NPTN Buyout Aftermath – Stock Screening Begins

It’s been a long time, but it is time for me to decide which stock to buy. Deciding which stocks to consider is so daunting that many give up and let someone else pick the stock, or the mutual fund or the index, or which way to splurge. I’m not doing much splurging. One of my stocks, NPTN, is being bought out; which means I’ll be reinvesting that money somewhere. The process may look daunting, but after a few decades, my process has sped up, at least somewhat. This post chronicles some of the steps and progress I made in an hour or two, today. 

Every person is different. Everyone’s financial situation is unique. Personal finance is personal. That includes me. What I do may not work for you, but sharing might help someone who wants to know at least a bit more about how this stuff can work.

By the way, I didn’t use a stopwatch, but I know it only took about an hour or two because I only drank a cup or two of tea. Hey, we all have our ways of tracking our progress through errands and chores.

Alright. NPTN is being sold. Rats. That’s OK. Check the previous post (NPTN Buyout – An MVIS-ish Legacy Ends) for that backstory. Buyouts sound profitable, but that seems to be more the case for management than for individual stockholders. A 45% premium is welcome, but I tend to own stocks that the potential to make that jump much several times, not just once and then over. Compounding 45% is powerful, but the buyer buys that potential.

So, what am I going to buy? I’m not sure, yet. When I had a more diversified portfolio (~ a dozen stocks) I’d use the money to rebalance the portfolio. During the Great Recession I had to sell off all but a few, so I’d like to take the money from NPTN and shift it to another stock. But which one?

Here’s the place where many are intimidated. They imagine the number of stocks to pick from to be in the millions. It’s not. Checking with various databases today I found ~8,000. Broaden the criteria to include less easily traded stocks and then the numbers get ridiculously large, but sticking to the normal markets like the New York Stock Exchange, the American Exchange, and the NASDAQ brings it to that ~8,000 number. That’s still enough to scare some away.

There are ways to make it more manageable. One way is to use a stock screener. A stock screener is a way to winnow the list down by many criteria. Each stock screener has a unique collection of criteria and how they operate, but basically you can pick by things like size, industry, performance, etc. 

My style of investing is Long Term Buy and Hold, and Buy them when they are small and Sell them when they succeed – ideally. Details, successes, failures and other insights are in my book, Dream. Invest. Live. 

I steer away from large companies because the large financial institutions are the main competitors in that market. I steer towards small companies because the large institutions become less efficient the smaller the company is. So, my first criteria is to ignore companies that are larger than $1B market cap. (Market cap is the stock price multiplied by the number of shares, basically.) There’s an insight into US industry; $1,000,000,000 is considered a small company. Go figure. Here’s a quick breakdown:

6 companies over $1T (according to the stock screener on 11/11/2021)

> 99% are under $1T

~ 98% are under $100B

~83% are under $10B

~53% are under $1B

~20% are under $0.1B

~5% are under $0.01B (So here’s another perspective, there are hundreds of publicly traded companies that are valued at less than the priciest houses.)

It is arbitrary, but I start with companies that are between $1.0B and $0.1B. That’s about a third of the market. That’s a lot, but it’s also a lot less to consider – and it took longer for me to describe the process than it did to actually do it.

Still, that’s thousands of companies and their stocks. Some investors treat all stocks equally, as mathematical artifacts to evaluate and compare. My personal approach is to apply some of my personal values. Within a stock screener that can be reflected in either eliminating or concentrating on specific industries and sectors. The categories don’t exactly match my definitions, but it was easy to cut out companies that I don’t feel comfortable buying because I don’t understand the business models or don’t agree with their approach. For me, that meant no hotels, fossil fuels, banks, military suppliers, fashion houses (ha!, as if I understand fashion), and other personal choices. I made sure to include the alternative energy industry, telecom, commercial space enablers – basically companies working on my other strategy “companies developing and selling positive, innovative, and disruptive technologies that make the world better.” Being interested in what the company does makes it much easier to stay engaged in my investments.

That brought the list down from about a couple of thousand to about five hundred; smaller, but still large. That would be a lot of web sites to check. Slice it down some more.

Before I exited the screener I also narrowed the list by only considering stocks with between no and 10% debt/equity, a price between $1 and $30? (forgot that note), and a positive net worth. Basically I want ones without a lot of debt and in a price range that means I can buy a few hundreds or thousands of shares; that’s something I’ve found handy when selling to pay bills. It may not be a sophisticated reason, but it works for me. Hey, like I said, this is personal finance.

The list came down to ~250.

Looking at the list of hundreds of companies it became easy for me to see which entire groups I should avoid simply because I already own stock there. In this case, biotech.

Stock screeners sometimes allow users to download the data. It removes it from the tools inside the stock screener, but at some point the details start to matter.

The next step was tedious, but simple. It was relatively easy (note the ‘relatively’) to browse through the list deleting companies that I recognized and don’t want for a variety of reasons, companies with names that were misleading, and companies that are based in countries whose markets and business laws I don’t want to have to understand. Without biotech, media companies, holding companies, and a few other industries my list dropped to about a quarter, ~75.

Here’s where the real tedium begins, but the list is much shorter. Many financial sites provide quick overviews of a company based on the stock symbol. Of those 75, several I didn’t need to investigate further because I was already familiar with them. That’s an advantage of doing this for years. It’s also a measure of the company that their stock is still available. 

These are companies, corporations, worth at least $100,000,000. And yet it is dismaying how many of their web sites either don’t load, or look great but are so laden with buzzword bingo that I couldn’t tell what they did. Forget return-on-equity and other financial criteria, if the web site’s that bad I wonder how well their marketing and customer service is.

Working away at those sites (and here my eyes did blur a bit) brought the list down to just over two dozen. In less than two hours I was able to take a list of thousands and reduce it more than 99%. That doesn’t mean I am done, I’m still only going to buy one stock, but the task has become much more manageable. 

One encouraging and discouraging insight was seeing how many of those 27 companies had stocks that were up over 10% in the last week, and one what was up over 600% in the last year (and no, it wasn’t MVIS. Those kinds of performance do exist; they’re uncommon, but they exist.)

I already started taking my next step. I keep a running list of interesting companies, companies that I’ve heard or read about that look like they are innovative and may positively disrupt their industry. Nothing on the two lists matched, but it was worth checking. Next I will take the running list and check whether those companies have stock, and if so, how that compares to the other list.

But that’s for another day. This doesn’t have to be done to a deadline, or ever. Make each step small enough and the burden probably won’t be intimidating.

Now, time for another cup of tea (and making sure I make time to work on that book about tea – but that’s another story.)

About Tom Trimbath

real estate broker / consultant / entrepreneur / writer / photographer / speaker / aerospace engineer / semi-semi-retired More info at: https://trimbathcreative.net/about/ and at my amazon author page: http://www.amazon.com/-/e/B0035XVXAA
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