We live in a world that seems more unsafe by the day. In like fashion and in my view, the stock market seems to face more uncertainties than I recall. Yes, the Great Recession of 2008 and 2009 saw such a collapse in stock prices and a run on the banks was headed off by massive government stimulus and Fed activity which has almost been continuous since.

As with the tech dot com rise and subsequent fall at the turn of the century, we have witnessed the rise of tech again albeit of a different nature where the biggest players include social networks (Facebook), Online Retail (Amazon), internet services and products (Google), and entertainment (Netflix). Yet, just over recent weeks, we have seen some fallout in some of the major companies that had recently driven the Nasdaq back over 5000 for the first time since back in early 2000. On February 4, Linked In (LNKD), a major online professional network company, closed at 192.28. After the market closed, it reported its earnings, and the next day closed at 108.38 and just closed this week at 101.11. What a fall! In my book, “Choose Stocks Wisely,” I repeated often the importance of strong equity support where earnings miserably disappoint. Any stock is likely to decline on a bad earnings report, but the downside can be massive where the stock is trading so far above the equity, as with LNKD.

There have been many articles across the past year (and I’ve linked several of those in past posts) that have pointed out the lack of participation of many, many elements of the market in the growth of the major stock indices while a select group of tech companies were soaring higher and higher, carrying the indices with them. I’m wondering whether we are witnessing some cracks in the tech wall.

I was interviewed last spring by Jake Taylor of Five Good Questions (go here to watch). He pointed out during the interview how companies have historically tended to do buybacks while stock prices were high. That is, looking back on historical episodes of strong stock buybacks reveals that they have happened when the stock market was peaking. Interestingly there’s an article from this past week talking about how poorly recent company buybacks have performed.  Go here to read.

I’ve said many times that I did not write my book to encourage people to invest in stocks because that’s a personal decision and it’s not for everyone. I did write it to say that the balance sheet is absolutely essential to risk assessment and sound decision making. The market is as uncertain as ever. The balance sheet will remain the best tool for determining the amount and quality of equity which is fundamental to identifying a low price. It is also true that earnings will always be the catalyst for moving stock prices. In today’s market, it is very important to find value where the prospects of business growth exist. When most stocks are going down or just being overlooked, discriminating in one’s choice, while challenging, is key. The concepts of value assessment (balance sheet) and likelihood of positive earnings catalysts bringing attention to that value are central.