When you buy a stock, in the final analysis, it all comes down to your personal judgment. Since that is the bottom line to choosing a stock, how one goes about exercising that personal judgment is critical.

A favorable outcome has a “high probability” of resulting from following this little equation: Low price + high quality + solid outlook = favorable investment outcome

A favorable outcome is not “guaranteed” from the above equation because there are limiting factors like unforeseen events at the time of one’s analysis (both company-specific and market-based), failure to do the homework required in assessing outlook, failure by the investor to sell at the appropriate opportunity, etc. Yet, the likelihood of success with investing by attempting to find stocks that satisfy the above equation is very, very good.

For those of you who read my book, “Choose Stocks Wisely,” you know that my Adjusted Floor Price Scorecard reflects my attempt at measuring high quality and a low price. Further, it very conservatively attempts to factor in outlook by blending 12 months of EPS into the scored price.

Today’s balance sheet is a certainty, but where it lands in the future is uncertain. That’s because the company’s performance outlook always involves uncertainty. So, after scoring a stock by my method which heavily leans on “today’s” certain balance sheet standing, the greatest level of judgment, in my personal practice, comes down to the level of certainty I sense toward the company’s opportunity for performance improvement(s).

I may score 2 companies that both meet my quality and low price standards. After studying the companies further, I may feel that one of the companies has a bright future while the other company just gives me little visibility. Limited to selecting one or the other, the judgment call here becomes an easy one.

Scoring a company’s quality today and its equity worth (to get at a potentially low price) is not a difficult chore. Deciding whether its deep value will be rewarded handsomely in the future revolves around carefully judging the company’s outlook for hints of whether business is likely to advance the company along nicely.

I preach buying quality at a cheap price because the most important thing with buying common stocks, in my book (pun intended), is to avoid losing money. Even if the outlook is so-so, deep value is likely to help retain its price tag. However, learning to judge when the future looks like deep value might get “noticed,” and focusing on investing in those companies — well, that’s when investment decisions can really start to pay off.