Hey Friends,

I hope you had a wonderful Christmas and will have a healthy and meaningful 2020. There’s bad weather in my area as this post is written but it has almost passed now. Power outages are widespread but that’s an inconvenience. If no harm has come to life and limb, that is cause for rejoicing!

A dear friend mentioned a good book to me last October following one of my blog posts on the topic of accounting. It’s been my intent to reference the book with you since his mention. Perhaps some, or many, of you have discovered this book before. It is titled “The Warren Buffett Accounting Book” by Stig Brodersen and Preston Pysh. It is an excellent book for helping one gain a basic understanding of the financial statements and to perform value analysis.

There are so many popular company names today that have market capitalizations far, far in excess of their balance sheet tangible equity positions. Many are highly levered and depend on the continuance of strong sales just to maintain a relatively meager margin of unrestricted cash. Further, many of these sporting market valuations miles above their balance sheets don’t pay dividends. All told, this means that shareholders continuing ability to prosper and, conversely, to avoid significant loss rests on company management’s ability to navigate future earnings growth with great financial agility without driving too close to the proverbial cliff.

Give me a solid cushion of quality equity, please. No matter how astute the management, sometimes it drives off that cliff.

See you next time.

Paul