Balance Sheet | Choose Stocks Wisely

The Lower the Risk, the Greater the Return

Risk, relative to investing, involves the possibility of losing some or all of the money invested. You’ve probably heard a basic premise in finance that a positive relationship exists between risk and return. That is, the greater the risk, the greater the potential return.

Simply put, to entice someone to invest in stocks over bonds, there has to be a greater expected payoff for investing in stocks. Bonds pay a certain rate of interest on a certain date and have a maturity date on which principal is to be repaid to the investor. There are no contracted payment terms for stock investors. Further, bondholders get paid back before stockholders receive anything if the underlying company goes bankrupt. In most bankruptcy cases, stockholders lose everything.

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January 18th, 2014|Balance Sheet, return/reward, Risk|0 Comments

Scorecard and Screening Talk: Relaxing More Filters

Parts A and B of my Scorecard exist to determine the “quality” of the balance sheet. Parts C and D of the Scorecard use the balance sheet numbers to define a low price “if” quality has been assured in Parts A and B. Taken as a whole, the Scorecard recognizes that a low-risk situation is one where I buy into a healthy company when a share of company ownership is available at a bargain price. The absence of quality or a low price means I’m taking more risk.

As discussed in my book, I use the finviz website to screen for stocks, selecting filters in a manner that would turn up companies that could possibly meet both my quality and low-price standards. The standards are then implemented on a particular stock through the parts of my Scorecard.

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January 3rd, 2014|Balance Sheet, Risk, Scorecard, stock filters, stock screen|2 Comments

Balance Sheet Talk

My book, Choose Stocks Wisely, is simply about the balance sheet’s critical role to risk assessment as it relates to buying quality stocks at low prices. Yet, you rarely hear the balance sheet discussed when stock prices are the topic of conversation. Company earnings are always front and center and the balance sheet is not an earnings report but a statement about financial position and financial health.

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January 3rd, 2014|Balance Sheet, earnings, Risk|1 Comment

Some Q & A (Part III)

I received a very nice note from Joe at my website recently. I’m including the following excerpt in this post. Joe wrote, “What you have also done though is opened my eyes to use this (Adjusted Floor Price Scorecard) for dividend-paying stocks. As you said in your book, the momentum money has piled into these stocks creating a mismatch between adjusted floor price and price today. With that being said, I still see application where I get ‘CONTINUE’ for ‘Liquidity’ and for ‘Solvency’ (from your Scorecard, parts A and B).”
Joe asks, “Do you have any suggested applications of your (Scorecard) spreadsheet to large-cap dividend-paying stocks?”

Joe asks a great question. I’ll respond to Joe’s specific question toward the end of this post but first I’ll use the essence of his question to hone in on my Adjusted Floor Price Scorecard further. Please note that the discussion here will only make sense if you have read my book, Choose Stocks Wisely, and sought to apply the Adjusted Floor Price Scorecard, revealed and explained in the book.

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December 28th, 2013|Balance Sheet, Investing, Scorecard, stewardship|0 Comments

Some Q & A (Part I)

Since my book, “Choose Stocks Wisely: A Formula That Produced Amazing Returns,” was released in early October, I’ve received a number of e-mails from readers. Some of these e-mails have included questions about different issues and I’ve attempted to answer each question received. One person, Al, who wrote me recently, suggested that I share some of the questions and answers I receive. I thought it was a great suggestion and am doing just that through this post, and several posts which will follow in coming weeks.

Arthur and John observed that my Finviz screen provided in the book presently only reveals a few stocks which pass the screen and are left to evaluate using my Adjusted Floor Price Scorecard. Arthur was pondering relaxing some of my criteria in order to reveal more stock candidates. John wonders if we are in a period of excessive risk-taking in the market, thus leaving fewer and fewer low-priced stocks.

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December 9th, 2013|Balance Sheet, bear market, bull market, stock screen|2 Comments

Choose Stocks Wisely Seminar

I will teach a seminar later this month on how I use the balance sheet to assess risk when evaluating potential individual stock investments. At the end of this post, you can click on the link to read more and see video footage. Thanks to community media for helping promote the event. WTOK TV is the source of the coverage included in the link below the post.

The first part of the seminar will provide a conceptual presentation of the balance sheet relative to its vital role in risk assessment. The second part will include both practical application at the computer and a question and answer time. Teaching is a passion for me and I hope to do more seminars of this nature in the future. Thanks to Mississippi State University, Meridian for hosting this event.

http://www.wtok.com/home/headlines/MSU-Meridian-Seminar-Focuses-on-Investing-234666191.html

December 5th, 2013|Balance Sheet, In The News|2 Comments

Investing In Individual Stocks Is Not For Everyone

This may seem an odd post given that my book, “Choose Stocks Wisely: A Formula That Produced Amazing Returns,” is about how to lower the risk when choosing individual stocks to buy. Yet, investing in stocks is certainly not something for everyone.

Many people today are just getting by, financially, and are not at a place in life to have discretionary resources to invest in stocks. There are others who have money to invest but don’t want to own stocks or other investments that could decline in value. They simply want to avoid any investment that puts principal at risk. Yes, there are good reasons why investing money into individual stocks is not for everybody.

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November 22nd, 2013|Balance Sheet, Buying, Investing, stewardship|0 Comments

Crediting One’s Account

Equity represents wealth. On a corporate balance sheet there is an account called Stockholders’ Equity and it represents the wealth of all company stockholders that has been accumulated across the life of the business.

When we hear the phrase that our account has been credited, we see that as a good thing. It represents an expression that our worth has been increased. In the practice of accounting, a corporation’s Stockholders’ Equity account on its balance sheet is increased when we book a credit to that account. Further, the Stockholders’ Equity account represents an amount that belongs to all company stockholders proportionate to the number of shares held by each owner. Shareholders increase in equity, or wealth, when their collective account, namely Stockholders’ Equity, is credited through an accounting book-keeping entry.

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November 17th, 2013|Balance Sheet, Equity, faith, God|0 Comments

Buying Stocks Near Tangible Net Asset Value

My book, “Choose Stocks Wisely: A Formula That Produced Amazing Returns,” communicates in step-by-step fashion the usefulness of the balance sheet to finding a buying price on a common stock. As stated before, a share of stock is a share of company equity. Equity is found only on the balance sheet.

Also found only on the balance sheet are a company’s assets (resources) and its liabilities (obligations). The excess of the assets over the liabilities is equal to the equity of the company. Since equity is equal to the residual after subtracting liabilities from assets, equity is also referred to as “net assets.”

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November 3rd, 2013|Balance Sheet, Buying, Equity, net tangible assets, Stock|4 Comments

Buy Low OR Sell High

Yes, I know. It’s “buy low AND sell high,” not “buy low OR sell high.” However, I want to make a case in this post and the next that knowing how to buy quality stocks at bargain (low) prices is much more important than knowing how to sell stocks at high prices.

Intuitively, if I know how to buy low but not how to sell high, I face a low level of risk of loss since I’m buying at a base level from which the stock price is unlikely to diminish significantly, even if the company does not perform as well as I would like for a spell. On the other hand, if I know how to sell high but not how to buy low, I’m assuming significant risk since I’m dependent on things going well for the company such that I have opportunity to realize the high selling price. Further, since I don’t know where “low” is, I’m vulnerable to finding that out the hard way if things don’t go so well for the company involved. My personal record of success reveals that if you know how to buy quality stocks at low prices, you will likely exceed normal market returns regardless of how seldom you manage to sell near high prices achieved by the stocks you buy.

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October 2nd, 2013|Balance Sheet, Buying, Risk, Stock|0 Comments