The Rise, Fall, and Rise Again of Warren Buffett’s GEICO Investment
Warren Buffett’s GEICO investment was pivotal for two of the greatest investors of all-time. The history of GEICO’s stock is fascinating, with many ups and downs. This post will discuss the rise, fall, and rise again of GEICO’s stock. It will talk about how Warren Buffett’s mentor, Benjamin Graham, bought GEICO and saw it become […]
Should I Invest in Companies with Good Gross Margins?
To make money, you need to spend money. Companies have to operate on the same principle and successful businesses find a way to generate revenues with fewer costs, creating profits. One way we, as investors, measure profitability is the gross margin. Gross margins can help us determine how well a company manages its costs. We […]
How to Use Net Profit Ratio to Find a Worthy Investment
“If you do good valuation work, the market will eventually agree with you.” –Joel Greenblatt There are many methods for determining a company’s profitability. The net profit ratio is crucial since it measures how much money a business keeps after all costs are covered. Net income equals a company’s earnings, which Wall Street and analysts […]
NEGATIVE PE RATIO – What to Do?
Post updated: 7/14/2023 A negative P/E ratio can be concerning. You can’t really compare a negative P/E ratio with other stocks’ P/E’s. I’ll discuss 3 major reasons a company might have a negative P/E. This blog post will be split into these sections: [Click to Skip Ahead] Be sure to check out the Investor Takeaway […]
The Circuit City Bankruptcy: Hubris and Aggressive Overextension
With hindsight, the Circuit City bankruptcy looked like a similar story to Blockbuster’s. It was innovation, new concepts and businesses, defeating the old. However, there were clear red flags before this sudden collapse. We can see them by looking deeper at the accounting and financial statements of Circuit City. Circuit City collapsed very, very quickly. […]
Calculate Earnings Yield and Return on Capital (Real-Life Example)
Investors looking to chase higher market returns can look to Joel Greenblatt’s book The Little Book That Beats the Market. In the book, Gleenblatt taught about a magic formula. That formula consisted of two distinct parts: earnings yield and return on capital. The way Greenblatt defined earnings yield and return on capital (which are somewhat […]
Why Liquidity Ratios Are Important, With Examples Using Real Companies
In times of financial uncertainty, finding companies with a good amount of liquidity provides a margin of safety. Companies in good shape regarding liquidity can react to any crisis by taking advantage of opportunities. Beyond safety, the two reasons above help explain why Berkshire Hathaway carries so much cash on its balance sheet. The current […]
5 Key Metrics: Balance Sheet vs Income Statement (Example with $AAPL)
Financial statements can look intimidating. There can be many line items. To learn how to navigate a company’s balance sheet and income statement– break it up into sections. In this post, we will chop the financial statements for Apple ($AAPL) into key sections, so you can better understand and learn what’s most important. To start– […]
Applying the Lessons of Enron’s Mark-to-Market Accounting Scandal Today
It may be surprising, but companies today are still using the same mark-to-market accounting that led to Enron’s fraud and bankruptcy in 2001. Mark-to-market accounting is a special way to record assets on a balance sheet. I will try to explain the basics as simply as possible. While it’s hard for any investor to predict […]
BVPS: How Valuable is it to Know the True Value of a Stock?
The book value per share (BVPS) ratio compares stockholders’ equity to the total number of outstanding shares. In other words, this calculates a company’s per-share total assets less total liabilities. Value investors have traditionally embraced book value per share as a method of valuing different investments. Benjamin Graham, the founder of value investing, developed what […]
