It should be rather safe for me to wager that we would have an investment ‘opportunity’ pitched to us at least once in our lifetime.
However what we might not know is who or what source it comes from and more importantly if its reliable or not. There are countless sources in the world to acquire leads from and there is no right or wrong with any one method.
If you have ever heard of the term “Scuttlebutt” – popularized by the late investment legend Philip Fisher from Common Stocks and Uncommon Profits (Reviewed right here!), you would know that it is a method of investigating your lead as well as an avenue to potentially uncover better investment opportunities.
But what we are interested today is the process prior to engaging in your scuttlebutt.
Before you can scuttlebutt, you first have to find something to scuttlebutt about!
Some Ways To Obtain Leads
1. Through Word of Mouth:
Either a friend or a relative engaged in that particular industry mentions to you about a new breakthrough or development in their field. Being an ‘expert’ in that particular field, it might be worth your time to explore deeper into this issue.
Of course we are not considering gossip or pure hearsay! We need some actual basis to work off from.
2. Through a Significant Event Known From Public Media Outlets:
To illustrate this point, I will use two examples of how the People’s Republic of China affected certain industries with their crackdown on corruption.
This first to be hit were the consumer discretionary retailers involved in the auto-mobiles, jewelry, apparels and merchandises (Bags).
Next was the more recently affected Macau gaming industry where gaming revenue plunged year on year attributed primarily to the crackdown by China’s president.
Most of us (I think I am speaking for most of us) are not in the position to have an impact on these two situations above. What we can do is to see if the share price has been so negatively affected that it might actually be an opportunity as an investment. Given the magnitude of the situations, it would be safe to say that the industry corrected based on fundamental reasons. However the question is always and will always be for such situations is – “Did the market OVER reacted?”
3. Quantitative Screening
This is where it gets interesting for most of us. Although using a quantitative screening tool is not a foolproof method, what it does is to establish for us a framework. And the best part of it is that it is simple to use.
How a quantitative screening tool works is that you simply type in your criteria and BAM, those that match your criteria will magically appear.
There are countless criteria to screening from and some examples (Figures used are just for illustration):
i) P/E <20x
ii) P/B < 1x
iii) Market Capitalization < US$1 billion
iv) Operating Margin > 10%
v) Year on Year Operating Profit Growth > 5% and many others!
So How Do I Start Screening?
Well even if you don’t have a Bloomberg Terminal (If I am not mistaken, it is rather costly – At least a five figure outlay for a year) like myself, don’t worry, there are other options out there and the best thing is that many of them are FREE!!!
1. YAHOO! FINANCE
2. FINANCIAL TIMES
I personally find this screening tool by Financial Times as one of the more user friendly as well as one of the more comprehensive screening tools around. If you have never used a screener for equities before, I think that it will be worth your while to explore this option!
4. AND A SPECIAL MENTION TO – STOCKFLOCK
If not many of you have heard of Stockflock, now you know! Stockflock is a platform recently set up by Wilson and as mentioned on the homepage, they only cover SGX listed companies for now. Although it does not have the straight up quantitative screening capability at the moment, it more than makes up for it with their peer comparable tool.
And this is how it works.
Say we are searching for SGX listed Dairy Farm International Holdings (SGX:D01), type it into the bar and TA-DAH,
We get an overview of the firm in terms of the CEO at the helm, size of the Entity in terms of Market Capitalization and Revenue for the last 12 months. But the magic lies when we scroll down to its peer comparison table.
With this graphical representation, we can clearly see how it stacks against some of their competitors (And you can add in competitors as well!). There are also other segments that include ROE, Dividend Yields and Asset Breakdown not shown in our pictures above. Do check out Stockflock if you are interested to see how your selected SGX listed stands up against its peers! We look forward to more developments from Stockflock in the near future 🙂
Value In Action
Screening alone is not a catch all for due diligence but it can provide us with a great starting point to embark on our research journey. I hope that I have provided you with some interesting options when it comes to using quantitative screening as a first level tool to achieve an investment idea!
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All views and opinions articulated in the article were expressed in Mun Hong’s personal capacity and do not in any way represent those of his employer and other related entities. Mun Hong does not own any shares in the companies mentioned above.