*This blog post is my personal opinion only and contains affiliate/referral links.
Did you ever buy something and later regret it because you go for the cheap product instead of quality product?
Well, let me tell you that it is pretty much the same with a company stock. For the sake of this exercise, look around you and see what items stand out and remain visible,reliable and durable throughout the years.
Right now i am sitting in our kitchen table and i am having a cold Coke ($KO) in a can. This sugary red drink has been around since the Great Depression and is still a favorite refreshment drink until now.
Our modest kitchen is coated by Sherwood Williams ($SHW) white paint and it glistens beamingly from the afternoon sun of our northwest-facing backyard garden. It shines invitingly as well when powered by GE ($GE) energy-saver light bulbs come dinner time in the early evening.
A quick glance on our cupboard, i can grab a Skippy peanut butter or a Spam from Hormel ($HRL) Foods Corp, an army of spice bottles from McCormick and Company (MKC) and many others for our food preparation.
I don’t have to look far because right in front of me is my WordPress blog template made possible by my wifi communication provider AT&T ($T). I can identify a few more established names when i ventured out of the kitchen, but the main point here is i am a satisfied consumer because i have very good experiences with these branded names.
The longevity of these brands based on the consumer’s satisfaction is a big part of their relevant power. More importantly i truly believe these companies has thrived and survived because of good management and financial practices.
For a keen investor, one only has to analyze the financial statements of these companies and uncover their long term stability. There are many nuances that has to be looked over but the company’s overall health and profitability can be gleaned from the Balance Sheet, Income Statement and Cash Flow Statement. These statements are all publicly published and can be found on the company’s investor section of their website or on finance websites like Yahoo Finance.
Why is it important to learn how to read these statements? Because it gives you the info and the confidence to invest long term on their stocks. Look at it this way, while i am drinking my Coke ($KO) right now, i am also getting paid with the dividends for every share that i had invested on their stocks. Same thing with the AT&T wifi ($T), while i am writing this blog post, i have some payouts that i will be receiving in the future, sometimes quarterly, monthly or yearly, for being a shareholder of their stocks.
Knowing that your stock picks are generating extra income may be the greatest benefit of learning how to analyze these financial statements, especially for a beginner. I outlined this importance on stage 2 active investing on my free ebook if you are interested.
Another nuance that is worth knowing is why does a company have debts and liabilities. It’s easy to be put off investing on them if the company has debts, but upon closer inspection, one can determine that these debts are being used to expand their franchise, acquire more building and many other calculated and constructive reasons. And these are all to be found on the financial statements.
To go back to my premise, value is something we all want to acquire as a consumer and we want value to last. And as in investor, it is upon us to learn the fundamentals for this value to manifest.
Thanks for reading.
I always welcome your comments so feel free to write one.