New York – In the pursuit of gaining original insight into companies and their future prospects a great number of multi-variant (as opposed to multivariate) models have been spawned. The overarching movement is towards greater downstream research data sources (primary data and analysis). Today, we look at models and analyical approaches that live on the fringe of the equity research world. Patent analysis, weather analytics, custom model building, forensic accounting, pschological profiling of key executives are a few of the these research approaches.
We will profile three firms today with widely divergent, though interesting, approaches to assessing the future prospects for a company, including Perth Leadership Institute, Virtua Research and finEye.
Perth Leadership Institute
One of the less obvious, but compelling, methodologies is the approach of Perth Leadership Institute. Captained by E. Ted Prince, Perth is a consultancy that has developed a psychometric system for identifying and analyzing the leadership style of managers and executives. This system, called the Perth Leadership Outcome Model (PLOM), is based on the theory that every individual has a unique and generally consistent set of personality traits, and that different personality traits are more appropriate for different business situations. The maner in which this relates to finance is called the managers “financial signiture”. By identifying those personality traits, corporations and investors can make better evaluations of a management teams ability to lead the company to success in varies business climates. An example of the analysis is whether the the CEO a risk Taker? Does he take his own counsel, or is does he lead by consensus?
Virtua Research, is a primary research provider of on-demand institutional research, including financial modeling and channel checking services. Through its wholly owned subsidiary, Reval Analytical Services, Virtua develops custom financial models for clients. The firm also provides a channel checking service called Check Work. This service is conducted exclusively through telephone surveys. Clients receive both the data and analysis from these surveys. Capabilities include competitive analysis, as well as evaluations of product acceptance and customer satisfaction.
Like many of the Forensic / earnings quality shops, finEye is a forensic analysis tool provider which offers web-based analytical tools that examine the Notes to Financial Statements and other key disclosures. The firm provides accrual analysis, based on a number of different academic models. The system allows the client to pick the model they wish to use. finEye’s software is designed to generate early warning indicators and positive insights on earnings quality and other accounting areas by collecting, transforming and applying rigorous techniques. These techniques help rank and weight qualitative and quantitative factors. Insight, finEye’s flagship product, performs analysis of earnings, cash flows, assets and liabilities, and the competitive positioning of companies to come up with its findings.
Correction to “The Challenges of Investing in Research” posted 12-11-07:
Doug Atkin informs us that Majestic Research withdrew its Series B financing because its business was growing at a rate that made it unnecessary to raise capital. This is good news, and an excellent outcome for Majestic. According to Doug “In 2007, due to a great effort by our entire team, Majestic grew the top line by almost 50% and is now solidly profitable- generating both EBITDA and positive operating cash flow. What distinguishes us from other research firms is our ability to leverage technology to build a very scalable business and most importantly produce a unique product that is valued by over 150 of the most sophisticated global fund managers.”