According to the business news the world is falling off a cliff, financially speaking. Today it’s Spain, tomorrow Italy and don’t forget that Greek election. Certainly I do read my share of business press, to make sure I’m current on whatever the non-news seems to be. I guess it helps to be topical and have the same frame of reference as everybody else in discussing financial highlights of the day.
Then, I start to review our Model Price Charts. I feel my anxiety level slowly drop to a point that I start to see opportunity in the very stocks the investing public seems to be discarding. By the end of my review, of about 60 – 70 charts, the world as viewed through the prism of the Model Price Charts, has rationality to it. To top off my review, I like to go through the 52-week high-low list to get a feel of what is working in the market and what isn’t. The daily 52 week low list is by far my favorite. As value managers, I like combing through other investors garbage, to see where investors’ are losing money and maybe spot tomorrow’s winners.
Why do Model Price Charts calm my anxiety?
There is so much opinion and lose facts in the world, it can be extremely hard day by day whether any of it will make you money in the markets or not. However, there is one thing that is real, concrete and can be relied upon.
Balance sheets of public companies are the most reliable pieces of information an investor can obtain. There are many reasons why:
1. A balance sheet has to balance. Sounds simple enough, however in this upside down world that we find ourselves this is one truism that is comforting.
2. Economic Book Values are constructed from the balance sheet. These EBV lines are structural therefore yielding constant values, you and I can trust – obviously assuming the balance sheet isn’t fraudulent. I realize there are assumptions in all financial statements but the balance sheet, certainly to me provides more fact than fiction.
3. Economic Book Values as I introduced in point 2 are independent variables, which we outline in a graphical interface or call Model Price charts. The other independent variable we overlay is weekly and monthly price bars. This gives users two independent variables interacting together and giving valuable information on what is actually going on not only with individual equity names but also by grouping these names together can give EBV charts on equity indices as well.
In turbulent financial markets I rely more on EBV’s and market prices than any other piece of financial information, including our Model Price calculation. Keeping in mind that our model price calculation is largely derived from analysts’ estimates, which can be out of whack not only for the individual company in question but also macro considerations such as interest rates and the play by play of what is going on in Europe.
You can lower your anxiety level as well, by learning a few simple concepts, and looking at your favorite equity names on our Facebook database you can place all this incoming bad financial news in some perspective.