How to Find My Company: Turning Good Companies into 'Good Investments'

The Series on Turning Good Companies into 'Good Investments'

<Yell>
Hey, Cosmos.
From our talks so far,

I've started to understand 'waiting' and 'where to act',
but...

I've realized one big problem.

<Cosmos>
What is it?

<Yell>
To begin with, which companies should I even be looking at?

I mean, there are nearly 4,000 listed companies in Japan, right?

Looking at every single chart every day is
absolutely impossible.

<Lumo>
Oh, that! I've always thought that too!
You can't look at 4,000 companies every day!

<Cosmos>
That's a good question.

Today, I'd like to talk about
the concept of 'screening'for that purpose.

Screening is not about 'searching for answers'

<Lumo>
Screening is that thing where you set conditions to narrow down stocks, right!

<Yell>
But isn't that just
'searching for stocks you can buy right now'?

<Cosmos>
I see why you'd think that.

But the purpose of our screening is a little different.

<Yell>
Companies worth watching...

<Cosmos>
We only have 24 hours in a day.
That's why we keep weeding out the 'companies we don't need to look at',
and then carefully observe only the few that remain.

That's the way of thinking.

The First Sieve
—Keeping only the 'good companies'

First, access TradingView.
If you are on a smartphone, please open it in a browser, not the app.

<Cosmos>
Once you have opened the 'Screener' on TradingView,
the first thing you should set are the financial conditions.

<Lumo>
Here are the four conditions!

<Yell>
ROE, revenue growth,
equity ratio, and cash flow...
That's quite a lot, isn't it?

<Cosmos>
Each one isn't difficult.

An ROE of 10% or more means a company that is
properly generating profit.

If the revenue growth rate is positive, it means
it is growing, not shrinking.

If the equity ratio is 50% or more, it means
it is not relying too much on debt.

If operating cash flow is positive, it means
it is actually earning cash.

<Yell>
Oh, that's what we studied together before.

Looking at the 'muscles' in the P/L,
the 'skeleton' in the B/S,
and the 'blood flow' in the C/F.

Click here for the series on how to read financial statements▼

<Cosmos>
You remembered that well, Yell.

I am using those exact three lenses as the first sieve for screening!

<Lumo>
Actually, this alone can narrow it down to about 70 companies at once.

<Yell>
That's still a lot, but it's the first step.

The Second Sieve
—Leaving only the companies the market expects

<Cosmos>
Next, I'll add the moving average conditions.

<Yell>
It's finally time for the lines to shine.

<Cosmos>
What we're adding here is
whether the three lines are neatly aligned.

In other words, it's the condition for a perfect order. right?

<Yell>
It's about whether
everyone's sentiment is aligned... right?

<Cosmos>
Exactly.
But this time, I'm also adding the condition that the price is above the 200-day line.

In other words,
we only keep companies that market participants still expect to perform well in the long term.
that's it.

<Lumo>
This is where it drops significantly! Only 21 companies left!
But, it's still a bit too many...

<Yell>
It's a good company, and the market expects a lot from it.
Doesn't that feel like we've narrowed it down quite a bit already?

<Cosmos>
If you try to open them one by one from here
to look at the charts,
it's actually quite a hassle.

<Yell>
I see. So, are you going to add more?

The Third Sieve
—Looking for "times when people are a little scared"

<Cosmos>
This might be the most important perspective in our series.

Finally, we add the condition that the price is below the 25-day line.

<Yell>
...Huh!

Even though it's a perfect order
and everyone's sentiment is aligned,

we only keep the ones that are currently dipping a little?

<Cosmos>
Exactly.

I think this is the kind of company we should 'wait for'.

<Yell>
Oh, I think I get it...

A 'good company that everyone expects a lot from' that is in a '
moment where it's temporarily a little bit feared'.

That's what you're looking for, right?

<Cosmos>
...That's right.

I'm not looking for a 'company that is strong right now'.

I'm looking for a 'company that should be strong, but looks a little weak right now'.

And then, only nine companies remained

<Lumo>
The result of entering all the conditions is... this!

<Yell>
...Wow, that's amazing.

At first, I thought '
investing is a world where you have to look at everything'.

But that wasn't the case, was it?

By filtering out the 'companies I don't need to look at', only the companies I really should look at were left in the end.

<Cosmos>
Yeah.
The people who find investing easy aren't the ones who 'look at a lot of things'.

They are the ones who 'can reduce what they need to look at'.

A little bit of promotion 🌸

The Daifuku article is from before Yell-chan and Lumo appeared.

Tracking 9 companies in 'chronological order'

<Yell>
Hey, are these 9 companies always the same?

<Cosmos>
You've noticed something important, Yell.

Actually, these 9 companies are not a 'final form'.
They change a little bit every week.

The important thing is to look at 'who came in this week' and 'who was removed'.

<Lumo>
What should I do about the companies that just joined?

<Cosmos>
First, it might be a good idea to look into that company.

<Yell>
I see. So just the fact that they newly joined means they are worth investigating.

<Lumo>
Then what about the companies that were removed from the list?

<Cosmos>
There are mainly two reasons for being removed.

One is when the stock price crosses above the 25-day moving average and starts to rise.

This might be a sign that 'waiting' is over and 'action' has arrived.

The other is when
the perfect order breaks down.

If the short-term line dips below the medium-term line, or the long-term line starts to trend downward, then

unfortunately, I say 'goodbye' to them.

<Yell>
So just because they are on the list,
it doesn't mean I just 'wait' forever.

<Cosmos>
That's right.

Observe the companies that have entered, and act when there is movement.
That is what this list is for.

On weekends or at night, take your time looking at these 9 companies.
Doesn't that feel like something you could do?

<Yell>
...Yeah.
Even if it's impossible to look at all nearly 4,000 companies, I can do it if it's just 9.

I feel relieved that I don't have to look at everything🌸

＜Yell＞
At first, I felt like I had to buy a company as soon as I found a good one.

But by looking for companies worth waiting for like this,
watching the lines, and then acting.

＜Cosmos＞
Screening isn't about finding the answer.
It's a sieve that only leaves behind 'companies worth watching'.

＜Lumo＞
Hey, by the way!
About the moving average lines,
shouldn't we go seeother worldssoon?

＜Cosmos＞
That's true.
The slope, the order, the support, the density,
and the screening.

Now that we've come this far, I think you have all the tools you need to be a 'patient person' just with moving average lines.

Next, shall we look at'market temperature'?

＜Yell＞
Temperature?

＜Cosmos＞

Whether everyone is getting too excited,
or whether they are getting too scared.

＜Yell＞
So, it's dangerous when people are fanatical,
and it might be a chance when they are too scared... is that it?

＜Cosmos＞
Oh? That might be sharp.

But actually, I use it ina slightly different way.
It might provide some insight even forlong-term thinkerslike me.

Let's think about that together again🌸

[Screening conditions used this time (List)]

By the way, these conditions are up to your preference.
This is a liquidity check.
(I haven't explained this on my note yet.)

Thank you for reading until the end.🌸
Let's continue to learn step by step together next time.

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※This article explains basic investment knowledge. It does not recommend buying or selling specific stocks. Please make investment decisions at your own risk.