Finding Ideas Worth Researching

Why this matters

There are thousands of public companies, and nobody can research them all. Where your ideas come from shapes what you end up owning, so it's worth choosing sources that point you toward businesses you can understand, and away from hype.

Where good ideas come from

• What you already know. Products you use, industries you work in, businesses you've watched succeed or struggle. This is your circle of competence from Where Research Starts. Liking a product isn't a reason to buy the stock, but understanding a business is a head start on researching it.
• Companies connected to ones you've studied. Researching STU Corp leads naturally to its rivals, its main supplier, and the retailers that sell its products. Their filings describe the same market from different sides.
• Screens, which filter thousands of companies down to a short list by their numbers.
• Reading widely, such as industry news and company filings, while treating everything as a starting point, not a conclusion.

The weakest source is a tip, especially from a stranger or social media. The SEC warns investors never to make investment decisions based solely on information from social media, noting that fraudsters pay people, including influencers and celebrities, to promote investments, and can make it look as if large numbers of people are buying.¹ The next module covers how these schemes work.