Using AI for Stock Research: Tips + Prompts with Brian Feroldi

26:05Okay. So the first thing I have this prompt do is say, what does this company do? So Dave, this says, S &P Global provides financial information, data analytics, and benchmarks to capital markets. It has credit rating and relating analytics. It has market data, workflows, and analytics. It has commodity and energy, market intelligence, indexing, benchmarks, and asset link products, mobility, and automotive-related products. And it got all of this from SEC filings. Is that accurate? Right on the money. Great. Okay. So that's prompt number one. What does the company do? Number two, this is all part of the same prompt.

26:40How does it make money? So it says, okay, S &P 5 Global's revenue comes from multiple sources. The breakdown is as follows. Subscription slash recurring revenue from data, fixed free workflows. That was 7.4 billion or 52 % of the total. And you can see the source right there is an S &P 5 Global SEC filing. Number two, non-subscription transaction revenue, about$3 billion from ratings, underwriting, and one-time fees. Non-transaction revenue of surveillance, maintenance, annual revenue. It has asset-linked fees, which are about 7 % of revenue. Sales and usage-based royalties, which are three, and recurring variable revenue, which is about 4 % of revenue.

27:24And it has operating profit of about$2.7 billion. Is that roughly in line with what you know about the business? Yeah, that's exactly in line with what I know about the business. This is cool as an understatement. Question number three, I have it programmed to say is, okay, who are the customers? This says the customers are corporations issuing debt or bonds, investment banks, governments, in municipalities, commodities producers, indexing licenses, and automakers and suppliers for its mobility. Is that accurate? Yeah, it is. Yes, very accurate. Great. Okay. Next question. Where does it operate?

28:03And this says geographic breakdown. The US is 61 % of revenue. International is 39. Europe is 23. Asia's 10 and rest of world is six. And again, the original sources are right next to each of these numbers. So if I'm like, where did it got that from? I can click a link instantly to go to that information. Does that also sound accurate? I think so, but honestly, I'm not entirely sure. So maybe could we check on the source to just double to verify because I truthfully don't know that. Yeah. So we're going to have to do that the slow way, to be honest. I'm not sure where in the SEC filings would be the fastest way.

28:41It just links to the filing itself. It doesn't say where in the filing it got it from. So maybe that would be a prompt. Maybe that would be an improvement. I do see on here it has subscription revenue of about$7.3 billion, non-subscription of about$2.9, asset of about$1 billion. So all of that matches actually pretty darn closely with what it said before. I would say that that is spot on. Let's see if they have... Okay, here we go. Total revenue in the US, it says 61 % and international is 39%. That's where it is. So here it says 61 and 39. So chat GPT nailed it on that metric. Yes, exactly. Perfect.

29:21Awesome. Next dynamic I have is how often do customers buy? So I want to know, is revenue recurring or is it one timing in nature? Here's what chat GPT said. It says many revenue streams are recurring like subscriptions, surveillance, and index licensing with annual or multi-year contracts. Some revenue is transactional or event-driven, especially ratings like IPOs, fees on new issuance, and bonds. This mix gives stability. It has a leading portion. 50 % is predictable with remaining tied to market activity. Customer retention is generally high and due to switching costs. And subscription revenue grew 7 % year over year.

30:00Would you agree with that analysis? I would agree with that analysis. Our junior analyst is doing a good job. Great. Next, tenant raise prices. This is an analytical question, and this is all from that single prompt that I did. And it says, yes, to some degree, here's some supporting evidence. The nature of proprietary data gives some pricing power. Increase in subscription use of each royalty shows ability to grow pricing or expand volumes. But competitive pressure, regulatory scrutiny, especially on ratings and use of alternative data providers can limit price hikes and margin sensitivity at scale.

30:39Cost of delivering data is partially fixed. So margins benefit from revenue growth. What do you think of that? Yeah, that's, I think that's pretty spot on. Okay, great. So ChatGPT is doing pretty good so far. And then finally, the final question here is for me, what happens in a recession? I want to note, is the business recession proof? Is it recession resistant or is it highly sensitive to recession? And this says transactional revenue tends to decline sharply in weak capital markets. It says recurring revenue says subscription revenue provides a buffer. In past downturns, demand for risk analysis, credits assessment, and stress testing may increase by offset by issuance and activity.

31:19Management often warns of exposure to capital market cyclicality and the balance between stable and cyclical revenue gives resilience, though not immunity. What do you think of that analysis? I think it was great, especially the part about warning of exposure to capital market cycles, because every single earnings call that you listen to, that is something that management discusses in their pre-prepared remarks. So it's obviously very top of mind for them. So, okay, I would say it's fair to say that this prompt plus Shatt GPT did a pretty darn good job with a stock that I don't know well that you do.

31:53Yes, very much so. And I think the other thing that's kind of revealing to me is if you worked through this, if you took a company, let's say we took this company, you don't know it. This would be a really, really good way to start getting your handle around what they do and what could be some potential growth levers and risks for the company. And again, if you were doing this the old way by reading SEC filings and manually doing it, I would argue it would take at least half an hour, maybe more than an hour to just get the information we just had. Yeah, easily. Yeah. So it took 10 seconds to get the data, analyze it, and give it to us in the format that we want.

32:29And then what? Maybe like two or three minutes to read through the information. So this is the power of using AI to analyze stocks. Evening. Buyer's remorse. Buy a new car? I'll be moving in. Let's get started. Sorry, I think there's been a mistake. I bought it from Carvana. You what? Yeah, great price. I even have seven days to love it or return it. So there's no? No, no buyer's remorse. More like buyer's rejoice. I guess I'll let myself out. Congratulations. I mean it. Buyer's rejoice. Buy your car today on Carvana. Limitations and exclusions may apply. See our seven-day return policy at Carvana.com.

33:08This episode is brought to you by Google Chrome. You think you know a browser, but Gemini and Chrome? That's new. It can help you with practically anything on the web, like restoring a vintage motorcycle from a 50-page restoration block, or finally break down that long article you've had open for weeks. Gemini and Chrome is here for it. Ready to make anything online make sense? There's no place like Chrome. Check responses set up required compatibility and availability varies 18 plus. Yeah, that's awesome. All right. So let's look at something else. Can we look at the moat for SPGI? So I have a whole analysis here, a whole prompt here that is specifically for moats.

33:45So I'm going to now copy that and put that over to ChatGPT. I'm pasting it in. this, all of these prompts are like thousands of words long. So they're specific. So I entered it chat GPT says, okay, what company would you like me to do this assessment on? And I'm going to do the same thing. So S and P global slash S P G I actually find it's really helpful to put the name and the ticker in there just to minimize chances of hallucinations or anything like that. All right. So we have a result back here. So we have no analysis for S &P Global. So it says the moat size is currently narrow. It says the moat direction is stable.

34:29It says the primary sources of moats are switching costs and intangible assets. And there's an executive summary. It says, S &P 500 Global exhibits durable advantages via high switching costs through deep integration of data analytics into client workflows and powerful intangible assets, namely its brand, index, and rating licenses. However, network effects are limited to specific verticals, cost advantages are fuzzy, and competitive threats like alternative data providers suggest its moat is unassailable. So that's just the overall view. would you agree with that? I would definitely. Okay. So I have this prompt designed to give you an overview at the top and then more details down below.

35:15So it actually goes moat source by moat source to tell you, is it present? What is the, what is the reason for your analysis and also provide supporting data? So for example, it says the number one moat is switching costs. And it says the analysis is that this is embedded deeply into clients, workflows, ratings, et cetera. and it has metrics here that's supporting. So it says the subscription recurring revenue comprises 52 % of total revenue. Morningstar data, which is an approved source in my opinion, says that it's established a wide moat from its data-driven benchmarks, credit ratings, and commodity prices.

35:49And it even has a quote from the most recent call or the most recent thing said, SP Global has an array of high margin, moaty businesses. And that quote comes from a Morningstar article of 2025. five. We see intangible assets. It says, yes, there are some intangible assets present. Same analysis. Network effects, it says, are not present or very weak. It gives analysis. Low cost production, it's not present. And then counterpositioning is not present. So then it also has risks. So what are the risks to the company's moat? Alternative data and analytics firms, most notably AI and non-traditional credit scoring.

36:27The competitive landscape includes moody's msci bloomberg riders fact set and more it has a valuation premium and yeah so there you go what did you what would you say that the what do you think of the this moat assessment i think it's spot on i i think i love the fact that it analyzes the moat gives you a summary gives you sources of where it's determining what the moat is as well as metrics to look at to analyze the moat. And I also love the fact that it doesn't just give you the ones it definitely has. It also outlines the other potential moats that maybe we may or may not think about in relation to a particular company and whether they're present or not.

37:11And I think also using Morningstar data to help with this part of the analysis is very important because if they're known for one thing, it's moat analysis and that's like kind of their bread and butter. So I think that's really critical to helping figure this out. Yeah. Now, to be completely fair, doing analysis like moat is actually quite difficult because that's like a squishy thing, right? So I have the prompt programmed to analyze moat source by moat source. I have a program to say, what's the current state of the moat? And then I also have a program to say, is it widening, stable, or shrinking?

37:46And I also ask you to provide direct evidence with links to show why it came up with that analysis. Sometimes you do have to rerun these prompts because if you know a company, you're like, I don't necessarily agree with that. And disagreeing with what it gives you is perfectly fine. Something like moat is a squishy topic. But I do think that this can dramatically help you to think through the process of analyzing a company's moat. Yeah, for sure. And that point about the squishy is, I think, very, very important. Sometimes people will argue that these particular emotes in particular are hard, fast, set in stone, factual, when it can be pretty squishy.

38:27So I like that term. And I also agree with the, if the AI doesn't give you an answer you want, it's not the final answer. you can go back and ask it to rerun the analysis, maybe tweak something, different things you can do to get what you think is a better answer. Because to Brian's point, just because it gives you an output doesn't mean you have to take it as gospel. Yep. In fact, I highly discourage you from treating it as gospel. Your assumption going in should be the analysis is wrong, and you should ask the analysis to prove to you that it is correct. Yes. Yeah, that's awesome. Awesome. Can we do another one?

39:06Yeah, let's do it. All right. Why don't we do the business phase analysis? So this will help us to figure out which of the six phases of the business growth cycle a company is in. Are your listeners familiar with the concept? Yes. You and I have talked about it and we've talked about it on the show before. Right. So the general concept is you don't want to treat, you don't want to analyze young companies, startups the same way that you analyze mature companies. Right. So just like the humans have a development cycle, businesses have a development cycle, and you want to analyze them based on the appropriate timeframe.

39:41The real simple analogy here is you wouldn't judge a two-year-old by its SAT score. Two-year-olds are too young to have SAT scores. You judge it by its development and its language and its ability to walk. Same way you wouldn't judge an 80-year-old by its work performance or how many pounds it can lift on the job. Right. So just as the metrics for humans change over time, the metrics for corporations change over time. So this is probably the hardest prompt, the one that took us the longest to kind of analyze. But the idea here is that you put this prompt in and it'll tell us which of the six phases of the business growth cycle a company is currently in.

40:19So I just copied it over and did paste. It's going to use SPGI. And here's what it says. So using data from the most recent 10K and the 10Q, this says SPGI is currently in phase five, the capital return phase. It says the stage level confidence is very high. So the AI is very confident that it's in that phase. What's the evidence for that? It says operating income is positive. Revenue is growing 14%. It is returning capital to shareholders. So it bought back$22 billion worth of buybacks and dividends in 2024. Would you agree that it's in the capital return phase? Absolutely. Great. So the prompt work.

41:03Now, in addition to just saying which phase it's in, I also have it programmed to help the user think through valuation. So it does say, okay, since it's in phase five, what valuation methods are most useful for analyzing this business? And the The AI says trailing price to earnings, trailing price to free cash flow, and reverse discounted cash flow. It says these methods are most useful because this company is mature, profitable, and actively returning capital to shareholders. At the same time, it says which valuation method should we avoid using, and it actually says forward price to earnings, forward price to free cash flow, price to sales, and price multiples oriented towards high growth companies.

41:50Would you agree with that or disagree with that? No, I 100 % agree with that. Okay, great. So it has what being in phase five means for investors. It has some original filings and stuff down there. So this one is, of all the prompts that I've built, this one's the hardest one to get right, the most likely to be wrong. I'm glad it worked out just fine for this company. Yeah, it looks great. So do you have a valuation prompt? So I do have a valuation prompt. When it comes to valuation, I actually find that AI is extremely limiting. For valuation, I actually vastly prefer to use fiscal.ai, which is a tool that allows you to see a company's multiples over a longer term history.

42:38I don't think that AI is good for that yet, or at least I haven't cracked the nut on valuation for that yet. So I do have a valuation prompt, but what the valuation prompt does is it tells you which valuation methods to use and which ones to avoid. So if we're going to do valuation analysis, I would say AI isn't great for that right now. Let's focus on fiscal.ai or some other tool. All right. Well, then maybe we could take it for a spin with risk. So SPGI is a company a lot of people don't know. Risks are always important to understand because protecting our downside is just as important. Yep.

43:17All right, so I'll copy over my risk prompt. I like this one a lot. This one's color-coded nicely. So it's doing the analysis and it says, okay, what company would you like me to do? SPGI slash S &P Global. And let's see what the risk analysis says for this. Okay. So analyzing SPGI's risk using its, again, most recent 10K and 10Q. So again, proving up top that you found the initial filing. So it says the overall summary, ChatGPT says the overall risk level here is medium. The primary risk factors facing this company are outside forces and disruption. The key mitigations is that it has a diversified business line.

44:03It has a regulatory moat in place. It has a strong brand and it has client lock-in. So that's the overall assessment. And then I have it go risk detail by risk detail to kind of analyze them. So risk detail number one is concentration risk. ChatGBC says this is essentially not a risk at all. And the trend here is stable. And it says the company has a tenant base that is diversified with no meaningful customer or contract manually providing concentration risk. Is that accurate in your mind? Yes, it is. Okay. Risk number two is disruption risk. ChatTPD says this is a yellow risk, and this risk is actually getting worse.

44:44It says the risk factors mentioned are social and ethical issues relating to the use of new and evolving technologies, such as AI in our offerings. And the spinoff plan for the mobility unit suggests strategic repositioning to reduce exposure to disruptive pressures. Would you agree that AI is a disruptive risk to this business? Yes. Okay. And number three, outside forces risk. So it says this is a red risk and this risk is getting worse. So S &P says we have prolonged difficulties in global credit markets and changes to the regulatory environment are affecting our business. And it calls out climate change, regulations, and geopolitical shifts are flagged as emerging operational and regulatory risks.

45:30What would you think of that? Yeah, I think that's pretty accurate, especially with the regulation and geopolitical shifts. There's a lot of instability in the world, and that's causing pushback on SP in their global ratings. Would you agree that this is a red risk, or would you say it's a yellow risk? Because it's kind of fuzzy on the, is it red, yellow, or green? I guess I feel like it's maybe yellow, maybe with a tinge of red. Okay. Next, competition risk. So this says yellow, the trend looks stable. So the 10K does competitive risk for ratings, market intelligence, indices, and commodities.

46:11And it says, while S &P has numerous advantages, there are several well-capitalized competitors, such as Moody's, MSCI, and Bloomberg, operate in overlapping domains and offer alternatives. And then below there, I have kind of a risk matrix where it lists out the four major risks, their current rating, green, yellow, or red, the strength of the company's argument, and the trend. So then it says, here are the company's defensive positions. So regulatory entrenchment and licensing are a major plus, the brand and client integrations, and it has broad segment diversification. So what would you think overall of the risk assessment here from ChetGPT?

46:51I think the junior analyst did a pretty good job. Good. Yeah. So sometimes I've noticed when I do this analysis on companies that I know well, I'm like, I think it's overemphasizing this risk or it's underemphasizing this risk. But again, I like that it's thinking in a structured way and I've programmed it to look at concentration risk, disruption risk, outside forces risk, and competitive risks, which to me are probably the four most important risks aside from valuation. That's a separate, that's a separate risk, but this is just pure risk to the business. Yeah, for sure. And to your point earlier, it's a squishy section.

47:26And so I think having some judgment involved with what it's giving you will certainly help. Yeah, there you go. Perfect, great. All right, so how this, I mean, this is amazing. And running through all of this, how long do you think running all the prompts that you've created would take? I've done it. And I mean, if you have the prompts copied and pasted and ready to go, how long it takes is basically depending on your reading speed, right? So you can do a full, using these prompts, I can essentially take a company through each of these prompts and fill out essentially my investing checklist, or at least have a very good, high quality confidence of the company and whether or not it's a fit for my investing style within five minutes, 10 minutes, I would say max.

48:18Again, it does depend on your investing speed and how fast your LLM is working that day. The first time you do it, it's obviously a little clunky, copying and pasting, learning how to do it. But to me, there's no doubt that this dramatically speeds up your analysis process. Yeah, for sure. And I think this would be perfect for retail investors that don't have a lot of time. People that work a job, have families, and want to do stock analysis. to your point earlier, can really help you turn over a lot of rocks quicker. Yeah. Or I would also say that a lot of retail investors struggle with doing the analysis themselves.

48:56They don't know what questions to ask. They don't know what frameworks to think of. They don't know what to even analyze in the first place. So that's why I built the prompts in the order that I did. So at least you can have a structured way to think like a professional analyst and judge through the business. I don't claim that these are the only things you need to think about or the only things that matter. And I'm always going to be working on these prompts. I mean, AI moves very fast, but I would say that these prompts are really fantastic about giving you a very strong deep dive. And dare I say, they probably do more work in analysis than 99 % of people that buy stocks.

49:34Yes, I would probably strongly agree with that. All right. So let's kind of recap a little bit. So I guess three takeaways, if you will, from today's episode. So number one, whenever we're using AI in any way, shape or form, we always need to demand a citation from SEC filings or company reports. That helps us verify and make sure that we avoid hallucinations. We need to use modular prompts. So kind of like Brian set up and basically shorter sections, not that the prompts themselves are short, but shorter sections, business mode, financials, risks, etc. And then we need to assign roles. This is very critical and structure.

50:12So our junior analysts can stay on task and get everything done. Now, Brian, you and your team, you guys, the other Bryans, have created a tool and these prompts that our listeners can get. Would you like to give some thoughts on that? Yeah. So the prompts that I laid out that we just used, there's seven of them in total. We offer those through a product that my company built called Stock Simplifier, which is a checklist that we use to analyze businesses. and it comes with a full course that kind of teaches you how to look at each of those sections in detail. So how to figure out which stage of the business growth cycle a company is, how to analyze a company's moat, how to analyze its long-term potential, the key metrics to look at, the valuation, all of that.

50:56So that course is called Stock Simplifier. And just recently, within the last couple of months, a couple of weeks, actually, we took the prompts that we just shared on this episode and we built them into the database. So So the prompts that do the analysis for you are also included in Stock Simplifier. Which is awesome because not only do you learn how to analyze a company, then you get these prompts that can help you do it faster. And that is an amazing, amazing thing. So Brian has included all the prompts in Stock Simplifier. It's normally$199, but our listeners, IFB listeners, are going to get a 50 % off discount at stocksimplifier.com slash IFB.

51:39And yes, I will put that in the show notes so you guys can check it out. But it's stocksimplifier.com slash IFB for those of you that are driving or on a lawnmower so you don't have to take notes. And again, Brian, as always, this was super educational, a lot of fun. And I learned a thing or two, and I'm super intrigued by all the prompts that you created. And I think it's super valuable. I will point out that AI moves incredibly fast. So one thing that we do with everyone that purchases Stock Simplifier is every two weeks, we actually run these prompts through. We take a company and we run all these prompts through them and do the analysis because we do plan on changing these prompts, changing our process as new AI techniques and features come about.

52:22So if you want access to that and you do get Stock Simplifier, join us for the weekly sessions because the way that you analyze using AI today, I guarantee we'll be changing three months from now, six months from now, et cetera. Yeah, exactly. And I guess a key point then is as you guys adapt to the changes that are going on with AI, people that have bought it in the past will get those updates, correct? Yes, yeah. It's a one-time fee to get access to the prompts. And as you make changes to them, you'll get access to them as we go. Yeah, right. Awesome. Well, as everybody could tell by listening to Brian today, he knows the stuff.

52:56and this is super, super valuable. And I think it could help you greatly in your investment process and finding great companies. So with that, we'll go ahead and sign off. You guys go out there and invest with a margin of safety. And it's just on the safety. Have a great week and we'll talk to you all next week. We hope you enjoyed this content. Seven Steps to Understanding the Stock Market shows you precisely how to break down the numbers in an engaging and readable way with real life examples. Get access today at stockmarketpdf.com Until next time, have a prosperous day.