ThinkEquity Partners is a research centric investment bank headquartered in San Francisco (with offices in New York, Chicago, San Francisco and Minneapolis). I was looking at some of their work on a specific company, when I accidentally came across a piece of theirs, titled 10 Commandments of Research. Its a worthwhile idea set; It was only dumb luck (and fearless clicking) that I even stumbled across it.
How many of these concepts do you apply to your own investing?
1) Be right on the fundamentals. Earnings growth drives stock price. There is essentially a 100% correlation with how a company does and how its stock performs over time.
2) Be Proactive — Not Reactive. Reporting what happened is what a news reporter does. We get paid to look over the horizon and around corners.
3) When in Doubt — Get it Out. The difference between value-added information and a commodity could be minutes.
4) When Wrong — Admit it. The best investors and analysts are wrong a lot. The worst thing to do is rationalize a mistake. Be intellectually and morally honest.
5) The Cockroach Theory. You seldom find just one cockroach in a kitchen. Likewise, if you find a problem at a growth company, there are always more behind it. It’s rarely a one-quarter issue — the first loss is the best loss.
6) Research is About Information and Insight. Information is valuable if it is proprietary. Insight is valuable if we know what that information means.
7) The 4 Ps are Key for any Successful Growth Company. People, Product, Potential, Predictability. The first “P” (people) is the most important.
8) 5 Independent Sources for Each Initiation of Coverage. We will have regular dialogue with company management, but they will always see the glass as “half full.”
9) 3 Main Reasons for a Stock to Move Up or Down. In addition, we will identify near term catalysts for price movements.
10) Make Clients Money — and everything will take care of itself.
Their investment philosophy is that “over time, revenue and earnings growth is what drives company valuations. Our ultimate goal is to identify companies that have high and sustainable earnings growth and become the “stars” of tomorrow.”
Not a bad place to begin philosophically.
10 Commandments of Research,
Good Posts Around the Blogosphere
Tony Gill has an interesting post on outsourcing, and links to a paper he wrote a few years ago. The Big Picture has a great…