How much information about an industry is too much?

**angryangryhippo** Wed Mar 29, 2006 8:57 pm

How much information about an industry is too much?
Hi there

In your opinion how well do you need to know about an industry before you begin say purchasing shares of the company and at what understanding?

Example- Oil
Like do you know it at a surface level? (They have merchandise that is drawn from the land and sent to refineries by pipelines to be seperated and the product that has been refined is sent to the company's retail stations (Gas stations in this case) and the other products have been sold off as something else (Petro chemical for plastics, tar, asfault)

I think that knowing as much as we can get in regards to the costs of the company and what can be done with it is important, but I'm new at investing so I don't know for sure. I mean do I look at their financial statements first, compare it to others in the industry and then do research if those numbers are about right? I know that oil companies contract out some of their services like boat taxis that get workers to oil rigs- and some of those oil rigs are owned by other companies. Pipelines that oil companies use are sometimes built and maintained by private companies and so on.

I ask this because I think I may have gone overboard in the collection of material I have on the oil industry and spend too much time learning in painstaking detail how it works and too little time to see if the numbers make sense. There is also the question of studying the industry and then comparing it to the business in question....

Also, where do I get current Oil, Natural Gas, Natural Gas prices?

Any help would be greatly appreciated =)

**blast_investor** Wed Mar 29, 2006 11:15 pm

It depends how you invest with value investing method.

Some of value investing styles are index-type. For example, with Joel Greenblatt's magic formula approach, you do not need to know anything other than the formula. Most mutual funds invest like formula/index as well. They invest into hundreds of stocks with very tiny % of position for each stock. It really does not matter that much for each stock pick in this case. It is also impossible to understand hundreds of business deeply enough. The fact is, most mutual fund managers do not understand business or do not care.

Typically, if one is not good enough at value investing skill, it is pretty hard to beat a blind formula approach like Magic Formula.

If you want to do own stock picking, not formula type, then you need to have an edge, you would have to know as much business as possible on stocks. Cost, price, business risk, and competitive advantages etc. The more you know the better. Usually, valuation is most important, but valuation depends on industry and nature of business. A number like PE obtained from Yahoo finance won't cut it for individual stock valuation purposes.

**angryangryhippo** Wed Apr 05, 2006 7:22 pm

Thank you for the reply

So what resources do you recommend I go to learn how to value a business?

**blast_investor** Thu Apr 06, 2006 12:57 pm

Hi angryangryhippo,

After you study the method from books (Ben Graham, Peter Lynch, Joel Greenblat, etc) and you understand the value investing theory behind the method, you can start to value stocks right away using the method from those books.

Value investing method itself is not that much of secret. The basis theory and methods were well published.

In real-life stock picking, you will need to study as much as possible. The most important resource is SEC filings, 10-Ks, 10-Qs, etc. Quarterly earning conference calls help a lot. Once you listened to conference calls within same industry, you can learn the industry quickly. There are other resources, but the filings and calls are the starting point.

angryangryhippo wrote: Thank you for the reply

So what resources do you recommend I go to learn how to value a business?