Advice and instructions for choosing a company
Here are some advice in choosing a company that you would
like to follow/analyse (in priority order). You can of
course follow many companies but you can reserve only
one at a time.
Advices in priority order
- Choose a company that you know well and
are interested in.
You should choose a company that you know well and/or
that you are very interested in. This gives you best
possibities in the long-term to be the #1 analyst of
that particular company, which in turn creates you most
revenues from the analysis. (Remember that #1 analyst,
gets twice as much as #2 analyst and so on.). Of course
you can not choose company where you might have insider
information (your employer etc.). Read
more about insider information below.
- Company where you would have different view, estimates,
comments
If there is already research available in the database,
then you should browse the current research and if you
find companies where you would make different estimates
or have different view (comments) than the current #1
analyst, then you should perhaps start following that
company. If your view later on turns out to be more
accurate than the old #1 analyst, then you will be the
next #1 analyst for that company. (If your comments
are clearly better then you can become #1 analyst already
quite soon, even before the next quarter's result has
been announced.)
- Choose a company that everybody else is not following
The less there are currently analysts that have
reserved the company, the better your chances to be
#1 analyst. Furthermore if you happen to be the first
analyst that follows the company you have possibilities
to get the "Incentive
of original analyst". So if you are choosing
between two companies that are equally interesting to
you, choose rather the one where there are not so many
other reservations (or
has no other analysts following it which is even better)
than a company where there are already many analysts.
However, if you feel that you are most likely the best
expert in some particular company, than you should choose
that company no matter how many other analysts follow
it. Remember that the best analyst is always also the
#1 analyst in the long run.
Some restrictions
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You can NOT currently choose banks or insurance
companies. That is because our valuation model
is not suitable for analysing those companies. Later
on we will introduce also valuation models for those
industries.
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You MUST NOT choose companies where you might
have conflict of interests or insider information.
So you can not analyse e.g. your current employer:
it is likely that you sometimes might posess insider
information from it and therefore it would be illegal
to do and publish analysis from it. So if you work
for Nokia, you cannot analyse it. Even if you work
for Nokia's important subcontractor like Perlos
or Elektrobit, you cannot analyse Nokia as you might
have important information about its new products
that could be interpreted as insider information.
However, if you work with Nokia's customers and
see how competitive their networks are or how well
the new models of Nokia are selling, that information
is normally not interpreted as insider information
and then you would not have any restrictions to
analyse the company. You should however always ask
us (or local authorities responsible for financial
supervision like The
FSA in Finland) if you are in doubt whether
there might be any problems in your analysing of
a particular company.
Remember that it is ultimately in your responsibility
(as stated also in our mutual agreement) to avoid
such conflicts and you would be the defendant with
any juridical problems arising with such a case.
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Other things to consider
You should also consider following things in choosing
your company:
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Think about the ease and meaningfulness of following
of the company. Some companies have very complicated
group structure (like Royal Dutch Shell), a lot
of associated companies or many very different fields
they operate in (conglomerates). There are also
many other reasons why some companies are not so
easy tasks for analysts.
Furthermore it does not make too much sense to
follow some companies with a valuation model where
you estimate future earnings: e.g. investment companies
(those investing in shares) are better followed
with their net substance and they can in the short-term
"decide" their earnings each period by
realizing either their investments (inventory) under
or over the book value. In the long-run forecasting
their result would be same as forecasting the overall
stock market performance - not very rewarding or
meaningful task in this context...
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In the beginning the revenues are allocated equally
between different companies. However, at some point
of time in the future we begin to allocate the
revenues to different companies in proportion to
customer usage. Thus those companies that are
most browsed by paying customers get most revenues.
Therefore companies that are very uninteresting
do not get so much revenues than interesting companies.
Remember however that interest and company size
(market capitalization) are not the same thing.
Also small companies can be interesting - they are
not followed by dozens or even hundreds of analysts
which make them posess more upside potential than
carefully followed blue chips. Some customers will
not probably even buy the research from blue chips
from us, but concentrate on smaller companies whose
analysis they cannot buy elsewhere.
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