Fundamental Analysis - Where to search for information?

Where do you find information about the companies while performing Fundamental Analysis?

Rookies are always confused about where to find information about a company while performing its fundamental analysis. The answer may be the obvious Google! But considering that not all of the information available on Google is “True” or even “Trustworthy” as companies are found to be using excessive “online public relations” or online image management techniques to manoeuvre the information about the company. It is therefore important to find the information through reliable sources, even if that means you have to Google, Google the right places – remember Google gives you information but does not guarantee its correctness as it only compiles online information.

Let’s classify the information about a company for fundamental analysis under the following classifications:

• Information about the economy.
• Information about government policy; taxation, levies, duties and others.
• Information about the industry in which the company operates.
• Information about the company – its management, its performance, its sales and its products including its performance in relation to other similar companies.
• Information about consumer outlook, fashions and spending.

Internet

Yes, despite unreliable information, this is the first choice. Purely because the information is available quick and plenty. It can tell you about the economy, company results, profiles and a host of other information. There is a host of information on the internet that exhausts one’s needs for information. The major categories of websites that help us gather information include:

• Company websites – companies usually mention significant details about themselves on their websites
• Websites of indices (NSE, BSE, S&P 500 etc.)-companies are required to file their information on the stock exchanges. Look out for peer company information here too.
• Regulators (SEC for US and SEBI for India are examples) – check out if the company has violated any norms which should be available here. Industry regulations are also available on regulators’ websites.
• Regulatory filing websites (eg. Sedar.com)In some countries these are the same as stock exchanges, in others such as US and Canada, these are separate websites containing financial information about the company.
• Financial websites (Yahoo Finance, Reuters, Google) – get a host of information including summary statements, ratios, charts and graphs, among others. Makes your task easier as a lot of analysis is done here already. However, do care to check their parameters and calculations as they may have done it ‘differently’.
• Other sites of institutions and professionals providing such services

Media - News

There are several investment and business magazines, that are available today that discuss the economy, industries and individual companies. These contain high standard articles that analyse industries and companies in depth. They also contain knowledgeable articles on tax, investment strategies, finance. It is advised that the serious investor should read at least one good financial paper every day and two financial magazines a month. My personal experience says that magazines such as Forbes / Fortune / HBR (of course there are many others too) give you great insights about a company and industry and includes strategic information which is enlightening. This ought to keep you well informed.

Investment Newsletters

There are several professional investment managers and experts who publish investment information. This is extremely useful as they are often very up to date and contain information not generally available to the investor. However, beware about analysts who are influenced and have their reports biased. Do care to look at these reports with a pinch of salt and verify the information. I learnt this in my Big4 experience- Trust but Verify!.

Insiders

Insiders are persons who work for a company or who have intimate dealings with a company and have access to, or are aware of information that is “not publicly available”. This could be information on the performance of the company or rights or bonus issues or some other relevant news. As the information is not known to all, the investor must act fast if he wishes to make a killing. Regulators in most countries including SEC in US and SEBI in India prohibit insider trading and it is strongly advised that one should not act based on insider information. Apart from the fact that it is against rules and the law, it is fraught with other risks. However, getting information, of you are privileged enough to get some, helps as part of your overall analysis about a company.

Seminars and Lectures by experts

Especially if you are an analyst on a particular industry, attending industry oriented seminars and conferences gives you a great deal of information about the industry. These are conducted by eminent individuals and one can pick up a lot of information attending these sessions. These may be on how an industry is doing, their view of an industry and the like. One can even share thoughts with those they meet. This can result in forming opinions and facilitate decision making. However, one should not ignore the disclaimer that views and discussions are based on individual judgment and one should do his own homework on the company before acting on recommendations. After all, it’s your money. The ‘eminent individuals’ won’t compensate you in case you lose based on their advise.

Stockbrokers

Stockbrokers are always in touch with companies and are normally aware of their performance and other factors affecting the price of a share.

Again, it needs to be remembered that a broker is there to punch in the trades for you and not to advise you on what to buy and what to sell. Investing based on the advice of the brokers comes with its own set of disclaimers. Very often it is found that brokers, in order to increase their margins advise the clients to buy-sell without sufficient ‘reliable’ information.

THE ANNUAL REPORT

The primary and one of the most important sources of information about a company is its Annual Report. By law, this is prepared every year and distributed to the shareholders. Apart from the detailed financial statements and footnotes, it also contains management discussion and analysis and directors report. The directors’ and management’s views on the state of the economy and those affecting the company and overview of financial results are discussed. They also write about the company’s expansion plans and planned dividends. The Auditors confirm if the company’s financial statements present a true and fair view of the financial position of the company and if the company has complied with rules and regulations affecting them.

These are the major sources of information. You must train yourself to listen and absorb information that is received. You should analyze and interpret the information to determine the profitable course of action to be taken. This is the essential governing principle of fundamental analysis - action only after receiving and analyzing information. If you are analysing the company from an investment perspective, it is extremely important that you act swiftly on the information received as the person who receives (and acts on) it first will often be the person to profit most from it.