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Summary Social media has given us a lot more information than what we had bargained for. An intelligent triangulation from multiple pipes of data helps infer several qualitative factors about a business. This information cannot improve predictive modelling but can make one aware of hidden risks and the proximity of those. As someone who has been interested in the convergence of forensics and investing, I have been wont to look at data and numbers from multiple perspectives. Enough and more research is available online on how to analyze financial statements, numbers and other publicly available data. I have little else to add to the well-honed views of experts. However, with the advent of social media, there is a yet near, yet so far source of priceless information that’s available to a lay investor – in fact, it often gives you a richness of information that traditional passive and non-interactive media seldom give you. For example, even as I started typing this, I watched a YouTube video of a CEO of a public company that I am tracking talk about the fact that he was confident of “doubling revenues” this year given the improvement in HR related software (the videos are here and here ). Now be patient, watch through them and – that’s quite a Freudian slip amidst surprise, surprise an audience who probably were least interested in the stock price of the company – a bunch of developers, software engineers and the likes. For what it’s worth, it got me to get a higher level of conviction than before on the stock. This got me thinking about the availability of surfeit of information on the web. This article was born out of my desire to build upon techniques to scour for information from the web and use them to build a hypothesis. I do not have the slightest doubt that equity research the way we see it is going to get redefined through a flow of information from a pipe that’s seldom noticed yet is thick and full of flowing liquid that is increasing by the day. I would be the first one to say what I am going to illustrate sounds very clichéd and very common sensical but when you put all of it together, it adds to a richness of perspective on the company and management that is not always intuitive at first sight. Facebook (NASDAQ: FB )/Twitter (NYSE: TWTR ) Look for FB profiles of the company and the news articles/posts by the company. These often are lead indicators of how the company is progressing in launching new products etc. For example: Buzz about new launches/products: A media company I track had announced the launch of a new TV channel with much fanfare. Also look for Facebook profiles of its senior management and those of its key shareholders. These often serve to indicate their interests in worldly matters related to the company. Behaviour off the spotlight : The son of an up and coming company was seen posting pictures on his FB account with flashy cars, bottles of liquor and women at 4 AM or thereabouts frequently – clearly, not a sign of someone who is committed to the business. Again, I am making this simplistic but look at outliers that can give you hints about potential risks or upsides. Organizational culture and ability to attract talent: Similarly on Twitter, look for inklings of persistence, aggression in business, deference to other people’s judgments and opinions. One of the things to look at is the relationship between the company’s senior management and its employees – check if the tones of conversation are one of quiet sycophancy or if there is a place for subordinates to voice dissent and difference of opinions. A micro-cap company ironically posted several LinkedIn (NYSE: LNKD ) job openings for a factory that they were opening in Vietnam and a good chunk of them were for “outward logistics.” What does that mean? That the company was getting enough orders to fill its production is an educated guess. Customer feedback and relationship between company and its customers: In case of B2C companies, another big source can come from satisfied/dissatisfied customers although this has to be taken with a pinch of salt. It’s a well-known fact that dissatisfied customers are ones who voice out dissent to the maximum. That said, look for patterns of customer service issues. For example, a famous TV channel driven jewellery retailer had had several complaints on its FB page about obfuscation of hidden charges on shipped items and about its “no return” policy. Not surprisingly, the jeweller faced a class action suit for opaque pricing tactics in the USA. While a clear causality is hard to establish, a diligent observer would have factored this risk into the equation while calculating intrinsic value. LinkedIn/Glassdoor reviews/Company blogs The most useful source of information about hiring, work culture, satisfaction comes from employee networking websites like LinkedIn and Glassdoor. Look for the following signs and triangulate data points using common sense: Recruitment – Call for openings, hiring; A healthy company is a “recruiting” company. As illustrated above, a simple analysis of the type of profiles would give an indication on the company’s focus. Profiles of mid-level managers – Often they show case specific quantifiable targets – for e.g., “drove 100% growth in e-commerce traffic for a newly launched portal” might mean that a good financial performance might not be too far away. With LinkedIn’s advanced search, it’s easier than ever to go through a sample of 20-30 mid-level managers across locations and check for yourselves what they are up to. The more loquacious ones typically rant about what they do at work and these are helpful about where the company’s focus lies. For e.g., a textile company has added a lot of people recently to its payrolls in the branding/marketing/merchandising function. What does it imply? Two things – in the immediate term, employee costs are likely to be higher and may be a launch of a brand is around the corner. For a tech savvy company, a good percentage of employees (in line with other peers) should be on LinkedIn. For a $500 MM company, having just 120 employees on LinkedIn would be an invitation to dig deeper. Job satisfaction/growth prospects – In a lot of cases, there will be obvious disgruntlements like working hours, pay, food etc. Leaving that aside, look for signs of serious stress – salaries getting delayed, lots of idling time, employees not knowing what’s going on (different from general disgruntlement) Management ratings/ratings of CEO – Look for words like visionary, aggressive, people friendliness, emotional intelligence etc. For e.g., Sundar Pichai, the current CEO of Google (NASDAQ: GOOG ) (NASDAQ: GOOGL ) is supposed to be warm, cordial and receptive to ideas but lacks vision (that’s no bad thing). That said, do brush aside some of the obvious disgruntlement that exists in every company. Signs of retrenchment/mass lay-offs – These are often precedents to big issues on top line growth. These get reflected in Glassdoor and employee reviews much quicker than the financial markets pick up YouTube videos Check for videos in the company’s official channel. These often serve as a good way to understand the company’s products, employees, culture, customer feedback and any impending announcements (new products etc.) What’s of far better use is videos showcasing their senior management in non-analyst interactions – industry seminars, talks, employee sessions. For e.g., a recent video involving the CEO of a famous, disruptor in the cloud space from India had the CEO showing extremely positive signals (in talk, body language and on their products) that in fact prompted me to increase allocation towards the company. B2B sites/magazines One of the best sources to establish credibility of a company is to look at its features in B2B magazines. I have tried with good success in tracking down the media reporters of B2B magazines and talking to them about the industry, structure, competition, trends and general reputation of the company in the industry. This has proved to be an invaluable source of information as these reporters are often close to the ringside and have an unfettered view of the industry and early view of trends. For e.g., a feedback from a regional movie producer that the lucrative movies have stopped going to national studios and only the dud films are now being picked up by national studios (given the gush of liquidity at that state level) prompted me to have a look at the library and upcoming regional releases of a famous national movie producer. Forums such as Quora/Zintro Leafing through questions on forums like Quora and professional networking sites like Zintro where one can get questions answered by experts often helps nuanced questions clarified and help build conviction on the thesis. I have used the services of a nice fabric expert (possibly fewer than 5 such people exist on the planet) and found answers to some really nuanced questions quite effortlessly over a period of a week. In summary, like in a forensic investigation, think carefully through the touch points and trails that a company and its employees leave behind on the web. Leafing through them and applying common sense to arrive at a workable hypothesis can often warn you of issues ahead of time. Summary Again, as they say, there is no end to learning. The above are only based on my experiences thus far and are only an initial framework – which I am sure would get refined in the times to come. Like Munger said, if you can wish to go to bed every day wiser than what you woke up in the morning, the results would follow. Scalper1 News
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