A couple weeks ago, I wrote this post that discussed the nuts and bolts of DRIP Investing that seemed to be of interest to some readers curious about the logistics of investing cheaply. Today, I wanted to discuss with you four different resources that I regularly use when scoping out potential investments or trying to find some quick information that may be of assistance in making an intelligent decision. When constructing a portfolio, these are some very useful sources of data that I find indispensable when conducting my own research that help me make more intelligent decisions:
1. While I would never buy stock in a company just because someone else did, there are a small handful of professional investors that I follow because I respect their long-term record and general philosophy towards investing. Three such men are Warren Buffett, Charlie Munger, and Donald Yacktman. For instance, if you want to know what Berkshire Hathaway (BRK.A) is up to, click this link here and type in "Berkshire Hathaway" (BRK.B). It will take you to the disclosure documents for the company (nota bene: most smaller purchases are likely done by Ted Weschler and Todd Combs, two of Buffett's hired managers). It is of immense interest for me to know that Buffett has been buying shares of Wells Fargo (WFC) and IBM (IBM) over the past year or two. This does not mean that I'm automatically going to buy shares of either company, but does it mean that I'm going to perform due diligence on each firm. Those two companies plus American Express (AXP) and Coca-Cola (KO) constitute the bulk of Buffett's publicly traded investments, and the fact that he has been purchasing IBM and Wells Fargo recently provide fertile ground for investment research.
Likewise, I regularly check out GuruFocus to see what some of my favorite money managers have been doing. For instance, I'm always curious to see what Donald Yacktman has been purchasing lately. By clicking here, you can see that Yacktman has added to his Procter & Gamble (PG) and eliminated his Walgreen (WAG). Again, I do not use this information to blindly follow and mimic the decisions that Donald Yacktman makes, but I regard the knowledge of the additions and subtractions to his portfolio as another title in the mosaic that will eventually create a comprehensive portrait of a stock that I may want to buy, sell, or hold.
2. The website www.longrundata.com is an absolute godsend that allows me to quickly test the performance of a publicly traded security to gauge its performance dating back to 1970. For me, this service often gives me a newfound appreciation for the long-term performance of the simple yet prosperous businesses that seldom generate front-page news. For instance, a quick search of Colgate-Palmolive (CL) since 1990 reveals that the soap and toothpaste manufacturer has returned over 15% annually since June 1990. Fifteen percent! Likewise, Hershey (HSY) has returned 12.5% annually since 1990. It may not be readily apparent that large-cap producers of chocolate bars and dish soap can deliver those coveted "S&P 500 beating returns", yet this website allows investors to see for themselves the results of any U.S. stock they want. For many of my backtesting experiments, I have learned that many of the "no frills" and "no excitement" businesses truly are the tortoises straight out of Aesop's fables that eventually outrun the hares over 20+ years of time. If you believe that the past can be part prologue for some investments, the website longrundata.com can be incredibly useful to your research process.
3. It has been my experience that many data provides give the mistaken return on equity for many of the stocks that I look up. And because return on equity tells us how efficient a company is at generating profits from shareholder equity, I believe that it is important to get the number right. If you click here, you will be taken to a website that allows you to plug in the numbers for the DuPont number to calculate the return on equity instead of having to multiply and divide the net income, net sales, total assets, and total equity yourself. If you plug in the numbers straight from the company's filings, you can effectively use your own analysis to double check the numbers automatically generated by the financial press.
As a quick aside: I have found that one of the best ways to uncover an undervalued stock is to find a company with a discrepancy between my own calculations and those established in the financial media. In the past year, I had been buying shares of Johnson & Johnson (JNJ) by realizing that the true earnings per share power was around $5 per share, while many financial websites were reporting earnings of slightly over $3 per share due to one-time items that impaired earnings in the short term.
4. Get access to the Value Line survey, pronto. It is simply the best source of consolidated financial data out there. Subscriptions can cost $1000s of dollars annually, but the service is worth every penny. Additionally, there are many ways that you can access Value Line data for free. Almost all public libraries in the United States grant patrons access to the Value Line survey. For instance, I was back home in St. Louis over break. I went to the Saint Louis County Library website, clicked databases, went to 'V', and found the Value Line survey. You can see it by clicking here. And to think, all you need to do is go to the library and get a free library card to get free access to all of this phenomenal data. Investors in the early 20th century dreamed of having all of this consolidated data at their fingertips, and now that it exists, many people don't even take the time to visit a local library and mine the Value Line sheets looking for good bargains. If you're someone who appreciates consolidated reports of earnings, dividends, debt, share count information, profit margins, and future outlooks for a given company all in one place, then it is probably worth it for you to take the time and familiarize yourself with Value Line.
There is no substitute for digging up information and investment ideas the old-fashioned way by reading a company's filings. But I have found the tools mentioned above to be very helpful in my own investment research process. Let's say I'm contemplating an investment in Coca-Cola . For me, it's helpful to know that Warren Buffett has purchased 400,000,000 shares through Berkshire Hathaway. It's helpful to know that Coca-Cola makes up 3% of Donald Yacktman's portfolio. It helps me to use longrundata.com to know that Coca-Cola has returned almost 11% since June 1990. It helps me to plug the numbers into the DuPont calculator to know that Coca-Cola earns a mouth-watering 27% return on equity. It helps me to read through the Value Line survey to measure the almost linear growth in Coca-Cola's earnings and dividends per share over the past 10+ years. But note the word I used there: help. None of these data points are entirely responsible for making a buy, sell, or hold decision. Rather, they each contribute meaningful information that enables me to make the most intelligent decision with my money based on the information at my disposal.
Disclosure: I am long JNJ.