Use Sites Like Yahoo! Finance With Caution

Ouch, good reminder! Makes you wonder about the error associated with a tool like MagicFormulaInvesting.com that have E/Y and ROIC numbers that are seemingly impossible to reproduce. I know Compustat is a good database, but what about the behind the seen adjustments done for the site? How are we to determine an error from an adjustment?

You should always visit different sites. Then, when you're interested in a particular stock go straight to the annual report. They are so easy to find and read online now that there's no excuse.

I recently noticed a problem on Morningstar regarding their numbers for Stamps.com (STMP), because a blog post I read used different cash numbers. The blog post was right and Morningstar was wrong. It looked like they had been wrong each and every year in terms of the cash & securities line.

I was disappointed with that one, because getting balance sheet data wrong for an ongoing business is not an understandable error. If I know a business has been spun-off from something else in the last 1-2 years, or has spun something major off, I don't even bother starting with the financial sites – I go straight to the company's filings.

Personally, I've found Yahoo Finance to be the least reliable / most consistently unreliable. Their method for estimating enterprise values must involve throwing darts or something – it's completely unreliable and inaccurate in the situations where knowing the enterprise value would be useful. Maybe, it works well when the market cap and EV are close – but, then why would you need to know the enterprise value?

Whenever I've used the Magic Formula site, I've been impressed with what it returned. It usually manages to return selections that are far more consistent with the spirit of the book than anything I can reproduce on my own using online stock screeners. Often, if I look for good, cheap businesses and list them – then, check the Magic Formula site, there's a lot of overlap, even in cases where the overlap would be missing from an online screen. I think this is largely because of their focus on pre-tax earnings. I've said on my site, that I think the simplest measure for individual investors to use when assessing profitable is the pre-tax return on non-cash assets. You can make other adjustments (the Magic Formula site apparently does), but just that first step improves the profitability assessment considerably.

I used to use Reuters quite a bit for general financial statement information.

Then several months ago, they redesigned that portion of their website and all of a sudden numbers that had been apart of the consolidated financial statements were gone, consolidated with other numbers. The balance sheet would be in millions while the cash flow statement would be in thousands, and rounding numbers became the order of the day.

So I decided the heck with this I'll go to MoneyCentral. Guess what? They buy the financial statement feed from Reuters. So I checked other places. Same thing. They either bought their financial information from Reuters or Yahoo.

At the end of the day, compare the numbers against the numbers at the company's website, or use the numbers in the SEC filings. And remember, 10-Q numbers are NOT audited numbers and will likely change when incorporated into the 10-K.

Wax

Have any of you broken down and bought higher quality financial data from a source like AAII? I've been thinking about doing that.

I was a Value Line subscriber (the entire site) for a long time, and I have also been an AAII member. Neither site has consolidated financial statements, which is what I am looking for.

If Joe Don the Rag Man went to a bank to borrow money to expand his rag business, the bank would want to see his financials. These financials would need to be presented in a consolidated format. That is what I'm looking for and simple cannot find.

So if anyone knows of a site with that type of financial information other than Yahoo, Reuters, and MoneyCentral, I would appreciate hearing about it.

Wax

Wax, I've felt the same way about ADVFN. George, have you found ADVFN to have less errors than the previously mentioned tools?