Investor's Information Sources and Focus

[xlat]

I was thinking about how an investor should follow and consider the affairs of the company they own, i.e., manage the information overload. The latest Arvopaperi (Financial Times) had a good point about the roles of different instances:

“…the company’s personnel’s job is to know where the company stands daily. Management’s table is to think about strategy and moves within a 1-3 year timeframe, and the board aims to look 3-5 years ahead. Owners should have an even longer vision than this.”

By closely following the company, there is a risk that roles begin to blur – one forgets that companies have an operating management and a board that act as our “portfolio managers” and take care of the company’s affairs. Sometimes this tends to be forgotten, and one starts to analyze daily operational activities, forgetting that the company has personnel and management to handle these matters.

So, what is important for an investor, where should the focus be directed? I would say that the company’s strategy, current general situation, competitive landscape, and “life stage,” together with the management’s capability, are the alpha and omega of everything.

Of these, assessing management’s capability is particularly difficult, but indirectly, it can be monitored through, for example, management’s communication. In this respect, it is worthwhile to watch earnings calls, where the management explains how they have managed the company and what they believe the company’s future looks like.

It is good to glance at the company’s releases; especially interim reports and annual reports are important, as they describe the company’s operations both verbally and in numbers.

Stock analyses are also a good source of information; they break down figures by an expert, look at the company with an outside eye, and bring forth various aspects of the company. If the analyst’s views and analysis give a very different picture of the company than what is conveyed in the company’s management presentations, it is good to pause for a moment and consider where such a discrepancy arises. (Good management usually knows how to communicate and present things in a way that gives the “right” picture of the company.)

With the help of all these, one should try to get “behind the numbers,” i.e., understand how the business operates, what the company’s strategy and “life stage” are, and where it is heading.

Information about the competitive landscape and other external factors can be obtained from both management presentations and analyses. Additionally, it is certainly good to keep an eye out and follow the most important financial news, through which one can stay abreast of global developments more generally.

In summary, at least the following should be monitored:

• The company’s interim reports, annual reports, and other releases
• Watching the company’s earnings calls
• Stock analyses made on the company
• More generally, financial news and articles

And above all, remember that many people work in the company every day, taking care of the investor’s wealth management (i.e., running the business).

[Rusty_Nail]

Great opening!

That’s exactly right. Unfortunately, at least for me, those roles often get completely mixed up. I tend to follow the situation with too short-term a view, but luckily I’ve realized this, and the temptation to make vague maneuvers based on daily stock price levels has fortunately disappeared.

Stock analyses often clash with this very long-term perspective. For example, Inderes’ latest Fortum report states that the undervaluation has unwound and gives a “reduce” recommendation. If one looks at a sufficiently long time horizon, temporary under- or overvaluation are irrelevant, and even the levels of hedges made for the next few years in Fortum’s case are insignificant.

Therefore, perhaps one should distinguish between the roles of a trader, an investor, and an owner. A trader considers the pressure on the buy/sell side, an investor considers the over- and undervaluation of a stock in relation to peers, balance sheet, earnings performance, risk, etc., and an owner considers macroeconomic factors over the cycle, the future of the industry, and how the hired management aligns the company’s strategy with these.

• For a trader, probably the most important sources of information are real-time bid/ask levels and real-time news from various news services.
• For an investor, company analyses, management presentations, annual reports.
• For an owner, macroeconomic events, interest rates, and general economic news, as well as company-related matters such as annual reports and various events aimed at investors/owners like Capital Markets Days (CMDs). I’m not entirely sure if an owner’s role even requires monitoring quarterly reports. An owner’s task is to change the board if the operations are not satisfactory, and from that perspective, discussions are held annually around the time of the general meeting.

[Posinko]

These days, I mainly focus on the company’s financial reports, such as interim and annual reports, and I also keep an eye on stock price movements. However, since my investment strategy is “hold in portfolio,” I don’t get rattled by small fluctuations, and over the years, I’ve come to follow the stock price curve more closely. If the company pays dividends year after year and isn’t going bankrupt, I trust that management knows what they’re doing. And if they don’t know for a couple of years, I’m hopeful that they’ll know better after a few more years.

So, in summary: I’ve noticed that studying financial data is mainly important during the buying phase – after that, I tend to lull myself into believing that things will go smoothly. Perhaps I’m lazy.

However, if dividend payments start to falter, I’ll likely consider selling, so dividends might be one of my most important metrics. If a company isn’t capable of paying dividends while also maintaining a good financial position in the market, then the company isn’t interesting → Dividends are the most important source of information, at least for me.

[Crazy_Train]

I’m reflecting here, as a Sunday evening pastime, on how effectively I use my limited time for investment-related things. I certainly spend an enormous amount of time on so-called aimless wandering. I found a suitable thread for this, so let’s type out this ramble here right away.

I tried to list information sources under different categories, with the idea that the first category would be the most important, etc.

1. High substance; read, review, take notes
In this category, I include, for example, letters from Buffett and a few others, the best of investment books, some research papers, etc.

2. Annual reports, interim reports; fuel for investment ideas
So-called must-read material to even find investment targets in the first place. These need to be read, browsed, and occasionally delved into if a potential target is found.

3. Inderes’ comprehensive reports.
Investment research from Inderes and others. Scope and quality first; I don’t always include every bank’s output in this category. The best material for deepening the understanding of different companies, business models, and industries. This category often acts as a catalyst to wade through more of category two.

4. Other company materials, interim webcasts, and CMDs with slides, plus other investment materials. Inderes’ company updates, other shorter idea papers/equity research. CEO/analyst interviews, etc.

5. Literature outside the first category, more random books, good periodicals/trade magazines, letters, research papers, industry reports, etc. You can get individual ideas from these, but the “information density” and/or scope/quality etc. don’t reach the first category.

6. High-quality blog posts and podcasts
Can be company-specific or excellent observations on any phenomena in the investment world. More fuel for other research or just random bits of information to add to the hard drive.

6. Investment social media; at its best, the absolute best material, but you must have the ability to filter it quickly. At its worst, quite a time sink, and the information density is sometimes unfortunately low.
I haven’t made a Twitter account, but occasionally I check out certain people who share a lot of good material.

7. Other financial media. Mostly noise. Personally, I spend practically no time on this.

A mention of its own for the forum without categorization. You can spend your idle time here, more relaxed investment time. After all, there are also an enormous amount of excellent posts, observations, information, plenty of material for investment ideas, good challenging of one’s own ideas, and pure entertainment on the side. Writing also sharpens your own thinking, so in that sense, this can be included as one “tool”. An investment diary is nice, but it doesn’t talk back, at least for now.

These categories turned out to be quite vague and blurred, let’s not get locked into them, let alone this order. But this was a good exercise when considering prioritization. Which of these is worth spending the most time on? Which could you spend more time on? Personally, I’ve thought about increasing the systematic nature of my search for new investment ideas, and for me, that directly means digging through interim and annual reports under category two. Material in the first category might run out at some point, but there will be enough to review for years. At some point, category two will likely move to the top in terms of time management prioritization.