How long do you spend on Fundamental Analysis?

19th Jul '20 by WarrantStar

8 comments 1234 reads

Hello Everyone! If you mostly rely on Fundamental Analysis before buying, and you have a process or method that you follow, then how long does it take you to complete the process? For me it's about two & a half hours per company. In addition to this, for every share that I buy, I will have spent time analyzing others that I decide not to buy. I'm just interested to know where I sit on the spectrum of Stockopedia subscribers on this question. It would also be interesting to know your average holding period too. I tend to buy and hold for something like 6 months.

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About the Author

WarrantStar

Premium Member

I am a keen & experienced investor. I love my spread sheets, and like to think that I know what I am doing. I wouldn't be offended to be described as a bit geeky. Mostly I do well, but I always strive to do better. Married male. Born 1957 England. Good career in industry for 35 years. Been successfully investing for about 30 years. I chose to retire from salaried employment at age 57 to look after my investments. I consider myself to be quite analytical / logical / mathematical, but also take into account how the world is likely to change & how people behave. I always follow my processes before taking action. more »

8 comments

William K

20th Jul '20

Good question Warrantstar. It takes me about an hour to do the fundamentals. One can get a pretty good snapshot from Stockopedia in ten minutes (I tend to use a screen so the fundamentals I want are selected before I even start my research). I use a preset chart with a range of EMAs which also saves time. After that I look at Insider Monkey, Zacks and Yahoo Finance for latest news and to find out about rankings, insider buying, earnings surprises and that kind of thing. This maybe takes another 45 minutes. (Most of my investing / trading is done with US shares and Stockopedia alone is not comprehensive, for example it doesn't give any information about insider buying for US shares.) On the whole, the fundamentals are reflected in the share price so I'm much more influenced by price action than the standard ratios - although I don't like too much debt.

The Phoenix

20th Jul '20

Hi Warrantstar,

I spend similar time I run a screen to narrow the universe down to 20-30 stocks.

I then look further to rule out possibles if average shares in issue is increasing faster than a moon rocket, like to see operating cash flow per share higher than eps normalised most years.

I generally avoid loss makers apart from the odd punt and avoid sub 150 mil market cap due to potential market maker control and larger spreads.

Then check the chart to make sure not in a sustained down trend and normally start by buying a one fifth of overall position toe in the water with a stop normally 10% away or just under most recent support line.

Out of interest what filters on Stocko do you use and question open to any other users prepared to share.

WarrantStar

25th Jul '20

Hi Clarea, I have a number of different screens with different filters. I have one main screen which is very picky and tends to only come up with two or three results. So a pass on that main screen satisfies just about everything that I am looking for. If a get a pass from one of my less selective screens, or I want to investigate a tip, then what I do I run the main screen in reverse as a checklist. So I can see whether every filter for that company is passed or failed. Sometimes it works out that some of the failed points are not that serious, so I can still go ahead and make an investment.

WarrantStar

25th Jul '20

Hi Wilkonz, I am investing in UK shares only and with a market cap generally between £50m and £1000m. I find that sometimes the fundamentals are not fully reflected in the share price, because the market can be a bit slow to react to news when there is only one or two broker analysts covering the company.

HumourMe

25th Jul '20

Not a lot of time spent. I screen out fundamental characteristics that I don't like (high debt, falling sales, falling eps, low margins, dubious eps etc..). If the technicals pass then it is a quick check to verify the timeliness of the FA data.

I used to do a lot of FA. The market kept on disagreeing with my conclusions. Now I use screening to do the heavy lifting.

abtan

25th Jul '20

How much time I spend per stock varies massively.

Like most posters here I let fundamentals do the bulk of the work and then I deep dive into a few key metrics to make sure I'm not missing anything (eg free cash flow, debt, share dilution, director buys, etc...)

I probably won't spend more than a couple of hours doing this top level research on a company.

I think most of my successes subsequently come from tracking results and looking for things not specifically published. Usually this does take a little longer.

2 examples spring to mind:

1 - Solid State (LON:SOLI) (I no longer hold).
Last year after a results announcement, I noted the following:

"The Manufacturing Division actually posted a 5% increase in revenues and an 8% increase in Gross Margins in H2 (£8.1m --> £9.2m & 30% --> 38% respectively).
Why the company didn't focus on this and sell themselves more, I have no idea as it took quite a bit of back-reading to work that out and they could have, and should have, simply highlighted this."

When the above underlying increase was finally announced to the market, the price rocketed. I had made 3 separate purchases, generating returns between 11% and 41% and holding between 5 months and 1 year, before selling out.

2 - North Media A/s (from Denmark)

This is a random business that I would never usually buy, especially in the current climate.

However, it passed a few of my screens so I dug into the detail and could see that they had:

lots of cash,
a property (even net of debt and assuming a 25% reduction in value it was still quite valuable), and
lots of listed investments on their balance sheet (bizarrely including things like Amazon, Mastercard, Visa, etc...)

The above 3 things were worth only a little less than the company's actual market cap.
And the company still aimed to generate +£20m EBIT for the year.

As at Dec 31st 2019:

It took a bit of time to work out how many shares of each investment the company probably held on the balance sheet date, but work it out I did.

I've now set up a spreadsheet that tracks the value of the investments on their balance sheet in real time so that if they fall significantly I'll be able to sell out before any market announcements are made.

This information was of course not immediately obvious from the fundamentals analysis.

It might turn out not be the most profitable investment, but in these times I could see that the downside risk was very limited so I bought a few.

So in answer to your very simple question, yes I use fundamentals, but, for me at least, I've found that the real value lies in doing some detailed work as well.

Cheers

abtan

6th Aug '21

A bump for anyone interested in something a little different.

Last year I bought shares in a Danish Flyer Distribution company called North Media.
https://www.stockopedia.com/sh...

I know.

But the numbers don't lie and the company and share price have both done well.

The things that drew my interest were:

the large cash pile, property and securities on the balance sheet - currently valued at c.£149m v a market cap of £224m.
Cash generation (before dividends and share buybacks) last year was c£20m.
A fast growing (and profitable) digital businesses (property rentals + job portal).

I try not to read analyst notes (too many bad experiences) but given the randomness of this holding, I came across one this evening, published 1 month ago, which I thought gave a good summary of the possible upside here.

https://www.northmedia.dk/wp-c...

For full disclosure I do still hold and for the moment do not plan to sell.

Happy reading for any interested in something a little different.

Cheers

Effortless Cool

7th Aug '21

I usually build detailed models of the accounts of each company I invest in and use these as the basis to project the full accounts forward between three and five half-year periods. This involves detailed scrutiny of the last four or five years of full-year and interim results. I work off a base model but it inevitably requires considerable customisation for any new company and there are usually challenges to reconciling the balance sheet projections due to limitations in the published data.

This takes, perhaps, four man-days the first time I do it, hence it is not something I embark on lightly. I will often buy a sizeable starter position based off bulletin board research to incentivise myself to put the work in. Maintenance on publication of any announcement that will affect the projections is also quite onerous, although a lot less so than the initial set-up.

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WarrantStar

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