How to Think Like an Analyst

Understanding as much as you can about a potential investment is one of the core principles of successful investing. Part of that process can include poring over lengthy reports from equity analysts, whose job it is to analyze the heaps of financial data and public records of companies. So just how do analysts tackle their research? And how can we, as individual investors, adopt some of their successful strategies?

We asked two former equity analysts for some of their top tips on how we can really get to know companies – beyond analyzing the core numbers and ratios.

Here's a collection of the most interesting tactics they shared:

1. Talk to employees. This is especially doable if you're considering investing in something like a coffee or fast-food chain, or maybe a retailer. Conversations with people "on the inside" can shed light on a company's culture, employee relations and more — all factors that can play into how you view a potential investment.

2. Do your own site visit. This is easier to do if there are retail outlets associated with your investment candidate, but online searches may bring up video tours of places like mining sites, factories or other less-accessible spots. Keep in mind, depending on the source of the video (for example, from the company itself), you may only be getting part of the bigger picture. However, an actual site visit could give you a feel for how customers are treated, what merchandise they're selling and even insight into health and safety practices and other processes. Again, likely not what you'd base your entire decision on, but perhaps worthwhile information to have in your back pocket.

3. Evaluate quality for yourself. Does the company you're considering offer a subscription-based service of some sort? Is there a paywall? You might consider signing up for a free trial to check things out. In your opinion, do they offer good value? How is the company's customer service? Quality doesn't always correlate to higher or lower stock prices, but your findings could play into your decision-making process.

4. Go to an annual meeting. Yes, annual meetings can often be well-oiled PR machines, with companies presenting their stories however they see fit. However, seeing management face-to-face can give you some insight into personalities and the relationships between key senior players. Plus, you never know when someone may go off-script!

5. Check out regulatory filings. We get it, lengthy regulatory filings can seem overwhelming, but there can be a lot of really valuable information in there. (And you may be surprised to find more plain language than you expected!) You can find filings on company websites, as well as two other key online resources: SEDAR (System for Electronic Document Analysis and Retrieval), where Canadian companies must report their securities-related information, and EDGAR (the Electronic Data Gathering, Analysis, and Retrieval system), for U.S. issuers. Alongside financial results, companies also issue MD&As (Management Discussion and Analysis), which go beyond the numbers and often venture into trends, risks and more.

6. Call a union representative. Okay, maybe not for everyone, but you can do some digging to see if a company or its employees are unionized and check out how relations are between management and the union.

7. Talk to your network. Friends, family and colleagues can all offer interesting external perspectives and help validate or disprove a viewpoint you've reached. As with many things, our networks can often help uncover ideas we've never even thought about.

8. Have a long memory. Analysts often follow companies over a number of years and don't easily forget promises or guidance that management has provided. It's a good lesson for investors, too. Remember what executives said they were going to do, and follow up to see if they've done it. You may not have heard specific comments in person, but you can generally find recordings and transcripts of past meetings to determine if new messaging differs significantly from what's been said in the past.

9. Keep records. Keeping a log, journal or spreadsheet can give you a quick reference point for new ideas, or for things like why you chose to buy, sell, hold or take a pass on your investment ideas in the first place. It's something that can help you keep emotions out of your decision-making, plus it can only help with the previous point…having a long memory.

In the end, all of your on-the-ground research may not align with what the numbers are telling you. The numbers may be great, but you might be noticing red flags elsewhere — or the numbers are underwhelming, but you think the company has potential. That's when decision-making really gets personal; your investing style, risk comfort level and portfolio needs all come into play.