Saturday, February 23, 2008

* Stock Analysis - Additional Information

In the past, I have described in depth how many of the items in my stock analysis are calculated. In some instances, such as the dividend growth rate, I have provided models that allow the reader to see and duplicate the calculation found in my stock analyses.


I have made passing references that all the quantitative calculations in the attached PDF file are totally mechanical, including the final 1-5 Star ratings. This was well illustrated in the Sometimes Things Aren't As They Appear series, where the quantitative analysis ranked C as a 5-Star Strong Buy, but at the time I was avoiding the stock. In the same series, I reviewed GE and the quantitative analysis ranked it a 0-Star Avoid stock, yet I was adding to my position.

As noted in the post, a Quantitative Analysis is mechanical and inherently driven by historical results, while a Qualitative Analysis is more subjective and is the most difficult part of the overall evaluation process. Simply put, a Qualitative Analysis investigates the why and how of decision making (forward-looking), as compared to what, where, and when of quantitative research.

The bottom line: All stock analyses presented are quantitative, including the Star recommendation, and are backward looking. They assume the stock will perform in the future as it has in the past. This is generally never true. I will sometimes interject some Qualitative thoughts, which are my opinion only, but none of this should be considered a buy or sell recommendation. As always, before buying or selling a security, you should do your own research and reach your own conclusion.


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