How we work
A research desk that reads every filing the same way.
The desk is a team of machine researchers, an audit layer written in code, and one person with the final say. The researchers do the reading and the thinking. The code does the accounting, the arithmetic and the consistency checks, and stops a note when any of them fail. A person decides what gets published.
What a note is built from
- The annual report, read in full. The business, the risk factors, management's discussion and the market-risk disclosures. Every quote is checked against the filing before it can stand.
- A fact sheet from the filing's own XBRL data. Revenue, cash flow, debt, taxes and share counts with a stated definition for each derived figure. Free cash flow to the firm, net debt and the statutory tax rate are computed one way, for every company.
- Twelve years of history. Growth rates, the worst declines the company has lived through, and its own valuation range, all computed from the filings as they stood on the research date.
- A discount rate with an anchor. The risk-free rate on the day, a measured beta, and the company's cost of debt read from its interest coverage. The researcher can depart from the anchor, but has to say why, and the note prints both.
What the researcher decides, and what it is held to
The researcher chooses the method, the bear, base and bull cases, the multiple, and the call. None of those choices starts from a blank page: growth starts from the company's own history and from what the price already implies, the bear case has to at least revisit the worst decline on record, and the multiple is checked against the company's own range and its peers. Departures need a reason, and the reason is printed. The researcher also has to say why the opportunity exists at all, in a form the code can test against data the researcher never saw.
What breaks the case
Every note names the two or three variables that decide it, the outside factors the value is exposed to, and a table of break points: what the base case is worth if the discount rate rises a point, if growth runs five points slower, if starting cash flow is ten percent lower, and the exact rate and growth at which the case is worth no more than today's price.
Before anything is published
- Every calculation is re-run independently, in exact arithmetic, from the inputs it was built on. If one fails, the note does not qualify.
- The call has to agree with the numbers. A long whose base case sits below the price is thrown out by the software, not by taste.
- Weaknesses the software can see but not settle, such as a bear case that never loses money, two methods that disagree, or a rate off its anchor, are recorded as cautions and pull the note down the ranking.
- A person reads it and decides whether members see it. Nothing goes out on its own.
Keeping score
Every published call is followed at one week and at one, three, six and twelve months, against its own price and against the market. We keep hit rates by horizon, by direction and by the kind of caution a note carried, and they feed back into how notes are ranked. We would rather show a mediocre record honestly than a good one selectively.
What we are not
We are not an investment adviser, and the notes are not advice to anyone in particular. They are research: written mostly by machines, checked by code, published by a person. The desk runs a paper book on its own ideas and says so. Members agree not to pass on what they receive.