We are huge advocates of doing research on companies before making an investment decision. The key to good research is getting the right information and having the tools available to speed up the process. There are several places to find information that fit those goals depending on where you are in your research process.
Analyzing every publicly traded company is not practical and it may not be possible unless you have a very large research team to do all that work. For that reason we like to implement a 3 tiered approach to researching companies.
1st Tier: Screening Stocks
The first phase is the one that results in eliminating most of the companies from the universe of possible investments which means we will be screening out stocks that are obviously not good investments. That task can be accomplished by using stock screeners. The free ones are good enough to get this done. We like the Google Finance Stock Screener or the Yahoo Finance Stock Screener. They provide enough filters to segment based on several key fundamentals. The other good option for screening stocks is to use an online broker where you have an account. Typically those brokers provide more criteria that you can screen on and may allow you to further refine the list of stocks you’d like to research further. Morningstar also has some screeners available, however, if you want access to their more powerful tools you have to purchase a membership.
2nd Tier: Quick Analysis
To get a general idea of what a company does, finding basic financial information, learn about who its competitors are, historical stock prices and charts, and reading recent news you can use free online resources like Google Finance or Yahoo Finance. Read our articles on Using Google Finance to Research Companies and our article on Using Yahoo Finance to Research Companies for additional details on what each of those resources include. Your brokerage account may also have research information available to you as part of being an account holder.
The important thing about this phase of research is that you want to learn enough about the company to either exclude it from further analysis or to proceed to the more in-depth phase of research. That is why we believe that the free resources will get you most of what you need to do that assessment.
3rd Tier: In-depth Research
If the company you’ve been researching has made it through the quick analysis phase you will need to look up additional information to complete your research before investing. The best place to find additional information is on regulatory documents such as the company’s Annual Report and the 10K report. There are several places to locate those documents:
- The SEC’s EDGAR database contains the 10K reports for publicly traded companies.
- Yahoo Finance has a section for SEC Filings for each stock that is researched. That listing includes 10K, 10Q, and 8K reports.
- The company’s website usually has a section about Investor Relations with Annual Reports and regulatory filings. There is a link to the company’s website in the summary page of the stock in Google Finance.
- Your brokerage account may have annual reports available on their website.
If you have to prioritize which document you will read first, make sure it’s the 10K report. The 10K report is an unbiased assessment of the company’s operations, financial statements, strategy, and risks. The Annual Report to shareholders is required to be sent to shareholders when the company holds its annual meeting to elect directors and has more “marketing-like” content including a letter from the CEO. Once you’ve read those documents, as well as the ones from the company’s competitors, you can use the information to adjust the assumptions that were made to determine the initial intrinsic value for the stock.
The three tier approach will work for international stocks as well, however, locating documents for companies that don’t trade on US exchanges will be a lot more challenging. International stocks may file a 20F report that can also be found in SEC’s EDGAR database, but it is important to note that the SEC does not require those documents to be filed electronically. You can check the company’s website in its country of origin to find the documents, however, make sure you are clear on what filing requirements exist in the foreign country to avoid reading information that is inaccurate or misleading to investors.