The stock snapshot is designed to pack a big informational punch in the minimum amount of time, rather than snowing you under financials, ratios, and newsfeed already available on any broking platform. The aim is to allow investors to scan through the various insights provided, to rapidly triage opportunities, and to decide what controversies will be the focus of any further research. As ever, butterwire’s primary goal is to help investors deal with productively with risk by surfacing the key questions rather than pretending to have all the answers.
FUNDAMENTAL & QUANT insights: what is the “bottom-up” investment thesis?
What is the stock’s base score (or expected alpha/active return one year out -- +6.4% in the case of Fevertree pictured above), is it (green, amber or red) flagged (amber in the case pictured above), and how interesting does butterwire see it as a potential investment (interesting, interesting but high octane, better odds elsewhere or potential short)? These initial insights set the stage and guide on how to proceed through the rest of the snapshot, as investors scan for sources of controversies and what would need to be believed for the stock to perform as hoped.
The components of the base score (fitness > business vs. finances, value > stock valuation vs. management behaviour, momentum > fundamental vs. technical, and controversy > active risk vs. market beta) provide important pointers. Current sub-score trends are highlighted with up/down arrows and the factors most contributing to above (in green fonts) or below (in red fonts) average sub-scores are highlighted. For instance, a high score stock with a very low value score and very high fitness and momentum scores will point to one of two options: either the quality and outlook for the business are such that current valuation metrics fail to fully account for it, or the risk of over-paying is too high given the more precarious business conditions than reflected in the current fitness and momentum scores.
At this stage it also makes sense to have taken in the more descriptive information provided at the top of the snapshot page, such as the company’s business description, its country of risk (and underneath it the countries of primary and secondary share listings), its relative size in terms of market capitalisation, the brokers’ view score, expectations of dividend yield, etc.
Scrolling down the snapshot page, a graph of historical share price gives a perspective of how it has been evolving in relation to the company’s country and regional sector indices, while the shares’ performance surprise index is revealed at the bottom of the snapshot.
MACRO insights: how big of a “top-down” bet am I taking?
Not matter how fond of some company you may be (take Sberbank of Russia for instance, or a steel producer like Arcelor Mittal), your chances of being proven right will sometimes largely depend on things that have nothing to do with the company itself (in the case of Sberbank in 2017, this was a recovery of Russia’s GDP and a decline in the country’s inflation). “Top-down” macro calls are by nature more complex and uncertain than “bottom-up” company-specific ones, so it is even more important to know about them rather than take a blind bet. The macro section of the snapshot helps understand how big a performance driver for the stock these macro factors are, and how they are currently impacting returns relative to the index.
TECHNICAL insights: is the trend my friend?
The technical indicator graph and box assumes that a stock is “trend-following”, and so that it is likely to keep going up (or down) when its price “breaks” through a pre-determined break-out (or break-down) limit and until it reaches a pre-set exit (or stop-loss) limit. This short-term trading tool provides a “positive / neutral / negative” signal together with the signal’s current strength. It also provides the current duration of the break- out and the historically observed average duration. Lastly it gives a “confidence” index based on how profitable a trend-following trading strategy has been historically for this stock. So, for instance, when the signal turns to negative with high confidence, it makes sense to delay the purchasing a stock or speeding up its sale.
QUALITATIVE investment arguments: when a stock looks too good (or too bad) to be true...
What if a stock has a very high base score, no provocative sub-scores, no red or even yellow flag, no alerts, a high brokers’ score, low global macro score, average to good performance surprise index... and you happen to like it? Does this make the stock a dead cert that everybody in the Street would have somehow missed, or is it more likely that both you and the engine are missing something? We too don’t believe in free lunches, so we have compiled the top reasons that professionals typically put forward when asked why they are buying or keeping a stock (bull arguments), or conversely why they are staying away or selling it (bear arguments). Finding out why informed shareholders are happy to sell is a critical part of any professional investor’s research and is especially important when you (and the machine) cannot see why!
FURTHER RESEARCH and decision to pass, watch, buy or sell
Reviewing the above information represents the triage stage and leads to a decision to move on or to conduct further research. Keeping in mind the 80/20 rule (get 80% of the available information in 20% of the time), next steps consist of looking for elements that will confirm or enhance one’s initial view of the shares’ key controversies and resulting upside/downside risks. Investors may look at company presentations and reports, financials, ratios and brokers’ research notes, read financial blogs, talking to other investors, etc. The result is a decision to pass, watch (add to watchlist), buy or sell (short).