Hey Friends.
From a money management perspective, the title of this post befits the moment. In my view, we are in a particular time where being oriented toward cash positions seems sensible. A national election is fast approaching and since the political parties are of such differing views on virtually every aspect of governing, including economic oversight, the uncertainty is almost palpable.
There are many angles on “staying liquid.” Most who wisely counsel on the personal money management level will suggest keeping an ample emergency fund on hand for the unexpected. This notion really applies at any level of money management.
Having cash available for taking advantage of any potential deep stock market correction ahead is one application of “stay liquid” in the context of individual stock investing. This sensible notion of “opportunistic liquidity” also applies to those managing the companies a stock investor might hold positions in at a time like this present era of heightened uncertainty. Keeping a very healthy balance sheet that allows for strong financial flexibility to not only weather an economic storm but also to take advantage of values that stem from the same befits a well-managed business.
I mentioned in my book “Choose Stocks Wisely,” with regard to choosing primarily based on the balance sheet — that the more liquid the balance sheet, the better. The quick ratio, or “acid test” ratio (you basically take the current assets and deduct inventory and then divide that remainder by the current liabilities) is a good ratio for examining the extent of balance sheet liquidity. One can take that same numerator from the quick ratio and divide by total liabilities (rather than just current liabilities) to look deeper into the liquidity profile.
At a time like this, I prefer companies that are cash rich relative to obligations and also generating cash from operations routinely on an annual basis.
This is a time for exercising due care. In my view, in light of unprecedented uncertainties, the stock market is engaging in bold speculations. We will know more in coming months but my commentary today is to “stay liquid.” Of course, this is just the opinion of one who is admittedly risk averse.
May God bless you, friends.
Thank you.
You’re welcome, Jan. Thanks for reading. Y’all have a good time of rest from your hard work this Labor Day weekend.