How to use technology to pick winning stocks

FinToolbox/Screener.co

Monday, September 26, 2011

My background
management consulting generic frameworks for data analytics VC analyst ownership mentality extreme buy and hold
Monday, September 26, 2011

FinToolbox/Screener.co
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2009

2010

2011

Monday, September 26, 2011

Investment Methodology

Monday, September 26, 2011

Investors struggle with too many decisions

Monday, September 26, 2011

Investing as exclusionary process

look for reasons not to invest

Monday, September 26, 2011

Screening process

= investment candidate
Monday, September 26, 2011

Continue looking for reasons not to invest

Monday, September 26, 2011

ST E T cyclical valuations vs. acyclical declines

outside knowledge

intuition

Monday, September 26, 2011

Review public lings/ public info

Material changes to business risk factors long-term obligations management/analyst forecasts news (Internet trafc, industry data/reports, new
products)

Still looking for reason not to invest

Monday, September 26, 2011

Red ags?

Monday, September 26, 2011

Metrics

Monday, September 26, 2011

Dene custom metrics

in addition to those normally used

Monday, September 26, 2011

Metrics used for exclusion

Still need full company checkup

Monday, September 26, 2011

Valuation
1. EV/EBITDA (in addition to P/E) 1. target 3x to 6x for value 2. 6x to 10x if willing to pay up for strong growth +

interesting (growth) markets 2. Price/Net Tangible Assets (in addition to P/B) 1. .5x to 1.5x for value companies (in other words, NTA/ Market Cap >.67x)
2.

Caveat: beware too many long-term or illiquid assets, particularly for nancials. New accounting rules since credit crisis give more leeway in valuing illiquid securities and whether PP&E and other long term tangible assets reect true value depend on how their depreciation schedule reects actual depreciation

Monday, September 26, 2011

Valuation (contd)
1. Margin of Safety/Downside Risk 1. NCAV 1. NCAV<Market Cap (1.2<x<1.5), if protable 2. otherwise just NCAV<Market Cap 3. Caveats: beware high (and/or growing) levels of inventory that may need to be written down if demand doesnt materialize 2. Net Tangible Assets/Market capitalization 3. (Total Current Assets - Total Liabilities)/Market capitalization 4. (Total Current Assets - Inventory - Total Liabilities)/Market capitalization 1. higher is better (obviously), use this as display variable (not lter)

Monday, September 26, 2011

Valuation (contd)
2. Multiple of Protability 1. EBITDA/(Market capitalization - Net tangible assets) 2. alternative to ROE, higher is better 3. ranking variable (doesnt have to be >5 but exible)

Monday, September 26, 2011

Consistency of results
1. Multi-period comparisons of revenue and net income 2. Estimates relative to past performance

Monday, September 26, 2011

Consistency of results [contd]

looking for stability and or growth. Screener.co supports up to 10 quarters/years but I rarely go that far back (unless looking at PE10) Now, I nd looking at how companies performed during the last recession (2008-2009 full years) an interesting metric, gives a sense for how the company holds up during the bottom of the economic cycle Even for cyclical companies, I like to see that they are able to maintain protability or have modest cash-losses relative to their balance sheet (so they are not likely to get into distress even during a prolonged downturn) Use estimates to look forward and ensure future expectations are not dramatically poorer than past performance

Monday, September 26, 2011

Q&A

Monday, September 26, 2011

How to use technology to pick winning stocks

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Monday, September 26, 2011