If I were to start looking for companies to analyse and would like to use value screens (low P/B, what have you) how would I go about that in my free time, when I don’t have access to a Bloomberg terminal? What are good websites for that? Any tips for learning how to analyse companies on your own?
Most services cost $$, are you still a student? Cause your school may have access to a few methods.
No, though I do have access to some university databases, but no relevant ones. Alas, financial databases are not available at German universities. Is it possible to perform such screens with websites like Yahoo Finance or similar ones?
There are tons of free stock screeners on the web. Google “free stock screener” finds a bunch of them. Yahoo Finance and Google Finance have them. WSJ’ Market Watch has one Morningstar has one (basic one is free, but requires registration. A more advanced one is paid).
Thanks a lot! Any insights what most important mistakes not to make when starting to analyse firms? What would be a huge waste of time?
There are basically two approaches to screening: 1) screen to get a list, then do more in-depth fundamental research on the companies on the list. You’ll usually need to get pretty specific with your criteria if you’re doing this on your own, because otherwise the list can be overwhelmingly long. Either that, or you have a large team that analyzes everything on the list. This is the more common value investing approach, and a good one, albeit a bit labor intensive. 2) use a statistical approach, and buy some of everything on the list, and hope that the average return for companies with those characteristics is higher than the expected return from just holding the market. You are unlikely to generate spectacular returns from this method, but you may outperform by a bit. This takes a larger amount of capital, because you have to divide your exposure among more stocks. You can also buy everything in a particular decile or quantile (sometimes financing by selling everything in a different decile or quantile). A few other things to consider. 1) The extremes on a list often have something special going on that puts them there. That something special can be both danger (something is cheap for a very good reason, like a lawsuit, or management problem, regulation, etc.), and an opportunity (if you are better than most at understanding that outcome, you may be able to get a true bargain on a select few of them). 2) Portfolio Construction (i.e. position sizing) is as important an issue in performance as stock picking (some might say even more important), yet most people don’t spend enough time looking at that. 3) Stop-loss rules may be important to protect yourself against “value traps.” Use them so that you never bet more than you can afford to lose. 4) Take-profit rules are perhaps less critical than stop-loss rules, but they help you decide how much is “enough” without letting greed get in the way. Take-profit rules are decided *before* you pull the trigger on a trade/investment. An alternative is to take profit on 1/2 of your position, and then see if the other half can go even higher (but be sure to have a tightened stop on the remaining half if you do this). Gee, I’m in a generous mood this morning, it seems…
Thanks guys - especially to bchadwick, awesome generosity in sharing your insights this morning! I have found these screens to be the most useful ones so far: http://finviz.com/screener.ashx?v=111&ft=2 http://www.marketwatch.com/tools/stockresearch/screener/ http://screener.finance.yahoo.com/stocks.html http://markets.ft.com/screener/customScreen.asp For a beginner in the fundamental analysis, would you recommend going deep on a select few companies (like 2-3 at first) or superficially looking at as much companies as possible? I was thinking of doing a basic (superficial) macro selection first (like which countries & industries I want to look at, certainly nothing growth-y, too cyclical or something from Americas (less US)/Africa/Asia in the beginning), then choosing a few value criteria (low P/B, low market cap etc) and then going through the list and limiting it down to a few stories that pique my interest or where there are possible cataclysts on the horizon (special situations coming e.g.). Sounds like a newbie approach, obviously - what’s the most obvious thing to improve about it?
Bing’s screener is really great. The data is sometimes dated, though. Google has a thing at the bottom where when you search a company, it provides a list of peer companies and you can compare all the companies based on basic ratios like TIE, P/E, etc. If you have a broker, they may have one. Scottrade’s screener used to be fantastic, but they changed it recently and now its pretty bad, TBH.
If you’re getting started, probably the best thing is to pick an industry you find interesting (you like the product, or the policies surrounding it, or know someone who works in it and find what they talk about interesting). Then compare a few companies in the industry, like 3 or 4. That keeps the number of companies you analyze to a manageable level. What’s nice about doing comparisons is that a lot of the key differences will jump out at you just by putting comparable figures up side by side. As you see these differences, you can get a feel for what’s relevant. Once you have a few companies down, you can slowly start expanding your universe. Each new company will be analyzable faster. The one thing you have to be careful of is that, while you can see the differences easily, sometimes the similarities are harder to see, because there isn’t the contrast between companies as a guideline. As a result, you can underestimate the risks that are common to all the companies you analyze. One way to mitigate this (in part) is to start expanding to other industries, and the contrasts between industries will help as a guide. Eventually you can zoom out and try to do the entire economy (not all the thousands of companies, of course, but be familiar with some companies in many industries). When you are comparing risks to all companies in the economy, the only thing you can really do is compare the economy to past histories of itself (how does the PE ratio compare to past ranges, for example). You can do some stuff with cross-country comparisons, but the risk characteristics of different policy regimes are hard to quantify in a meaningful way, other than just to say “the range in Germany is X, and in Brazil it’s Y, and in the US it’s Z”.
Thanks so much for the advice! I do appreciate it.
@dsp That’s finviz one is pretty good, I think. It isn’t picking up the insurance companies and defense contractors that all the other screens are finding, though. It’s amazing, though. I just put in a few very basic criteria: P/B less than 1, current ratio higher than 1, positive EPS growth, insider ownership greater than 10%… And you get back about 50 companies. 2/3rds of them are Chinese companies. Almost all the USA ones are microcap. I suppose I need to lower the standards or search for low P/E and a higher ROE instead of a low P/B. There simply aren’t many eye-popping opportunities in the current market on a statistically undervalued basis.