There was a time when I used Edgar Online’s I-Metrix tool to do run basic stock screens and pull fundamental data in Excel that I can build my models on. The pro subscription, which you need for the Excel plugin, runs about $5K/year, and while the tool is powerful, I didn’t feel that the value it provides is worth the subscription. Ultimately, I figured, all I needed was the Excel plugin to pull financial data in Excel so I can run it through my models and do my own analysis.
A Value Investor’s Requirements are Simple
Value investing does not depend on a well defined formula. You cannot create a single model that will work for all or even most stocks. Ultimately it is an art form, and the way you go about analyzing a stock may be unique for each stock. So essentially what I needed was a simple way of getting reliable financial information in Excel, and than I can take this data, look over it, read SEC filings and than figure out a way of making the sense of the data based on the history and specific situation of the company.
Stock Research Tools I Use
Nowadays my tool of choice is Edgeseeker (Not available anymore). This is a simple add-in for Excel. Given a stock symbol, it can pull in financial data (balance sheet, income statement, cash flow statement, closing prices and more) from a variety of built in sources such as Google Finance, Yahoo Finance, Zacks, and MarketWatch. It can also create nice graphical representations and you can use it to run correlation analysis between two stocks or indices. It does not do any of the fancy stuff such as data normalization that I-Metrix used to do. I suppose data normalization is useful for many analysts, but I do want to read the SEC filings to understand what each line item means. Normalized data has a way of hiding some of the key insights or the company issues that you absolutely want to know about to make good investing decisions.
I have found Marketwatch data to be reliable but some times it does not cover some of the smaller stocks. In those cases I will go on to use Zacks, Google and Yahoo in that order.
UPDATE: There are a variety of new tools in the market now that you can use with Excel. I tried out MarketXLS that was mentioned in the comment below. I found it a little unfinished, no doubt the team is working on it and it will only get better. However, the granddaddy of all Excel tools is an Add On called Stock Market Functions. I keep going back to this all the time now. While this can be very user unfriendly, the team has built many templates to fetch and manipulate financial data from various different sources. In the past I have used ADVFN as the data source. Very comprehensive data, but for some reason they keep changing format/moving the api location. Nowadays I fetch data from Morningstar using SMF and it works great. As one of the free stock research tools that integrates with Excel, SMF can’t be beat. Works great for value investing research. Just keep in mind that you will need to run your initial screens elsewhere.
A 3 Step Process
Step 1: Shortlisting the stocks – In this step I run various screens to find a good shortlist of candidates for deeper analysis. The Fidelity stock screener is very good and I believe is available free of charge to anyone, even if you are not a Fidelity customer. You may have your own favorite screener. If I find 20 stocks in this screen, I will look through each of the stocks on Yahoo Finance to see which ones look interesting enough to keep in the list. Perhaps I end up with 3-10 stocks, and these are the stocks that I post on the site as results of my various screens. These screens are available to anyone to read on this site.
Step 2: Selecting stocks for the Watch List – 10% – 30% of the stocks I post in my screens actually end up going in the Watch List I maintain for my members. These stocks have to pass through an additional layer of filters for suitability as a potential investment. At this time, I am still looking at the financials and have not dug into the business deep enough to make an actual buy or sell recommendation. A lot of macro economic trends also influence my watch list selection, and I might end up with multiple stocks I am watching in the same sector. If you are an email subscriber, you receive a list of watch list adds and deletes when these happen.
Step 3: Deep dive and recommendations – Here I conduct a detailed valuation analysis of a stock, go through the SEC filings to understand the company and its business as well as the industry/sector that the company operates in and its position. Some stocks in the watch list do not meet my criteria for investment and are discarded. A few other stocks may merit investment but the valuation is not yet attractive – these stocks stay in the watch list until the value/price ratio becomes attractive enough to buy, or it becomes unattractive enough to discard or issue a sell recommendation. A few stocks where I find the valuations attractive, move into the Buy recommendation list. These are the stocks that I buy for my own portfolio and recommend my members to buy as well. These stock picks and recommendations are exclusive to the premium members.
Additional Sources and Faux Sources
The following additional sources of information are also useful:
- The company’s website – investor relations page for SEC filings and press release.
- Nasdaq Info Quotes – I find this the best place to research institutional and insider holdings
- Yahoo Message Boards – For general market sentiment. For some stocks, it is full of noise and spam, so you need to be able to figure out what is useful and what is not. Some other stocks have very little activity on the message boards with few occasional postings. These are typically well thought out postings from long term holders and might be worth a look. This can be a great place to find out about the health of the business, that is not reported anywhere else, as some of the posters are employees, customers or suppliers to the company.
- MSN Stock Screener – If you need financial data that goes back in history for 5 – 10 years
The following set of data I generally ignore:
- Analyst ratings and estimates – As a value investor I focus on known and present values and prefer to do my own research. Future estimates and projections might be useful and are likely to be wrong. Besides, for smaller names there may not be any analyst covering the stock, so it is important to get in the habit of doing own research.
- Media outlets such as Motley Fool, Street.com, and others like it – They know even less and these stories are written for eye balls. Good investment advice is not really one of their key goals.
Ultimately, successful value investing boils down to knowing as much as one can about the company and the business and ignoring the hype and noise. Data is available everywhere, the trick is to find information and insight. Stock research tools can help the process, but you have to know what you are doing and your investment approach needs to be right. Build your own process, and then codify it in your investing checklist that you refer to often as you investigate new stock ideas.
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