Thus the shares with the best financial ratios are at the top and those with the worst at the bottom. This is no guarantee for a good investment. There is always the possibility that bad shares hide behind good financial facts. However, economists have proven that these financial fact-based methods yield a slightly higher return in the long run than index investments or index ETF funds because these funds are put together in an unreasonable manner as we discovered in our own blog series. I opted for the fact-based method because it takes little time, and the alternative, the professionals, have a real problem publishing investment information at all because they will quickly lose their job.