How Do I Actually Pick Stocks?
A lot of investing blogs talk about strategy in vague terms. “I look for quality companies at reasonable prices.” Great. But what does that actually mean in practice?
This post explains exactly what I screen for — the specific criteria I use before I even consider buying a stock.
Step 1: Market Cap Filter
I only look at large companies.
For Korean stocks: market cap above 5 trillion KRW (roughly $3.5 billion USD). This filters out small, illiquid companies where information is unreliable and prices can be manipulated.
For U.S. stocks: S&P 500 members only. These are the 500 largest U.S. companies by market cap.
Why large only? Because large companies have more analyst coverage, more reliable financial reporting, and more liquidity. I can buy and sell without moving the price.
Step 2: Earnings Growth
I look for companies growing earnings per share (EPS) consistently.
My minimum: at least 3 consecutive years of positive EPS growth. One good year doesn’t count. I want to see a pattern.
Bonus points for: accelerating growth (each year better than the last), positive earnings surprises (beating analyst estimates), and forward guidance that’s realistic or conservative.
Step 3: Valuation Check
This is where GARP separates itself from pure growth investing.
I calculate the PEG ratio for every stock that passes the growth filter:
PEG = P/E Ratio ÷ Earnings Growth Rate
My target range: PEG between 0.5 and 1.5.
Above 2.0, I pass. The growth might be real, but I’m paying too much for it. Below 0.5, I get suspicious — something might be wrong that the numbers aren’t showing yet.
Step 4: Financial Health
A growing company with a weak balance sheet is a trap.
I check:
- Debt-to-equity ratio: I prefer below 1.0 for most sectors
- Free cash flow: must be positive. Earnings can be manipulated; cash flow is harder to fake
- Return on equity (ROE): above 10% preferred, above 15% is strong
Step 5: Sector and Macro Context
Not all sectors behave the same way at the same time.
Before buying, I ask: what’s the macro environment right now? Rising interest rates hurt growth stocks more than value stocks. A weak Korean Won helps Korean exporters. High oil prices benefit energy companies.
I classify stocks into themes — right now I’m watching semiconductors, energy, and financials — and I size positions accordingly.
Step 6: The Override Rule
Sometimes a stock fails one filter but is so compelling in every other way that I buy it anyway. I call this Override Mode.
The classic example: Samsung Electronics in 2023–2024. RSI was too high by my normal rules. But the semiconductor cycle, valuation, and market position were too good to ignore.
Override Mode requires extra conviction and gets a tighter stop-loss.
What This Looks Like in Practice
Every month I run this screen across KOSPI large-caps and the S&P 500. The results become my watchlist. From that watchlist, I build my actual portfolio — usually 6 to 10 positions.
I’ll share each month’s screening results on this blog.