ProThinker Services for Wealth Management / Financial Planning

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Why is ProThinker able to add value to Wealth Management / Financial Planning?

ProThinker provides stock valuation that is 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 Wealth Management/Financial Planning?

  • Advising on Stocks

A wealth management company may be getting its research from multiple sources and mainly from stockbroking firms. Stockbroking firms do not like 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. Wealth Management companies that rely heavily on stockbrokers’ recommendation may be susceptible to these types of biases. Our reports can provide an independent view to the stockbroker’s recommendations. Since our reports are quantitative-based and we are not affiliated to any investment bank, we are able to provide you with reports that are more objective than stockbroking companies.

Another benefit of our stock reports is that at one glance your financial advisors are able to determine which stocks are suitable for which client. This is because we have an overview for each stock like the one below.

HCL Technologies Overview

For a client with low risk tolerance, you need to find stocks with high scores on financial condition and quality of earnings, even though valuation may not be extremely cheap (i.e. valuation score not close to 100). For clients with bigger risk appetites, you are able to recommend stocks with lower financial condition and quality of earnings scores if they are compensated by having a higher price appreciation potential.

  • Advising on Market/Sector ETFs

Wealth Management Firms may need to give advice to their clients on the attractiveness of collective investments schemes e.g. foreign index funds (S&P 500 Index Fund), global sector funds or mutual funds.

The same methodology we use to value stocks can be extended to value sectors, markets and mutual funds. Therefore, recommendations to your clients to buy into certain markets, sectors or funds are made only after comprehensive analysis. You will also be able to make an independent verification of stockbroker’s recommendations. Supporting evidences from these reports can also be presentations to your clients to make the recommendations more convincing.

Below are some examples. The next chart shows the analysis for a S&P 500 Index Fund.

Price Earnings Ratio Band for S&P 500

The next chart looks at the attractiveness of a Global Health Care fund.

Price Earnings Ratio Band for Global Health Care Sector

  • Advising on Mutual Funds

Our methodology, which is used to value stocks, can be extended to analyze portfolios to detect risks of overvaluation, low growth, poor financial condition, low quality of earnings, etc. Below is an example of analysis done on the top 24 holdings of a Value Fund. From the analysis, Wealth Managers can see if the stocks in this mutual fund are overvalued and the likelihood of the fund appreciating in value.

Price Earnings Ratio Band for Sample Value Fund

  • Advising on the Client’s Actual Portfolios

The above analysis can also be carried out to analyze client’s portfolios to detect risks of overvaluation, earnings growth potential and the likelihood of the portfolio appreciating in value. This will give more concrete data to show clients when discussing about portfolio rebalancing. You could even generate a report to show the client what his portfolio would look like after the recommended rebalancing.

There are also situations when a client hands over his portfolio (previously managed by himself or another party) to be managed. Since there are tens of thousands of stocks globally, it is likely that the client’s portfolio contains stocks that you have no stock reports for. As you have to advise on whether he continues to hold on to those stocks or sell them, our quantitative reports would be useful.

ProThinker Services for Stockbroking Companies

ProThinker Services for Institutional Investors

ProThinker Services for Investment Research

ProThinker Services for Manager Selection

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