Friday, October 15, 2010

The Info's Getting Worse

When Ben Graham was researching stocks, it wasn't easy to get information. Companies did not have to disclose the kind of info we take for granted today, and 3rd party analysis that was independent was hard to come by (okay, maybe that one's still a problem). Investors would have to send for snail-mail financial reports, and/or visit libraries to manually access printed data that was several weeks or months old. Today, all that info and then some is available to investors at the click of a button. But the challenge to investors has merely transformed from one of data availability to that of data filtration. With the plethora of information available, investors must determine how to identify sources of relevant information without getting bogged down by the irrelevant. That is getting more difficult!

One example illustrating this issue is the easy-to-use Google Finance, which is a powerful tool for investors despite some of its inadequacies. Whereas Google Finance used to contain useful, recent articles about individual stocks on the right-hand side of its individual stock pages, it now appears to mostly contain a large dearth of automated articles describing trends, MAC-D's, and moving averages leaving no room for articles that actually the discuss a company's business situation.

For example, articles from "Comtex SmartTrend" keep popping up on individual stock pages, discussing stock price trends, whereas articles discussing the company's prospects are nowhere to be found! As another example, consider this possibly automated article on Nu Horizons, which last month agreed to be bought out at $7/share (and therefore trades at $6.96 today). The article discusses Nu Horizons' upcoming earnings and how it might impact the share price, completely oblivious to the buyout and the fact that the share price is tied to the buyout price.

What used to be a good source of relevant information for value investors has turned into a far less useful resource. Are readers experiencing the same problem? How do you find relevant, value-oriented information about the stocks you follow? I have found following a bunch of value investors on twitter to be very useful in increasing the amount of relevant information I come across. What methods do you use?

6 comments:

Parker Bohn said...

I know, isn't it great?

By all rights, technology should make the market efficient and kill the value investor's edge. But human foolishness seems unstoppable, which is much to our advantage.

Inevitably, AI software will get into value investing, and that actually will kill our edge, or at least eliminate the obvious financial statement bargains that many of us search for.

Paul said...

I try to visit a lot of blogs and forums. I try to read barron's and WSJ. I'm thinking about getting a subscription to FT sometime too.

Speaking of ideas. Saj, have you looked at these TARP warrants on the banks? Now, banks are certainly a scary place to be right now. However, these warrants go out about 8-9 years. They also include provisions for reducing the strike price if the stocks pay dividends over set amounts. Most of them that I've found have reasonable strikes. The stock might have to go up 50% when you include the warrant price to make any money, but a 50% return for an 8 year option certainly seems doable to me.

Anonymous said...

Yes, Google finance now is full of Junk information now. And you can't even report them or filter them.

Nick Waddell said...

This is precisely why value investing continues to work; things constantly pop up to obscure the simplicity of it.

Saj Karsan said...

I have not, Paul. The only thing I would recommend is that you attempt to ascertain a value for the bank to ensure you are getting a deal.

Paul said...

saj,

these are certainly more speculative investments, ie it's really hard to estimate the intrinsic value. But, there does seem to be someone of a mispricing. HIG warrants have a strike price of $9.79. The are priced around $15.24. So, the stock has to be priced around $25.03 over the next 8 years or so to be worth anything. Sock closed to day at 23.73. The Jan 2012 $10s are at around $14. 2 years vs 8s for only $1 more? But the hard part is estimating the IV.

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