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To provide an orientation to those beginning their education and to offer a brush-up for veterans, we've compiled a guide on best practices for the investment research process. This is an updated version of an article Seeking Alpha presented to analysts and readers on how to conduct investment research. Please share your ideas below in the comments section.
The universal right way to invest may not exist - everyone has different preferences for risk, cognitive strengths and weaknesses, future cash needs, and time horizons. But you can convince readers that you have useful insight (and confront some of your own imperfections with honesty) by being transparent about your own circumstances and explaining those circumstances to your audience.
Remember, whether you're discussing your own portfolio decisions or analyzing a particular company, context is the lifeblood of investment research. Make sure you're situating the evidence you've unearthed so that someone who's new to the story can incorporate the discussion into his or her own decision process.
We believe that sound research forms the basis from which all success at Seeking Alpha follows.
If you're writing about an individual company, start by reading the most recent 10-K filing. This annual report gives highly detailed insight into company business models, recent performance, and key risks.
Don't stop with the 10-K. Use Seeking Alpha's SEC filing database to get more key primary source information. Make sure you know the benefits of going directly to the filings vs. relying on third-party data sources.
Armed with many of the details regulators have decided companies need to share with investors, it can help to contrast what you know with what the company management says in its press releases. If the narrative the company is feeding to the press differs from what it's disclosing to the SEC, there's usually a big opportunity to inform investors - the basis of a successful Seeking Alpha article.
Investment analysts need to know the difference between factual information/data and their reasoned opinions and inferences. Successful Seeking Alpha articles provide a balance of fact and opinion. Avoid rants and screeds that are heavy on opinion and light on fact; conversely, avoid recaps and overviews that gather readily available information without injecting your own independent perspective.
Analysts have a variety of approaches, but it's important to be comprehensive along two dimensions: Qualitative and quantitative information. Make sure you have a solid understanding of the fund or company's strategy and competitive position (qualitative) as well as how that strategy plays out in the financial statements (quantitative). When the connection between the qualitative and quantitative is strong, you have the beginnings of a very compelling investment analysis.
In investment research, attention to detail is key. And nowhere is this more true than in the basic but absolutely critical matter of giving proper credit to one's sources. Know when to use direct quotes, paraphrases, and summaries when presenting material from outside sources.
We ask that analysts first use resources available at Seeking Alpha (news, filings, press releases, Quant ratings and charts, etc.) when adding in source material.
The investment community abounds with variations on the cliché that valuation models are never right, but they're often useful. To land closer to the "useful" side of things, it can help to understand how different models work and when/why to use one compared to another.
Get familiar with the classic discounted cash flow model. Then, as you're deploying it, make sure you're putting discounted cash flows in proper context. Understand that cash flow estimates can be refined and improved and that caveats apply.
Some analysts prefer to use EBITDA as a basis for financial decisions. But be careful using EBITDA - it has some known flaws to go with its benefits. Check the inputs to your model - are you using traditional and often more conservative GAAP accounting, or are you making some adjustments?
Maybe you're just going with a handy P/E ratio. If so, make sure you understand how the P/E ratio works.
Investment Research in Context
Conducting Investment Research
Writing Investment Analysis
Valuation
Other Resources
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