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Investing mistakes are common. They are made every day by thousands of investors looking to make a quick buck on YouTube hearsay, a Twitter tip, a Reddit forum discussion or “TikTok guru” just out of college. This leads to poor choices, leaving them vulnerable to misinformation, biases, and market volatility. It ultimately jeopardizes their financial goals.

Basically, when it comes down to it, there are many corners of the internet that prey on the inexperience of new investors, or the apathy of those who don’t see the value of proper due diligence (DD) to confirm, for themselves, if a certain stock is a legitimate investment, or just one that fits within their investment style.

Failure to perform proper DD and document findings is one of the foremost failures that investors face. Unfortunately, it is not the only mistake that is often made. Others include focusing too much on short-term gains, poor portfolio risk management, lack of buy and sell discipline and emotional biases.  Over the coming weeks, we’ll address some of these specifically, but today we are going to stick with the research theme since that is the one that in most cases kickstarts the whole process of finding the right stocks.

If you really want to consider yourself a serious investor, careful research and analysis is one of the most important aspects of the investment process that you should focus on.

Neglecting to combine all the necessary research elements to paint the entire picture of a company’s story will result in a fragmented understanding of where it stands in the hierarchy of quality. We strive to find Tier One quality companies with multibagger traits. Insufficient DD might result in putting trust in a company more akin to a Tenth Tier play set to sink. Who would want that?!

An entire company’s narrative will depend on how you can dissect crucial components such as its core financials and fundamentals, the quality and experience of company management, its history, competitive positioning, addressable markets, industry strength/trends/tailwinds, and ultimately what is in store for the company’s future. After all, the future of the company might very well parallel the future of your investment. The following would be a grave mistake to ignore.

The Research Cycle

Initial Idea Generation

With 20,000 stocks floating around in North America, it’s helpful to find a process that starts distilling this universe to a manageable amount. Focusing on microcaps reduces the pool to about 10,000. Then, applying a research process to continue refining that list can be accomplished through many ways, depending on personal preference. As I go through my research process, I put stocks in certain buckets:

  • Great stories that are currently undervalued.
  • Great stories that are not undervalued, but worth watching for a better price entry.
  • Potential turnaround or restructuring stories that I want to follow to track the progress of the restructurings.
  • Companies I probably don’t want to follow for the next one or two years because they are losing money or exceptionally overvalued. 
  • Companies I won’t invest in because they are outside industries I normally will invest in. For me, that is usually the financial sector, and natural resources like oil, gas and mining.
  • Companies I probably won’t invest in because I’m aware that they were part of pump and dump campaigns in the past or continually overpromise and underdeliver. However, I still watch them closely just in case they seem like decent companies, keeping an eye on management changes that might occur.

Having been around the investment scene for 30+ years has enabled me to test many ways to pin down viable stock ideas that trickle down to the further stages of my vetting process. I have an internal tool that’s called the Market’s Edge Market Monitor (MEMM), a full stack streaming application customized for my brand of research. It enables me to identify price momentum in microcaps, categorize and document my fundamental research findings. I’ve been leaning on it since the inception of GeoInvesting in 2007, but I have used new high research throughout my entire career. 

There’s a misconception that buying  stocks hitting new highs is counterintuitive to buying low and selling high. In reality, combining momentum with fundamental research to identify undervalued stocks going through positive change is a powerful way to find stocks that are timely. However, lots of stocks hit highs on speculation. So, it’s important to combine momentum research with other research tools to round out the set up.

So, to those that only subscribe to buying low and selling high, you can also buy high and sell higher. 

For example, in a study published in 2019, Investor’s Business Daily (IBD) analyzed the performance of the “IBD Big Cap 20” list, which focuses on larger-cap stocks with strong momentum characteristics. According to IBD’s analysis, the Big Cap 20 stocks had outperformed the S&P 500 index by a wide margin over a five-year period from 2014 to 2019, with an average annual return of 19.4% compared to 12.2% for the S&P 500.

Combined with the concept of GeoPowerRanking (GPR), buying on highs and momentum has led me to many near-term and longer term multibagger winners throughout my career. To refresh your memory, the GPR is the number of consecutive quarters that a company is expected to experience EPS growth of around 30%.

Of course, there are also stock screeners we can use to create lists of stocks that meet any criteria we define. You do have to be a bit careful when using this approach, as we wrote about here, since there tends to be some holes in the results that are spit out. So while they do have their place, they are not at the core of our research process. You just have to understand the strengths and weaknesses of screeners.

While these are a few investing tools I use, I’m very much more excited about another tool that I use in conjunction with them that will be available to everyone, which I’ll point to in a little bit.

However, it is related to what I want to to really emphasize – one of my favorite tried and true methods to build my research pipeline – reading press releases. It might not sound like a hard concept, but it definitely is one that depends on accepting that it takes a certain kind of discipline and time to develop a routine on which one can rely. It’s work, but it’s work that works.

Press releases are in my opinion underappreciated. Not only do they contain a wealth of valuable information as a starting point, but they can be combined with other sources, such as SEC filings, conference call transcripts, investor presentations and shareholder letters as cross-checks for messaging consistency or discoveries of omissions across these sources. The consistency galvanizes the findings, which is great. But it’s the omissions that are of particular interest to me. 

It can be the case that generalizations in one source can be elaborated upon in another. At times, conference calls can address an entirely omitted subject matter that doesn’t appear anywhere else on the web. So, while the press release is one outlet that can serve as an initial purpose to garner my interest, it’s the rabbit hole where things get exciting and valuable information is discovered.

As a result of idea generation through press releases, I end up speaking with peers who have connected similar dots. Yes, 3 decades has enabled me to create a myriad of valuable connections with people smarter than me, with whom I share similar investing experiences and principles. It’s enabled me to appear on podcasts where the ideas are hashed out in what I call “Skull Sessions”, or in-depth discussions that aim to identify the potential risks and rewards of certain stocks based on knowledge already gleaned and documented. It’s where I can discuss strategy buckets I use to find multibaggers backed by fundamentals and understanding risk.

It’s enabled me to attend conferences with a number of these connections where I sit on panels to present my investment theses and even speak with some of the companies that I’ve targeted for further DD. The more I participate, the clearer a company’s story becomes.

In case the tone of my message regarding press releases has not yet convinced you that the weight I put on them is justifiable, consider this. I have been working hard to develop a tool for investors who are serious about generating investment ideas much like I do, and it’s being designed to replicate my research process. I believe that it has a disruptive element to it that will open the door to making it a tool that pulls the research cart.

It’s in the early stages of testing with many great things planned for it, up to and including artificial intelligence that should blow the lid wide open for retail investors to optimize their research output and put them on a much more even playing field with Wall Street. There’ll be more on that soon, as testing will be incrementally rolled out to more and more people as the product enters future stages.

The Follow-up Research & Documentation

While reading the press release that sparked the initial DD into a stock is important, so is everything that comes afterwards, which actually (by no surprise) includes following more of the company’s releases, SEC Filings and everything else that is made public.

Well after documenting my findings from day one, I make sure that I stay abreast of specific filings that the company might make public at, such as 13Ds and Form 4s. As you might already know, I follow insider activity like a hawk. Insider ownership is so important that I reserve a spot for this criterion in my 10-item list that makes up a Tier One quality company. 13Ds are required to be filed by an individual/entity when his/its percent ownership of a company exceeds 5%. Form 4s are to be filed by company insiders who purchase or sell company stock, or when stock options vest after a certain period of time as defined under the terms of options issuance to the individuals.

I regard executives who buy large amounts of their company stock in the open market more favorably, but I obviously can’t get too far ahead of myself. Just because he or she owns a large stake in the company does not mean that they are great at managing it.

That is why, as part of my research process, I have been laser focused on interviewing management teams through events such as FIreside Chats and Management Morning Briefings. It’s their job to convince me that their company is on the right path to increasing shareholder value.

I’ll admit, it’s helpful to have a platform to showcase how I go about my research. My team and I have spent years religiously publishing notes to GeoInvesting’s Pro Portal. It serves as an example that documentation is an integral part to the process since it enables us to revisit a sentiment we might have had on a certain stock in the past, as well as revisit the overall narrative as to why we covered it in the first place. A great example of this is our recent highlight of, and interview with, Pioneer Power Solutions, Inc. (NASDAQ:PPSI), which you can find here. Take particular note of our history with the company.

Recently, through another venture of mine, MS Microcaps, I’ve added CliffsNotes to my arsenal of methods that makes for a more complete research process. It’s an added level of journaling my immediate findings on a stock, consolidated in an easily digestible yet detailed format so as to make revisiting the initial discovery easier.

I honestly hope that I can help other investors learn that mistakes can be avoided, and how this can be achieved through proper research and documentation. I’ve really only covered the tip of the iceberg here when it comes to research processes. I’ll have more on this later, discussing some examples or case studies where trusting the process led to great outcomes.


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