TIPacademy

RESOURCES STOCK INVESTING TOOLS

Often we’re asked which tools we use to pick stocks, and how we use them, so we challenged ourselves to list down the tools we find most valuable.

Most services in the financial industry both have a free and paid version. I am a value investor at heart so like most investors I always start with the free version. In my experience, the free material is easily 80% as good as the paid, and when you crush the numbers, you need to have a sizable portfolio before it makes any sense to have recurring cost for various tools. In the description of the products, I’ve highlighted the advantage of both the paid and free version.

THE TOOLS

All investors should have a place where they can pull data from stocks that they are interested in. For this purpose I use Morningstar. I’m especially looking at the key ratios for the individual companies and use that to determine if I should continue my research. Another feature I enjoy is the ability to look at the financial statements for the past five years. I’ve previously subscribed to Morningstar’s Premium service (but don’t anymore). My favorite features for the paid version are the ability to look over the past ten years of financial statements, and the analyst reports. For the latter, it’s not much because I trust analysts, but rather to learn more about which qualitative factors that drive the industry.

Perhaps my favorite stock investing “tool” is my Mastermind Group. Hm…that came out wrong! My Mastermind group surely is not a tool, but I’m mentioning it because as investors we’re prone to all kinds of biases in our investing process. A very effective way for me to avoid that is to speak to people much smarter than me and get feedback on my stock pick. I meet up with my friends, Tobias, Hari, and Preston once a quarter, and we all provide feedback on each other’s picks. Here is an example of a Mastermind Discussion where I pitch Google and Hari is pitching Facebook. If you would like to form your own mastermind group, I strongly encourage you to visit our Free Forum and look for potential members of your new group.

Would you like Warren Buffett to be your stock picker? No seriously!? That was how I felt when I first stumbled on to Dataroma. The layout of the site might not be much to look at, but the completely free(!) site is packed with information of the current stock picks of not only Warren Buffett, but a number of the very best value investors including Howard Marks, Guy Spier, Mohnish Pabrai, and Bill Miller. One drawback to the site is that you can’t easily see how much the investor paid to enter a position that specific quarter. To find that I also use GuruFocus’ free version to complement the features of Dataroma.

You don’t need any paid tools to pick stocks. The free versions are usually not as detailed but they are typically 80% as good as the paid resources. If you are going to use a Stock Screener the best free screener used to be Google Finance, and you can check out Preston’s video of how to use the stock screener here. However, Google Finance is no longer available, and the best free screener is now Finviz.

The best paid screener is GuruFocus which is more detailed than Finviz, and has all the criteria I use when I start my research for stocks. If you are using GuruFocus’ stock screener, these are the criteria I recommend you start with:

  1. Market Cap > $500 Million
  2. P/E Ratio < 15
  3. Current Ratio > 1.5
  4. Return on Equity (5Y median %) > 8
  5. Interest Coverage > 6.0
  6. 5Y Net Income Growth Rate (%) > 5
  7. 10Y Revenue Growth Rate (%) > 5
  8. 10Y EPS Growth Rate (%) > 5

You can start your 7-day free trial on GuruFocus using this link.

When I’m asked about my favorite stock investing tools, people often expect me to recommend a stock screener or a piece of software that is programmed to generate only the very best stocks. All that is fine and well, and surely very useful, but if there is one thing I always go back to it’s something as old-fashioned as books. Okay, it’s not the ones that are collecting dust on your shelf (though I love those) but rather audiobooks that I can listen to while I’m driving, exercise, cook food, or wherever I feel I can maximize my time by educating myself. Being a stock investor is also being a businessman, and I learn as much from business books not related to stock investing, as I do from stock investing books. With a solid understanding of business, you get a better understanding of the financial statements, and more importantly, you learn to evaluate what matters that you can’t put numbers on.

Since we started The Investor’s Podcast, Preston and I have used Audible to read most of the books we had on the show, and I’m still amazed of how much knowledge you can gain for the price of a simple book which is between $10-15 dependent on your plan. You can collect your first audiobook for free here and if you need the inspiration of which books to read first Preston and I compiled a list of our Top 10 books.

Another cool service is Blinkist. It summarizes books in as little as 15 minutes(!). To me it’s mostly useful for rereading books – I still like the lengthy format whether it’s efficient or not for books I haven’t read before. But rereading through Blinkist is very helpful as I typically only take away 2-4 good points from each book and it’s a good reminder of knowledge I once acquired, and do not want to forget. You can get access to a trial for free here.

As a value investor with a rooted foundation in fundamentals, it sounds odd to recommend a price action tool like TradeStops. After all – are we not supposed to ignore the noise from the market and simply buy the stock when we estimate it’s trading at a discount to the intrinsic value? We interviewed legendary value investor Bill Miller, and you can imagine our surprise when he said that he only bought into stocks that had the right price momentum(!). It’s definitely worth your time to check out our interview with him and learn from the master himself. If you also believe in mixing value investing with momentum investing I highly recommend that you check out Preston’s Q&A video below with the founder of TradeStops, Richard Smith, where Preston is showing how he is using the TradeStops tool.

WHICH STOCKBROKER SHOULD YOU USE?

A stockbroker is nothing more than a company that conducts trades on your behalf. I encourage people to separate their research tools from their broker. I personally find the recommendations from stockbrokers to be grossly plagued by self-interest. Not only because a broker has an interest in selling you on their company’s mutual funds or highest commission products. But because they would typically always encourage you to buy a security one way or the other, and when you buy something you will eventually need to sell it again thereby doubling the stockbroker’s commission.

Here on The Investor’s Podcast, we tested the top online stockbrokers. Below the test, we review our winner.

Online Brokerage

Strengths

Promotion

Account & Commissions

Visit Ally Invest

  • Low commissions
  • No account minimum
  • $50 to $3,500 Cash Bonus
  • Free trades based on account size
  • Account Minimum: $0
  • Commission: $4.95 Per Trade (Volume Discounts)

Visit TD Ameritrade

  • No account minimum
  • Investment Selection
  • Quality Research
  • Trading tools
  • Customer Service
  • 500 commission-free trades
  • Up to $600 with a qualifying deposit
  • Account Minimum: $0
  • Commission: $6.95 per trade

Visit Charles Schwab

  • Wide selection of commission-free ETFs
  • Strong customer support
  • Extensive research and educational content
  • $100 referral bonus for first-time clinets
  • Account Minimum: $1,000
  • Commission: $4.95 Per Trade

Visit E*Trade

  • Broad portfolio of investment options
  • Power trading platforms
  • 60 days of commission-free trades ($10,000+ deposit)
  • Account Minimum: $500 ($0 for IRAs)
  • Commission: $6.95 per trade (Volume Discounts)

Visit Fidelity Investments

  • Free premium research
  • Low commissions
  • Advanced trading capabilities
  • 300 commission-free trades ($50,000+ deposit)
  • Account Minimum: $2,500 ($0 for IRAs)
  • Commission: $4.95 per trade

Visit Interactive Brokers

  • Volume trading discounts
  • International trade capabilities
  • Advanced tools/platforms
  • Special terms for clients aged 25 and below
  • Account Minimum: $10,000 ($5,000 for IRAs)
  • Commission: $0.005 per share ($1 minimum); Maximum 0.5% of trade value

Visit Merrill Edge

  • Breadth and depth of in-house research
  • Quality of outside research
  • $100 to $600 cash bonus depending on account size
  • Account Minimum: $0
  • Commission: $6.95 per trade

Visit TradeStation

  • Discount trading
  • Comprehensive research
  • Active trader community
  • Noteworthy platforms
  • Special terms for active military and first responders
  • Account Minimum: $500
  • Commission: $5 flat fee or $0.006 to $0.01 per share ($0.50 to $1 min per trade) based on volume

Who is the Best Online Stockbroker?

After reviewing the top online stock brokers, we strongly recommend Ally Invest (called TradeKing before 2017). Ally Invest works well for me is because I want my cost to be an absolute minimum. Brokers are not too different, and I don’t use their tools anyway, so rather than this being a personal endorsement of Ally Invest, it’s simply the broker that offered the cheapest trades in our test.

Although I don’t conduct a lot of trades a year (usually about 20 a year), those costs can really add up. Since most brokers charge about $10 a trade, that means I would spend $200 a year just on trading costs. Now, let’s imagine you’re like most investors and you trade a lot more than I do. For example, the typical day trader might buy and sell once a day during the 252 trading days in the year. That means they would conduct 504 trades in a year. Without much analysis, you can see that this behavior would cost the “investor” $5,040! That’s a lot of money. It’s very difficult to have any kind of returns when all the money is going to the broker. 

Ally Invest’s personal trading accounts have no set-up fees. No annual fees, and they only charge $4.95 per trade. They’ll even refund you $150 for fees associated with switching-over to their service if you use this link. So in short, I only spend about $99 a year conducting all of my trades. For the day trader, they would save about $2,545.20 a year with Ally Invest if they were making 1 trade a day.

Investors Outside of The U.S.

Since I live in the US, I do not have an account with Firstrade. I’m highlighting them to our international listeners because they have the best combination of low fees and easiest set-up. Firstrade is compatible for most international investors, and their fee is only $6.95 per trade (and there’s no start up fees, annual fees, or costs when you wire your funds). We recommend Firstrade for new investors as there is $0 minimum deposit, and you have access to a free live support chat to guide you through the process. 

Countries being catered to by Firstrade:

  • Australia
  • Belgium
  • China
  • France
  • Germany
  • Hong Kong
  • Ireland
  • Israel
  • Italy
  • Japan
  • Korea, Republic of
  • Macau
  • Mexico
  • New Zealand
  • Poland
  • Singapore
  • Spain
  • Taiwan
  • United Kingdom

© TIP Academy content is for educational purposes only. The calculators, videos, recommendations and general investment ideas are not to be actioned with real money. Contact a professional and certified financial advisor before making any financial decisions. Preston Pysh and Stig Brodersen are not professional money managers or financial advisors. The Investor’s Podcast and parent companies that own The Investor’s Podcast are not responsible for financial decisions made from using this course or the tools provided in the course.