Hey Friends. I hope you’re well this day! It seems we are catching somewhat of a reprieve from the pandemic. How wonderful to ponder when pandemic is a word no longer a part of daily life.

Today, I’ll offer familiar words (at least familiar if you’ve read my perspective on investing) concerning the balance sheet. Before doing that, let’s remember that it’s not unusual for pronounced macro threats, as we observe today, to rattle our cages to where our risk aversions can lead to “thinking” with our emotions. That rarely turns out well. With money, we often start thinking about where that safe haven might be to protect against loss. Indeed, being diversified and remaining aware of the economic terrain is always essential to sensible investment decisions. But allowing panic and worry to guide our choices is, again, not a good prescription in any market.

Something I always keep in mind is that a worst case scenario in the stock market is unlikely to find banks or any other venues a dependable safe-haven for money. Even money socked away in a mattress isn’t likely to retain its worth in a catastrophic market-ending crash, should that day come. The best recipe we can follow, then, is to always perform careful risk analysis preceding any investment made and then carefully monitor our investment after that.

The ideal choices for the placement of monies in threatening times are options where financial health is superb and the asset profile reveals an ability to weather a prolonged potential storm. Banks offer FDIC insurance on deposited funds in case of default but in exchange, they promise a low return. Many publicly-traded companies have deep cash vaults that insure well against potential shocks that might bankrupt companies that are illiquid and levered. Those deep vaults support strong come-backs after setbacks, when better times return.

Financial accounting rules (generally accepted accounting principles, or GAAP) define the identifying, gathering, measuring and reporting of financial information. Its output takes the form of one statement of financial position (health), namely a Balance Sheet — and two activity reports on the past accounting period, namely the Income Report and the Cash Flow Report. Collectively, one can use these to analyze the present financial health of the business as well as the most recent performance of the company’s net assets with regard to generating a return for its investors.

It therefore is the balance sheet that becomes even more important in a particularly pervasive threatening economic environment. Monitoring it closely from quarter to quarter is more essential than usual to assure that solid and sufficiently liquid asset support continues to underpin one’s stock holdings. So, watch those balance sheets, friends.

See you next time,

Paul