Introducing the Cheapskate Quant
Exploring free data and tools for investing your savings - focus on Yahoo! Finance
Start with why
Do you have savings in an employer pension fund? A RRSP / TFSA (in Canada) or a 401(k) / Roth IRA (in USA)? If so, are you involved in or curious about making decisions personally on how your savings are invested? Are you getting a good return on your investments?
Whether your answer to any of the above questions was yes, no, or you didn't even know how to answer, the cheapskate quant is for you – doubly so if you aren't even sure if you have pension savings. My aim for this series is to explore the quantitative and data-driven side of investing in the financial markets so that we can all confidently answer that question of whether we are getting a good return on our investments.
Nothing in this post should be considered to be investment advice. Rather, you’ll find some good information / data sources and analysis tools so that you are better armed to discuss financial investments without spending a ton of money trying to get there.
What is a cheapskate quant?
First, we need to get the definition of the "cheapskate quant" out of the way. In the finance world, a "Quant", or Quantitative Analyst, is someone who, to a much greater degree than other analysts, uses statistical models and large amounts of data to make or influence investment decisions. For our purposes, a Quant here is going to be an average individual investor like you who is looking to explore this data driven decision making in order to make better investment decisions about your pension investment (RRSP / TFSA in Canada or 401(k) / Roth IRA in the USA). I think we all know what can be meant by the term cheapskate. Accessing financial data sources and analysis platforms could be hundreds or even thousands of dollars per month and the cheapskate quant isn't sure that numbers like that are going to be worth it for their own investment decisions. Therefore, a cheapskate quant is someone who seeks to make the largest possible positive impact on their investment decisions while spending the losing the least amount of money possible to data brokers and professional analysts. I am a cheapskate quant and I want to take this journey with you.
The cheapskate quant's training wheels - Yahoo! Finance
In my opinion, Yahoo! Finance is the best place to start for someone looking to make better investment decisions on a $0 budget. Don't get lost on the (somewhat cluttered, IMO) homepage for Yahoo! Finance, here are the key tools that make Yahoo! Finance great for the cheapskate quant:
Stock screener - which companies should you consider investing it? Use some filters to narrow it down.
Advanced charting - a fantastic way to understand most finance data is to start with a time-series chart. Is the market going up or down? This is a great place to begin.
Stock prices data export - Do you know a thing or two about Excel or Python? Grab some stock market data and go start your analysis!
For today, we are only going to explore the stock screener and I'll cover the other two in future posts.
Using a stock screener to
A great place to start for beginner cheapskate quants is the stock screener. This is in contrast to a more common, and likely problematic, way for individual investors to pick a stock, which is to select companies based on your "gut feel". Typically, “gut feel” is shorthand for stocks you've heard your friends, family members, or coworkers talking about, have heard mentioned positively in the news, or have seen on social media. At times one may have enen recently purchased a great new product, like the latest iPhone, and you're loving it so much you think to invest in that company. In most cases, if you're picking stocks like this, you're going to get caught up in the hype and you will be disappointed in about 3 - 6 months when the hype comes to an end.
The cheapskate quant knows better. The cheapskate quant takes an unbiased view of the stock market and uses some basic filters to narrow down companies that might be most likely to have good financial performance in the future. Below is a screenshot from Yahoo! Finance's stock screener. There are some helpful templates to get started and we'll pick the "undervalued growth stocks" option and dig into it.
The description for this screener suggests that this template will help us to find "Stocks with earnings growth rates better an 25% and relatively low PE and PEG ratios". Briefly, this is what these terms mean:
Earnings growth rates better than 25% - The amount of money the company is making is growing fast at more than 25% growth per year.
Low PE ratio: The PE ratio (sometimes written P/E) or Price to earnings is essentially the cost that you as an investor pay for a dollar of company earnings. A P/E ratio of 1 would mean that each dollar an investor puts into a company would represent a dollar of earnings on the company's income statement. A P/E of 1 is pretty low. A company like this may be undervalued. A high P/E ratio, like many Technology stocks (think Google, Meta, Netflix, etc.) would mean that from the investor perspective, your investment represents little in terms of current income for the company and one is more heavily weighted toward future expectations of income for the company.
Low PEG ratio: This is a ratio of ratios. Specifically, here we are talking about the P/E ratio noted directly above and the earnings growth ratio at the beginning of this list. Generally, a PEG ratio less than 1 would indicate a company that might be undervalued, equal to 1 indicates a fairly valued company, and a PEG ratio greater than 1 might indicate that a company is over-valued.
Now, let's click through to the stock screener template and learn some more.
There are going to be lots of companies in this list that you've never heard of and lots of data, but don't let this scare you - you got this! There are roughly 4,500 companies that an investor like us can buy shares in and another roughly 3,500 in Canada. These are called publicly traded companies when the public like us can buy and sell stock in these companies. Most of these companies are quite small and you may not be familiar with them. That's okay.
The top company on this list is General Motors. GM's top-selling vehicle currently is the Chevy Silverado - a decent vehicle if you're into pickup trucks. We still don’t know if GM is a good company to invest in, and I certainly wouldn’t recommend it at this point, but now we know something about this company we didn’t before. We now know that compared to its peers, this company has:
A somewhat high rate of growth in earnings;
A low ratio of its stock price to its earnings; and
A low ratio of its P/E ratio to its earnings growth ratio.
Continuing to scan through the list I also see companies that are into oil (energy), gold, consumer goods, and financials. From here we can narrow down the list further if we like by refining the filter parameters in the screener. I used the equity filters to add an additional parameter to look further into how GM compares to its peers in the same sector of the economy by selecting market data > sector > consumer cyclical. You could also adjust the default screener filters to experiment with different P/E ratio ranges or different earnings growth
Spend some time testing out some of the other filters to explore this list of companies that meet our criteria of being undervalued stocks with relatively high growth.
Bottom line
Nothing contained in this post is investment advice. Please do not put your hard earned money into any company that I discuss in any post. Rather, I'd encourage you to explore the tools that we have available these days to make better decisions about how we can make our savings work for us so we don't have to work in retirement. Investing for the future has the potential to significantly influence the trajectory of your life, career, and eventual retirement and unlike many generations before us, these opportunities are now available to the wider public in a way that is a true marvel. With this series I'm aiming to shed some light on how democratized investment information and tools can help you make better decisions, or at least have some fun learning some new skills with data analysis.
So, tell me, either with an email reply or a comment below, have you used Yahoo! Finance before to investigate an investment choice? Was the extra information helpful or did you get lost or overwhelmed with all the data?