Value Investing

[robertbanking]

Hello you amazing and intelligent people that make up Aussie Stock Forums, i do hope your day is going well today and that you are happy.

I have been doing some research and continuing my learning on finding stocks that are undervalued, sometimes medium or large cap stocks. I look for instance for increasing sales yearly and increasing revenues as a few factors when reviewing the financial accounts. However i kindly wondered if you could please help me with the due diligence process or a few steps that you follow please to fully evaluate a company? For instance do you go through all the companies previous 10-Ks and what other factors would you look at please, i know some people for instance do 20 - 25 hours research before they actually get around to buying a stock. If anyone could kindly help me with the processes for conducting due diligence on a stock i would be enormously grateful and forever thankful.

Sending you lots of good wishes and i do hope you enjoy your day. Thank you very much for reading my post and all the best.

 

[So_Cynical]

For instance do you go through all the companies previous 10-Ks

What's a 10-K?

 

[Sean K]

I think you need to know the business, for a start, in the future macroeconomic and geostrategic environment. Not many punters have the time for that. Probably why managed funds and now ETFs have been popular. If you don’t understand or have the time to find value it might be easier to trade charts which seem more reliable to me.

 

[Knobby22]

Yes. It is difficult but it's good to build up your skills #Robertbanking.
Maybe consider choosing 5 companies on a charting basis then evaluate them and choose 2. The Chartist is a good site.

From the fundamental viewpoint join someone like Belldirect and read their research. It will also give you pointers on evaluating a company. Belldirect also has some free charting and volume indicators.

 

[Value Collector]

What's a 10-K?

It’s what Americans call an Annual Report.

 

[Value Collector]

Hello you amazing and intelligent people that make up Aussie Stock Forums, i do hope your day is going well today and that you are happy.

I have been doing some research and continuing my learning on finding stocks that are undervalued, sometimes medium or large cap stocks. I look for instance for increasing sales yearly and increasing revenues as a few factors when reviewing the financial accounts. However i kindly wondered if you could please help me with the due diligence process or a few steps that you follow please to fully evaluate a company? For instance do you go through all the companies previous 10-Ks and what other factors would you look at please, i know some people for instance do 20 - 25 hours research before they actually get around to buying a stock. If anyone could kindly help me with the processes for conducting due diligence on a stock i would be enormously grateful and forever thankful.

Sending you lots of good wishes and i do hope you enjoy your day. Thank you very much for reading my post and all the best.

Hi Robert,

Yes, I definitely look at a few years worth of annual reports, in the financial statements in the annual report it contains two years worth of Data, eg the current year and the prior year. So if for example you open the 2022 and the 2020 you will get 4 years of figures.

But the most important thing is that your research is leading you to a full understanding of what the company is, how it operates, how it generates its returns, it’s profitability, and how much you get in each share.

So to gather a full understanding of the business you need look further than just the annual reports, you need to understand its products, its competitors, any competitive advantages etc etc.

Eventually (at least for me), all this data eventually falls together into a mental model of the company and you will get a good picture of what it is and what it’s worth, then you will know whether it’s a buy or not.

 

[galumay]

I would often do at least 20 hours research on a company I was interested in owning - and 90% of the time I would pass it by. Very few businesses meet my metrics for investibility and are trading at a sufficient discount to my calculated range of intrinsic value. (Margin of safety.)

I find it helps to have a process for developing a quick view on a company's investibility, I use a spreadsheet I have developed, it pulls data to calculate things like ROIIC, reinvestment rates, gross & net margins, operating cushion, a quick and dirty shortcut for reverse engineered DCF. (what does the current price imply about growth, FCF and IRR) and a range of value. If it still looks interesting I will go to QuickFS and check the financials for the last 10 years, make sure its running low or no debt. I can do all of that in about 15m and then if I am still interested the real work begins!

I then ead back thru annual and half yearly reports, 4C's, check the company website, work out who their competitors are and do some research on them, look for any scuttlebutt about the company online from customers or employers.

Next step is to right up a thesis in my decision journal, I will go over all of the above and document my findings and thoughts, I will consider an expected price implied by probabilistic consideration of a range of possible outcomes. (forces me to document what could go wrong with the business, not just what might go right!). The thesis may take from a couple of days to a few weeks to finalise, its something I really use to slow down the decision making process. As I say, most times it ends up with me not taking a position, but maybe once or twice a year I find something I like enough, at an attractive price to add to my holdings!

There is nothing special about my process, what is critical IMO is that you have a process, and that you follow it consistently. It just so happens mine suits my investment philosophy and my temperament and personality.

 

[finicky]

 

[So_Cynical]

It’s what Americans call an Annual Report.

Yep i googled it - i was kind of pointing out to Robert that we dont have 10-K's here.

Value investing - use a filter to look for biggish consistently profitable company's that are at or close to 52 week lows, probably a cyclical low, currently 3 stand outs on the ASX, ELD - Elders, SHV - Select Harvests and APX - Appen.

 

[robertbanking]

Thank you every so much, you really are all amazing here and wonderful human beings. You have been more than helpful, i think the key is to make sure i have my own processes whatever i feel comfortable with and stick with it diligently.

Value Collector, i very much appreciate you mention that you look at a few years annual accounts and you try to get a full understanding of what the company is, how it operates, how it generates its returns, its profitability, and how much you get in each share. Then further you need an understanding of its products, competitors, that was enormously helpful. Thanks very much.

galumay, thank you very much for mentioning you do 20 hours of research on a stock, and that you use a spreadsheet which calculates things like ROIIC, reinvestment rates etc. Then you go onto checking the financials for the last 10 years. Then i appreciate very much that you go into a more detailed analysis of going through annual and half yearly reports and checking the company's website, working out who their competitors are etc. That was enormously helpful i think the key as you mentioned is to have a process you follow diligently and you do not stray away from it.

I very much appreciate your kind support, you have given me lots of great points and again Aussie Stock Forums and you people here are amazing. Hope you all have a pleasant day and thanks again for your amazing support and time.