How to Improve the Stock Research Process with Roam

The world of software tools designed to help the thought processes of the human brain is exploding. There’s a growing universe of these apps that greatly improves note taking and insight generation.

Roam Research is the dominant player in the niche of software apps for networked thought and also my favourite.

Given that fundamental equity analysis is mostly a process of insight generation I believe that using this type of app will certainly increase the quality of the output.

With Roam you will be able to relate ideas in a purposeful way and at the same time benefit from the serendipity of unliked references (these are connections that Roam makes on your behalf automatically).

I believe that any tool is as good as the system that you use on it and this case cannot be different.

To research a businesses I use not only Roam but a system called Zettelkasten. This way of taking notes was devised by german sociologist Niklas Luhmann and masterfully outlined by Sonke Ahrens in his book How to Take Smart Notes.

The idea here is to develop a system where you can connect notes from different media sources to generate insight about a particular company you want to invest in.

A scaffold for thought

Even if you have a great brain, you can get and advantage in your thinking using a scaffold for your ideas. I believe that software for networked thought is the real bicycle for the mind that Steve Jobs mentioned in several occasions like this.

The thinking is done in the writing, You are using an external scaffold, an external medium to build upon your ideas.

Is not that you think and then you write what occurred to you in your mind, but more that you continuously keep developing your ideas while you write.

Many times you are going to find that you came upon a really good idea but you realize the value of it just after you re-read what you wrote.

Having an external medium like this in equity analysis can really help to come up with better insights.

The research process

The first step of course is to gather all the reading materials you are going to use to understand the business. If it is a public company I imagine they would be the following:

annual reports,

investor presentations,

analyst articles,

industry research reports,

books about the topic,

Twitter threads about the company or niche,

Youtube videos,

fund manager’s letters,

podcast episodes, etc.

Gather every possible source of information about the company in one place.

Once you start reading and processing all the information materials you will start taking notes. But not any type of notes, I mean literature notes.

What are literature notes?

They are one of the fundamental elements of the Zettelkasten system. Basically for every piece of media you will create a new page in Roam with all the corresponding metadata and then you jot down in your own words which are the main ideas and information of the piece you are processing.

I have templates specifically created for every type of media I usually use doing this type of research. This templates prompt me all the information required to correctly store and reference that source of information in the future.

A few examples of literature notes would be the following:

A podcast’s literature note

A blog post literature note.

You can see in the screenshots that there are tags that will be crating a relationship with other notes and also important words that are between [[]], this means that a specific page was created for those words in the Roam graph.

For a matter of practicality, given that I will have several notes for each type of media, I will create short cuts in Roam left side bar:

Roam shortcuts side bar

LN corresponds to literature notes. These are basically the concepts and ideas shared in those pieces of media re-written with my own words.

I would have a template prepared for each type of media where I have pre formatted (APA style) the information I need in order to do correct quotations later.

Basically the idea here is to digest and write down, in our own words, all the relevant information needed to generate insights about the business.

I cannot overemphasize enough the fact that you have to use your own words while jotting down the information. In order to explain the concepts on your own words you have to first understand them, so this step is critical in building a good conceptual foundation.

The insight generation process

In the screenshot above you may have seen there’s a section called permanent notes. That page is where all the links to the original insights generated by the research are stored.

A permanent note is an original observation or idea that you came upon while writing the literature notes. It can be about anything. For example after listening to a podcast where they interviewed Morgan Housel about the psychology of money, I came up with the following permanent note:

A permanent note example

For that idea I would create a new page containing only that idea and making connections with other ideas in the graph.

The only restrictions while generating insights and ideas in permanente notes are:

Keeping it short: one idea per note. If you have more than one idea, write another note.

Build connections: every new idea should be connected to an existing idea. You should push yourself to make connections every time you create a new permanent note. Some examples of questions you should ask yourself to build connections:

Which is this new idea adding to the discussion?

Is this new idea confirming or denying my existing beliefs about the topic?

Are there more questions that arise after I add and connect this new idea?

Another important thing about the process is that you have to explain the connection between the ideas in the notes themselves and how they influence the new context where you are analyzing them.

According to Niklas Luhmann, the inventor of the Zettelkasten system, every idea has value of its own but it’s really important to understand the context on which that idea is being valued. An idea or insight can have different impact depending on the context that is being considered.

Well, this has been a short introduction to the Zettelkasten system used in Roam to improve the stock research process. I hope you will continue investigating about this topics because, without a doubt, there’s much more to it that I shared here.