Culverhouse Investment
Management Group
Training Session – Spring 2015
Day 3 – Equity Research Methodologies
EQUITY RESEARCH METHODOLOGIES
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Question Everything
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Why do research?
1. The market is erratic
2. People are emotional
3. To render reasons 1&2 obsolete
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What are we trying to avoid
• Risk
– Risk is losing permanent capital
– Beta
• Beta is incorrect
– MOS saves risk
• Pay too much for something you introduce risk
(becomes a speculation)
• Larger discount, higher return, lower risk
– Taught that higher return needs higher risk
• Emotional fervor
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What are we looking for
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Cheap?
Moat
Management
Money
Unreasonable downturn
Stable capital structure
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Read
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Read
Read
Read
Eat
Read
Sleep
Read
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Starting Points
• Mr. Drunk
– Research is key
• Bottom Up vs. Top Down
– Screens
– News
– Financials
– Multiples
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Important Websites
• http://mycba.ua.edu/cimg
• Google Drive
– Watchlist and Current Holdings
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http://seekingalpha.com/
http://library.morningstar.com/
http://www.mergersandinquisitions.com/
http://www.investopedia.com/
http://online.wsj.com/home-page
http://www.sec.gov/edgar/searchedgar/companysearch.ht
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• http://www.finance.yahoo.com/
• Http://www.ibisworld.com/
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Identifying Opportunities
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Value Screens
52-Week Low Lists
Value Blogs
13-F Filings
– Warren Buffet- Berkshire Hathaway
– Seth Klarman- Baupost Group
– Mason Hawkins- Longleaf Partners
– David Einhorn- Green Light Capital
– Mario Gabelli- BAMCO Investors, Inc.
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Evaluating a Company
• Once you have found a company you need to
do an initial evaluation
• This includes:
– Reading the 10-k to learn more about the industry
and company as a whole
– Looking for competitive advantages
– Checking financial health
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Industry
• Movement
• Exposures
• Competition
– Size?
– Diversification?
– Geographic reach?
• Ratios
• Advantages
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Company
• What do the numbers tell us?
• Growth drivers?
– Organic?
– Synergies?
– Commodity exposure?
• Highly levered?
– Why?
• What is the market missing?
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3 M’s
• Moat
• Management
• Money
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