Personal Quip: Encoding

It's a given fact. If you're analyzing a potential investment, you need pertinent information. If it's qualitative, you need to know some tidbits on the industry and the business character, as determined by the biz model and the management. If it's quantitative, you need the financial statements and other relevant data such as sales volume and operational KPI's.

My biggest complaint on analysis is the unnecessary amount of time I spend ENCODING all the data into either MS Word or MS Excel. That's right! ENCODING.

Once encoded, the fun begins: I can finally play around with the numbers and fiddle with them how much as I place. That's the entire point. When it comes to the financial statements, I normally break down most items I find relevant, and shelve off to another worksheet data such as movement of ADA, sales volume, operational KPIs, and rollforward analyses of PPE and accum. depreciation, for me to peruse when the time comes.

I don't think I've ever seen Value Line or S&P500 do this with their reports on a company, but that's not saying other KPO (knowledge process outsourcing) companies do something similar to what I look at. After all, I've never seen the products offered by the likes of FACTSET and Thomson Reuters. (Note to self: public KPOs, if there are any, may actually be good investments - everyone's using them since nobody's got the damn time to do the encoding themselves!)

The idea is to play around with the numbers and find literally everything about the company. It's like gathering all the data first before sifting through all of 'em, one by one, wading through the useless garbage as you search for the diamonds, i.e. information that give glaring revelations on the first five elements of analysis: ability to pay debt, profitability, operational efficiency, adequate returns, and inherent stability (quantitative side).

It's even more problematic when you want at least 7 years' worth of encoding. You need to fix the balance sheet / income statement items. You need to fix up what you wanna see from the statement of cash flows, all for the sake of accuracy in your fact-finding. Never mind the risk that whatever number you're taking has been "managed" by the upper echelons of the corporate governance hierarchy.



And then there's the report making. Analysis is fun. I'm not joking here. Analyzing the company to find the information you need, to see if it's worth putting your money in based on a desired rate of return and one's margin of safety (in case you were wrong, your valuations were actually invalid or highly inaccurate thanks to the company's "earnings management" techniques that you didn't bother cross-checking, or something unexpected drags the prices down), can be sweet. Unfortunately, I believe that if you just leave it all in an MS Excel file for you to read, you encounter two problems:

1. You can't possibly remember your findings after you've left your analysis files for about a quarter or two, unless you've got an awesome memory or you've been OC enough to actually check it every week at the least.
2. If you're looking for a job as an analyst on the professional level (which can lead to wonderful careers such as portfolio managers, CFA's with financial management responsibilities, or... whatever else I missed), what's your proof you did some analytical work? All you did was crunch numbers and gather information but you didn't package it in a credible form for YOU to remember and for YOU to show it off to potential employers!

Report making sucks. But it's definitely not as boring and tedious as encoding... Unfortunately for me, when it comes to making reports, laziness and procrastination kicks in.