I find it much easier to see and understand graphs and lines rather than a row of numbers next to each other. I have to admit that my investing techniques still needs work. So in an effort to iron out some kinks, I will now implement a spider chart (Excel calls it a radar chart) when I analyze companies.
Here is an example. Note the difference between AeroGrow (AERO) (one of my many mistakes) and Coca Cola (KO).
See what I mean? There is a big difference between looking at notes and thinking about the business and actually receiving a visual representation.
Ratings and Metrics Explanation
The scale is from 0 - 5 where 0 is the worst and 5 is the best. Obviously, the bigger the area in the graph, the better.
A brief definition of the metrics used:
- Best - 5
- Good - 4
- Average - 3
- Below Average - 2
- Bad - 1
- Worst - 0
Under Valued: 5 is extremely undervalued and 0 is overvalued. KO has a fair value so it is 3 for average.
High Growth: 5 is high growth and 0 is no growth. I would say KO has an average to below average growth rate.
Low Risk: 5 is close to no risk and 0 is high risk of losing money. Risk could be in the form of one major customer, high debt, high inventory, unpredictable margins.
Well Managed: 5 is excellent company management with 0 being sleazy managers (Enron, Worldcom)
Good Financial Health: 5 is a company that generates excellent cash and strong balance sheet. 0 is a company with huge debt, overly issuing stocks etc.
Strong Moat: 5 is an impentratable moat with 0 being nothing more than a trickle.
(I think there was little confusion with the graphs by a couple of people. These are just my metrics. The whole point of the graph is to remind myself how I saw the company at that point in time. Just because it may be 90% undervalued, doesn’t make it a good investment. All aspects have to be considered and this is just a reminder not an indicator.
So far, I only have 6 metrics but I may add more if I think they are necessary.
Also, the metrics are what you make it. Everyone has a different perception of risk, health, moat etc so the point is to hopefully bring up ideas which could help you in your own analysis.
Take everything I do and say with a grain of salt.)
Disclosure
No positions in stocks mentioned at time of writing.
Technorati Tags: aero, ko, stock analysis
Great Graphs,
How do you make these graphs. Very interesting.
It’s just a radar graph in excel.
Just create a table, then create a radar graph with the values. Very easy.
what you did is great!
It provides a helicopter view of a company.
Like what you said, everyone has different perceptions on these, so it may be better to just it to compare the business against business in similar industry.
Ren
Great way of representing the data!
The visual is a great way to present the data especially using 2 companies like you did in your example