Publications
Partners
I want to follow on from my recent column on finding company information. In that issue (25 August) I wrote about conference calls, company presentations and even just trying your luck and phoning the company.
This week I want to look at other sources of information about the companies we are investing in or doing research on.
The first port of call should always be your broker’s website. There is every chance that they will publish research on the stock with a buy, sell or hold recommendation.
The first thing to understand here is that the buy, sell or hold is going to be relative to the overall market. So a sell recommendation may see a stock move higher but below the market return, meaning the recommendation was correct, while a buy would be expected to beat the overall market. Further, these recommendations are usually with a one-year view. But check the report and read the small print to see exactly how your broker does it.
What is very important is that we don’t take this one research report and rush off following its advice. We need to use it as a part of our broader research process. No single piece of information or opinion should make us act. We're building a case for investment and need lots of pieces of information.
What’s also important is to understand how the writer has built their recommendation, and ask ourselves whether we agree. Also, if possible, check previous reports from the same writer on the stock – how right have they got the recommendation before?
Another route is to head off to Google, do a search on the company and see what comes up on the various media websites. Read articles and interviews on the company that will give you further insight to the stock.YouTube is also a great resource for older interviews with CEOs and analysts who cover the stock. Even if the interview is old, it can give great insight into a stock or sector.
What you will find is that over time you will gravitate to certain writers and researchers whose thought process you like and agree with. But be careful that we’re not just latching onto a person who thinks like we do and who we agree with. The risk is that we fall into confirmation bias, and we’re not advancing our knowledge. Rather, we’re just confirming our initial expectation on the stock by discarding what we don’t agree with and latching onto what we do agree with.
I also like to review competing companies in the same space. Sure, you may think company X is the best bet, but you should also look at the others, for two reasons. Firstly, maybe company X is not the best bet in the sector and you should be considering company Z. But even if you are right about company X being the better pick, knowing more about the competition will help you understand your preferred stock.
I also do research on the broader industry. For example, if you’re looking at a platinum miner, then do a lot of digging on the platinum sector both locally and internationally. You’ll often find really great reports that really help you understand the bigger picture and this is important. As I always say, buy great companies in great sectors. Reading up on the broader industry will help you to understand the specific sector. The key point is we never just buy a share because somebody in a shiny suit said we should.
We always need to be digging and even when we have committed and bought the share, we need to continue digging and keeping tabs on the stock.
This article originally appeared in the 22 September edition of finweek. Buy and download the magazine here.
