Tips for researching companies

[paulmurphy62]

Hi All,
I am new to investing in shares and would like some tips on how people are researching companies. Some questions I have are:

1. What's the best starting point when researching a company?
2. What are the best options to use for researching a company. For example a prospectus or company announcements, or just news stories?
3. Are investor advisory subscriptions worth the time and money? LIke "Wise Owl" or "Motley Fool"

Thanks in advance to all comments

 

[Huskar]

Hi Paul

For me, the starting point is always the asx website itself asx.com.au and the company's information on there. https://www2.asx.com.au/
Just type in the company name in the search box. Look for the latest financial report.

Then I would look at the company's website, both customer facing and investor relations webpage. There is often helpful information to help understand the business.

The best next resource is then to visit the company in person. This is obviously not always possible, eg visiting a mine.., but in most companies when you're starting out I highly recommend focusing on things you understand especially consumer focusing businesses. For example, Kathmandu Holdings - go to a store! Would you buy product there? That's usually a pretty good sign they're doing ok and will give you a better sense than reading 10 analyst reports.

This is even easier with internet retailers, or social media businesses, or newspapers / media, etc.

Then look at the primary source and those initially scary pages called Profit & Loss. Look closely at revenue line item trend and earnings trend - yes earnings! - over the last 5 years. Are these rising or falling? If unprofitable, is there a reasonable explanation? What is management saying at the start of each annual report and does this match with reality over time?

Finally, write down your thinking even if a couple of paragraph and act - make your purchase.

Once you've done this 5 or so times over 3-6 months, keep checking up on the asx website and recent market announcements. 5-7 is a surprisingly decent number for diversification and still manageable to keep up with. Then always ask - is the company still on track? Has my original thesis changed and if so why? If for the worse, sell.

If you can do this consistently over years you will be far ahead of most and probably better than many professionals too.

 

[frugal.rock]

G'day @paulmurphy62
Huskar has given you a great start.
I would add to consider things outside the box (macro) of a particular stock also, things that may affect it. EG; sectors, (geo) political factors, policy, seasonality etc.
Good luck, but really, don't rely on luck.

 

[paulmurphy62]

Hi Paul

For me, the starting point is always the asx website itself asx.com.au and the company's information on there. https://www2.asx.com.au/
Just type in the company name in the search box. Look for the latest financial report.

Then I would look at the company's website, both customer facing and investor relations webpage. There is often helpful information to help understand the business.

The best next resource is then to visit the company in person. This is obviously not always possible, eg visiting a mine.., but in most companies when you're starting out I highly recommend focusing on things you understand especially consumer focusing businesses. For example, Kathmandu Holdings - go to a store! Would you buy product there? That's usually a pretty good sign they're doing ok and will give you a better sense than reading 10 analyst reports.

This is even easier with internet retailers, or social media businesses, or newspapers / media, etc.

Then look at the primary source and those initially scary pages called Profit & Loss. Look closely at revenue line item trend and earnings trend - yes earnings! - over the last 5 years. Are these rising or falling? If unprofitable, is there a reasonable explanation? What is management saying at the start of each annual report and does this match with reality over time?

Finally, write down your thinking even if a couple of paragraph and act - make your purchase.

Once you've done this 5 or so times over 3-6 months, keep checking up on the asx website and recent market announcements. 5-7 is a surprisingly decent number for diversification and still managed to keep up with. Then always ask - is the company still on track? Has my original thesis changed and if so why? If for the worse, sell.

If you can do this consistently over years you will be far ahead of most and probably better than many professionals too.

Hi Husker,
Thanks for putting in the time to provide a very detailed and helpful guide to how to research before I buy. This has saved me months of time and probably eliminates a few mistakes along the way. Really appreciate it and will take on your recommendations.

Best Regards,
Paul

 

[paulmurphy62]

G'day @paulmurphy62
Huskar has given you a great start.
I would add to consider things outside the box (macro) of a particular stock also, things that may affect it. EG; sectors, (geo) political factors, policy, seasonality etc.
Good luck, but really, don't rely on luck.

Hi Frugal Rock,
Thanks for your additional comments. I have bookmarked both recommendations and appreciate your help.

Regards,
Paul

 

[ducati916]

Hi Frugal Rock,
Thanks for your additional comments. I have bookmarked both recommendations and appreciate your help.

Regards,
Paul

To save time when screening the financial statements, you can employ these calculators to provide a quantitative number.

Beneish M-Score Calculator: Kelley School of Business: Indiana University

apps.kelley.iu.edu

Altman Z Score -Insolvency Predictor- Calculator - CreditGuru.com

Calculating Altman Z Score- A mathematical model that uses a combination of 5 ratios to predict the probability of business failure of a publicly traded firm.Online Calculator and explanations..

www.creditguru.com

jog on
duc