Fire Your Stock Analyst! Analyzing Stocks on Your Own
Harry Domash · 2006 · 400 pages
A former money manager distills 15 interviews with professional stock pickers into an 11-tool checklist covering analyst data, valuation, target prices, and a modified Piotroski fiscal fitness score. The checklist logic still works; almost every website it tells you to click through no longer exists.
The one idea
Domash's core claim is that individual investors can replicate what professional analysts do, using only free web data, if they work through the same questions in order: what do analysts' ratings and forecasts really imply, is the stock's valuation reasonable given that implied growth, what price target does a company's own sales and margin trajectory support, and is the company financially strong enough to survive being wrong. He splits the method into two parallel 11-step processes, one for value investors and one for growth investors, built from the same underlying tools but applied with opposite thresholds.
The most durable piece of the book is his treatment of analyst ratings as a sentiment gauge rather than a buy signal. He walks through a real 2000 to 2001 case (an unnamed analyst he calls 'Andy Analyst' covering ADC Telecommunications) showing the analyst holding a buy rating all the way from $17 up to $42 and back down to $12, only downgrading after a 70 percent decline. From that he builds his Sentiment Index: add one point per strong buy rating, subtract one point per hold or sell, and ignore plain buys. He tracks Nortel's score rising from 3 to 16 as the stock ran from $15 to $82 in 1999 to 2000, then collapsing to -21 by January 2002 with the stock at $5, as a demonstration that the index reads crowd enthusiasm, not value.
The second load-bearing piece is a fiscal health score built on Joseph Piotroski's academic research (University of Chicago), expanded from Piotroski's original nine pass/fail tests to eleven, covering profitability, debt trend, and operating efficiency, scored from -1 to 11 with 5 as the passing line. Domash back-tested it against real 2000 to 2002 bankruptcies (Enron, Global Crossing, Webvan, XO Communications, Kmart) and shows all of them scoring 1 to 4 in the year before they failed, against strong performers like Intel and General Electric scoring 9 or 10.
What it actually teaches
Domash's process runs through 11 tools in a fixed order, applied to whichever candidate list a screener produced; here is the sequence as he lays it out for a value or growth candidate.
SCREEN FOR CANDIDATES
Use a stock screener (he names AOL, MSN Money, Reuters, and Business Week, all defunct or unrecognizable today) to cut the market down to 15 to 30 names. His sample growth screen requires 20 percent recent revenue growth, 18 percent forecast 5-year earnings growth, an 8 percent minimum return on assets, a current ratio of 1.5 or higher, and long-term debt/equity under 0.5. His value screen instead requires a weak stock chart (relative strength under 60), an analyst consensus rating of 2.2 or worse, and long-term D/E under 0.4.
READ THE ANALYSTS' RATINGS AS SENTIMENT, NOT ADVICE
Convert the brokerage consensus into his Sentiment Index: add one point for every strong buy, subtract one for every hold, sell, or strong sell, ignore plain buys. Negative scores or scores of 0 to 2 flag value candidates; scores of 9 or higher on a growth stock flag a stock priced for disappointment. He treats a hold rating as a sell in practice, since most brokerages won't let analysts publish an outright sell on a company that might become an investment-banking client.
CHECK THE IMPLIED GROWTH RATE
Back out the earnings growth rate a stock's current P/E is already pricing in, using a rearranged Graham and Dodd formula: implied growth rate = P/E x (AAA bond yield / 8.8) - 4.25. At an 8.8 percent AAA corporate bond rate the formula collapses to implied growth = P/E - 4.25, so a stock trading at 50x earnings is pricing in roughly 46 percent sustained annual earnings growth. He flags anything implying 30 percent or higher growth as a risky bet, noting few companies sustain that for long.
SET A TARGET PRICE
Run a seven-step forecast: project sales for the target year, estimate the profit margin, multiply the two for net income, estimate diluted shares outstanding, divide for target EPS, estimate a plausible high and low future P/E, then multiply EPS by those P/Es to get a price range. He works this through in full for pharma maker Alpharma, projecting out to early 2005 from 2002 data.
SCORE FISCAL FITNESS
Run his 11-test modification of Piotroski's fiscal health score across profitability (positive net income, positive operating cash flow, rising ROA, cash flow exceeding net income), debt and capital (falling total-liabilities/assets, stable-or-rising working capital, share count growing less than 2 percent a year), operating efficiency (rising gross margin, rising asset turnover), and his own two additions (total liabilities/EBITDA under 5, total liabilities/operating cash flow under 4). Score -1 to 11; treat 5 or below as a red flag, and restrict the test to companies with total-liabilities/equity of 0.5 or higher, since he found it misfires on very low-debt firms.
CHECK RED FLAGS BEFORE BUYING
Cross-check accounts receivable growth against sales growth, inventory growth against sales growth, and the cash-flow-versus-working-capital quadrant (positive cash flow and positive working capital is the only combination he calls safe outright) before committing capital.
What it looks like Monday morning
A reader who follows the checklist stops treating a brokerage's buy rating as useful information and instead treats the ratio of strong buys to holds as a crowd-sentiment thermometer, which is a genuinely useful reframe that still holds. They'd also start backing out the implied growth rate on anything they're tempted to buy at a high multiple, using current AAA bond yields in place of Domash's 2001 figures, since the formula itself doesn't expire even though the specific numbers in the book do.
Where the Monday-morning plan breaks down is the screener and data-source layer. Every specific site Domash names for running the screens, pulling analyst estimate tables, or reading Morningstar's balance sheet breakdown has either shut down or changed beyond recognition since 2002. A reader has to independently rebuild the workflow on whatever free source exists today (most now point to Yahoo Finance, Finviz, or a brokerage's own screener) before any of the numbered steps become executable.
| Company | Statement date | Score | What happened |
|---|---|---|---|
| Enron | 12/00 | 4 | Filed bankruptcy December 2001 |
| Webvan | 12/00 | 1 | Filed bankruptcy July 2001 |
| Global Crossing | 12/00 | 2 | Filed bankruptcy January 2002 |
| Kmart | 10/01 | 2 | Filed bankruptcy January 2002 |
| Intel | 12/00 | 10 | No distress; among the top scorers tested |
| General Electric | 12/00 | 9 | No distress; among the top scorers tested |
| Cisco Systems | 7/01 | 5 | Barely passing; score reflected its $1 billion loss that fiscal year |
Every bankrupt company in Domash's own sample scored 4 or below the year before it failed, which is the strongest evidence in the book for any single tool.
This is not a get-rich-easy kind of book. There are no magic formulas revealed.Harry Domash, Fire Your Stock Analyst!
Where it fails
- The entire toolset is dead links. Domash builds his screening chapter around AOL Stock Search, MSN Money's Deluxe Screener, Reuters Investor PowerScreener, and Business Week's Advanced Stock Search, with step-by-step field names and operator syntax for each. All four services are gone or unrecognizable in their 2002 form; MSN Money's consumer investing tools were shut down years ago and Reuters Investor was folded away long before that. A reader following the book's literal instructions hits dead ends on the first tool in Part Two.
- Every dataset in the book is from the 2000 to 2002 crash. The examples that carry the method (ADC Telecom, Nortel, Enron, Global Crossing, Webvan, XO Communications, Calico Commerce) are all dot-com and telecom-bust casualties, and the author confirms in Chapter 6 that he wrote the manuscript in April 2002. The paperback cover says 2006 but Domash never updated the case studies, the AAA bond rate tables (he cites a 7.2 percent bond yield as current), or the screener walkthroughs for the reprint. A reader gets a snapshot of one specific bear market, not a method validated across cycles.
- The fiscal fitness score is explicitly not valid for low-debt companies. Domash states directly that his 11-test modification of Piotroski's score 'breaks down when applied to very low-debt firms, sometimes giving failing scores to very strong companies,' and restricts its use to firms with total-liabilities/equity of 0.5 or higher. That is a meaningful chunk of high-quality large-cap compounders (many software and consumer-staples names run with minimal debt) that the book's own signature tool cannot score.
- PEG and the Graham/Dodd formula both admit they have no theoretical basis. On PEG, Domash writes plainly that he has 'never been able to find any basis for the relationship' between P/E and growth rate defining fair value, and notes practitioners moved the 'fair value' PEG threshold from 1 to 2 simply because the 1998/1999 bull market made 1 too restrictive, which is an admission that the metric is fit to the market's mood rather than to anything fundamental. The implied-growth formula rests on Graham's own 1934 constants (8.5, 4.4 percent), carried forward with no fresh derivation.
- The book assumes seven-plus years of financial history and full access to paid analyst reports. The target-price method is explicitly reserved for companies with 'a significant track record, say seven or eight years minimum,' ruling out most growth stocks investors actually get excited about. Domash also recommends buying individual analyst research reports at $10 to $90 each from Reuters Investor, a service that no longer sells them this way, without offering a modern free substitute.
- No losing trades are shown against the method, only case studies chosen after the fact. Every worked example (Symantec's cash position, DoubleClick surviving its burn rate, Intel and GE scoring near-perfect fiscal fitness) is a company whose outcome the author already knew when he picked it. There is no instance in the book of a stock that passed the full checklist and then lost money, so a reader has no evidence of the method's false-positive rate.
Who it is for
Buy it if
You want a plain-English tour of what professional analysts actually look at (consensus ratings, implied growth, EBITDA leverage ratios, Piotroski-style balance sheet screening) and are willing to treat the specific websites and 2001-2002 datasets as illustrations to be rebuilt with modern tools rather than followed literally.
Skip it if
You want a book you can execute step by step today; the screeners are gone, the case studies are two decades stale, and you'll spend more time finding modern replacements for the data sources than learning the analysis itself. Also skip it if most of your watchlist is low-debt companies, since the author's own fiscal fitness score explicitly doesn't apply to them.
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