It’s safe to say 2020 has started pretty rough. The Coronavirus seems to keep spreading, schools, businesses, and even some factories are shutting down. And on top of that, the stock market saw one of it’s biggest declines of the last decades, followed by extreme volatility.
When we buy something on credit, we promise the lender to pay it back at a later point in time. So credit is an asset to the lender but a liability to the borrower. When you borrow money, you are basically spending more than you make. This means that at a future time you will have to spend less than you make to pay back the loan. If you look at borrowing from another perspective, you are basically lending money from your future self.
Having some cash aside is never a bad idea. It makes sure you can pay the bills and maybe cover some unexpected costs. Having a lot of cash, however, might not be such a good idea. Interest rates have become so low that they don’t cover the cost of inflation anymore.
Inflation is when you pay fifteen dollars for the ten-dollar haircut you used to get for five dollars when you had hair. ~ Sam ewing
Let’s find out why investing is the best option and how to do it.
When we are looking to buy a share in a company, we usually go through financial data. We look at how good or bad the earnings are or how much debt the company has taken on. However, there are some other things that should be looked at as well. One of these things is management.
Management is to a company, what a captain is to his ship. The ship can be the best ship in the world. If the captain sails into the cliffs, it will sink.
“Don’t find fault, find a remedy. ” ~ Henry Ford
Let’s look at what we want to find out about a company’s management. Continue reading “What makes a company’s management great?”
When it comes to investing in the stock market, you’ll find a lot of advice. There are many strategies used to try getting great returns. And as it goes with everything, you have good strategies and bad ones. The strategy you want to choose for your portfolio is up to you. Let me share some important basics you should be aware of before investing in the stock market.
” The big money is not in the buying and the selling, but in the waiting. ” ~ Charlie Munger
Being a successful investor is often considered as beating the overall market return. But what if you are happy with the market return? What if you don’t want to dedicate your free time to reading financial reports, CEO letters and want to avoid risk as much as possible?
If so, investing in an index fund might be the thing for you. Hang on, I will cover everything you need to know.
” By periodically investing in an index fund, the know-nothing investors can actually outperform most investment professionals.” ~ Warren Buffett
“Book value is the amount you paid for an asset, minus its depreciation. “
Equity or book value represents the shareholder’s interest in a company and represents the value of its assets that are not financed by debt. Book value is nothing more than equity per share.
Equity = Total assets – total liabilities Continue reading “Shareholders’ equity: What does it mean and why is it so important?”
What is a quarterly report? (10Q)
The quarterly report or 10Q shows a company’s earnings, cash flow and income (or loss) for a specific quarter. In one business year, a company states four quarterly reports and one annual report (10k).
The main parts of a Quarterly report are:
The cash flow statement shows all the cash inflows and outflows occurred during the reporting period.
Cash flow analysis is a critical part of any investment decision as it is influenced less by accounting practices.
On the income statement, a transaction is recognized when the earnings process is completed. This does not necessarily coincide with the time that cash is exchanged.
The income statement shows how much a company earned or lost during the year (or quarter).
An income statement matches the revenues earned from selling goods and services, against all costs and expenses incurred in the operation of the company. The difference is what we call net income (or loss).
On top of the Income statement, we find the revenue (or net sales) which is called “the top line”. From the top line, all costs and expenses are deducted until we arrive at the net income, also called “the bottom line”.