As algorithmic trading eliminates alpha where active investors used to find it, analysts are looking for faster ways to analyze and ideate around investments in order to stay agile, allocate time towards higher value business analysis, and ultimately improve returns. We recently spoke to a Portfolio Manager at a global long-only investment manager to understand how Canalyst has streamlined their process and enabled them to realize huge efficiency gains.

“I cannot begin to say how much this has changed my life (and investment process)”


PROCESS PROCESS PROCESS

Until very recently, our client’s process has been rigorous, laborious, and time consuming. “[We] honestly believe that everyone’s focus on P/Es and point estimate price multiples, as a proxy for value, no longer works in a world where disconnects have been arbitraged away by [algorithms].” He takes the view that if you want to form a reliable basis of the value of a firm now and into the future, then you need to use a DCF. “For the types of businesses we want to own (primarily Ben Graham-type of value), we definitely look at the cash flows. And there’s no shortcut around it—you have to model that.”

Investment ideas pass through two main filters: qualitative and quantitative. The qualitative research includes everything from calls and meetings with everyone from key stakeholders and management, to industry experts, suppliers, and customers. This initial qualitative research helps the team determine the attractiveness of the business, after which they then dig into the valuation and numbers: Would they buy the stock for this price? Getting the answer to this question used to be an extremely time intensive process.


BUILDING MODELS
< QUALITATIVE ANALYSIS

“You can do all this good work and build momentum gathering qualitative insights on a business and then you just hit a wall… great, now I need to dig through 10 years of 10Ks and quarterly reports to build the model.” 

Building a thorough model for a single company used to be a multi-day undertaking. Not with Canalyst. This PM has regained all the time that he and his analysts used to spend gathering, structuring, and verifying data and is now able to move directly to valuation analysis. Canalyst provides customizable DCF templates for all of our 4000+ models. The time savings on data entry enables the team to immediately direct their energy towards security analysis, whether it be looking at the revenue drivers, tweaking variables, or sensitivity testing different forward looking assumptions.


CRUSHING QUARTERS

We asked the PM if there was one particular feature that puts Canalyst ahead of the rest. His response: “The ability to avoid the soul crushing hours you have to put into updating quarterly numbers across our monitored universe, and better use that time for value-added analysis. Canalyst allows us to be more proactive, and uncover insight much more rapidly.” 

Canalyst’s Excel add-in enables investors to instantly update their customized models in Excel with the most recently reported financials at the touch of a button, retaining their customizations—another huge time savings for clients through the busiest times of the year. 

“We spend quite a bit of time on the businesses we do own, meaning that keeping an eye on the rest of the monitored universe is a challenge. The fact [that] I don’t have to spend days of my life after quarterly earnings updating numbers, I cannot begin to say how much that has changed my life.” 

As the firm scales, the PM expects Canalyst to provide even more leverage across their growing team and coverage universe. For now, they’ve gained an edge by significantly improving process efficiency thanks to Canalyst, allowing more time for idea gen, qualitative analysis, and actually enjoying earnings.

“Canalyst allows us to…uncover insight much more rapidly”