Is This Madness?

There is good reason why nobody has ever tried to write a blog/newsletter like this before. In short, I am sure that it seems like the author is completely crazy.

The task of the previous day seems almost impossible. My project was to take a list of 102 utility stocks and find the best investment. The information available to me was the reports written on Seeking Alpha, the financial ratios on the SA site, and the financial presentations on company websites. The real problem was I only allocated 20 hours to finish the project.

My conclusion was the best utility stock was Evergy - EVRG, but the were several others that were close second choices including Dominion, Entergy, NorthWestern, and Avangrid.

How in the world did I reach that conclusion? I am sure it might appear as some combination of witchcraft and voodoo.

Let me explain my process.

When I was starting in the business in mid-1980’s, the CFA exam had what was called the “equity question” on every Level 2 exam. After passing my exam, I volunteered to help grade, and was assigned equity question for the next 10 years.

The equity question presented about test taker with 3-4 pages of descriptive information and a wide variety of financial information on 2 companies. The test taker had to choose which stock was best and defend his choice. Either stock was acceptable, but you had to choose the correct facts to defend your choice.

In my years the companies were:

Sears vs JC Penny’s Procter & Gamble vs Colgate Coca-Cola vs Pepsi

then they threw a “curveball” and did:

Merck vs. Ford

I guess this question had a lasting impression of me. Here is how I reached the answer that EVRG was the best utility stock to own.

I stated with:

EVRG vs Dominion Energy - and concluded EVRG was slightly better,

and the I did EVRG vs Entergy - and concluded that EVRG was the winner,

and then I did EVRG vs NorthWestern - and concluded was slightly better

and then did this same process 98 more times with the other utility stocks.

The other part of the problem was I could only look at a limited amount of information to reach my conclusion. Would I have reached a different conclusion if had 100 hours? Yes, I am sure I would most likely picked a different stock if I had 100 hours. However, in the real world there is always a time constraint.

An analyst will always feel he might have reached a better conclusion if he had more time. But, there are 3000 other stocks that need to be analyzed, we cannot spend all our time on miserable utilities.