The Investment Club "Stock Pitch" Process & Template
Since we've gone public with the research and results of our Staff Investment Club here at Stockopedia, we've published a number of in depth "Stock Pitches" that have been made at club meetings. While the pitches themselves are highly valuable research notes in and of themselves, many subscribers have mentioned how useful they are finding the "template" for their own research. So I thought it would be worth publishing the template as a standalone piece to inspire a bit of discussion about research processes.
We've tried to encourage staff to follow a consistent format for structuring their pitch - as it really helps in both the research phase and the delivery. This template has been evolving over time and certainly isn't complete - in fact I'm hoping that by publishing this we'll inspire a bit of dialogue from the community about how to improve it. The template is designed to be just comprehensive enough for someone to cover most of the important bases to really get to grips with the story behind a stock.
1/ Finding a Stock Idea
Some people find this intimidating. But to me it's quite simple. There are a couple of main approaches to finding a good idea:
- Find ideas using Databases - use the StockRanks or a sensible Stock Screen (in the Club we are using the basic rules StockRank > 75 and MktCap > £20m) on Stockopedia.com to create a shortlist of shares to look at. Then just pick a few and get cracking looking into them. I find the StockRanks & Styles absolutely invaluable for understanding the type of share I'm dealing with and whether I want to spend time researching it. For the Investment Club we don't look at any shares with a StockRank less than 75. The stock market is a game of odds - you don't have to swing at every pitch - and historically low StockRank shares have underperformed - why bother?
- Find ideas using Scuttlebutt - scuttlebutt is a great word for social gossip or rumour. There are so many great sources for finding shares that intelligent investors are investigating. Whether via the Stockopedia Community, including the wonderful Small Cap Value Report, Twitter (my top tip - be very selective in who you follow), webinars and videos from MelloEvents.com, ShareSoc & PI World, professional publications like the Investors Chronicle which I subscribe to, and all the great podcasts out there - including this new one by Donald & Dave - who are subscribers. And of course, you can just watch the RNS every day and check for 'something new' - though many don't have the time.
2/ Gathering Resources for Research
Once you have an idea, you have to whittle it down and flesh it out by gathering some research resources. My own favourite research resources are:
- Stockopedia.com of course. It's my first port of call for validating ideas. There's so much valuable information on the StockReports and subsidiary pages that speeds up research. Beyond this there is so much gold amongst our own staff editorial and the community posts in the discussion area. And of course - there's the archive of news.
- ResearchTree.com - this is an absolutely fabulous resource for UK investors researching specific shares. Created by Rob Mundy & team, it aggregates professional PDF research reports from a variety of sources. You have to watch out because much of the research is sponsored by the companies' themselves but that doesn't diminish its value. Rob's done an amazing job and I can't endorse it highly enough for the serious investor. I know Rob well but have no affiliation. Do subscribe!
- Investor Relations websites - e.g. this one from Boohoo. If you go to the company's own website you can normally find an "Investors" link in the top navigation. If you can't google the "{company name} + investor relations". In the UK every listed company is regulated and has to provide a certain amount of information to investors (current and future) on their own website. For the AIM market there is AIM Rule 26 - you can learn more about it here. I always try to snuff out a few things from these websites including:
- Admissions Documents - normally a great read, especially if the listing wasn't too long ago. Often there's great info in here about the size of the market, the key risks, competitors and more.
- Annual Reports - the very pure investors out there will read the footnotes to accounts, but at the very least reading through CEO and Chairman statements can tell you a lot about the business.
- Company Presentations - some businesses host PDFs, Slides and Video interviews & results webinars on their IR websites. These can be super valuable.
- Announcements - yes these are distributed to many websites including our own, but they are here too.
- There are so many other great resources out there. Any of the previously mentioned resources can be valuable for any specific stock. I am also a fan of alternative data sources such as similarweb.com which tracks web traffic data for websites - these can be good leading indicators of future earnings for web businesses.
If something comes up in this gathering phase that you don't like, then just forget about it and move onto another idea back in step 1.
3/ Fill out the Template
Here's where the work happens. Once you've got an idea, and you've gathered some research you need to start making sense of it. This is a template of questions that's useful for anyone to run through when considering buying a stock. We keep iterating on the format here and the questions and the ordering of the sections... but you get the idea!
Profile
All of this information tends to come from Stockopedia.com and a bit of thought.
- About the Stock:
- What is the company's name and ticker symbol and on what exchange does it trade?
- What is its sector & industry group?
- What is the share price, market cap and liquidity?
- What are the essential metrics - StockRanks, PE, Yield?
- About the Opportunity:
- How would you classify the type of the opportunity? (e.g. using Peter Lynch Categories or our own RiskRatings/StockRank Styles. If you can't genuinely understand how and why it should make money - whether it's a turnaround opportunity or a fast compounder etc - then it's probably not a good idea!)
Business & Model
Stockopedia profile summaries are only a paragraph long - it's best to go digging here. I like to look at Admissions Documents and/or glossy Annual Reports via the company Investor Relation website, or if you have a subscription to Research-Tree.com then you can access all the broker research notes.
- What is the company history & what does it do?
- What are the key business segments and revenue breakdown between them?
- What is the business model? How does it make money?
Market & Competition
Again it's best to go digging here. Stockopedia.com, Admissions Documents, Annual Reports and broker research notes - as well as doing your own thinking!
- What is the state & size of the company's market?
- Who are the company's key competitors?
- What is the company's strategy?
- How does it derive its competitive advantage (if any)? (We tend to use this Economic Moat Framework for classifying this)
- Is the competitive advantage durable and is there any evidence of one in the financials? (e.g. using our StockReports - look for a sustainably high return on capital employed, industry beating margins etc)
Financials & Ownership
Stockopedia.com gives me almost everything I need to run through this list. It's worth noting that some companies have unusual financials, and Annual Reports have a lot of information in their footnotes. Depending on the classification of the opportunity type (e.g. Turnaround vs Growth) you may look for different factors in the following questions. Each type of opportunity needs its own checklist and blog to explain - but here are the basics.
- What is the record of growth & profitability? (StockReport financial summary - growing is better of course, but even stocks in declining industries can be good investments)
- What is the state of the balance sheet? (At a minimum I would use StockReports- reviewing MktCap vs Enterprise Value (for eyeballing net debt), Gearing, Z-Score. If there are issues its worth digging in deeper - and pension deficits are always worth checking out. Lower debt is better, but remember leverage can work both ways - so a highly leveraged business can sometimes do extremely well for turnaround investors that are right.)
- Is there evidence of historic share dilution or buy backs? (StockReports financial summary - check the average shares line - the chart tells all. Favour shares that are decreasing the number of shares in issue.)
- What is the ownership structure of the company and do management have stakes? (Major Shareholders tab and the Director's Dealings tab. We like to see evidence of good funds accumulating shares and management owning or buying good stakes )
Valuation
- How does the relative valuation compare versus industry and sector? (I find the StockRanks and Traffic Lights are essential for a quick snapshot - but also viewing the actual sector/industry group pages as well as the Compare Tool is very helpful for an assessment of relative valuation)
- What is the intrinsic valuation of the business? (Rather than doing a DCF myself - I like to read ResearchTree.com analyst reports - it's a brilliant resource )
Trends & Catalysts
By now you will have snuffed this out from scuttlebutt, annual reports, analyst reports or alternative data sets.
- Are there any significant macro trends that the business is benefiting from? (The trend is your friend)
- Are there any catalysts could drive a rerating in the medium term? (There's opportunity cost in the stock market - buy shares when there are catalysts for reratings due)
Risks, Threats & Hurdles
Similarly, by now you will have snuffed this out from scuttlebutt, annual reports, analyst reports or alternative data sets.
- What are the biggest risks, threats or hurdles that the business may face?
Recent Trading & News
This is probably one of the most important things to do - there are great news resources out there including the one on Stockopedia.com that I do know can be improved. Just create a list of dates with the key interesting summaries from the last 6-12 months announcements.
- Summarise the most recent announcements, news and trading statements and market reaction to them? (Is there a consistent trend of good news, significant events, management changes and so on that might be triggers for future growth?)
Sentiment
To find sentiment out, I'll use the broker consensus charts on the StockReports here on Stockopedia, but also ResearchTree to find recent broker comments, as well as checking all the social media sources for general sentiment.
- What do the brokers currently think and are they upgrading estimates?
- What is private investor sentiment at the moment?
- What would the person selling to us be thinking and who are they?
4/ Summarise it
I'm now encouraging everyone to write up a TLDR - (an acronym for "Too Long Didn't Read") at the top of each pitch. You know the pitch well, so you should be able to summarise it in under a minute!
TLDR;
- A brief one sentence summary of the pitch idea
- Bull Points - a set of three to five key positives/catalysts
- Bear Points - a set of three to five key negatives/risks
5/ Pitch it
Nobody gets off that easy. By the time you've done all this work you might as well pitch it - yes via video link or in person - and put it up to a vote!
I hope this has been helpful as a summary... feel free to copy it for your own research process if you feel it's helpful.
It would be great to know what we've missed.
How do you yourself organise your research for shares?
Please do add your comments below.
Disclaimer
This is not financial advice. Our content is intended to be used and must be used for information and education purposes only. Please read our disclaimer and terms and conditions to understand our obligations.
24 comments
Hi Ed, yes interesting article but I was wondering about holding period and selling, I could not see any mention about them. Are these reviewed on a monthly basis or do you intend to hold for a certain period such as 6 months or a year?
Yes Herbie,
I agree. I think it best for all traders & all investors to have in mind a planned holding period before they buy anything. After all, there is a tremendous difference between 5 minutes and 5 years! And the planned holding period should be a good match to the characteristics that one would be looking for, or trying to avoid. I'm sure many of us have heard the joke "What is the definition of a long term investment? The definition of a long term investment is one that was originally bought as a short term investment. But it didn't work out and has now become a long term investment!"
Hi Ed
Excellent posting, thank you.
Would it be possible to offer the writeup in a PDF form at all?
No worries if you cannot do this though.
Regards
Howard
I really appreciate this new part to stoko,my zulu stratedgies had led me to several of the cos. you selected,and articles recently have pleased me ,took up NCYT on Jack's first writeup,and increased again after Keelan's excellent analysis. Loopup was in because of IC. S. Thompsons,comment as was VLG. So following some of the comments you make plus own zulu sieves cos..
One thing I hav'nt seen covered is when to sell ?? Do you have a plan?
For instance I heve been thinking about NCYT, have decided should?? the holdings get to 100%[overall 70%+ currently] take 25% out. Should it do another 100%??? repeat with another 25% sale. This is simply for this type of company, ie in the right place at the right time. This again comes from a stoko article with one of the big US investors[sorry name escapes me] and is my way of interpreting his selling comment. My normal way is to stay with it while the growth story is complete,and the sieve figs continue to rise.
Last year was my high point 38% gain,best I've ever done after 25 years of investing.To put this in perspective, I read what was going on with Covid, and it seemed a nasty form of flu ! how wrong could one be????? When the market was hit .lost all last years gain plus another 150K. however have completely rebuilt portfolio,and now within £80K of this years start. Portfolio now consists of profit making cos. that have a good chance of continuing business, possibly being enhanced because of Covid,and our new way of doing things. Thank you,and your staff for all sorts of insights which add to ones own investing stratedgy Cheers stay safe Tony
Found it very useful - my version below
1/ Finding a Stock Idea
Three critical timeframes for running winners and cutting losers Croft 2012
Short term (1w to 2m) prices tend to reverse their previous trend.
Medium term (6m to 1y) prices tend to continue their previous trend.
Long term (3y to 5y) prices tend to reverse their previous trend.
Select from top 6 month performers
after eliminating “Highly Speculative” stocks, the four negative Stock Styles, and the bottom half of Stock Ranks
Reducing to a list of 100 by a minimum 6 month price growth. Currently about 80% and set at no less than 20% regardless of number on list.
2/ Gathering Resources for Research
Stockopedia.com Allows me to filter to the criteria above.
ProTA my charting package for Trend quantification
3/ Fill out the Template
The template so far has a list of companies with
6 month growth
Profile
Single factor focus with “Junk” - Highly Speculative and negative style eliminated.
About the Stock:
What is the company's name and ticker symbol and on what exchange does it trade? ASX only for me.
What is its sector & industry group? Of no interest in a concentrated folio limited to less than five positions.
What is the share price, market cap and liquidity? Liquidity is considered by Average 3 month volume, time current close, divided by $A20,000; and an upper cutoff of say $A 1.5M (for large value folio simulation)
What are the essential metrics - StockRanks, PE, Yield? Handled by SR >= 50, and price growth rate.
About the Opportunity:
Medium term (6m to 1y) prices tend to continue their previous trend and performers on the list of candidates.
Business & Model
Not considered for Selection, may be aprt of story to explain performance after purchase.
Market & Competition
Again a post purchase performance explanation factor.
Financials & Ownership
6 month price change is one of the least manipulable pieces of information.
Recent Trading & News
Pre purchase announcement check for items that say no to entry.
Trend & Sentiment
Given the common use of 200 and 50 day times these two moving averages on a chart, shaded for “Gold” and “Dead” are the first factor
Using the 50 day time I’m comfortable with a Linear regression fir with a + and - 1 Standard Deviation Envelope; could also use a “Bollinger” or similar model.
Closes under the Lower Deviation are classed as “Out”
Closes above the Upper Deviation are classed as “Too Hot to enter”, reversion to mean.
Price return from “Hot” could lead to an Entry if followed by a “Hook up”.
“Hook” below the Regression line and above the Lower Deviation indicate an “Entry” Signal.
Close in the Envelope indicate Hold if rising or In but no Entry if falling.
4/ Summarise it
The summary is only made for an action possible Stock and consists of:-
Ticker & Name
6 m growth Rank and rate
Entry signal - under mean or return from Hot
5/ Pitch it
When the operation has investable cash the action is based on the rank order of competing pitches, till all cash is in market
The folio of between two and four positions with no cash is reviewed :-
Has any position returned 40% or more since acquisition under a year ago?
Sell worst performer and put funds into this position.
Is any held position at a lower rank than the pitch candidate?
Is the position held returning more than the pitch candidate?
If yes pass pitch, otherwise sell and fund pitch
Hi timk,
Your process seems to be thorough and well thought out, and is no doubt very profitable. For me, following it would have the disadvantage of requiring much more time and effort than I would be willing to spend, as I like to keep things simple.
Thanks. Agree it does take time. tiim
Ed This is great stuff! Every investor should have both a strategy and a process. There is a great process coming through with your club. But what about the strategy that determines the process? Are all the club members supposed to have the same strategy? I think there should be a brief strategy statement for each pitch. Maybe they are all the same strategy or they are diverse strategies? To illustrate the point I provide my strategy statement "WHEN MARKET CONDITIONS ARE SUITABLE, BUY (AND / OR HOLD) UK GROWTH COMPANIES AT A REASONABLE PRICE WHEN THEY ARE SHOWING POSITIVE MOMENTUM" Sorry for all the capitals, I'm not shouting, it's just a bad habit I have of not switching between upper & lower case. The main question is " What is the strategy?"
I am keen to include a Technical Analysis assessment of the stock to the template. TBH I don't buy shares below their 200d MA myself - but the club dropped that rule in the March selloff madness. I like to see little overhead supply and ideally a sound breakout from a base with volume confirmation. I have been doing the same ever since I read Stan Weinstein's book 20 years ago. Classic example was Novacyt Sa (LON:NCYT) 's recent move.
That would be really useful. Totally in agreement with your thought process.
Hi Ed,
Excellent summary for what to look for-I agree with all that has been said.
As a former financial advisor who met with many senior fund managers in my time, I slowly started to realise the edge they had on us(fund managers) was their ability to access some amazingly bright minds around them-yes "they pulled the trigger" and sized their investment portfolios but what you realise as you get older is that if you do your research and have conviction in your process then you don't go far wrong. The temptation is to dive in and out-and that is a recipe for disaster... What you have provided is a great template to help the masses.
I enjoy the "sounding board" of Paul's small cap updates and the interesting comments on the message boards.
I wonder how you feel about regional gatherings (the Mello online is great) but nothing quite beats the cut and thrust of folks in a room-Covid-19 not withstanding.
Best wishes,
Mark
Morning all, and thank you Ed for your positive words about Research Tree.
I feel I can't let you get away with being so nice without a brief comment on Stockopedia! We came on the scene around five years ago and launched Research Tree driven by the strong feeling that investors needed better access to research. In learning about the landscape I rapidly came across Stockopedia.
I've been a subscriber to Stocko on a personal basis ever since and I say (again without any agenda) that it is without doubt one of the most useful services available.
I've always had a grudging admiration for Ed's eye for the aesthetic and the way he and his team have not just packaged up the enterprise-level financial data into an easy to use interface, but also built on it with their own data and analysis, as well as providing the fantastic daily commentary from the likes of Paul Scott. It is no wonder he and the team have built such a vibrant and high quality community .
Ed, it's an excellent article, it's just what I needed and will help me enormously on my investment journey. Thank you for sharing
What an execellent wrtie-up Ed! Thanks very much for sharing. As a new investor, I'm learning that Research is key for investing.
Great write up and thanks for sharing, Ed. I've taken some of the ideas above and put them into my own research template.
It would be interesting to know what tools people are using to manage and document their research. I personally use Confluence for documentation and find it useful for keeping everything organised. It means I can create document templates and ensure everything is covered before I make a purchase. So far it's worked pretty well! I couldn't imagine going back to Word/PowerPoint/Google Docs.
Cheers
I use Excel - can plug in key quantitative and qualitative information and it pops out the buy-reject analysis for me against my criteria in green and red. A sea of red and I move on.
If a few red, I consider these 'reject' red ones carefully before I actually make a purchase. For example. P/E ratios have been high (red) for a while for companies like GAW. When I looked at other well run businesses, they almost all had high P/E ratios in the current abnormal market conditions so I put less weight on those elements that are (temporarily?) affected by the environment. This has realised significant profits, which is, of course, why we all do this.
The more I invest though in a short space of time, the less I use the spreadsheet for analysis as I can then do it in my head just scanning the info in Stockopedia. When there's a gap between purchases, it's very useful to remind myself of the system. I've even created a stock-screener in Stockopedia to automatically find me shares that could be of interest against my criteria. Powerful time-saver.
Excel's also great for tracking my holdings and overall portfolio, setting soft (viz. thinking about getting out now as it's falling) and hard stops (including easily monitoring the typical daily swings to keep stops at sensible limits); and calculating my stock and portfolio's annualised volatility. I update close prices daily and freshen my trailing stops too should a new high have happily been reached on any of my positions.
The volatility part's a recent discovery (courtesy of Anton Kreil) and helps me assess whether I'm taking too much risk when compared to my return. For example, a 15% return on a 50% annualised risk position is bad - could blow up in 6 months. But 15% return on 12% volatility means I'll be making money forever. Volatility's very easy to calculate (see Investopedia - apply two simple statistical formulae on daily % fluctuations, already builtin to Excel).
For broader information around a share I own or am watching, I don't retain my own copies but use, well, Stockopedia...! :)
What is the RNS?
RNS is the "Regulatory News Service" - it's the official newswire of the London Stock Exchange through which all listed companies have to announce any market impacting news. e.g. results, trading statements, acquistions etc etc
Thank you Edward. You have real skill, as a communicator, in putting across your ideas with brevity and logical progression.I must admit that I find the process of "stock picking" bewildering and although I can get ideas from media such as books and sites like Stockopedia - I find myself overwhelmed with the mass information available. With this in mind, I am grateful for this article for producing a template which I can work around with the confidence that I am assessing a potential share purchase in an appropriate way.
@letap - that's a very kind compliment... I'm not sure my wife agrees that I'm a good communicator - it all depends on the subject!
It's worth remembering that you can seriously overcomplicate the stock market. The reality is that building a sound portfolio doesn't necessarily need that much research into individual shares.
Focusing on a few key factors in a diversified portfolio is really the most important thing - e.g. ensuring good exposures to quality, value and momentum and diversifying across groups.
There have been academic research studies that show that collecting more information does not lead to better results.
If you gather any more than 5 key pieces of information on an investment your prediction of its outcome doesn't improve, but your confidence in that prediction does enormously. This is actually a serious hazard - as it leads to overconfidence. Overconfidence makes you more attached to your holdings, more likely to overweight them, and less likely to sell when things go wrong. It's a classic private investor trap !
So - while I'm endorsing a solid research process for shares in this article - I actually think that (in a diversified portfolio) the majority of it is wasted effort ! The whole NAPS (No-Admin-Portfolio-System) series that I write on the site is I guess my way of illustrating that you don't have to overcomplicate the stock market to do ok.
Simple can work just as well as complicated.
On the other hand, if you do take the time and effort to get to know individual shares - you are much more likely to find and stick with the true stock market gems. There are always a handful of shares that end up compounding returns - growing 30%-50% annually over five or ten years. If you don't know their story inside out, you are much more likely to sell these shares and miss out on the really life changing results.
Sorry if I'm contradicting myself - but we can't understand the world without good mental models, but all models are there to be broken.
Thanks for this, very useful indeed! It’s a bit pedantic and I’m only teasing really but in my day “snuffing something out” was a very bad thing to happen :))
Lol Peter - but to be fair snuffing out, extended the life of many candles, so not all bad!
Covers many of the points I tend to include in my own research with a few useful extras.
This is heavily focussed on how to enter a trade. Exiting one is equally important and generally gets far less airtime (which is a shame as it's tough because it involves dealing with our emotions in the face of uncertainty with measurable P&L consequences). Missing items I include are:
When I find euphoria or dismay building, I log it in my investment diary to understand reasons and try to disengage the emotions. For me, this has helped to avoid selling near a low or buying near a high.
Excellent post.