What is facts + logic?
Unlike the many blogs delivering stock deep dives, facts + logic focuses narrowly on what matters at the current price. I deliver this analysis with an unhealthy dose of foul mouthed pontification. Why? Because…
Most research is unfit for purpose
I worked in several value shops and was mostly frustrated. Analysts feel the need to know everything about the companies they follow. Yet ask them “what really matters?” and they’ll tell you just one or two things. Why? Extensive knowledge makes PMs feel comfortable, and when PMs feel comfortable they put your ideas into their portfolios.
Yet analysts are a fairly homogenous bunch, mostly following variations on the standard process, which looks like this:
Gather the same information from the same Ks and Qs, Wall Street Street reports, business press, management, customers and vendors.
Organize these data with the same frameworks learnt at the same business schools.
Create the same three-sheet DCF models with the same bull/base/bear cases.
Use subjective judgement to probability-weight the scenarios.
They’re unwittingly just replicating each others’ work.
Same information + same process + same reasoning = same conclusion.
When you gather the same facts as the other market participants and analyze them with the same process, you should get the same answer. If you don’t, you probably made a mistake in your analysis. Can you expect this to create alpha?
Deep research is (mostly) a waste of time
Mr. Market shows up every day already having already weighed the facts and given us the stock price. Our job isn’t to figure out the “right price” for every stock in the market. It’s to find a handful of cases where Mr. Market’s price is wrong.
While the standard process is fine for valuing businesses, it’s not well suited to testing Mr. Market’s prices. For one, it doesn’t distinguish between relevant and irrelevant information, which is a function of current price. For another, it relies too much on subjective judgment for weighting possible outcomes.
We need to tell quickly whether Mr. Market’s price is within the range of plausible fair values, so we can move on. From time to time, we’ll spot a price that’s reached the point of fishiness. Then we can dig in to see if there are one or two things we can know with high confidence that lead us to conclude, it’s got to be worth more than that.
In hindsight, value investments never work out because we knew 500 things about a company and we intuited the right probability-weighted scenarios. They work out because we were right about the one or two things that actually mattered..
facts + logic: it’s what matters
At facts + logic, I write about what matters for a given security, at a given time, at a given price. I discuss whether or not it seems interesting and is worth a deeper look. I boil stocks down to the most important questions. Answer them yourself and generate some alpha. Or upgrade to a paid subscription and read what my proprietary sleuthing turns up.
