Jul 24, 2014 Investment Education: Sources of Information
Investment research, for professionals, is a lifetime of learning with almost unlimited resources. For new investors with limited time, you need to start somewhere, and stay focused, even if it is just a few minutes a day. I recommend you start by following one or two industries, and a few companies in those industries. I suggest choosing an industry and companies where at least some information is readily and frequently available, such as energy, healthcare, retail or technology. Oil industry companies, for example, respond to different fundamentals than healthcare companies or Apple, Google, or Facebook., By focusing on unrelated industries, you will have a broader perspective on both stock fundamentals and company valuation.
An internet search for almost any publically traded company will lead to more sources than you can possibly digest. One of my favorites for new investors is The Value Line Investment Survey. This is an expensive service but is often available (and very popular) in public libraries. The Value Line publishes its Investment Survey once a month. Each month’s Survey contains one page reports on many companies in an industry, in the same format. These are updated 4 times per year. Using the Value Line service, it is easy to compare similar companies’ historical data, differences in sales growth, profit margins, cash flow and other metrics. The Value Line also provides forward sales and earnings projections, which is critical to stock valuation, and is the most difficult aspect of investment research for new investors. By studying and comparing data and projections for different companies, you will begin to see patterns and correlations, including differences in price/earnings ratios and other stock price valuation metrics. It is here that you will begin to have a sense of when stock price is high or low, and the stock is a buy or sell.
A second place to look is at the” Research” tab on the website at whatever brokerage firm you have your account at. For example, I have decided to look at the oil industry. I logged into my account at Scottrade and clicked on the “Quotes and Research” tab on the left. On the page that came up, I clicked on “Stocks” on the left. At the top of the next page there is a search box where I entered COP (the stock symbol for ConocoPhillips.) Clicking the “Go” button brought me to a page about ConocoPhillips. In the right hand column I clicked on “S&P Capital IQ’s Stock Report”, which took me to a multipage report containing a lot of data about COP, but also containing a Sub-Industry report on Oil & Gas Exploration & Production, which had comparative data on 14 companies in that sub-sector. I also looked up COP under the “Research” tab at Ameritrade and Fidelity Investments. I offer no opinion as to which of these resources is best. Ideally, you will check them all, and others, and find where you learn the most. Another reason to check multiple research sources is that you may discover that each one has a different estimate of forward sale and earnings for the company. There is no way to know in advance which will turn out to be correct. But calculating price/earnings ratios based on all the estimates, as well as a consensus or average of the estimates, will help you enormously in developing you valuation judgment.
When searching for investment research reports at brokerage firms, I found that many (both free and paid) were short, and focused only on valuation by quantitative measures. While this is helpful at one level, it is also likely to hold back development of your ability to relate company and industry fundamentals to stock prices. Try to focus primarily on reports that discuss 1) a company’s sales and profits by company product line, and the competitive and industry trends that drive them, and 2) the cost and revenue factors that are expected to affect the company’s profitability in the future.
Do a little bit of this research every day so you do not lose the continuity or flow of investment thinking. If you do, I think you will soon find yourself sensing changes earlier and getting a jump on the market.
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