Dopeler vs. Doppler Value Investing
Dopeler Value Investing is the automated implementation of the Doppler
Value Investing philosophy. Dopeler Value Investing is used as a
starting point to decide which of the thousands of stocks are worth
a more in-depth investigation. It's called Dopeler Value Investing,
because you have to be a dope to invest in a stock without checking
the official financial figures and without considering how likely the
company's past performance will be repeated in the future. (Yes, the
word Dopeler comes from the movie Snow Day
Input figures are automatically provided
Input figures are manually provided
Figures come from ADVFN.com
Figures come from the official annual reports or 10-K forms
What could the full Doppler Value Investing analysis find that the
Dopeler analysis does not?
A more in-depth analysis may reveal flaws. Some examples of fatal flaws:
The company's prosperity is cyclical. It could be a classic cyclical stock that is certain
to lose lots of money in every recession. It could be benefiting from a temporary fad, or
it could be a commodity producer in the boom part of its cycle.
The company's product is at risk for becoming obsolete in the future. This is often the case
The company may have poor management or be extremely difficult to manage.
The ADVFN data used in the Dopeler Value Investing algorithm may be inaccurate in ways
that elude the sanity checks.
What are the sanity checks in Dopeler Value Investing?
The Dopeler Value Investing algorithm does NOT use the official financial figures but instead
downloads and scrapes web pages from a third-party source (ADVFN.com). Bad data can create
false bargains, some of which can appear to sell for under 0.1% of intrinsic business value.
The figures checked are:
Total assets: For a given stock, the latest figure for total assets from ADVFN.com is
compared to that from Yahoo Finance. If the decibel difference is sufficiently large, the
stock is flagged for suspect data.
Revenue: For a given stock, the latest revenue figure from ADVFN.com is compared to
that from Yahoo Finance. If the decibel difference is sufficiently large, the stock is
flagged for suspect data.
Standard deviation of the PPE growth rate: For a given stock, the annual growth rates of the
PPE (in decibels) are calculated. If the standard deviation is sufficiently large, the
stock is flagged for suspect data. A stock with a PPE figure that nosedives one year and
then miraculously recovers the next year is flagged. The inaccurately low PPE figure for
just one year leads to an inaccurately high Dopeler Return On Equity figure the next year,
and this produces an inaccurately high Dopeler Book Value and inaccurately low valuation
You should NOT invest in a stock solely because of the financial figures. The future could be
different from the past, so you need to look at intangibles.
Economic moat: What is the risk that the company's customers/clients/users will switch to
an alternative in order to save a few dollars? In the best case scenario, there is no
cheaper or better alternative, or switching to an alternative is far too difficult or
costly to make it worth reducing the per-unit cost. In the worst case scenario, the
company is selling the exact same product as numerous other companies, and a customer
could effortlessly switch to an alternative.
Management quality: Management needs to be honest and competent. Of course, you must read
between the lines to assess the quality of the management. Bad managers won't be wearing
ties that read "World's worst manager". I consider Berkshire Hathaway to be an example of
ideal management. (DISCLAIMER: I am a Berkshire Hathaway shareholder.) Some of the things
to look for are:
Annual report: It helps if the annual report is plain in style, is printed on cheaper
paper, and has few or no color photographs. If the company doesn't need to be highly
visible to the general public, a plain annual report could be a good tie-breaking plus
factor. That said, I wouldn't rule out a stock just because the annual report is slick
and glossy. Also, certain companies need a slick and glossy annual report. (Coca Cola
comes to mind, because it needs to be highly visible to the general public.)
Financial statements: The simpler and more straightforward the financial statements
and footnotes are, the better. This not only makes the analysis easier and more
straightforward but also indicates that management doesn't have anything to hide.
That said, larger companies tend to have more complex financial statements and
footnotes than smaller ones.
10-K form: If the company includes the 10-K form as part of the annual report, this is
a positive sign. Very few companies do this, but it is an indication that management
has nothing to hide.
Insider ownership: If the value of the stock owned by the managers is far greater than
their salaries and benefits, this is a good sign. This means that the interests of
management are aligned with those of shareholders. This reduces the risk that managers
would jeopardize the interests of shareholders by brown-nosing Wall Street to inflate
the stock price or by making bad acquisitions.
Detailed Numerical Analysis
Balance Sheet: There may be items in the official financial statements that are not
reflected in the official total liabilities but should be included in our analysis.
(Usually, there are no significant discrepancies.)
Income and Cash Flow Statements: We look for any components of operating cash flow that
we think should be reclassified as investing or financing cash flow (or vice versa).
(Usually, there are no significant discrepancies.)
Shares outstanding: We take into account potential dilution, so that means options,
warrants, and rights are treated as shares. Sources of potential dilution are common
but usually not significant.
Convertible stock: We calculate the Doppler Book Value for two scenarios: one that assumes
that none of the convertibles are converted (and thus remain as debt) and another scenario
that assumes that all of the convertibles are converted (and thus add to the number of
shares outstanding). We assume the scenario that produces a lower Doppler Book Value.