InvestorQ : Are there any tips on how an investor can keep an ear to the ground?
Sam Eswaran made post

Are there any tips on how an investor can keep an ear to the ground?

Mitali Bhutta answered.
3 years ago

You will be surprised but you are likely to get important cues from the most unlikely of places. The trick is not to underestimate any source of information. How would you have got the tip off for Eicher? Based on the sales pick up that was visible for quite a few quarters on their motorcycles business, one could have easily gotten the cues. In case of Apple, the cues were there in the queues at the stores. One would have got the best cue about the potential success of Escorts by watching how Escorts tractors were beginning to dominate the markets.

In the market there is a lot of noise and you should be able to separate the wheat from the chaff. In markets we always talk of noise and here we are referring to the overload of information that you will receive on a regular basis. It could be WhatsApp, SMS, media reports, Twitter handles etc. You need to use the process of elimination to obviate noise that is unlikely to be of any value. When you obviate the noise you are left with the real cues that can offer you important pointers.

Your investment task does not end with picking the cues. It is purely the starting point. You need to ratify these cues by evaluating the fundamentals of the company. For example, the company may be getting a huge order but you need to work out how much difference it will eventually make to the profitability of the company. You also need to ask yourself if this impact is sustainable or if it is just for the short term.

Some cues that you pick up will have short term benefits and some will have long term benefits. As a smart investor, you need to distinguish between the two. You have to use your discretion to judge. What will have a short term impact has to be dealt with different as a short trade only. On the other hand, what will have a long term impact is more from a long term investment perspective. That will eventually determine the subsequent decision of an investor.

Keeping your ear to the ground is just an added advantage. It is not a substitute for due diligence or in-depth research that you need to conduct before investing in the stock. Whether it is a short term insight or a long term idea, you need to back it up with a thorough background research before taking a directional view on the stock or the sector as a whole.

AT the end of the day, cues could still be wrong. Even after you could go through the process you could still be wrong. Keeping an ear to the ground is not a guarantee of success. There is no fool-proof method of interpreting the cues and you need to use judgement in this case. The idea is always have a Plan-B in place. Your interpretation of cues could be wrong so keep a stop loss and mentally decide upon a level to exit the trade.