ETF & Stock Investing
How to choose and evaluate companies or ETFs — a practical checklist for Sarim Insight.
1) Start with Your Goal
Time horizon, objectives, and risk
- Horizon: short (≤1y), medium (1–5y), long (5y+).
- Objective: growth, income, stability, diversification.
- Risk tolerance: low / medium / high — match with instruments.
If you want stability → broad market or dividend ETFs.
If you want growth and accept volatility → selected individual stocks.
2) ETF vs Stock
Quick difference
- ETF: basket of many companies → built-in diversification; usually low fees; easy to hold long term.
- Stock: a single company; higher upside/downside; requires deeper research & conviction.
3) How to Evaluate a Stock (Company)
① Business model & moat
- Clear & understandable? Product/market fit?
- Competitive advantages (brand, network effects, cost leadership, IP)?
- Industry growth tailwinds or headwinds?
② Financial health (track 3–5 years)
- Revenue growth (consistent upward trend).
- Margins (gross/operating/net) stable or improving.
- Debt (<= peers; interest covered by operating income).
- Free cash flow positive and growing.
- Share count discipline (limited dilution; buybacks used wisely).
③ Management quality
- Owner-operator mindset; clear capital allocation policy.
- Transparent reporting; realistic guidance; long-term focus.
④ Valuation sanity checks
- P/E relative to history & peers; growth-adjusted (PEG).
- P/B & asset intensity; EV/EBITDA for comparability.
- Dividend yield sustainability (payout ratio <~60% for most).
Tip: cheap isn’t always “value”; quality matters.
4) How to Evaluate an ETF
Step 1 — Theme/Purpose
- Broad market (S&P 500 / Total Market), Dividend income, Growth/Tech, International/Emerging, Bonds, Gold.
Step 2 — Cost & structure
- Expense ratio (lower is better; broad market often ≤0.10%).
- AUM & liquidity (tighter spreads; stability).
- Tracking error (small = good index tracking).
- Replication (full vs sampling), distribution policy, tax efficiency.
Step 3 — Holdings & performance
- Top holdings concentration; sector weights; geographic mix.
- Diversification (number of holdings) vs conviction.
- Performance across 3–5 years vs benchmark (be wary of very short windows).
5) Tools for Analysis
Where to check data
- Yahoo Finance, Morningstar, ETF.com, Company IR pages, SEC filings (10-K/10-Q).
- Compare peers; read footnotes; verify fee structures for ETFs.
6) Quick Examples
| Name | Type | Expense Ratio | Dividend Yield | Focus |
|---|---|---|---|---|
| VOO | ETF | Very low | ~Low–Mid | S&P 500 (US large caps) |
| SCHD | ETF | Low | ~Higher | Dividend growth companies |
| AAPL | Stock | — | Low | Technology & innovation |
| KO | Stock | — | Mid | Consumer staples (stable cash flow) |
Note: Check current data (fees, yields, holdings) before investing.
7) Build Your Portfolio (example, medium risk)
Allocation idea & habits
- 50% ETFs (broad + dividend)
- 30% growth stocks (your high-conviction picks)
- 10% cash reserve
- 10% bonds / gold ETF
Rebalance every 6–12 months • Reinvest dividends • Use DCA (regular contributions).
Investor Checklist (copy & adapt)
Key Takeaways
- Define goals before picking instruments.
- Use ETFs for diversification; use stocks for focused bets.
- Quality + valuation discipline > hype.
- Keep a simple process and review periodically.
Tags:
Invest _ Learning