Equity Researchers
It takes a lot of time to pick through investments. There are 500 companies on the fortune 500 and thousands of small cap stocks. There are also pink sheets and over the counter stocks. There are a lot of companies to look at. So what does an equity researcher do.
Annual Reports
An equity researcher will read annual reports every day paying special attention to the accounting. They will look for things like free flowing cash, debt, assets, insider trades, and more. The goal is to find the companies that have the easiest time making money with the least amount of cash (also called ROC or return on capital).
Calculations
An equity researcher will have benchmarks that they use as a standard. For example, they may stay away from companies that have more than 35% debt. They may plug in PEG ratios and study the cost structure of a companies earnings yield. After it is all said and done, the mathematics is the main driver, but that still isn't enough. There is the human element.
Artistic Talent
After all the calculations are made, benchmarks are passed, and a few good companies are located then there is the last part of picking the overall winner. This can be an art and a science. Is there good management, how do I feel about the brand, and most of all do I really understand how this company makes money.
How Long Does it Take?
Analyzing the data takes months. Once you have a great system in place, it makes it much easier to do, but still time consuming.
Keep Your Eye on the Ball
The main thing for researchers is to keep their eye on the ball. Many investors lose track of things and lose focus. When they get their eye off the ball bad things can happen. That is why it is so important to have an equity research team on your side providing you with information.
If you have the time, you should spend it and do your best to calculate everything yourself and then compare it with a research teams recommendations. Even if your calculations aren't perfect, you will much better understand what makes companies successful. As your understanding improves, you will do better and better. Getting your mind sharp is the main thing to do.
|
|
