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1 April 2013

Tackling Big Data For Due Diligence in Footnotes

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Our research reports and ratings are like background checks on stocks, ETFs and mutual funds. We do the dirty, tedious work of analyzing all disclosures, footnotes and fine print so our clients can rest assured they have done their financial due diligence and have fulfilled their fiduciary responsibilities. Here are details on how footnotes affect earnings.

The technology and expertise in our proprietary research platform enables New Constructs to analyze more data on 3000 US stocks than any other research firm. Here is my recent CNBC interview on how New Constructs uses technology to tackle the big data in SEC filings.

The due diligence provided by our ratings helps clients avoid the blow ups and provide sound advice. See How Diligence Pays.

The human mind is incapable of analyzing all the data in an average annual report. Over a decade ago, I started building technology to enhance a human analyst’s ability to rigorously and accurately analyze an annual report.

50,000+ annual reports later, we have a highly sophisticated technology as well as library of key words and coordinates of where all the “bodies are buried” in SEC filings. We leverage this rich library in every filing we read or have read so that my analysts can focus on finding new, previously undiscovered issues in filings – while the machine takes care of the old stuff. A key benefit of my technology is that it remembers everything about every single item we have ever parsed to create the “library” mentioned above. There is no shortcut to building our unique expertise – one line item at a time.

My business model is very different from those of my competitors. Other data gatherers (like Compustat, Capital IQ and Worldscope) use a model based on lots of 3rd world labor (thousands of people) with very limited technology. The people parsing filings for them do not have anywhere close to the expertise or tools of my analysts.

My model is to empower with technology a dozen highly-trained analysts who bring intelligence, which is needed to see through all the new accounting gimmicks that companies use each year, to analyze filings.

Other research firms (e.g. Credit-Suisse HOLT, AFG, and EVA firms) take data feeds from the data gatherers. They do not parse much if any data themselves. Many of the analysts at these firms have not looked at, much less read an entire, 10-K in years. They have no idea what they do not know.

The fact that my analysts read all the 10-Ks means they know exactly what is happening in the filings and ensure that our clients do not get blindsided for not reading the fine print in corporate disclosures.

In summary, our technology gives us the ability to know more about quality of earnings and valuation than any other firm. We collect more data and we collect data more accurately than anyone else.

Browse General Market Comments

Featuring Top 10/89 of General Market Comments

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