How I Research Stocks - Step-by-Step Fundamental Analysis

Summary

The video details the stock research process of a portfolio manager, starting with screening companies based on growth and other metrics to narrow down ideas. It then involves understanding the business model, finances, management strategy, and valuation to determine if a stock is attractive. Additional steps include a final review, playing devil's advocate to challenge assumptions, and organizing findings for future reference when monitoring the investment.

Takeaways

• 😊 The video provides a high-level overview of the presenter's stock research process as an investment analyst
• 💡 He notes that stock picking is difficult and most people may be better off investing passively or hiring professionals
• 📈 His process involves screening potential stocks, understanding the business and finances, evaluating strategy and valuation
• 📊 Analysis involves qualitative business research and quantitative financial statement analysis
• 🔍 He looks for competitive advantages, quality management, growth potential and reasonable valuations
• 🤔 Conflicting opinions and playing devil's advocate helps validate assumptions and analysis
• 🗒️ Taking detailed notes and summarizing research helps quickly get up to speed when revisiting a stock thesis
• 📰 Keeping up with news and developments is an important part of ongoing research for invested stocks
• 💰 The video is sponsored by Morning Brew, a free daily business and finance newsletter
• 👍 The presenter welcomes feedback to improve his stock research process

Q & A

What is the main topic of this video?

The main topic is explaining the stock research and analysis process used by the video host in his job as a portfolio manager and investment analyst.

What are some key things the host looks at when researching a company?

The host looks at understanding the business and its operations, analyzing the financial statements and metrics, evaluating the company's strategy, assessing valuation, and reviewing competitive positioning and risks.

What framework does the host use to categorize information on the company?

The host uses the SWOT framework - Strengths, Weaknesses, Opportunities and Threats. This allows him to categorize information as either internal or external factors.

Where does the host find information to research companies?

Sources used include annual reports, investor presentations, earnings call transcripts, industry reports, news articles, and meetings with company executives.

What are some key ratios and metrics examined?

Key ratios and metrics looked at include revenue growth rates, profitability margins, liquidity ratios, return on capital and equity, EPS trends, among others.

What valuation methods are used to assess the stock price?

Valuation methods used include relative valuation (P/E, P/B, EV/EBITDA) and discounted cash flow analysis.

What happens if a stock is not attractively valued after the analysis?

If the valuation is not attractive, the stock gets added to a watchlist to monitor for future buying opportunities at better prices.

Why does the host say stock picking is difficult?

Studies have shown that most people are not able to beat market returns from stock picking over the long term. It requires extensive research and skill.

What investing style does the host tilt towards and why?

The host tilts towards value investing, which involves buying high quality companies trading at discounts to intrinsic value.

How can an investor determine if a company has a durable competitive advantage?

Look for characteristics like market leadership, switching costs, network effects, low-cost production, patents, and brand value as signs of an economic moat.