As a Christian, I wish to acknowledge Jesus Christ when I’m talking about money, whether in my book or here at my blog. While I could get wordy in explanation, I’ll simply reference a single verse from I Corinthians 10:26 which states:
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I’ve been blessed to experience wonderful friendships across my life. What a privilege to teach accounting to people in college over the years! I feel I’ve already made new friends via the website-enabled interaction that surrounds my book, “Choose Stocks Wisely.” Tonight, I will briefly share a very recent interesting question I received.
A reader of my book wrote the following:
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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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I wrote a post back in October titled “Faith, Money and Investing in Stocks.”In that piece, I expressed that sometimes it seems that money can be an uncomfortable topic among Christians. We have all witnessed times when men and women have used God’s name to further personal worldly financial agendas. Also, we hear of some who profess faith in Christ today and preach that God wants everyone to be prosperous financially.
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Please note the great comment that came from Al to the most recent post, “Scorecard and Screening Talk: Relaxing More Filters.” Simply look to the comments below that post. I will not be including our conversation found in that commentary in a detailed Q & A post in the future (like several I have done of late). So I thought bringing attention to the comments in the manner of this brief post might prove helpful.
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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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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