Investors often spend hours analyzing financial statements, industry information, valuation tables and conducting other analysis before picking a stock or an ETF. After all this work, the tendency is too much like that of a golfer standing in admiration of his shot. Stocks are not like golf shots and investors need to take a proactive role. Proactive investors cut losing investments quicker or decide to add to winning positions first, all improving their returns. Even the long-term value oriented investors need to remain active. A good model is to plan for at least on hour per week per investment and ideally more.
There are a few critical areas we have identified to track along with any investment. There is some cross knowledge on the economy and potentially with sectors dependent on the profile of the portfolio.
1) Macroeconomic news and events: This is pretty basic but it is important to follow economic news and develop a view of where the economy is headed. If unemployment levels start trending sideways and you expect the economy to under-perform expectations as a result, you need to adjust the sectors and stocks in your portfolio accordingly. Cyclical sectors valuations and earnings estimates would likely contract if this worse than expected forecast started to play out. Adjust your positions to reflect your economic viewpoint. Additionally, many sectors have leading indicators often part of broader economic releases. Find and identify these and know what the historic relationship is.
2) Earnings reports: It seems obvious to follow earnings releases but too frequently investors stop there. Listen to earnings calls or read transcripts of not just the company you own but ideally its peers, suppliers and customers. These other earnings reports and subsequent calls are great sources of information to identify new ideas and stay up to date on current holdings.
3) Industry and company research: The most obvious part is to track any industry data is released but if you want to really know a sector, scan the trade magazines, every industry has them. Additionally, pick up the phone or create a survey to gauge the current state of the industry ahead of earnings reports and find out what the future may hold. Contacts on the ground often see things before the CEO does.
Investors should create a schedule with these tasks for their portfolios, often earnings release dates will dictate this. If the amount of work is unmanageable, it’s either time to trim the number of positions to limit the amount of research or outsource some of the work to a professional research firm such as Research Optimus.
Some of us have many positions spread across multiple sectors and verticals within those sectors. Just reading earnings reports, economic releases, and industry news can become difficult at times rather the less digging deeper into a company’s business or industry. There is help out there from firms like Research Optimus. Their services often pay for themselves by signaling to close out of a position early or identifying actionable investment ideas first. In the list of to do items we mentioned, Research Optimus can perform quantitative and qualitative proprietary research, from statistical analysis to identify leading indicators to surveys searching for inflection points and critical information.
– Research Optimus