I’m an admirer and regular reader of Geoff Gannon’s articles. In one of his recent articles titled “How To Research an Industry”, Geoff discusses how he learns new industries by reading about multiple companies. I wanted to share an extra step that has helped me. Rather than diving straight into individual companies, I find it useful to first read industry overview publications. When I get a big picture view, I retain information better.
One of the initial obstacles to learning a new industry is that you’ll be exposed to a lot of unfamiliar industry jargon and acronyms. Overview publications often have glossaries. It can’t be overstated how helpful it is to have one source for new terms. If you don’t speak the language when learning a new subject, then you’re bound to get lost.
I also think that when you dive straight into individual companies, you inadvertently make a lot of uneducated assumptions. In another article, Geoff talked about researching individual companies and how one of the first things he reads is the investor presentations. Companies tend to simplify their message and highlight a couple of main points in investor presentations. With good presentations, you learn a lot in a short period of time. That would be an appropriate analogy to industry overviews. Industry overviews tend to discuss basic principles and highlight major players, profitability drivers, emerging trends and risks. Once you get a big picture view, diving into multiple companies becomes easier.
- Investopedia has an Industry Handbook. It’s very useful if you are a total newbie to an industry. To quote their handbook, “Each industry is different, and using one cookie-cutter approach to analysis is sure to create problems. Imagine, for example, comparing the P/E ratio of a tech company to that of a utility. Because you are, in effect, comparing apples to oranges, the analysis is next to useless.”
The Handbook first discusses Porter’s 5 Forces illustrated in the diagram below.
It then has brief overviews of the following industries:
- Oil Services Industry
- Precious Metals
- Academic sites are among my favorite resources. When I researched the oil industry, I was fortunate to have found an industry overview paper by a senior Harvard fellow titled "Oil: The Next Revolution". The paper starts with a list of industry specific terms and abbreviations. It then discusses oil supply region by region. Further, the author went on to discuss all of the misconceptions that were perpetuated by the “peak oil” narrative. It’s imperative to develop a solid foundation of knowledge if you’re going to invest in a new industry. If the foundation is flimsy and flawed, then investment theses are at a much higher risk of being wrong. When I was interested in Home Depot (HD, Financial) as a possible investment, I found Harvard’s Joint Center For Housing Studies website where there is an archive full of reports related to home improvement.
- IBISWorld is the largest provider of industry information in the U.S. It’s a paid service. They provide reports for as many industries as there are in the stock market. Here’s the full list. If you’re a university student, you may be able to access their reports through your school.
- For information technology, Gartner is the industry standard. It’s also a paid service. However, you can find some of their reports on the web for free. As an example, their “Cloud Infrastructure as a Service, Worldwide” report is available for free. In many of their reports, they discuss the competitive landscape and depict the capabilities of individual companies in a Magic Quadrant. You can see in the graphic below that they consider Amazon Web Services to be best in class as it relates to their IAAS (infrastructure as a service) Magic Quadrant.
From Gartner Magic Quadrant for Cloud Infrastructure as a Service, Worldwide
- Sometimes there are good industry books. I highly recommend the book “Salt Sugar Fat: How the Food Giants Hooked Us” for learning about the food industry. You’ll learn interesting facts such as how the giant food companies have scientifically maximized addictiveness and also why everyone and their mothers is opening up pizza chains. Even Starbucks is going to start serving pizza. Our country is drowning in cheese.
- Last but not least, there’s always Google. Search the industry you want to learn about, i.e. Google “automotive industry overview”. You may not get exactly what you’re looking for, but you’re bound to learn something.
Disclosure: No positions.