The way I do research has been the area that has changed and evolved the most since starting to invest.  I used to put together detailed stock screeners on places like FINVIZ.com – Stock Screener.  And look for companies that had good-looking ratios.  That was about it.I looked for things like a high current ratio, high margins, growing revenues, high insider ownership, etc and wasted a lot of time sifting through poor companies because I didn’t have a defined and repeatable way of searching for companies.

Like my selling decision making process, I now use a regimented research strategy that saves me a lot of time.  And has helped me find better companies faster.

Instead of doing full research on a company that had good-looking ratios, I now follow a three-step process that discards a lot of companies off the bat.

Before we get into the details of what I do, I want to tell you that this is what works for me.  And if this doesn’t work for you, you need to find whatever works best for you.

The first thing I do is put together a very basic stock screen with only a few criteria instead of the 10+ individual criteria I used to use each time.  All of this is based on FINVIZ.com – Stock Screener.

I use basic search criteria in the screens like recent positive insider buys, if it has a P/B below 2, and it has a market cap below $300 million.  Sometimes using more sometimes less, but generally this is the criteria I now use to start with.

I also consider the amount of shares that insiders own.  If any analysts are covering the company.  If a company has had recent bad or good news.  If the company is under strategic review.  And a lot of other criteria but those are a lot more subjective to my preferences than anything.

Recent insider buys are always something I like to see because insiders know more about the company than anyone.  If they are buying it can mean they expect the company to do well over time.  Or that they think the company is undervalued.

If you are looking at this make sure that the insider buys are buys in the open market and not just the awarding of options or shares by the company.
You can do this by looking at the company’s form 4 releases.  These can be found on the company’s site or on Morningstar – Independent Investment Research.

If you are interested in special situations you can use sites likeStock Spinoffs – Finding Value in Special Situations to find ideas.  I also find investment ideas from other value investing blogs, Insider Trading & Hedge Fund Data, and Investment Newsletter From Insider Monkey, Seeking Alpha, GuruFocus, etc.

With the above criteria from the stock screen I end up with a list of between 50-350 companies to look into.  After that I discard Chinese companies because of my previous horrible experience with Chinese small caps.

I also discard financials except insurance companies, pharmaceuticals, biotech, and mining/natural resource companies because I do not understand how to value or analyze those companies.

After discarding these companies I end up with a list of between 30-150 companies in most cases.

When I get to this point I go one by one using Morningstar – Independent Investment Research or Yahoo Finance to look at things like insider ownership.  To find out what the company does for business.  How healthy the company’s balance sheet is.  Its profitability.  If it has any positive or negative news.  And see if any of these companies are interesting for some reason.

I do this to determine which companies I am going to do further research on.

Using my personal criteria for what I look for in an investment (Again, this is something you will have to figure out for yourself) I narrow that list of as many as 150 companies down to fewer than five that I start minimal research on.

For each of the remaining companies I download their most recent annual, quarterly, and proxy report.  Read through those and take notes.

At this point I will discard more companies.  Sometimes all of them if I find enough things about the companies that bother me.

If I discard all the companies at this point I then adjust the stock screener and start the research over from the beginning.  Going through several hundred companies again.

I will also look for things like spin offs and other special situations at this point.

If I find a company or companies that I still like after reading the most recent financial reports I then value the companies and analyze float to see if they are undervalued.  And if they could have a moat.

At this point most of the time I discard all remaining companies because they are not undervalued.

If this happens I will adjust my search criteria again and start looking for more companies to research.

If I do find a company that is undervalued or interesting still, this is where I do full research into them.  In most cases I will write an article about a company if I get to this point as well.

At this point I download an annual report for at least each of the past five years (10+ years if they go back that far) and read every one of those annual reports.  And take a lot of notes to see if a company has had problems in the past.  And see how they went through the previous recession to get an idea of how they may react in another worst case scenario.  How they came out of those problems and got better.  And to see how the company’s operations have evolved over time.

At this point I have notes on a company’s profitability and margins.  How it has evolved operations over time.  Have an idea on whether management is trustworthy.  And how it weathered the recent recession.

I also read proxy reports to see what executive and management pay is.  To find out if there are any red flags.  Who owns 5%+ of the company.  What percentage of the company insiders own.  And to find out if management has shareholders best interest at heart when it comes to the compensation structure for insiders.

At this point I also search Google to see if there have been any new developments at the company since their last annual or quarterly report came out.

From here I research the company’s competitors.  I do this by reading at least a few of each company’s annual reports.  Again, taking notes on their margins, debt, cash levels, profitability, revenues, and float.  So that I can compare the companies together over a period of time.  So I can see how they stack up against each other.  And to see who on a relative basis the most undervalued.

While doing research on competitors keep in mind that these can also turn into potential investments if they end up having better margins, better profitability, and are more undervalued than the company you are analyzing.

And if all else fails you can also do what helped me learn faster than anything.  This is also the way Warren Buffett started learning too.

You can download a list of companies – small caps, micro caps, ADR’s, or OTC companies for example – and read their annual reports one by one.  Take notes.  Research.  Evaluate.  And value companies that meet your basic criteria.  With the ones left over you can research them in full.

Not only will this help you learn different industries faster.  But it will also help you learn what your weaknesses when evaluating companies is so you can fix them.

Doing this helped me learn faster than anything.  And its the way I look for companies all the time now.

Hope this helped.