Looking for Investment Ideas - How to Expand Your View

Many investors use stock screeners.  Why?

• The prevailing practice is to search for potential investments on the basis of commonly-used metrics such as P/E, debt to equity etc.  These metrics have been studied intensively by academics for a variety of reasons: the raw material is easily accessible, amenable to statistical manipulation (economics likes to pretend it is a "science"), and the results are easily published in a large number journals (meaning that the articles are the solution to the "publish or perish" working environment endured by academic researchers).  
• Stock screeners "save" time on the part of analysts and investors.  
• The results are "acceptable" or sanctioned because they fall within the orthodoxy of investment professionals.  It is much harder and dangerous to depart from the herd by introducing original ideas which depart from orthodoxy.  

I could go on.  I have found that my best ideas have originated by reading widely and then thinking.  Many times, the ideas have been generated by following leads discovered during my reading.  For that reason, I read trade journals and regional news sources because they deal largely with the business of making a living - not investing.  

Recently, I had another idea - the concept of reviewing slide presentations on a diverse range of subjects.  Why?

• They are usually information dense and short - meaning that you can rattle through them very quickly and expose yourself to many ideas very quickly.
• Most present information using graphics - something which I process easily.
• The ideas are usually fairly refined and constitute an organization's attempt to put its best foot forward in the public eye.  
• Some of them contain overviews of the general state of affairs in the subject area before focussing on the message of the moment.  The overviews may be slanted in favour of the presenter's message but nevertheless, they are usually very cogent and comprehensive.  

With this in mind, I started searching for compilations of slide decks. I hit a gold mine with SlideShare.  The organization describes itself as follows:

Founded in 2006 with the goal of making knowledge sharing easy, Slideshare joined the LinkedIn family in 2012 and has since grown into a top destination for professional content. With over 18 million uploads in 40 content categories, it is today one of the top 100 most-visited websites in the world.

The material spans a variety of subjects including topics such as real estate, life style, technology, business, spirituality, science, social media etc.  

Give it a test run with the viewpoint of looking for potential investment ideas. For example, here is an informative post on the future of agriculture:

https://www.slideshare.net/AnteaGroupUSA/agfunder-news-presents-the-impact-of-technology-on-the-food-beverage-industry

The presentation was made by a representative of AgFunder, a company that I mentioned in an earlier post.  You can subscribe to its informative newsletter free of charge.   

Taking the Pulse of the Farming Community

The Financial Log Book has several holdings related to the agricultural sector:

Input Capital (INP), a streaming company with a focus on canola

John Deere (DE), an equipment/services company

Rocky Mountain Equipment (RME), a dealer network specializing in Case farming and construction equipment

Clean Seed Capital (CSX), a start-up company in the early stages of producing and distributing a revolutionary (farmer friendly) seeder

The positions are being held for the long term and have been discussed in earlier parts of this blog.

All of the companies are characterized by the following:

• able management with a demonstrated ability to learn and adapt to changing circumstances 
• sound financials
• "muddy boots" with close links to the agricultural community
• ethical behaviour 
• resilience

Agricultural stocks are generally out of favour for short-term investors as farm incomes in Canada and the US have fallen markedly as a result of depressed commodity prices.  This is a cyclical phenomenon:

• favourable climatic conditions in North America and in competitor countries have resulted in bountiful harvests and abundant supplies
• competitors such as Argentina and Brazil have ramped up production in response to attractive market prices in recent years and are, in a sense, "trapped" by the need to realize a return on investment associated with this growth
• a global slowdown has the portent to reduce demand

This said, the long-term drivers which underpin the prospects for these companies remain:

• demand will increase as there are more mouths to feed 
• increased affluence will result in a increased demand for corn, grain etc. either as a direct food source for humans or a feed for livestock and poultry

I believe also, that North America is generally in a more favourable position than South America and parts of Asia:

• climate change is likely to have a disproportionate impact on growing regions outside of North America (incidence of drought and inimical events such as severe storms etc.).  I am still researching this thesis.  
• the transportation infrastructure in North America is robust and less likely to experience disruption as a result of social unrest than in regions such as Argentina and Brazil

Potential changes (%) in national cereal yields for the 2020s and 2050s relative to 1990, with climate change projected by the HadCM3 model under the A1FI scenario (a) with and (b) without CO2 fertilization

http://rstb.royalsocietypublishing.org/content/365/1554/2973

This said, farmers have a tough row to hoe.  I monitor this closely.  To this end, I have found it most informative to read agricultural trade publications and to subscribe to their newsletters.  

The following paragraphs characterize the state of agriculture in the US:

It’s not a secret or surprising that farmers first look at reducing or totally eliminating purchases of equipment when they need to cut costs. This reality was further reinforced by a recent survey of more than 500 farmers by Farm Journal Media and posted on its AgWeb.com website on April 7. The media company has conducted the farmer cost cutting survey annually since 2012.

The list of the ways farmers economize during down times like the industry is currently undergoing include the following actions. (Note: respondents were able to offer more than one answer.)

Reduce farm equipment purchases (67%)

Delay non-equipment capital purchases (46%)

Employ no-till or low-till farming practices (43%)

Purchase less traited seed to reduce seed costs (29%)

Negotiate lower land rents with landlords (26%)

Increase variable-rate application of fertilizer and crop protection inputs (26%)

Reduce energy consumption (through better equipment maintenance and/or power generation (20%)

https://www.farm-equipment.com/articles/14063-deu

For the "big picture" and the "hard facts", I usually consult:

Agriculture and Agri-Food Canada
The US Department of Agriculture

The best source of information to take the "pulse" of the agricultural community is to be found in regional newspapers and trade journals.  Here are a few that I consult on a regular basis:

AgWeb
Farm Equipment
Successful Farming

I NEVER read reports produced by financial analysts.  Their focus is too limited. As I have learned, (read the earlier post about McKinsey & Company) the most important contributor to the long-term success of a company rests in the quality of its management and the market reaction to its products and services.  These are the things which drive the bottom line.  I much prefer to focus on these considerations when making an investment.