Truths found in Scripture (the Bible) apply to all aspects of life, including investing in common stocks. The Bible is very clear about God’s position toward the proud. It is referred to as an abomination to God in Proverbs 6:17. James 4:6 states that “God resists the proud, but gives grace to the humble.” In Proverbs 16:16, we read “How much better to get wisdom than gold! And to get understanding is to be chosen rather than silver.” Proverbs 16: 18, 19 tells us “Pride goes before destruction, And a haughty spirit before a fall. Better to be of a humble spirit with the lowly, Than to divide the spoil with the proud.”

My belief in God and His Word, the Bible, very much influences my perspective toward money and investing it. As shared in my book and here at the website in various places, I believe our resources come from God. Psalm 24:1a says “The earth is the Lord’s, and all its fullness.”

The preceding two blog posts, “Choosing Weak Balance Sheets and High D/E Ratios” and “Don’t Drink the Kool-Aid,” express and explain my reaction to some recent articles (those articles are linked within the posts) that seem to suggest that how a company manages its finances is of no consequence to the investor. The articles seem to suggest that concern over the present poor health of the company, as revealed through its balance sheet, can be set aside for a time since it seems that the economy is going to be strong enough to resolve, or delay, any dire financial health issues. That is, the articles suggest that things should go well at least long enough for investors to buy into companies sporting weak balance sheets, make some good money and get out before any severe fallout for irresponsible financial management should bring the onset of a shift from fortune to misfortune.

I’m sure you’ve been able to read into the prior two blog posts my angst at even the mention of warming up to companies with unhealthy financial situations. The scriptures introducing this post bring the Lord’s words about pride to my mind. To advocate a willful disregard of the financial facts for the chance of making a quick dime is nothing less than pride in that it openly diminishes the import of the truth told by the financials and, in so doing, encourages reckless greed; when the “fall” comes from following such a path, it will simply be the consequence of an exercise in foolishness.

Now, please recall from my book, “Choose Stocks Wisely,” that I personally made some foolish investment choices when I first started investing in stocks. I will say candidly that I lacked understanding at that time and a proper appreciation of the information availed to me by the company financial statements, especially the balance sheet. That is, I did not PURPOSELY choose companies that were in poor financial health as, again, the articles referenced in the last couple of my blog posts suggest as an investment idea. Yet, I still took a hard fall in the early going because I lacked the wisdom to understand how consequential a company’s financial health is to investing. I thought I could just step out there and invest and automatically have success. Taking a fall helped me greatly, humbling me and teaching me lessons God wanted me to learn that extended well beyond just investing in stocks.

Yes, if I’m going to invest wisely with understanding, there’s no place for a prideful disregard for a company’s financial health. As a Christian, I’m managing resources that have been entrusted to me by God and I bear an eternal responsibility for how I use them. If I plow ahead today (now that I understand the importance of a quality balance sheet) and invest where the balance sheets reveal unhealthy financial situations, it can no longer be excused by a lack of understanding like I faced initially; today, for me, it would describe a selfish and arrogant attitude toward the truth and points ahead to a difficult and humbling experience approaching.

In Warren Buffett’s 2004 Chairman letter to Berkshire Hathaway investors (http://www.berkshirehathaway.com/letters/2004ltr.pdf), on page 4, he states “Investors should remember that excitement and expenses are their enemies. And if they insist on trying to time their participation in equities, they should try to be fearful when others are greedy and greedy only when others are fearful.”

I’m surely not advocating greed in any shape, form or fashion and that’s not what Buffett was really saying in his quoted remarks. Buffett was writing about investors who experience poor investing performance because of resorting to stock buying practices like trying to time things or jumping on a runaway bandwagon instead of investing based on careful valuation of the business involved. In my view, when we are reading articles about going after gains by intentionally buying into companies reflecting poor financial health, it’s a time to be afraid of the greed being reflected and remember that pride precedes a fall.

At the moment, I don’t plan to address again the issue raised in some articles floating around about the recent outperformance of companies with weak (unhealthy) balance sheets. However, my passion for teaching the merits of the balance sheet compelled me to carefully discuss the matter. Again, many thanks for the e-mails and article links I received from some of you bringing my attention to the subject.