Over the past several months we have noticed that the investment metric of the month is the price to book ratio. This metric, at least to us, seems to be replacing the ever ubiquitous, price to sales metric, the metric that several years ago was the penultimate investment metric.
The Wax Ink Raw Value Worksheet includes all sorts of metrics. The only reason it does is because the individual investors we market to, and the money managers we work with, want them. In short, we include them because our marketplace thinks they are important.
Our view, and it is the view we have held for the past 26 years, is that purchasing a stock is no different than purchasing a new car or truck. When you purchase a new car or truck, you know the instant you sign on the dotted line, the value will go from a big number to a not so big number thanks to depreciation. The problem is, you get no price reduction for depreciation.
Since many buyers intuitively know this, they haggle over price, attempting to get it as low as reasonably practical, not only to keep their payments down, but in hopes of one day recapturing just a bit of the losses suffered through depreciation.
Yet when it comes to investing, nobody seems to follow the same philosophy they follow when buying a car. They simply buy the stock because an analyst or for entertainment purposes only newsletter, thought it was a great investment.
At Wax Ink there are four investment metrics we pay attention to. Our Price to Buy Target, our Price to First Sell Target, our Price to Close Target, and our Risk Adjusted Buy Target.
We pay attention to these metrics because unlike most other investment sites, we think actually determining a value for the stock we want to purchase is important.
So based on our analysis of a company's financial information, we determine what to us is a Reasonable Value for the stock, based on a 5 year hold. And miracle of miracles, we do that before we purchase a stock.
We explained all of this to one of our newer money manager accounts last week when we were asked about Spirit Aerosystems Holdings, Inc. (NYSE: SPR), an independent designer and manufacturer of non-OEM aircraft parts.
We admit it, for many of you, we are about to bring back a few memories, and just maybe, create a few new ones. [more]
One of the things we seldom pay attention to, is our own portfolio. The reason for that is because over the years we have learned there are several things investors need to train themselves to do if they are to be successful over a lifetime of investing. [more]