Back to the Basics: How to Find Great Stock Ideas (Rabbit Holes vs. Screeners)

What It Covers

Hosts Steven Morris and Andrew Sather compare two distinct stock idea generation methods: Steven's supplier "rabbit hole" approach, which traces a known company's vendors and partners outward, and Andrew's quantitative screener method using fiscal.ai with specific financial thresholds to filter candidates before deeper research begins.

Key Questions Answered

• •Rabbit Hole Method: Start with a company you already own or know, then map its supply chain outward — leather suppliers, paint manufacturers, chip makers — asking whether each vendor is publicly traded and mission-critical. If the parent company cannot function without that supplier, the supplier carries embedded demand stability worth investigating further as a potential investment.
• •Supplier Skepticism Rule: A company supplying a blue-chip brand does not automatically qualify as a sound investment. Skyworks Solutions derived roughly 60–80% of revenue from Apple yet lost nearly 70% of its stock value over five years. Concentration risk in a single customer relationship can destroy returns regardless of how dominant that anchor client appears.
• •Andrew's Screener Parameters: Run screens using revenue growth of at least 6% annually, stock-based compensation below 10% of revenue, cash from financing under zero, PE ratio below 20, net debt-to-EBITDA below 3.5, and return on invested capital above 15%. These thresholds filter for mature, profitable, conservatively financed businesses before any deeper qualitative review begins.
• •Red Flag Triage Before 10-K: Before opening a full annual report, use AI tools or Control-F searches within the document to locate moat-related keywords quickly. Identifying disqualifying red flags at the surface level — particularly elevated net debt-to-EBITDA sustained across multiple years — eliminates weak candidates in minutes rather than hours of detailed reading.
• •Build a Repeatable Idea Pipeline Gradually: New investors should avoid attempting to master stock discovery in a single session. Developing a personal, repeatable sourcing method takes time and works best when built incrementally — combining screeners, supply chain mapping, earnings calls, and competitor analysis — rather than copying one approach wholesale before understanding the underlying reasoning.