Topsy-Turvy Market
One meaning of topsy-turvy per Webster is “in great disorder or confusion.”
My personal view for the apparent confusion that presently drives the market way up one day and way down the next involves several factors: […]
The Best of Times, The Worst of Times
It was Dicken’s novel, A Tale of Two Cities, that started with the words, “It was the best of times, it was the worst of times……” The expression seems fitting for our economic momentary backdrop. […]
Word of Caution on Highly Levered Companies
The stock market is flying ever upward this week. On Tuesday, I did my third CSW seminar at Mississippi State’s Meridian Campus. That day, the Dow Jones Index was up well over 200 points early in the day, only to close down by over 100 points. Then the Fed spoke and all was well again. (hint of satire)
As you know well by now, I favor value stocks since I want to pay for value that already exists over paying for value that “might” be in the future. Default risk is the risk that matters most because if the company I’ve invested in goes under, my investment in that company will never recover. Value to me is defined by the balance sheet and represents a financially solid company that stands a great chance of weathering a financial storm or setback if that comes to pass, and live to see a better day. As described in my book, “Choose Stocks Wisely,” before focusing on the balance sheet health, I experienced some bad investments that failed to weather financial storms.
Value stocks have been out of favor for a spell now while companies with weaker balance sheets (building up debt to lever higher earnings per share) have driven the stock market. See my post from late spring which cited articles on the matter here. Yet, the balance sheet always matters and when excessively leveraged companies face an adverse change in the demand climate, watch out because leverage compounds the downside just as it does the upside.
Taking on excessive leverage greatly increases the risk of default if the industry/sector weather turns inclement. Just consider that amidst the current elevated market indices that energy stocks are not participating to say the […]
Oil and Gas; Gold and Silver
Will we face inflation; will we face deflation? What is going to be the result of the monetary printing press running full speed on and on?
We can find experts in both the deflationary and inflationary camps. Upon reading, they can both “sound” right. Personally, I think we are in uncharted territory. […]
The Risk of Execution
As you know by now, my practice is to try and buy all the valuable equity I can get for the dollar when I buy stock. I’m keenly interested in what the company says about its future in terms of sales and earnings because the future operating performance is what will dictate the stock price performance after I buy. […]
When Companies Buy Other Companies
The buying methodology I share in my book, Choose Stocks Wisely, is premised on the fact that a share of common stock is a share of company equity. Equity means ownership. On that basis, I seek out a low price for a share of company equity where I derive the value of the equity from the balance sheet’s revelation of the amount and composition of that equity. […]
It Doesn’t Matter Until It Matters
Whether one invests in common stocks or not, the relevance of a healthy balance sheet to the economic welfare of society is very significant. When growing profits by any means possible becomes a norm, the balance sheet of corporate America will reveal declining financial health and we all become threatened by the growing debt burden. […]
Netflix, Equity and Earnings
A reader named Marc who has become a friend over the past year corresponds with me from time to time. This week he wrote me about Netflix (NFLX) as an excellent very recent example of a major point of emphasis in my book, “Choose Stocks Wisely.”
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GTAT: The Dangers of Concentrated Financial Leverage
Harold, a dear friend, called me early this week and told me about GT Advanced Technologies (GTAT). The company’s stock closed at $11.05 per share on Friday, October 3, 2014 and declared bankruptcy following the weekend, on Monday, the 6th. The stock closed at .80 a share that Monday. Later this week, a good friend, Bill, e-mailed me and suggested I write about GTAT in this week’s post. Thanks to Bill for making the suggestion. […]
Non-recurring earnings
This past week, I got a very nice e-mail from a reader of my book who lives in Hong Kong. I could tell he was knowledgeable about the balance sheet. He wondered why the balance sheet does not play a more important role in investing and why so much emphasis is placed on future expectations, growth and earnings. If you’ve read my book and followed my blog posts, you know that this reader is in the same camp of thought as I am. […]