Hey Friends,

Uncertainty can be deemed risk in the realm of stock investing. With skyward inflation, concerns over the Fed’s management of interest rates, an exponentially growing (already astronomical national debt), the war in Russia/Ukraine (what will it be tomorrow?) and on and on — macro risk is eye-popping for the marketplace.

Until now, stocks seem to be doing their best to tread water. In my view, the stock market remains surprisingly resilient. The trillions of dollars pumped into our economy for years now are likely still creating a demand carryover that is holding back — dare I say “stagflation?”

We all are aware of cryptocurrency and see how this digital concept has gained more and more traction. In my view, the presence of cryptocurrency is an outward recognition of the growing threats to fiat currencies. But, in America, we all still recognize cash as the lone asset for buying and selling. Whether you buy a car or a stock, you’ll pay for it with cash. When you sell, you’ll receive cash. If you buy gold, you’ll pay in cash and won’t be able to go get groceries and pay at check-out with gold bullion. Yes, the economy still spins on cash, even though we are very “plastic” and electronic in our transmission of money.

So, it seems like any company I put my money into now via buying equity (shares of common stock) needs to have a very healthy liquidity position, meaning cash and current assets easily converted into cash. And this isn’t the time for seeking out those companies significantly utilizing financial leverage to boost their bottom line profitability. Yes, if a financial thunderstorm hits out of nowhere, we all still pay our bills in cash. Companies do too.

Part of the quagmire of the moment is that companies that do strategize in the face of ominous-looking macro economic uncertainties by proactively building stronger liquidity positions and reducing financial leverage is that inflation will eat away at dollars not put into sales-generating assets. Further, interest rates are so low still as not to remotely permit enough return to be realized on liquid asset balances to help offset the returns passed over via greater capital asset intensity. Additionally, the same low interest rates encourage maximizing financial leverage.

What a mess!

As days pass, I don’t know about you; but this environment is challenging my risk analysis skills such that it’s hard to argue against the stock market being more of a lottery than ever. As long as risk can be assessed to the degree one feels he/she understands the risk taken; that is, it’s a calculated risk that justifies the attempt for return, it is arguably an investment. But if that assessment becomes too convoluted by externalities that the market becomes a quagmire, the term investing is losing its meaning. I think the “meme” crowd of the past year or so perhaps is a signal that the “I want it now” market participant has become much more than a peripheral participant. This “get rich quick” thinking simply can’t be juxtaposed with investing.

Well, I sure didn’t resolve anything today or make anyone feel better about stocks, did I? All you can do is your best. You hear people say at times, “you want to be in cash at this time.” Well, for me, the best I feel I can do is to own companies with plenty of cash and not burdened by excessive debt. Of course, any company owned should have a solid business and solid outlook.

I haven’t plugged my book in quite a while but will today. Anyone who invests in individual stocks needs to be able to read a set of financials. And the balance sheet is absolutely essential. Risk assessment is impossible without it. Across my investing tenure, never has understanding a balance sheet been as important as right now; and that includes during the Great Recession of 2008 and 2009. My book, “Choose Stocks Wisely” can help anyone who wants to gain some familiarity with the balance sheet, and, in the context of stock investing.

See you next time.

Paul