Before I explain my process, let me elaborate how I pick companies for the deep dives.
My general starting point is the companies I am curious about. The goal is to build some sort of mapping of different businesses in my head so that it gets easier to connect the dots as a generalist. I am not in a hurry to pick stocks with the most compelling upside and hence the starting point is not to find companies that seem ready to take off, but rather companies that seem interesting and look destined to be around for a long time.
In my experience, Mr. Market is a very kind and generous “person”. If you do the work on a company, you will generally find the company at a valuation that seems reasonable at some point. I don’t have to chase it. Therefore, rather than looking at some crazy valuation multiple and quickly concluding it’s not worth looking at, I want to start from a place of curiosity, do my work, and if I really like the business but not the valuation, I will just patiently wait with a Bayesian mindset. If it never comes to a valuation range of my comfort, that’s okay too. We will always have plenty of companies to choose from and our failure to pick one or two multi-baggers will not be the reasons why we will not be successful investors.
Having said that, over the last few weeks, I have received multiple requests from subscribers to cover certain companies, many of which do meet my primary criterion of curiosity. Therefore, some of the next few deep dives will be about companies that some of you requested.
Let me now tell you which companies I am unlikely to do a deep dive on. It’s the companies that have real near-term question marks on their terminal value. In the long term, terminal value is a big question mark for every single company in the world (yes, that applies even to Amazon if you think sufficiently “long-term”), but it’s the near-term big question marks on terminal value that I am generally not curious about even if there are possible valuation driven opportunities there.
Let me elaborate why. If I keep doing this (and I do hope to) in 2025, I will have 60 deep dives by that time. As a single person operation, MBI Deep Dives will not be able to be on top of all the companies I will be covering. But if I cover names that do not face near-term existential questions, it will be mostly low touch maintenance coverage after publishing the deep dive. Such low touch maintenance coverage may not be optimal for companies facing severe short-term headwinds.
Okay then, let’s get to the meat of the question. How do I do the research?
It’s a very simple process. Once I select the company for a deep dive, I start with its public filings i.e. 10-k, 10-q, recent earnings transcripts, and investor presentation. When I feel I have a decent understanding of the business, I start building the model.
Once I have the shell of the model ready, I start jotting down questions I need to dig deep. It is at this point the browsing mania begins. The internet is, of course, a treasure trove of information that we will never be able to finish reading even when we confine ourselves to a very particular niche. However, despite the magic of internet, some things will still remain unanswered.
I usually reach out to Investor Relations (IR) team to get to those answers. These are obviously more of clarifying questions, and not probes to elicit material non-public information. Even after the call, some questions may remain unanswered. I usually send an email to IR team just after reading the public filings as they may give me time slots a week or two out. Given that I have one month of lead time to finish a deep dive, I want to reach out to IR sooner rather than later in my research process.
Sometimes IR teams may not respond at all given that I am not an analyst from Fidelity, and they may just brush me off as a random person on the internet. In such a scenario, I tend to rely more on my network. Thanks to my Cornell MBA network, I usually find someone in the company I am looking at. I request them to connect me to people who can help answer some of my questions.
Twitter is also a very potent weapon for my research process. Thanks to my twitter following, I can invariably come across bulls and bears on most stocks and I reach out to them to discuss the company with them. I usually try to have a good understanding of the business before the call so that I can utilize most of the call duration understanding their thesis points and why they lean to a particular direction. This has been an invaluable addition to my research process which I did not have access to before.
Given my Bangladeshi background, sometimes it is illuminating to talk to a very similar business based in Bangladesh. Of course, it is day and night when it comes to Bangladesh and the US, but the economics of the business at times can be similar in many aspects. If I reach out to someone in Bangladesh, my hit rate is extremely high, so this sometimes helps me get a better grasp of the company I am looking at.
When I start writing my deep dive, I often go through deeper introspection than when I was just merely reading or browsing through the internet. Many people think that all the thinking precedes writing while I often find myself thinking much more when I am writing. In our head, we often embellish our arguments with far more eloquence and cogency than they actually are, and this discrepancy becomes apparent when you actually start writing. Writing, therefore, is of paramount importance in my research process. It also allows me to track my thinking process years later so that I can see why I was wrong instead of relying on possibly misleading, flattering, and often self-indulgent memories.
Some people asked me what my competitive advantage is. I don’t think I am smarter than the average sell-side or buy-side analyst out there. I am, in fact, far less experienced than any lead analyst covering different sectors in wall street. That is most certainly a negative for me.
On the other hand, I am far less distracted than probably anyone working in the buy-side/sell-side. I have a rule of maximum one call per day, and I work at my own pace. No matter who you are, in this business you need to do a lot of reading. I have no investor to report to, no quarterly pressure, or some weird focus on coming up with target prices. These things do help. But there are two things I do believe give me major advantage.
First, I go down the rabbit hole according to my interest. I pick the companies that I am genuinely interested in. Even if you are an average analyst, I think you will do great work if you are truly interested in what you are doing. I do believe an insatiable state of curiosity and a sense of empowerment to follow such curiosity is a big advantage. There aren’t too many people out there who have such luxury.
Second, my interests are far more aligned with my subscribers than typical sell-side analysts out there. My bullish/bearish tones are not just theoretical exercises, but I will put my own capital at work if I am bullish on a company I do deep dive. I am sure I don’t have to explain how and why aligning incentives works in the real world. I do believe sell-side analysts can become 10x better analysts than they are now if their interests were better aligned. Again, even if you are an average analyst, I think you will do far better work if your incentives are aligned.
Some of you might be thinking how anyone can possibly think of generating above-average market return by going through public filings which are available for everyone to read. You would be surprised how many people actually read those but let me explain why my research process may make sense.
If I were playing the quarterly expectation game, I would absolutely be at a severe disadvantage as I would be competing against hedge funds with million dollars of research budget that allows them to have proprietary data. If I try to play that game and win some, it would almost certainly be entirely because of luck. Considering I am about to hit 30 and with a normal life expectancy I am expected to be in the market for another 50 years, it is perhaps a path of certainty of financial ruin as I will certainly be out of luck eventually. However, as you extend your time horizon from quarterlies to years and decades, the playing field continues to become less uneven. Even with million dollars of research budget, it will always be difficult for anyone to foresee the world five-ten years from now. In these cases, I believe any intelligent person has a roughly equal shot at success if they do the work with integrity, passion, and curiosity.
I do want to emphasize that I acknowledge the lack of experience and I do not know whether the negative outweighs the positives. We will have to let time to answer that question. But I do strongly believe that I will be a better analyst as I do more and more deep dives and build a map of so many different companies from so many different industries. In the meantime, as I know many of my readers are far more experienced than I am, I am all ears any time you have feedback on any of my deep dives.
I literally daydream about what may happen five years down the line and I have convinced myself that I will most certainly be a much better analyst after writing 60 deep dives. I just hope I am already good enough to survive till I get there.
If you want to know more about me, go to About MBI to explore further. You can also read my deep dive on Uber and Etsy if you want to read my research. To subscribe, click here to receive the future deep dives in your inbox. Thank you for reading.