Investing in the stock market requires more than just examining the development of the stock prices. Let's compare investment in the stock market with buying a house.

When you want to buy a house, you know the price, but knowing the price is hardly the only parameter in your decision-making process. You want to see the house. But looking at the house from outside is not satisfactory either. You would also like to see inside the house, inspect every inch of it, learn about the area around the house, and a lot more. You will do what ever you can to find out the weaknesses and the strengths in the house. As an investor, you would like to get a picture regarding the price development in the future. These are are just a few steps in your decision-making process when investing in a house. The fact is that you will try to get all possible information to make your OWN decision of whether or not you want to buy a particular house. Therefore, it is highly unimaginable that you just call your real state agent and tell him: "I'll deposit money in your account, get me a good house to move in to", or "Get me a second house to invest in".

Shouldn't a similar process be used for making decisions regarding the other biggest investments of your life? Investing in funds, companies, 401K, pension, etc.

What is StockR8?

StockR8 is a new online fundamental analysis platform, providing institutional and individual investors with the world's most powerful and fastest fundamental information for over 21,000 companies around the globe. This unique service enables you to choose companies in line with your expectations and risk ability, in a matter of seconds.

How can StockR8 improve your investment

Having a profitable investment in stocks is mainly a result of how you answer two vital questions:

1. What to buy/sell?
2. When to buy/sell?

While answering the second question is mainly based on using Technical Analysis, the first question is a matter of Fundamental Interpretation of each company. Deciding what to buy or sell at any particular point in time requires a lot more investigation of the companies’ financial status. Simply, you have to choose companies with ability to give you the best profit.

What you actually need to do is check all the companies in a sector, index, market, country, or the whole world. You want to choose the best company with the greatest probability to offer the profit you require in harmony with the risk you want to take. To do so, you need fundamental analysis and unlimited time (there are over 4,000 companies listed on Nasdaq alone). If you do not have unlimited time, then you must have a staff of analysts helping you with analyzing stocks, sectors and markets. Otherwise, you are left alone and must rely on others, which may or may not be in line with your profit and risk profile.

For the first time, we offer you a tool to analyze and interpret stocks from a fundamental point of view, in any order you wish to. StockR8 offers you the possibility to compare stocks in a branch, sector or the whole world. In a matter of seconds you can choose a company or group of companies, study the financial results, compare the multiples (P/E:s) and ultimately answer the first question WHAT TO BUY/SELL.

How does StockR8 work?

In the practical decision-making process, the main difficulty is in finding a way of making all information available, reduce the risk involved in investing in the stock market and especially in working out how to capitalize on the data.

StockR8 gathers financial data for each company, based on publicly available data extracted from the published annual reports. The information is used in an economic model. The next step is to calculate the Financial Risk and the Earning Strength for each company. Thereafter, StockR8 creates a rating. This rating is based on each company's economic development and its current financial situation. The Result will is illustrated in a graph.

The graphical position sends signals. The rating of the companies is done on the basis of two key criteria: Earning Strength and Financial Risk. Rating results are displayed in a diagram similar to this.

Earning Strength describes the ability of a company to make profit for the shareholders. The closer a company is to the left side of the graph, the higher is the Earning Strength. Consequently, companies on the ´right side of the graph have less ability to create profit for the shareholders. Therefore, these companies have a low Earning Strength.

Financial Risk illustrates a company's ability to cope with economic crises in respect to solidity and liquidity. Companies with lowest Financial Risk are displayed in the bottom of the graph. And companies displayed in the top of the graph represent high Financial Risk.

Each company is represented with a letter code of a maximum of 4 letters derived from the company name. The graphics are divided into 4 squares to aid the assessment of the positioning.

The highest rated companies are thus to be found in the bottom left corner. These are high quality companies capable of making good profit while applying a low level of corporate financial risk to the investors portfolio. The economic strength of these companies enables them to cope with economic damages without collapsing. This economic safety additionally enables them to repair any damages by strengthening the organization, expanding their product range etc. Should the share price unexpectedly drop, the drop is not likely to make the investors lose their total investments.

Investors requiring a high level of security in their choice of portfolio should, therefore, stick to companies displayed in the bottom left square.

The top left corner consists of companies making quite good profit but resting on a fragile economic base. This weakens the company in possible crisis situations and quickly brings on a need for a substantial injection of new capital, be it either its own capital or borrowed capital. This group of companies need to be thoroughly examined prior to investing in them. Some of these companies have a strong business culture and could turn out to be a profitable investment.

The bottom right corner contains companies that have come to a halt with regard to earnings. A safe capital basis carries them forward through development. A continuing lack of earnings and probable negative results thins out the capital base. Companies in this category need to be bought by wealthy investors with enough management skills to turn the economic development into something profitable. Alternatively, investors could actively participate in general meetings and make demands to company management. This category of companies also includes companies described as developmental industries such as medical research. These companies are likely to be found in the bottom right corner. They make no profit but are equipped with a substantial bag of money to cover development costs.

In the extreme top right corner are a number of companies with no control of earnings or capital base. These companies are fighting to survive, with the emphasis being on three main areas

1. The increasing difficulty of keeping customers away from competitors who are acting on their rival company's weaknesses.
2. Keeping up the spirit among the employees despite difficult times and maybe even making people redundant.
3. Problems with the financial partners demanding complete insight, thorough reports and reduction of management freedom. The extra management resources required to comply with these demands are quite substantial.

Choosing to invest in any of the companies in this category is quite a gamble. A survey of the last 8-10 years shows that companies in this position very rarely survive effectively. However, some still do.

What makes StockR8 a better model?

The quotation analysts of today work on estimating result development. The estimates are then summed up in an estimated annual result per share for the next 1-3 years. On this basis, a presumed P/E can help the decision-maker calculate the development of the share price.

The cash flow models take the vision of the future to a further level with prognoses of the future cash flow, which is principally a result of continuation of the business.

Some economic models apply the company's result development instead of cash flow. The results are discounted with the rate of interest investors expect to achieve from their investment.

The latter method is possibly more correct, but has several practical problems associated with it.

First, there is the difficulty of setting the rate of interest for the results to be discounted with. Different investors make different demands; furthermore, the demand may vary with time according to the insecurities associated with the running of a business. It is equally important to focus on the insecurities associated with the forecasting of future results on which the estimate is based. Considering the substantial changes affecting businesses, as well as the considerable budgeting and long-term planning complications facing them, it makes it difficult to believe that anyone could predict the future economic development, no matter how good the data available. With companies showing a continuous income, it can be estimated that 30-45% of the calculated net present value will be earned within the first 5 years and 60-65% in the following years - the latter period being the most risky. The uncertainty facing the decision-maker is when and under what conditions the aforementioned future orientated information is applicable. A necessary condition is access to the estimates either by being a regular customer of a stockbroker or by having access to one of the electronic databases with the relevant information.

Second, the reliability of the estimates needs to be assessed. Business management goes through great problems budgeting for the future, despite having complete insight in the business and influence on the running of the company. A survey of the estimates in an international database showed that in September 1999 around 10,000 companies had a stock value larger than 100 million USD. Out of these companies, 22% failed to live up to their estimates for the year 2000 whilst 30% had up to 5 different estimates for the company. This shows that for over 50% of the companies, this way of estimating was questionable. The disadvantage of using the estimate and cash flow models is the large workload that comes with it. It is necessary to examine data material for each individual company and inquire into the quality of the company etc. in order to make prognoses for the future profitability of the company. It has to be decided if the workload pays off, considering the substantial uncertainties.

StockR8 applies a historical point of origin. A total deletion of all uncertainties in future economic development is purely a theoretical concept and can never be applied to the real world.

StockR8 has chosen to include the individual company's historical economic development as a major part of the decision making. We believe that the historical economic development often dictates the company's future economic development.

The progress of a company's development can be assumed to represent a long list of decisions controlled by its management. These carefully prepared decisions are the prime mover of the internal process of the company. Unless the company is hit by external factors or the basis of company procedures are altered, one can expect the business to continue its progress of development. This is explained by the strong tendency of individuals and ultimately organizations to repeat themselves in their actions because;

• The business is tied down by a heavy production apparatus and therefore is not likely to make changes.
• A tendency of inertia among the employees.
• A tendency of inertia among the customers.
• Solid cooperation with suppliers.
• Strong company culture developed by the employees pulling both themselves and work processes in a direction of previous success.
• A management with the responsibility to act on changes when and if possible.