Monday, December 1, 2008

ThinkEquity's Ten Commandments of Research

A post about Edelheit is coming up next, but since that post will refer to ThinkEquity's Ten Commandments of Research", I figured I'd post those ten commandments separately first. These ten commandments (listed below) were also mentioned in the book Finding the Next Starbucks: How to Identify and Invest in the Hot Stocks of Tomorrow (pictured above), by ThinkEquity founder Michael Moe.

  1. Be right on the fundamentals.

    Earnings growth drives stock price. There is essentially a 100% correlation with how a company does and how its stock performs over time.

  2. Be Proactive — Not Reactive.

    Reporting what happened is what a news reporter does. We get paid to look over the horizon and around corners.

  3. When in Doubt — Get it Out.

    The difference between value-added information and a commodity could be minutes.

  4. When Wrong — Admit it.

    The best investors and analysts are wrong a lot. The worst thing to do is rationalize a mistake. Be intellectually and morally honest.

  5. The Cockroach Theory.

    You seldom find just one cockroach in a kitchen. Likewise, if you find a problem at a growth company, there are always more behind it. It's rarely a one-quarter issue — the first loss is the best loss.

  6. Research is About Information and Insight.

    Information is valuable if it is proprietary. Insight is valuable if we know what that information means.

  7. The 4 P's are Key for any Successful Growth Company.

    People, Product, Potential, Predictability. The first "P" (people) is the most important.

  8. 5 Independent Sources for Each Initiation of Coverage.

    We will have regular dialogue with company management, but they will always see the glass as "half full."

  9. 3 Main Reasons for a Stock to Move Up or Down.

    In addition, we will identify near term catalysts for price movements.

  10. Make Clients Money — and everything will take care of itself.

    ThinkEquity investment philosophy is that over time, revenue and earnings growth is what drives company valuations. Our ultimate goal is to identify companies that have high and sustainable earnings growth.

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