Perfect Certainty
Even if absolute certainty existed with regard to a firm’s cash flows, earnings, sales and equity, its stock would still have risk, such as inflation, potential litigation, management change, loss of a patent, currency exposure, or any of many potential macro events.
When one introduces typical risks that confront a business daily, and I would include recent events in Greece and BP among them-an investor may believe the quantification of such risk is impossible.
I can tell you this is not the case.
We use a checklist of such events, both common and those very infrequent, and the only real risk is, I have found, to ignore their possibility. This is why I hope you order “Security Valuation and Risk Analysis” on Amazon or other online outlet. I am releasing a credit spreadsheet which will save you a lot of grief and perhaps a lot of money. It is also, of course, intended to help you earn you superior returns by helping you point out firms which investors in general do not recognize, or have overstated their risks. The spreadsheet will help you in fundamental security analysis on a level which is not being done by any firm or analyst today-it will force you to examine and make adjustments to cash flows and risk, as measured by the cost of equity capital, which, I am sure, will place you head and shoulders above the competition.
In the meantime, please visit this site often, as I plan on releasing tidbits (but not the credit spreadsheet) which will be of help. For example, see the recent post of how to make adjustments to cash flow from operations.
If you are surprised by risk in the stocks you own, you probably didn’t do your homework.
