ProThinker Services for Institutional Investors

Japanese version

Chinese version

Why is ProThinker able to add value to Institutional Investors?

ProThinker provides quantitative stock analysis reports that are objective, accurate and verifiable.

Objective – Valuations carried out by analysts may have upward bias because of the fear of offending the management of listed companies. Since our reports are quantitative-based, we are able to provide you with reports that are objective.

Actionable – It is possible to value stocks based on different methods. For example, stocks could be valued based on their earnings, sales, cash flows, book values or dividends. However, valuing a stock by different methods will give you different values. Take for example the valuation of Apple Inc as at end 2019. These are the different values of the stock based on different methods.

Depending on which method you choose, Apple’s stock could be grossly undervalued or overvalued. The range of values is too wide to be useful for investors.

ProThinker also uses multiple methods to value a stock. However, instead of giving you many values, we test all the different combination of indicators and give you the one combination that best explains the stock price. Usually, no single indicator can explain a stock price sufficiently.  For example, some investors may look at a particular stock’s Price to Earnings while some may look at Dividend Yield. Therefore, a stock’s price is often affected by different indicators at the same time. Rather than guessing which indicators explain the stock price, we let the data find the combination of indicators that mathematically explains the stock price best. This combination approach almost always explains the stock price better than any single indicator.

Verifiable – When valuation indicators are used by itself rather than in combination, different values arise, and investors are forced to choose which indicator to use, often without back-testing to make sure that the indicator they choose has explained the stock price well. We plot our chosen composite indicator together with the past stock prices so that you can verify the accuracy for yourself.

To illustrate, the Composite Valuation Indicator for Amazon’s stock is plotted below. We can see how effective the Composite Valuation Indicator has been in explaining past stock prices and therefore can have the confidence to rely on it to predict future prices.

How is ProThinker able to add value to Institutional Investors?

  • Objective, Quantitative-based Research

Stockbroking firms may be reluctant to recommend sells or give low stock valuations for fear of offending the management of listed companies or for fear of losing investment banking business. Furthermore, analysts tend to herd together and give similar recommendations and target prices for fear of being the only one getting it wrong. Institutional Investors that rely heavily on stockbrokers’ recommendation may be susceptible to these types of biases. We are able to provide you with reports that are objective because our reports are quantitative-based and we are not affiliated to any investment bank. With large amounts of money at stake in investments, it is worth getting a second opinion on your stock recommendations.

  • New Stock Ideas

Portfolio managers usually read the research reports of analysts and then make a decision whether to invest in a stock or not. Using this method, the portfolio manager will be considering the same stocks that many other investors are considering. And the stock price may have already reflected the higher investor interest. Why not look at attractive stocks that not many investors have noticed? With so many stocks listed in the stock market, why be limited to the small number of stocks that are well covered by analysts?

Total number of listed companies

For each market, we typically can generate few hundred more stock reports than the traditional stockbroking houses. This allows you to move beyond the same stocks that everyone covers. The market for these stocks are already efficient and mispricing opportunities are few. We provide you with reports that you cannot easily find elsewhere and open up a whole new arena of untapped investment opportunities.

  • Intelligent Stock Screens

Our combination stock valuation approach allows us to do stock screening in a much more effective way. The usual method of stock screening is to look for stocks with low Price to Earnings or Price to Book, etc. However, different criteria will produce different lists of “cheap” stocks. You will have to choose which list to rely on. If you want stocks that are cheap on all criteria, you end up with very few stocks or nothing to buy. You would also be unnecessarily filtering off stocks that are attractive. For example, a cheap technology stock may have low Price to Earnings but its Price to Book will be high. Our stock screens, which uses the combination method to value stocks, gives you ONE consistent list of interesting stock ideas to do further research on.

  • Portfolio Analysis

Our stock valuation methodology can be extended to analyze your actual portfolios. Below is an example of analysis done on the top 24 holdings of a Value Fund to determine risks of overvaluation, earnings growth potential and the likelihood of the portfolio appreciating in value.

Price Earnings Ratio Band for Sample Value Fund

For portfolios that are managed in relation to a benchmark, our analysis compares the portfolio’s profile vs. the benchmark’s profile to help the Portfolio Manager determine if his portfolio is likely to outperform the benchmark.

Performance of Sample Value Fund vs. S&P 500

  • Risk Management

The conventional way of determining the risk of the portfolio is to see how volatile the returns have been in the past and use this to infer into the future. We prefer to use a forward-looking approach to determining a portfolio’s risks. Specifically, a portfolio faces the risk of losses if:

– Valuation is too high

– Fundamentals are deteriorating (e.g. earnings, sales, dividends, cash flows, dividends)

– Financial condition is weak

– Quality of earnings is low

These could be measured on a portfolio basis and highlighted in a graphical form.

ProThinker Services for Stockbroking Companies

ProThinker Services for Wealth Management/Financial Planning

ProThinker Services for Investment Research

ProThinker Services for Manager Selection

Request for more information by filling in this form.