On our journey to democratize equity research, we occasionally come across skeptics. One common pushback centers around “access to financial data”. How, these skeptics ask, can an independent analyst ever compete with a Wall Street analyst armed with a Bloomberg terminal? Surely they must be at a competitive disadvantage? As many of our analysts can attest to, this argument overestimates the value of pure data and underestimates the abundance of cheaper alternatives.

 

Democratization of Data

Bloomberg is designed for a wide range of users, including bond and fx traders who use the terminal in a very different way.   We limit ourselves here to the case for equity analysts and investors who make decisions on the basis of fundamentals.  Fundamental analysts use Bloomberg primarily to get prices and news, screen for new opportunities, get historical data, and conduct comparative analysis. Bloomberg is indeed a powerful machine, but in practice most analysts only need to use a small fraction of its capability.

This capability can increasingly be replicated with a range of much cheaper tools that are available online. The fact is that data is a commodity, and the only challenge lies in aggregating that data in a valuable way. At the very basic end of the scale, Yahoo Finance provides prices, news and some calculated ratios. However it lacks the kind of functionality that analysts find useful. Ycharts finds a middle ground between Yahoo Finance and Bloomberg. The product is a good fit for independent analysts – a wealth of historical data and calculated ratios, as well as the ability to chart this data over time. It isn’t free, but it is a fraction of the cost of Bloomberg. One of the most valuable features is being able to plot revenues, margins and ROIC over the last 10 years. It’s also possible to screen for new opportunities using a range of inputs (see this previous post for more on screening tools)

 

Convenience Versus Accuracy

Data tools are most valuable at the early stages of research: When screening for opportunities, and when deciding whether to take a candidate forward for more work. As you get into more detail, Bloomberg rapidly looses its value, in large part because you can’t fully trust the integrity of the data. Data providers like Bloomberg have to standardize the data to some extent in order to make it comparable. There’s nothing wrong with that, but inevitably during this process some of the context and nuance will be lost. When you start looking at a company in any detail, you’re going to want to go to the source data – i.e. the annual and quarterly filings of the company. Top analysts and investors will use tools for initial screening work but they know there is always a trade off between convenience and accuracy.

Top investors also know it’s difficult to create an advantage from the possession of data alone (everyone has access to the same data after all). The real work of the analyst is in drawing conclusions and insights from that data. As Tim Insko, senior analyst at StockViews puts it “Just possessing easily accessible data isn’t meaningful without insightful interpretation”

 

Ditching the Security Blanket

While Bloomberg is undoubtedly a powerful tool, it does have a darker side. Many analysts have a Bloomberg screen up all day for the purpose of checking stock prices, news and messaging their buddies on IB. Most of them, I suspect, simply like the validation that comes with a Bloomberg machine that says “I’m a valued investment professional”. But in my experience a Bloomberg terminal can end up being a huge distraction – investors end up mesmerized by the changing patterns of red and green, together with the flow of news that comes with it. This eats up a surprising amount of time and in some cases analysts end up forgetting to do any fundamental analysis. It encourages institutions to take a short-term mindset and to react to news in a knee-jerk way. I can’t help feeling that, in many cases, ditching the terminal would massively increase productivity and help to establish a more independent mindset.

 

Unfortunately some analysts still feel a sense of inferiority if they don’t have access to Bloomberg – as if they are somehow unprepared for battle with the markets. Our advice? Celebrate your independence and allocate more of your time to doing real research and developing insights. It’s far more likely to give you an edge than staring at prices all day.

We’d love to hear views from independent analysts or investors with a fundamental approach. How valuable is Bloomberg to you, and do you think there are other online tools that can replicate its functionality?

Tom Beevers is the CEO of StockViews, a platform that connects institutional investors with a network of independent analysts. He was previously a fund manager at Newton Investment Management in London.

Join the conversation! 3 Comments

  1. There is an abundance of free info on the web. The only problem is bringing it all (or the info you are looking for) into one place to start your analysis. How I do it. I’ve written a program in Excel that downloads financial data 5 years and the last 9 quarters, analysts opinions, estimates, growth rates etc, etc., from various websites by entering the symbol. A dated video of the program which is basic since its been updated many times is at https://youtu.be/9L_bwJXX75k

    The program computes fair value, entry and exit targets, summary views of data based on your risk tolerance, HOWEVER a program can only go so far. As you noted you need to do some basic research (SEC filings etc.) to either confirm or change things like long term growth for EPS, FCF, dilution; projected earnings, FCF; industry PE or a PE representative of the company not now but in normal times. You need to determine if any headwinds are temporary or fatal so research is essential.

    I also use excel files that look for group insider transactions using the same process by bringing in data freely available and I keep an eye on how I value the overall market. Example of this is at https://iiex.sharepoint.com/Pages/ShillerPE.aspx

    Probably more info than you wanted to hear but that’s how I do it and for years it has worked out very well.

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  2. As the previous commentator noted, there is much time and effort spent going through the filings and looking for insider information. BBG aggregates everything nicely for you and even allows push alerts to be spent to you. Even the source data problem you face has been solved. BBG at this time allows you to click on its standardised data point and it will bring you directly to the source document. This allows for you to check the exact figure from the filing itself.

    The problem is more of the distractions you mentioned. It is tough indeed not to focus on the day to day swings in the portfolio price.

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  3. Using BBG you can easily see the company’s continuing operations and one-time events. The breakdown BBG gives you can’t be found anywhere else (unless of course you have Capital IQ). No free service does that for you. Even websites like Morningstar are crap compared to BBG. Of course you can go and adjust every single quarter on your own if you have the time, but that’s isn’t very efficient.
    I dare anyone to show me something even close to BBG/Capital IQ on just this one item. And I’m not even discussing all the other powerful features…

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