Ask Colin

I find that there are differences in fundamental data between Commsec and the Financial Review. Which is more accurate?

There is no simple answer to your question. The first problem is that it is not only a question of accuracy, but let’s start with that. Accuracy to me is a question of whether the data is correct or not. In the most simple terms, this means is it the same as the data produced by the company in its accounts? If calculations are involved in presenting the data, are they mathematically correct? While all human beings make mistakes, I am not sure that this is a significant problem. Sure, there will be the occasional transcription or calculation error, but I think this is a minor issue.

I think that what you are alluding to is not accuracy. It is whether the data is current, or is it out of date? This is a big problem. It is especially a problem around the semi-annual reporting seasons. A lot of new results data pours into the ASX. It sometimes takes days or even weeks for the providers of data to the Financial Review and Commsec to catch up with it all. This is particularly a problem when hundreds of companies release data in a single week. Actually, I think they do a pretty good job in the circumstances. The trick is to be very wary about data around the times that companies are reporting. There is a lag between announcement and publication in these media.

In some ways a trickier problem is a question of accuracy. I recently myself queried a report in the Financial Review. It showed a very high dividend yield for a company. I happened to know that it had recently split its shares. A quick check showed that the reporter had been given a dividend yield based on the old dividend per share before they were split, but the yield was calculated on the latest price, which was for the split shares. I am certain that both Commsec and Financial Review have wrongly-based data in this situation. Share splits and reconstructions are not all that unusual, but I have noticed that most data services do not deal with them well. The lesson is to never accept data that looks too good or too bad to be true. It may be this issue is involved.

A far more subtle issue is that of definition. Before you use any data service, try to look up the glossary of terms to get at the definitions they are using. Take Price Earnings (PE) ratios. The Financial Review provides historical data. In other words, they take the last two half year earnings per share data, add them together and divide the total into the price. Commsec uses Aspect Huntley as a data provider. Aspect Huntley mostly uses an average of historical and forecast earnings in their calculation. Both will almost always be mathematically accurate. Neither is wrong in the sense that they have done what they have said they do. So the problem is not which one is more accurate. The problem is that they are designed to be different. Some people, like me, prefer to use historical data and make our own projections. Others prefer to use pure projections. A middle path is the Aspect Huntley average of historical and forecast data.

So you see it is not just a question of accuracy, it is a far more complex problem. And it is not a problem that has a single correct answer, because it depends on what you are trying to do and how you are trying to do it.

How do you deal with this? I think there are four guidelines:

First: Always find out what it is you are using, before you use it. If they do not give definitions and you cannot cross check for yourself, don’t  be afraid to ask. Getting answers, or finding the right person to ask, of course is another thing.

Second: Once you find a source that is providing data the way you want it try to use that source consistently.

Third: Once you have got to the point where you are ready to commit real money, go to the source data and do your own checks and calculations. It is not difficult. The ASX web site (Announcements) and company web sites (links are on the ASX web site) will have company           reports you can use in digital form.

 Finally: If something does not look right, don’t accept it – prove to your own satisfaction that it is correct. Don’t be afraid to phone the company and ask questions, but do your homework first so you don’t waste their time rather than use yours first.

Keyword: