If you are only putting small amounts here and there in stocks or just playing casually, this article is not for you.
But if you are planning to make a big bet in stocks with a substantial amount, this article will give you 5 checklists to consider before placing the big bet.
Let’s go!
1: Revenue Source
Is the revenue generated from Global, Regional, or only National?
As a general rule of thumb, the wider the revenue generation, the better.
For example, Meta is doing business globally which makes it a more attractive stock vs say Grab who is only doing business in the Southeast Asia region.
And Grab is then more attractive than Tenaga Nasional Berhad (TNB) who only serve National.
Of course not all the time Global will always be better than National as it also depends on current valuation and future outlook, which we will discuss in point 4 and 5.
2: Market Position
Are they either No.1 or No.2 in their field?
If you are placing a big bet, this is crucial as companies in No.1 or 2 are likely to have a MOAT which gives them a unique advantage over other competitors.
While people love to go deep about what is or what is not a MOAT, the fact that they are No.1 or No.2 in their field already demonstrate they have a MOAT.
For example, if we are talking about AI, you would think of Nvidia and AMD. E-commerce you would think of Amazon and Alibaba. Weight Loss is dominated by Eli Lilly and Novo Nordisk. Crypto Bitcoin and Ethereum etc.
Another interesting way to look at another angle is niche No.1 and No.2 also makes a good point to invest.
For example, while Meta is no.1 in social media in general, Linkedin is No.1 in social media for professionals, while Youtube is no.1 for long form video social media, Tiktok No.1 for short form video social media.
Another example of niche is Amazon may dominate E-commerce, but when it comes to E-commerce software or SAAS, the no.1 is Shopify. We can say the same about Palantir, while Nvidia and AMD are the kings of Ai, Palantir crafted a niche in Ai for military which made them the no.1 in that niche.
3: Conviction Test
Imagine this as a thought experiment, today you buy the stock at $10.
But 1-2 months later the stock price drop 50% so it is now $5 and you loss 50% of your money!
Do you:
A) It’s a no brainer discount now, what a brilliant opportunity let me buy more!
Or
B) Sell and cut loss now so I don’t loss more or just hold and pray with the mindset that hey it might rebound 1 day.
If your answer is A, you have probably done alot of research on the stock and you have extensive knowledge that even if it drop 50%, you will accumulate more because it’s like a Christmas hallelujah discount.
You now have a strong conviction to make a proper big bet.
It boils down to your unique circle of competence, which is different for everyone.
4: Future Stories
One of the thing that make stock prices go up is amplified stories via media and news.
The keyword here is Future Outlook.
If there is something exciting coming up, and the more people talk about it and share around, the higher the likelihood of the stock price increase because it creates emotional excitement.
Likewise, if you anticipate future news will be something that people share around to create fear, probably it’s something to stay away because the stock game is all about future outlook.
An example would be since alcohol consumption is dropping among young people, listed companies with alcohol as their product will likely suffer.
Or if the stock you are eyeing for has reached maturity stage with not much further exciting stories, it might not be worth it to make a big bet.
For example, Starbucks has already expanded worldwide and their product offering is pretty much the same. Currently there are no more “media worthy” news on Starbucks unless they innovate.
Look at the current stock you are interested in, are there new upcoming news/stories that the market will respond positively, just meh, or negatively.
5: Valuation
I put this factor as the last one because like beauty, Valuation is in the eyes of the beholder.
Let’s say a stock is worth 5B, some will say it’s overvalued while some say it’s undervalued.
So who is the right?
The answer is no one! Because no one can predict the market.
That being said, based on my experience I notice there is a sweet spot for valuations, assuming the factors in 1-4 are met.
Here’s my observation:
When the following occurs at the same time:
1 – Revenue, Net Profit, Cash Flow are growing in the past few quarters
2 – But stock price dropped 20-40% from their 52 week highs due to market conditions
3 – PE ratio below 50
Personally, these 3 factors combined give me a sweet spot for valuation because both revenue and profit are increasing but due to market conditions, the share price drop.
The best example is the April 2025 tariff condition imposed by Trump, straight away you see many examples of 1,2,3 combined and for me that makes the stock undervalued and it’s time for a big bet.
Conclusion
If your stock hit 4 out of 5 or 5 out of 5, I would say it’s generally a safe big bet.
Again, not financial advise, just my own way and checklists of making a big bet in my own investment journey.
So goodluck in your investment journey and let’s make the right big bet and prosper!
