In the 12th and final installment of the "Mastering the GuruFocus Site" series, we go over the importance of constantly asking questions, as well as some general strategy tips and common pitfalls that users may run into on GuruFocus.
This concludes the 12-episode video series, which is geared toward answering the most common questions that new users have when learning their way around the GuruFocus site. We hope you find the information helpful and informative.
If you have further questions about how to use the site, or suggestions for what to cover in future videos or articles, just let us know. Thank you for your support!
Text version:
Hello, welcome to GuruFocus! This is the12th and last episode of "Mastering the GuruFocus Site," a series designed to help you learn your way around at GuruFocus.com.
In this episode, "How to Question Everything," we cover some general strategy tips and common pitfalls that users may run into on GuruFocus.
One of the common themes you might have noticed as an investor is things are often not what they seem to be at first glance. For example, while a low price-earnings ratio can indicate a bargain, it could also indicate that the business is highly cyclical or is in permanent decline, or it could be due to some other reason entirely.
If you are considering investing in a stock, as Warren Buffett (Trades, Portfolio) said in one of Berkshire's shareholder meetings, "Just keep asking yourself questions about businesses." Asking questions is a key component of becoming a successful investor, and it is also an essential thing to do in order to successfully take advantage of the data on GuruFocus.
One common question we get from users is why certain metrics are not included for certain stocks. JPMorgan (JPM, Financial), for example, does not have an Altman Z-Score, while the area for the "return on invested capital" versus "weighted average cost of capital" only shows the former.
There are two main reasons for missing data on GuruFocus: either the company did not report the necessary data, or the metric is simply not relevant for the industry. In the case of JPMorgan, the Altman Z-Score is not useful for financial companies, so it is excluded for companies in the industry. This is the same for the return on invested capital.
Meanwhile, say the price-earnings ratio is missing for a company. This happens when earnings per share was negative for the most recent quarter; the prerequisite (i.e., positive earnings) was not reported, therefore the price-earnings ratio cannot be calculated.
Another thing that may cause confusion is when there is a value for a metric that seems like it cannot possibly be real. For example, say you are interested in Innergex Renewable Energy (INGXF, Financial), a Canadian green energy company. However, while the operating margin for this company is an astonishing 51.71%, its net margin is -15.54%. While the net margin is normally lower than the operating margin, it is not normally this vast.
If you were to take the operating margin here at face value, the company would seem like a great investment, but just like any type of data, margins can be subject to misunderstandings, unique features of the industry or even accounting trickery. The main reasons can be found on the company's recent quarterly earnings reports; it appears that Innergex has a sizeable amount of money in a hedge fund, and the losses of the stock portfolio had to be assessed as part of net income.
Another area where data may not seem to make sense is in the case of insider trading. Say you are looking at the stock summary page for Apple (AAPL, Financial). Even though Apple is a strong company, insiders have been almost exclusively selling the stock for the past few years. You know that insider selling can sometimes be a signal for upcoming trouble, but is this the case for Apple?
To determine the reason for mass insider trading, we can take a look at the SEC filings for U.S.-listed companies. GuruFocus provides a shortcut to the relevant filings, which you can find above the grey tabs on the summary page [click on "filings"], which saves time compared to searching through the SEC website or the company's own website.
If there is an alternative explanation for mass insider trading, you should be able to find it in the quarterly or annual filing where the selling took place [navigate to most recent 10-Q]. First, we can try looking for the most common reason behind mass insider trading in a trending stock – stock-based compensation plans, in which a company issues free stock to executives or employees for meeting certain goals. A quick control+F search for "compensation" shows us that, sure enough, Apple issued more than a billion dollars' worth of stock as share-based compensation in the most recent quarter. With this much stock being issued, insiders are bound to sell some on the open market for the cash.
That's all for this video! This concludes our "Mastering the GuruFocus Site" series. We hope everyone finds the series informative and helpful. If you ever have questions on how to use our site, make sure to let us know!
If you want to see more from GuruFocus, make sure to like, subscribe and click the bell to be notified of new content. Come find us on social media as well, we'd love to connect with you. Thanks for watching!
Disclosure: Author owns no shares in any of the stocks mentioned. The mention of stocks in this article does not at any point constitute an investment recommendation. Investors should always conduct their own careful research and/or consult registered investment advisors before taking action in the stock market.
