Idea Generation in the Investing World

A frequent topic of discussion in the investing world is idea generation — how do you best come across great investing opportunities? Among the typical avenues that institutional investors explore are conferences, management roadshows (where a broker brings a management team to see investors in a city), screening tools, and their own professional networks.

All of these avenues have their advantages and disadvantages and merit their place in the investor toolkit. Excluding screening tools for a moment, an important characteristic that these avenues share in common is that investors do not take part in the initial filtering process. Conferences typically feature a subset of companies selected by the conference’s host, management roadshows are arranged by brokers and favor those companies with (a) a greater focus on investor access and (b) a routine need to access capital markets; and a professional network provides you with a set of companies filtered by someone else’s unique likes and dislikes.

Coming back to screening tools, while investors set the parameters that filter the companies on-screen, the input data are purely quantitative and not always reliably accurate — which means good investment opportunities can get filtered out. Long story short, investors outsource a lot of the filtering in their investing process, which (especially in the small-cap universe) may lead to some great companies with less investor outreach or no need to access capital markets falling through the cracks.