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The Equitymaster Research Digest

Our 5-5-5 process, Satyam's Seventh Anniversary and More...
Jan 8, 2016

How much research on a stock is enough research? This is a question that most new research analysts struggle to answer.

There is so much information available these days that they can peel off layers after layers and still not finish.

In fact, why new analysts, I myself at times struggle to locate the point where the law of diminishing returns starts kicking in.

Eventually, I take solace from what legendary investor Seth Klarman once said about information.

As per him, information generally follows the well-known 80:20 rule. The first 80% of the available information is gathered in the first 20% of the time spent.

This to me is a very valid point. But the kind of investing philosophy a person follows also has a bearing on the amount of information required.

Take the case of our Microcap Millionaires service. Here, the information required isn't very extensive. This is because it is more quantitative in nature.

We have to only confirm the stock is trading at a discount to book value and also has a reasonably strong balance sheet. Other than that, we need very little additional information.

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