Program Helps to Analyze Stocks
It’s difficult to imagine a more useful purpose for a personal computer than making you rich by acting as your financial consultant, a sort of magic genie whose glowing screen tells you when to buy and when to sell a particular stock.
A few very important caveats notwithstanding, that’s about what Arvin Gibson and his three sons of Bountiful, Utah, set out to do with Compustock, “a fundamental stock analysis program” that they sell for $59 (monochrome) or $69 (color). It runs on IBM PC and compatible computers with at least 128 kilobytes of random access memory (RAM).
First the caveats. I didn’t try to test the value of using Compustock to assist in making stock investments. I offer no advice on whether this program will help you get rich or cost you a fortune in poor investments.
It’s important to note that the Gibsons don’t make any claims you can bank on either. “We don’t guarantee any return at all,” said Dale Gibson, one of the sons. “We do say that if you use this (program) you can at least make an educated decision.” The Gibsons used to run an investment service (they are registered investment advisers), but now sell only the program and an accompanying database of information on stocks. The program manual discloses that they may invest in some of the stocks in their database, but not which ones or how much.
What I did test was what the program does and how well it does it.
Using basic financial data about a company over a six-year period, Compustock computes possible future price trends and suggests whether the stock is a good buy at its current price or, if you already own it, if it’s time to sell. The predictions are based on economic assumptions about such things as inflation, future price/earnings ratios, dividend pay-out ratios, and earnings growth or decline. Dale Gibson said the analysis is biased toward conservative investment, but you would have to use your own judgment to determine that.
The program will supply its own numbers for future P/E ratios, pay-out ratios and earnings trends based on its statistical analysis of past performance, but you can override that and supply your own guesses. Thus, you get a “what if” analysis based on virtually any condition you choose.
Easier to Do
Theoretically, you could do the same thing with a spreadsheet program but constructing the model would be difficult, and it would be cumbersome to use compared with the relative simplicity of Compustock.
While the nicely printed loose-leaf bound manual does not disclose the formulas by which Compustock calculates P/E growth rates, or what it calls “investment value” and “discounted investment value,” Arvin Gibson said those formulas are available to anyone who asks for them. Investment value is computed from last year’s earnings per share multiplied by an expected price/earnings ratio, while discounted investment value is derived by factoring for company size and consistency of earnings.
The manual cites the sources from which the formulas were derived and discloses which of those models were modified to be more conservative or more liberal, and why. The Gibsons also disclose what kind of stocks don’t lend themselves to their kind of analysis, particularly bank, insurance and other financial stocks, and why. Because the program is written in BASIC, a skilled user could change any of the formulas to suit his or her own pet theories.
The manual gives a good description of each of the financial measurements used by the program that even a novice to stock market investing could understand. The program is not really targeted at the beginner or the casual investor, however. Nor is it aimed at the stock trader, Arvin Gibson said. It is designed for the serious investor.
Monthly Database
When you start up the program it gives you a choice of entering data for a new stock or recalling existing data already stored as a disk file. The Gibsons offer a monthly stock database of financial information, greatly simplifying use of the program--if the stocks you are interested in are on their database.
You can get a year’s subscription to the database for $199. It consists of 80 new stocks per month. Next year, according to son Craig Gibson, the stocks on this year’s database will be updated, plus 20 to 40 new stocks will be added monthly. All of the data that the program works with is available in quarterly and annual reports from the companies themselves or various financial publications, and the manual explains how to get it.
Entering data on your own is quite easy because the program asks you a series of questions to which you type in the appropriate numbers from your financial data sources.
The version of the program I tested aborted its run if you typed in a response that it wasn’t expecting, such as the wrong file name from the data disk. Craig Gibson said a new version now being sold eliminates that problem and makes the program easier to use.
Another quibble I have has not been fixed, however, and that is that the on-screen instructions are not consistent as you move from one section of the program to another. You are told, for instance, to press No. 3 to recall a file at one point and to press No. 5 to do the same thing at another point.
System Works Well
It’s not hard to learn however, and then it works well. The financial analysis section displays six years of earnings per share and dividend history and regression analysis to determine how consistent the pattern has been.
You will also be shown the current price (you can easily update that figure to keep it current), the investment value and the discounted investment value. If the current price is below the discounted investment value, it will be shown in bold face on monochrome screens or green on color monitors to indicate that the stock is a potential good buy. If the price is above the investment value, it will flash on and off on monochrome monitors or display in red on color screens to suggest it might be time to sell.
Using that same six-year history, you can ask for predictions of future trends, and tell the program to be pessimistic, optimistic or neutral in its analysis. The results are compared against a lower risk investment--20-year high-grade corporate bonds, and something called a beta factor, which is a measure of volatility for that particular stock that is computed by several investment information sources.
Compustock’s report then predicts your annual rate of return, based on the conditions you asked to be used in the prediction. It applies corrections for both predicted inflation and brokerage fees.
Easy to See Trends
The other portion of the program allows you to examine basic financial data about a company. Displayed in columns covering six years, it is easy to see the trends. This data is included in the Compustock database subscription, or you can keyboard it yourself.
A serious investor will probably find the program worth its purchase price, if only as one of a library of stock analysis methods. A newcomer may find it is just what is needed to give the stock market a try.
Compustock is available by mail from A. S. Gibson & Sons Inc., 1412 Vineyard Drive, Bountiful, Utah 84010, telephone (801) 298-4578.
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