At the Mercy of Financial Statements

[Temperament]

If you really can trace the complete cash flow "picture" of a company with all its "implications", then you are as close as the business owners or insiders. i doubt anyone one of us can because even professional auditors can't do it due to business owner's self-interest bias.
So i always think qualifying first before quantifying of a company.
Qualifying is always seems to be not so precise or "hocus pocus" as quantifying seems to be more exact science as solid numbers are involved. Or is it?
Most of us quantify first then qualify?
In truth, in practice, i really don't know which comes first? Maybe i keep mixing both actions, to and fro?
Ha! Ha!

[CityFarmer]

Financial statements are a shadow of reality. It is anyway a snapshot of the company at a specific day. Agree with Ben that over the course of history one would understand the business model TRANSLATING into numbers, and the credibility/ capability of management much better than the numbers per se. Though i agree with Temperament, but of the 3 cashflow statement is the most instructive.

The scary part is that people think the numbers are reality, when they are no more reality as a photo or a shadow. Even as a tech and a "scientific" guy it is ironic to me that people trust so much on numbers and tech than humanity or common sense. Disasters happen, from algo trading to the Korean air crash at San Francisco, when people lose their sense of reality.

IMO, Mr. Market is aware of the misalignment. That is the reason very few counters are traded at PB 1. It is always aligned back to reality with a premium or discount.

[yeokiwi]

Financial statements are a shadow of reality. It is anyway a snapshot of the company at a specific day. Agree with Ben that over the course of history one would understand the business model TRANSLATING into numbers, and the credibility/ capability of management much better than the numbers per se. Though i agree with Temperament, but of the 3 cashflow statement is the most instructive.

The scary part is that people think the numbers are reality, when they are no more reality as a photo or a shadow. Even as a tech and a "scientific" guy it is ironic to me that people trust so much on numbers and tech than humanity or common sense. Disasters happen, from algo trading to the Korean air crash at San Francisco, when people lose their sense of reality.

IMO, Mr. Market is aware of the misalignment. That is the reason very few counters are traded at PB 1. It is always aligned back to reality with a premium or discount.

Many value investments arise out of the Mr market's perceived value versus the actual value.
Without the difference in these two values, there will not be any value investment.

Actually, I have no problem trusting the financial statements of well research companies. The statements form the basis of investment decisions. For companies with good track records, they are rarely out by a mile.

As for companies that have not that trustworthy management and records, there is no way to have any safety margin at all.
So, even with a PE of 2 or PB of less than 0.1, the safety margin is still zero.

[KopiKat]

As for companies that have not that trustworthy management and records, there is no way to have any safety margin at all.
So, even with a PE of 2 or PB of less than 0.1, the safety margin is still zero.

Zero "Margin of Safety" is still ok for me, but for such companies, they can have what I'd call a high "Margin of Danger".... ie. high chance we'll lose money...

[smallcaps]

If you really can trace the complete cash flow "picture" of a company with all its "implications", then you are as close as the business owners or insiders. i doubt anyone one of us can because even professional auditors can't do it due to business owner's self-interest bias.
So i always think qualifying first before quantifying of a company.
Qualifying is always seems to be not so precise or "hocus pocus" as quantifying seems to be more exact science as solid numbers are involved. Or is it?
Most of us quantify first then qualify?
In truth, in practice, i really don't know which comes first? Maybe i keep mixing both actions, to and fro?
Ha! Ha!

I think for high end companies with growth and high roe, very nice balance sheet, etc then we need to qualify more. Otherwise those lousy to mediocre companies go more by quantify loh.

[specuvestor]

Financial statements are a shadow of reality. It is anyway a snapshot of the company at a specific day. Agree with Ben that over the course of history one would understand the business model TRANSLATING into numbers, and the credibility/ capability of management much better than the numbers per se. Though i agree with Temperament, but of the 3 cashflow statement is the most instructive.

The scary part is that people think the numbers are reality, when they are no more reality as a photo or a shadow. Even as a tech and a "scientific" guy it is ironic to me that people trust so much on numbers and tech than humanity or common sense. Disasters happen, from algo trading to the Korean air crash at San Francisco, when people lose their sense of reality.

IMO, Mr. Market is aware of the misalignment. That is the reason very few counters are traded at PB 1. It is always aligned back to reality with a premium or discount.

Many value investments arise out of the Mr market's perceived value versus the actual value.
Without the difference in these two values, there will not be any value investment.

Actually, I have no problem trusting the financial statements of well research companies. The statements form the basis of investment decisions. For companies with good track records, they are rarely out by a mile.

As for companies that have not that trustworthy management and records, there is no way to have any safety margin at all.
So, even with a PE of 2 or PB of less than 0.1, the safety margin is still zero.

Agree with yeokiwi. I am never a believer that the market is perfect. The anecdotal evidence is obvious: If it is it should not be so volatile as businesses don't change so fast... stock prices do.

Mr Market is irrational.

Track Record is the key word here. A snapshot using simple ratios to conclude whether a company is undervalued or growing is not useful though heuristically palatable. Trend is usually your friend in strong businesses with competitive edge.

[Temperament]

Financial statements are a shadow of reality. It is anyway a snapshot of the company at a specific day. Agree with Ben that over the course of history one would understand the business model TRANSLATING into numbers, and the credibility/ capability of management much better than the numbers per se. Though i agree with Temperament, but of the 3 cashflow statement is the most instructive.

The scary part is that people think the numbers are reality, when they are no more reality as a photo or a shadow. Even as a tech and a "scientific" guy it is ironic to me that people trust so much on numbers and tech than humanity or common sense. Disasters happen, from algo trading to the Korean air crash at San Francisco, when people lose their sense of reality.

IMO, Mr. Market is aware of the misalignment. That is the reason very few counters are traded at PB 1. It is always aligned back to reality with a premium or discount.

Many value investments arise out of the Mr market's perceived value versus the actual value.
Without the difference in these two values, there will not be any value investment.

Actually, I have no problem trusting the financial statements of well research companies. The statements form the basis of investment decisions. For companies with good track records, they are rarely out by a mile.

As for companies that have not that trustworthy management and records, there is no way to have any safety margin at all.
So, even with a PE of 2 or PB of less than 0.1, the safety margin is still zero.

Agree with yeokiwi. I am never a believer that the market is perfect. The anecdotal evidence is obvious: If it is it should not be so volatile as businesses don't change so fast... stock prices do.

Mr Market is irrational.

Track Record is the key word here. A snapshot using simple ratios to conclude whether a company is undervalued or growing is not useful though heuristically palatable. Trend is usually your friend in strong businesses with competitive edge.

Agree for 25 to 26 years already. But sometimes KK-lose money lol!