Today’s post comes from a guest blog, New Rules of Investing:

Institutional investors have powerful tools at their disposal to screen through reams of data.  Part of the institutional investment process entails screening through thousands of securities looking for a needle in a haystack — stocks that fit certain investment criteria.  From thousands of stocks, analysts can filter through a couple of hundred that fit these so called screens.  With a couple of hundred stocks in hand, analysts set out to do the hard work analyzing these companies, comparing them to one another, speaking to management and whatever else hedge fund and mutual fund analysts do when looking at prospective investments.

If I’m a value investor, I’m probably going to use some metrics that focus on Return on Capital (RoC) or Return on Equity (RoE) and Earnings Yield (E/P).  Growth investors might like to compare the price/earnings ratio (P/E) to the actual growth prospects of the stock in question.  There are literally thousands of things to look at.  So, where to start?

As we discussed in the “Piggybacking the Pros“, the Internet is a wonderful place to get information on stocks.  From monitoring actual moves that uberinvestors make to seeing what your peers think of certain firms, the information is out there.  You just need to be able to find it.  Investment Screening 2.0 is all about using screening criteria from super investors like Warren Buffett to find the next big stock.  Think of it as tapping the world’s greatest minds to see what they think of a given investment.

John Reese, a well-regarded entrepreneur with degrees from the two best schools in Cambridge, MA, has created a premium service that is the product of many years of research into the strategies of super successful investment managers.  Having devoured numerous investment books and interviews with the world’s best investors, Reese embarked on an ambitious project to computerize this information.  His firm, Validea, has created an algorithm capable of analyzing thousands of stocks according to differing investment strategies ranging from Fidelity’s Peter Lynch to Berkshire Hathaway’s Warren Buffett and applies screens to the overall market to find stocks that would fit these uberinvestors’ criteria.

John Reese joins New Rules of Investing for an exclusive interview. (Continue »)

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I’ve just begun writing about the New Rules but part of the thesis is that expert communities can and will play a bigger role in investment decisions and idea generations for savvy investors going forward.  We’ve only just begun, as has MarketGuru, a new site focused on providing New Rules-type functionality for a community of experts.  I had a chance recently to chat with the founder and CEO of MG, Gili Beiman.

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Can you tell us a bit about yourself?

Gili Beiman, Founder and CEO: I was the founder of the largest groups site in Israel, Tapuz, which we sold a few years back.  lived in the States for 3 years.  Like any good American, I opened an etrade account and 2 things stood out as problems in the whole data acquiring process, meaning trusted data and content that I could invest on:

1. too much information: There is a ton of information out there.   But if you don’t have a ranking system on all the content, I can’t really tell what to think – if I see a guy who’s writing a great blog on Apple, I have no idea whether he’s been right or wrong in his analysis.   There was no rational order or hierarchy in this information.
2. generic information: I find it interesting to know that the biggest source of financial content is via subscription newsletters, which is a $6.5 billion industry.  What an anomaly to think that all this content is generic, meaning newsletters are making recommendations to people they don’t know.  Your picks may be great but they can also be really risky — certainly not suitable for a retired school teacher.

So, where does MarketGuru come in? (Continue »)

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Umm, I thought we were supposed to believe that Merrill Lynch’s (MER) selling a part of its Bloomberg stake and by taking $40 billion of writedowns this year alone, investors were (almost?) out of the woods.

Guess again, news came overnight that Merrill will be selling more than $8 billion in new stock (read, diluting existing shareholders) at preferential terms to the Singaporean buyers of the last slug of stuck Merrill stuffed everyone with.

So, as Roger Ehrenberg asks, “…after all this, Is there more to come?”

Let’s get this straight:

CDO book:
Bloomberg reports that Merrill is selling its $30+ billion bond portfolio for 1/5 of face value.  I guess that’s better than 0.

New stock offering:
A lesson in dollar-cost averaging for Singapore’s Termasek.  Merrill is paying Temasek $2.5 billion to offset losses in Temasek’s previous investment in Merrill and to encourage the fund into putting $3.4 billion more into MER stock.

Bloomberg:
According to CEO Thain, Merrill is selling “a controlling stake [in Bloomberg], so we’ll sell more than 51%, but the exact percentage hasn’t been totally determined yet.”

What does that mean?  How much more than 51%?  Isn’t selling off that asset better than massively diluting shareholders after a year that has seen MER stock drop over 61%  Isn’t Bloomberg not even close to being core to what Merrill does anyway?

BlackRock:
Also, why are we holding on to this non-core asset?  Again, according to Thain, “BlackRock as we’ve always talked about is strategic to us. We in fact with the discussions with BlackRock have broadened and lengthened our distribution agreement with them and we continue to believe that that is a very good and important partnership for us and is working well with us.”  I guess what Merrill is saying is that it certainly helps to have a financial relationship with a buy-side firm to help with deal placement and uptake.  Not particulary inspiring and again, they’re smooshing the small investors.

The Bloomberg piece quoted above ends with a great quotation:

“Why these assets are written down when you’re selling them and weren’t written down in your earnings is a question,” said Ralph Cole, a senior vice president in research at Ferguson Wellman Capital Management Inc. in Portland, Oregon, which oversees $2.7 billion and doesn’t own Merrill shares. “This kind of announcement is surprising and a little disheartening.”

I may sound angry, but come on, guys.  I don’t even own the stock but this is the fourth share sale this year and all along, management has said that it has sufficient capital.  Not a great way to treat existing shareholders and certainly not enough to engender enough trust to lure new investors off the sidelines.

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