This year, we’ve stressed the fact that the environment for investing has shifted in a way to make more room for growth plus value stocks to become a bit more mainstream. At least, that’s the way we see it, be it under the umbrella of a niche microcap segment like the one we specialize in, or a broader swath of some larger capitalized stocks that have fallen to valuations that make them attractive.
For dozens of newer GeoInvesting members who have not been fully and completely exposed to our brand of research, we felt it was high time to have another basic discussion, a refresher, on one of the main concepts we employ to pinpoint promising stocks.
This is especially important if the concept is coupled with the merits by which we qualify the stocks, as we also covered in last week’s Weekly Sunday GeoWire via a discussion with the newest addition to the GeoTeam, Sanjay, who Is relatively new to the investing world. So, we are taking him through our investment process, having discussions on the phone and video while recording the sessions to take you through his journey.
The next topic Maj discussed with Sanjay is Information Arbitrage (InfoArb). And as foreign an idea as it might seem to greener investors and new Geoinvesting subscribers, it is a bit more ubiquitous than it would seem on the surface.
After all, it is one of the most powerful tools we use to identify market opportunities that lead to multibagger returns.
So, after years of focusing on unearthing information underneath the surface to help our members consider unique strategic investments, let’s have a little review and some commentary on how we view InfoArb.
What is Info Arbitrage?
Information arbitrage is tangible intel that can be used as part of a strategy for discovering profitable stock ideas before the masses.
Simply put, you can find information that most people do not know about, yet it’s accessible to everyone. The astute investor uses this information to make key investment decisions, and is able to get a jump on early stock returns before the majority of people acquire the information, let alone use it at all.
Where Are We Looking?
It’s ironic that company filings, earnings conference call transcripts, social media, letters to shareholders, data sources, and the internet have made it easier for investors to find InfoArb and use it to their advantage, but so many fail to do so. Why? Besides possibly not having a time to go through all these sources of information, now that more information is available than ever, it’s everywhere, so where do you start?
We find the conference call transcripts to be particularly valuable resources. It’s exciting to know that when companies report their quarterly earnings, the “accomplice” to great findings might be that not-so-well-attended live conference call. The call’s transcript will then reside on platforms like Seeking Alpha and Sentieo, which we happen to subscribe to.
When it comes to company documents, those that are filed with the Security & Exchange Commission (SEC) or SEDAR (if Canadian) are also great resources for information arbitrage, if you know where to look. We don’t mind the tedium of looking through these lengthy documents since we know that most investors won’t have the patience to do so. But it is literally our job, part of our program to find the needles.
CEO year-end letters to shareholders are also majorly overlooked as a golden opportunity for a clean sweep of readily available information. They are ignored because so many investors don’t even know they exist.
These letters are not contained in company 10K filed on the SEC website. To find them, you have to either go to a company’s website, often downloadable via PDF, or if you’re a shareholder holder, you might receive the letter in the mail. The letter is contained in an annual financial update document, other than the 10K.
A wide array of topics are usually covered since it is essentially a wrap up of all the accomplishments, obstacles that were overcome, new initiatives and projects, goals and projections, and arguably the most important nugget – guidance. If bullishly unique and omitted from all other available media, it can provide great insight about what’s in store for the company in the ensuing year. As a matter of fact, one of the first multibaggers Maj ever invested in arose from reading a shareholder letter in an annual update document that he ordered directly from the company.
GeoInvesting Benefits from InfoArb
Institutions, for the most part, choose not to cover the micro- and nanocap companies followed by GeoInvesting. This has opened the gateway for us to fill the gap of missing research that investors like us have craved for decades. Institutional investors and analysts miss so much, and therefore miss out.
We are certain that they are missing out on our recently published InfoArb findings last week on a company that services data centers, and will certainly not be a party to our findings on a long-followed cloud communication company GeoInvesting favorite. Additionally, we will soon be digging into the recently touched upon InfoArb on an innovative and data-driven customer experience management company.
For more on these topics, listen to the brief discussion between Maj and new GeoTeam member Sanjay. While InfoArb is at the core of the talk, also touched upon are a formula for multibagger discovery.