September 21, 2021 • 49 mins
Security Analysis? What is it? Why do we need it?
We start to dive deeper into the final layer of performing base level analysis. How it works, how it helps you, and what the pros use.
Because that’s what we are. The pros…
Well, at least Sean is.
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Chris Holling (00:00):
This is the truth about investing back to basics
podcast. We want to help youtake control of your personal
finance and long terminvestments. If you're looking
for a way to learn the why andhow of investing then you found
the right place. Thank you fortaking the time to learn how to
(00:23):
better yourselves.
Iwanted to share Southern phrase
idioms because I'm wanting tolearn more as I think they're
Sean Cooper (00:42):
oh boy
Chris Holling (00:44):
I want to have more of these available like his
cornbread ain't done in themiddle
Sean Cooper (00:52):
Yep
Chris Holling (00:55):
oh yeah we totally did go through some of
these That's right. Having acome to Jesus meeting I still do
that. I still say that wellbutter my butt and call me a
biscuit I need to slide that insomewhere this week the phrase
not the butter
Sean Cooper (01:12):
Yeah, I was like that follow up comment was
Chris Holling (01:18):
sorry I realized after afterward I this is this
is not that kind of show Oh, theever so classic bless your heart
Sean Cooper (01:30):
yes which can mean oh so many things
Chris Holling (01:34):
yes but mostly bad
Sean Cooper (01:36):
Yes,
Chris Holling (01:37):
mostly bad there's there's nothing quite
worse than like hey, can you canyou tell me what the the answer
to two plus two is? Seven Oh,honey bless your heart
Sean Cooper (01:52):
yeah
Chris Holling (01:53):
that that it cuts you real deal is what it does my
actually one of my personalfavorites just because I think
it's a good visual is the like abull in a china shop. I work
with a lot of people that arelike bulls and a china shop
Sean Cooper (02:11):
probably works to their advantage in your line of
work
Chris Holling (02:13):
you know sometimes it does just like you
go go go do stuff and then theygo in there and things crash and
then things get better and yougo huh Good job.
Sean Cooper (02:26):
Well when you start out with a place that's on fire
I mean
Chris Holling (02:31):
yeah, I that's actually kind of the beauty of
it is that there's not a lot youcan do to make it you know,
worse like the pretty much theonly way you can make it worse
is by not doing anything is kindof
Sean Cooper (02:45):
right
Chris Holling (02:45):
I've starting to find so yeah, don't
Sean Cooper (02:47):
don't throw any more fuel on it I suppose. But
Chris Holling (02:49):
right.
Go do stuff.
Okay. You didn't do enoughstuff. Go do more stuff. I ain't
seen you in a month of Sundays.
God how long is that? That'slike, like if it was a bunch of
Sundays
Sean Cooper (03:05):
Be 30 months?
Chris Holling (03:07):
Well, I mean, I guess it's a month like it's not
like the whole you know, what'swhat's heavier?
Sean Cooper (03:11):
A month of Sunday's would be, you have to divide by
four
Chris Holling (03:13):
A pound of feathers or a pound of? Hmm.
Sean Cooper (03:16):
You got to divide by four so it'd be seven and a
half months, well ish
Chris Holling (03:20):
seven
Sean Cooper (03:23):
Not perfect. But yeah
Chris Holling (03:24):
A month of Sundays is approximately seven
and a half months. Okay. Okay,maybe you should start doing
that we're like somebody
Sean Cooper (03:30):
Probably closer to seven
Chris Holling (03:31):
somebody talks to you about like, Hey, we we're
going to reevaluate yourportfolio here and approximately
a month of Sundays like a butwhat oh, it's about seven and a
half months it's it's a goodsolid investing amount. You
know, a month of Sundays. ShouldI still talk to this guy?
Sean Cooper (03:52):
That's like, fortnight just number you know.
Chris Holling (03:56):
Oh,
Sean Cooper (03:57):
Time frames that people are not familiar with
anymore? Y
Chris Holling (03:59):
eah, absolutely. I should use the
term fortnight instead. Like
Sean Cooper (04:05):
You should
Chris Holling (04:06):
we. We get paid once a fortnight
Sean Cooper (04:10):
You would
Chris Holling (04:11):
full as a tick on a hound dog. hanging in there
like hair in a biscuit.
Sean Cooper (04:19):
Ah,
Chris Holling (04:20):
oh, you know what? Actually, I heard one
the other day that was realgood. They're more more confused
than a fart and a fan factory.
Let's see. Oh, you know what?
This is a good one. Okay, nowI'm trying to figure out how to
how to tie this in there.
(04:42):
Welcome back, ladies andgentlemen, to I've got a plan
here. Just stick with me. Allright.
Sean Cooper (04:47):
Okay,
Chris Holling (04:48):
welcome back, ladies and gentlemen to another
episode of the truth aboutinvesting back to basics where
common sense isn't a flower thatgrows in everyone's garden
Sean Cooper (04:59):
Jeez
Chris Holling (05:03):
And here we, we like to grow those flowers and
have that green thumb available
Sean Cooper (05:08):
Cultivate those flowers
Chris Holling (05:13):
Like to water.
Water that lawn. Welcome back.
My name is Chris Holloing
Sean Cooper (05:22):
And I'm Sean Cooper and I'm wondering what we're
supposed to be doing here today.
Chris Holling (05:27):
I don't know anymore. It's it's, there's
there's certainly not enoughbutter in my biscuit or is that
what it was? Dang it butter? No,
Sean Cooper (05:39):
no it was
Chris Holling (05:40):
butter my butt and call me a biscuit all right
Sean Cooper (05:42):
cornbread it had to do with the cornbread not being
baked all the way or something
Chris Holling (05:45):
there's just so many I know I'm gonna confuse
those where it's gonna be like,you know, Piece of undone
cornbread doesn't grow ineveryone's garden you know what
Sean Cooper (05:55):
Are you the biscuit farmer
Chris Holling (05:59):
Or like the like with boondock Saints or whatever
the you know, because what theysay people in glasses houses,
glass houses sink ships, like apenny saved is worth two in the
bush, you know?
Sean Cooper (06:14):
Yeah.
Chris Holling (06:15):
Whatever. Yeah, well, welcome back. Everybody
Sean Cooper (06:18):
I should watch that show this weekend.
Chris Holling (06:20):
Oh, yeah. That's you should
Sean Cooper (06:21):
I like that movie.
Chris Holling (06:21):
It's a great movie.
Sean Cooper (06:22):
Yeah.
Chris Holling (06:23):
We today we are talking about security analysis.
Right, right.
Sean Cooper (06:30):
Yes, indeed.
Chris Holling (06:31):
Whoo. Good. Okay, I guessed that without even
having to pull up the lessonplan. Look at me go. So today
we're going to go over securityanalysis. And I, I've kind of
guessed what security analysiswas in the last episode, the the
security analysi, sort of, kindof, but if I'm recalling
(06:56):
correctly, security analysis is,is when you have a bouncer that
looks at a line of people andanalyzes the situation. And
that's, that's when they get inthat that big ol crossed arms
thing. And theydo. Yeah. You, no, not you not,
you no, you sit over thereThat's a Yeah, you. And that's,
(07:19):
that's Yeah, that's about right.
Let's, let's let's do that.
That's, that's that's securityanalysis, right.
Sean Cooper (07:29):
Sure.
Chris Holling (07:29):
Okay.
Sean Cooper (07:30):
Yeah, you got it.
Chris Holling (07:32):
And then No, I, I remember that we were kind of
trying to talk about it. And ittook forever to sort through my,
my thoughts on it, whatever, onthe on the second episode, so
how about you tell us what we'redoing today, rather than me
really confusing everybody.
Sean Cooper (07:54):
So security analysis is really just a
continuation of the topics thatwe've been discussing up to this
point. So we talked aboutfundamental and technical
analysis, those are aspects ofsecurity analysis, we also
talked about portfolio analysis,that would be analyzing the
overall mix of the portfolio,whereas here, we're delving into
(08:15):
each individual holding, whichis why the technical and the
fundamental can apply. Itlargely depends on your
investment timeframe, and whatyou're investing in, how you're
investing in it, things of thatnature, and then your overall
methodology.
Chris Holling (08:33):
Okay. Okay, that sounds good. And so how do we,
how do we get started with it?
Or we're just
Sean Cooper (08:40):
Well, we, we mentioned previously that there
for fundamental analysis, youoften look at ratios to help
analyze a company so we can jumpinto those in a little bit more
detail, or at least list themout so that people have an idea
of what they might be lookingfor and how they might be used.
(09:05):
We can also talk a little bitmore about some of the
methodologies that I tend toprefer and then there's some
other ancillary options that wecan discuss that may be of use
depending again on yourinvestment timeframe and what
(09:25):
you're trying to achieve withyour investments.
Chris Holling (09:28):
Okay, well explain it to me like I'm five
I'll you know what, I'll takeeight I'll do eight
Sean Cooper (09:35):
Yeah, let's go a little older because
I don't know too many five yearolds that would get a lot out of
this
Chris Holling (09:40):
like a really smart eight. I'll go with that.
Sean Cooper (09:43):
Okay.
Chris Holling (09:44):
But like you know, sometimes gaps and then
you realize that, you know,while I'm interested I might
want to bag a gushers orsomething like that. That's the
level. That's that's where weneed to go.
Sean Cooper (09:55):
Okay, well, so as we talked about the fundamental
Analysis relies on the financialstatements and then ratios from
numbers on those financialstatements. So one set of
financial or ratios that wecould evaluate would be
liquidity ratio. So how muchliquidity does the company have?
Do they have the cash flow orthe assets to be able to
(10:22):
generate the income, they needto pay off liabilities and
things of that nature nature. Soyou've got the current ratio,
which is your current assetsdivided by current liabilities,
you have the acid test ratio,which is your current assets
minus inventories divided bycurrent liabilities, and they
subtract out inventories thereto kind of account for the fact
(10:46):
that the inventories aren'tnecessarily as liquid as the
rest of your current assets. Thecash ratio, which is cash and
cash equivalents divided bycurrent liabilities. So that
would be a very, very stringentview of your cash on hand to
actually cover those short termliabilities. And then the one
that I've talked aboutpreviously, which is operating
(11:07):
cash flow ratio, which is youroperating cash flow, divided by
your current liabilities,
Chris Holling (11:11):
and you do this, when you're comparing these
amounts, it's, it's to everysingle asset right? Or are you?
Are you comparing these withinlike an asset class? Do you keep
them separate? As you'recomparing these? Or is it like
we are looking at
Sean Cooper (11:25):
It wouldn't necessarily, it wouldn't
necessarily be an asset class somuch as a sector of companies.
So for example, you wouldn'tnecessarily compare the
liquidity ratios of a oil andgas company to even a utility
company, for example.
Chris Holling (11:45):
Okay,
Sean Cooper (11:46):
you want to necessarily compare he or you
would likely compare like Googleto Apple? or Bing, or Microsoft?
You know, depending on whatlevel you're investing in I
realize one's owned by theother, but you get my point
Chris Holling (12:05):
fight fight.
Sean Cooper (12:07):
Yeah. But you wouldn't compare, you wouldn't
to be likely to compare a techcompany to a, you know, hard
asset company,
Chris Holling (12:22):
right? That makes sense,
Sean Cooper (12:23):
okay, their ratios are completely different the the
way their balance sheets orincome statements or statement
of cash flows are structured,and where they have let employ
leverage and things of thatnature, from one industry to
another is can be very, verydifferent. So you end up with
what looks very good in oneindustry might actually be
(12:47):
really bad in another industry.
Chris Holling (12:49):
Gotcha. Okay.
Sean Cooper (12:50):
So yes, you can compare them across the board.
That's the advantage of theratios, but the Compareability
of them gets very loose as youspan different industries.
Chris Holling (13:04):
Okay. Okay.
Sean Cooper (13:08):
So another set would be your leverage financial
ratios, see how much leveragethe company is employing? That's
one of the things I just talkedabout, you know, how is this
company heavily reliant on debt?
Or are they operating off oftheir own income sources or
their financing ability via,like IPOs, and things of that
(13:28):
nature. So debt ratio is yourtotal liabilities divided by
total assets. debt to equityratio would be total liabilities
divided by shareholders' equity.
interest coverage ratio would beyour operating income divided by
interest expenses. And then debtservice coverage ratio is
(13:49):
operating income divided bytotal debt service. So just
different ways of looking atsome of the same information,
sometimes you're boiling itdown, like I was talking about
before the as you weeded outinventories from current assets
and then jump down to cash andcash equivalents for the cash
ratio, etc. divided by thecurrent liabilities, you're
(14:11):
weeding out different aspectsthat you might not want to
include in the ratio that mightbe skewing what you're really
trying to look at.
Chris Holling (14:19):
Okay,
Sean Cooper (14:20):
efficiency ratios, those are going to be how
effective the company is atturning their inventory into
actual cash, basically doingtheir day to day operations to
actually generate revenue andthings of that nature. So, asset
turnover ratio is net salesdivided by average total assets.
(14:41):
inventory turnover ratio is Costof Goods Sold divided by average
inventory. receivables turnoverratio is net credit sales
divided by average accountsreceivable. And then days sales
in inventory ratio is just 365days divided by inventory
turnover ratio, you can Adjustthat for a leap year if you
(15:02):
really want but
Chris Holling (15:03):
and so just just to address a couple things and I
and I hope that this isn'tbackpedaling too far But the
purpose of doing theseevaluations is to establish
without without being too directthe security and the how stable
these investments these assetsthat you're evaluating are Is
(15:25):
that right?
Sean Cooper (15:26):
Potentially not always really it's more just for
comparing them so yes, you canuse them to establish like we
were talking about the liquidityearlier the efficient era the
the leverage ratios those oftenhave to do with security. Same
(15:47):
with the liquidity ratios thosehave to do with security
efficiency is not necessarilyrelated to security. Same with
you know, profitability, kind ofmarket value, same thing not
necessarily directly related tosecurity, a lot of these are
used for comparison purposes. Socomparing one company to another
Chris Holling (16:10):
Okay, so kind of like you were addressing earlier
with, with this as pairing alongwith your fundamental analysis
because it is it is tools thatyou utilize in the process,
it's, it's, it's part of
Sean Cooper (16:24):
currect
Chris Holling (16:24):
Part of that, okay,
Sean Cooper (16:26):
yeah, so you know, oftentimes an analyst is they're
typically going to be monitoringa particular industry or a
sector and so their job is topull out which company in the
their industry that they'reassigned to is going to
outperform and so they'recomparing lots of different
(16:49):
companies and they use theseratios as one of their starting
points for that that comparisonpurposes
Chris Holling (16:56):
okay.
Sean Cooper (16:57):
So when I look at like the cash flow ratio, I'll
look at a bunch of differentcompanies at the same time and
compare them to each other tosay Okay, which one has the
better operating cash flowrelative to their current
liabilities
Chris Holling (17:14):
fair enough and then while you're while you're
doing these and you are you areevaluating these these different
formulas that I mean they makesense but you know, again, we
have the struggle here of ofjust having an auditory
description and that's it whenyou're looking at these formulas
and the different possibilitiesand I get that there are certain
(17:35):
circumstances that you want touse different ones are you able
to track down these differenttypes of formulas like a like a,
I don't know if there's a listper se but within investopedia
that it goes These are some ofthe formulas you may want to
consider using when doing asecurity analysis or something.
Sean Cooper (17:56):
I think investopedia does have a list of
them
Chris Holling (17:59):
okay.
Sean Cooper (17:59):
That you could utilize corporate finance
Institute has a list I think ifyou go with a lot of the
different designations so likethe CFA they're going to have a
list they probably have an evenmore extensive list than any of
the others it's going to mostlikely it'll be enough to bog
most people down but
Chris Holling (18:18):
sure I just wanted to make sure that as
we're going over this because II don't have the memory capacity
to catch all of these and thenretain them and just go Oh yeah,
of course you got to do thisformula while we're while we're
evaluating that I need areference point if I'm going to
start doing some of thoseevaluations myself on how to do
those rather than
Sean Cooper (18:36):
Where's your legal pad Chris Come on.
Chris Holling (18:39):
Don't I can't I can't write or read. I didn't
know how to break it to you II'm illegitimate.
Sean Cooper (18:46):
Illegitimate
Chris Holling (18:54):
Sorry. Anyways, I wanted to make sure that it was
like a, hey, you know, this is alot of stuff. You've never done
any of these formulas before.
Hey, remember these formulas?
What do you mean you don'tremember those formulas? Okay,
like here's a spot that you cango look and grab these formulas
if you're going to do thoseevaluations, which are those
spots that you just listed?
That's that's what I was what Iwas getting at.
Sean Cooper (19:17):
Yeah, just do a quick search whatever search
engine you use of financialratios, shall I run through the
rest of the ratios and then wecan move on
Chris Holling (19:27):
Yep sure should
Sean Cooper (19:28):
Okay, so profitability ratios? I don't
think I need to explain that perse. Okay, gross margin ratio is
the gross profit divided by netsales operating margin ratio is
operating income divided by netsales. return on asset ratio
equals net income divided bytotal assets. And return on
equity ratio is net incomedivided by shareholders' equity.
(19:50):
You'll notice a lot of thesehave like shareholders equity
built in and that's because as ashareholder, you want to know
how much they're actuallygenerating from your standpoint.
Chris Holling (20:00):
Okay,
Sean Cooper (20:01):
market value ratios. So these are different
ways of valuing the company ifyou will. book value per share
ratio is shareholders equityminus preferred equity. And then
all of that divided by totalcommon shares outstanding.
dividend yield ratio is yourdividend per share divided by
(20:22):
the share price. That one's verycommon one for people to
utilize, they want to know whattheir earning rate is from a
dividend standpoint. earningsper share ratio is net earnings
divided by total sharesoutstanding. And then price
earnings ratio is the shareprice divided by the earnings
per share. So, those areexamples of some of the big ones
(20:46):
that you might see and mightwant to consider as you're
evaluating different securities.
Chris Holling (20:51):
Okay.
Fair enough. And again, you canget those at
Sean Cooper (20:57):
Oh, you can Yeah, I'd just do a quick search of
financial ratios on whateveryour preferred search engine is,
but investopedia will have them,corporate finance Institute will
have them. CFA, CharteredFinancial Analysts.
Chris Holling (21:12):
I prefer to use Netscape as a as an internet
browser.
Sean Cooper (21:16):
I was referring to the search engine, not the
browser.
Chris Holling (21:20):
That's even worse. I prefer Netscape 's
search engine on its browser. Iwas trying to make a joke.
Dammit, Sean,
Sean Cooper (21:28):
I know I just ruined it. Because I took it too
literal
Chris Holling (21:31):
this, is our whole relationship
Sean Cooper (21:32):
you should use to that by now
You should be used to that byNow,
Chris Holling (21:39):
I'm, not.
Sean Cooper (21:40):
I don't know what to tell you that that's, that's
on you.
Chris Holling (21:46):
Okay.
Sean Cooper (21:47):
Okay. So as I think we've talked a little bit
before, some of the big onesthat I look for are that the
operating cash flow? I care alot about that, when I'm
analyzing for. So let mebacktrack a little bit.
Chris Holling (22:04):
Okay.
Sean Cooper (22:06):
As I've mentioned, it really depends on what you're
choosing to invest in whatyou're trying to focus on. So I
don't claim to be an expert onstock analysis, or bond analysis
for every single industry, everysingle sector every you know,
international, emerging.
frontier markets, what have you,there are far too many companies
(22:34):
to evaluate if you go thatroute. Now, screeners can
certainly help you narrow thingsdown. But it just becomes
cumbersome to try to stay on topof absolutely everything. So
it's best to determine whatyou're going to focus on what
(22:56):
you want to not necessarily bean expert on. But what you want
to try to excel at, if you will.
So for for myself, if I'mgetting down to individual
security analysis for stockselection, I'm doing it for
(23:18):
large cap domestic equities. I'mnot doing it for international,
I'm not doing it for micro capstocks. So large cap domestic
equities, which gives me an easyscreen, I can start with just
the s&p 500, the 500 largestcompanies in the US by market
(23:39):
capitalization, that narrowsthings down very, very
significantly. For me to view mymy pool of investable companies.
The things I look at from thereare actually based on research
I've done in the past. So I lookat Believe it or not just the
(23:59):
stock price. I've run I don'tknow how many different multiple
regression analysis is analyseslooking
Chris Holling (24:06):
Analysi
Sean Cooper (24:07):
Yeah, sure. The the performance of stocks over say a
10 year window. So I'm lookingat 10 years plus I'm not
interested in shorter term. Soagain, that has to do with what
you want to focus on. Are you aday trader? Are you just looking
for a quick return oninvestment? Or are you a long
term investor? So I'm looking at10 years plus, and over that
(24:31):
timeframe, one of the biggestfactors in determining your
return on investment is actuallythe initial purchase price. It's
that simple. It's really silly,but that is one of the biggest
factors. And that has to do withmathematics. If you make $5 on
$100 stock, that's a 5% returnon investment. If you make $5 on
(24:52):
a $10 stock, that's a 50% returnon investment.
Chris Holling (24:56):
Okay, yeah.
Sean Cooper (24:58):
So it's simple mathematics.
Chris Holling (25:03):
Math checks out.
Sean Cooper (25:05):
Yeah. Now the flip side of that, the flip side of
that is, if you're buying cheapstocks, you could be investing
in a company that is struggling,there's a reason it's not
expensive. So you want to makesure that there are other
finances financials that you canevaluate to ensure that the
(25:29):
company is not just going to gobust. That math works really
well for penny stocks. But pennystocks are also very, very
risky, that 50 cent stock,there's you know, a reason that
it's 50 cents, you have touncover what that reason is,
Chris Holling (25:47):
gotcha.
Sean Cooper (25:48):
It might be a non issue. But it also could be that
the company is going to gobankrupt, and you're gonna lose
your entire investment, whateverthat may be. So another thing
that I look for is that cashflow, the operating cash flow,
that cash flow ratio, I shouldsay, and that's operating cash
flows divided by currentliabilities, it's a very strong
(26:10):
indicator of how well thecompany is going to fare in the
near term future. Are theyactually in significant trouble?
Are they generating all of theircash flow from financing, as
opposed to actually what they'resupposed to be in business
doing? Are they going going tocontinue as an ongoing concern
(26:30):
in the future. I also focus ondividend investing. So the the
price kind of lends itselftowards value. However, I blend
that with dividend investing,because I don't want to be
entirely reliant on my returnsbeing from the the appreciation
of the stock price, theappreciation of the value of the
(26:53):
company, I like to have a steadydividend to help bolster returns
in bull markets and try to addsome cushion in bear markets,
the dividend of the company canalso be a strong indicator of
the stability of that company.
If it's paying a nice steadydividend, hopefully, one that's
(27:16):
growing slightly to offsetinflation, that tends to be a
fairly strong sign. Now, if someof the other factors are not
aligning, and they're stillpaying a dividend. So they're,
they're not generating operatingcash flow, but they're still
paying a dividend that's notsustainable, that that is going
to be a red flag. Similarly, ifthey're paying an extremely high
(27:36):
dividend relative to theirvalue, you know, you have a
dividend yield, that was one ofthe other ratios we talked
about, that's in excess of 10%.
That's something you want to diginto more you want to find out
what's actually going on? Whyare they paying such a high
dividend, relative to the stockprice, and you want to start
(27:58):
comparing that to their earningsand where they're generating
their income from, especiallyrelative to their different
liabilities and things of thatnature. So these are pieces that
could either look positive, orraise red flags that you need to
delve into more. And these arejust some of the ones that I
(28:19):
tend to focus on personally,from my experience. So
Chris Holling (28:23):
and then when you're, I don't really know how
to ask this when you'reevaluating these things. And
you're, you're paying attentionto a certain price of something
and you do this evaluation. Iimagine this is pretty
subjective, and it's just a caseby case basis, but do you? Do
you tend to look at thevaluation then then go, Oh,
well, this, this isn't workingout, right? So I'm, I'm just
(28:45):
gonna stop paying attention toit. Or, or maybe you do this
evaluation, then you go this isthis is something that could
change in the future. So I'llcome back, or is,
Sean Cooper (28:54):
how do you mean,
Chris Holling (28:55):
I guess,
Sean Cooper (28:57):
When you say it's not working out, right?
Chris Holling (28:59):
I'm not really asking the question very well, I
guess I'm saying when you'redoing these evaluations, is this
to help establish whether or notto even pay attention to the
purchase price of something ingeneral? Or is it? Is it to
evaluate if you're still goingto remain involved in the in
like, is this is this somethingto continue to check the status
(29:23):
of something you're currentlyinvested in? Or is it to help
consider whether or not you'regoing to make the purchase?
Maybe that's what I'm trying toask.
Sean Cooper (29:30):
Yeah, so for me this is to help decide if I'm
going to buy into a security
Chris Holling (29:35):
okay.
Sean Cooper (29:36):
Yeah,
Chris Holling (29:36):
okay.
Sean Cooper (29:37):
Yeah. Now, you can also use it to decide, okay, is
this time to get out? Like, isthe company starting to flounder
or, you know, have they alreadypeaked and I need to pull my
profits while I can? Yeah, youcan evaluate any aspect of it.
You can also use it to just sayis this a company that I want to
continue to monitor you know,maybe they've got things, some
(30:01):
things coming down the pipelinethat will put them on a good
track. And but I want to see howthat pans out first.
Chris Holling (30:08):
Cool. So those those are all the
opportunities that you could useit for you personally, most
commonly use it for aconsideration as to whether or
not you're going to purchase atall
Sean Cooper (30:19):
correct.
Chris Holling (30:19):
Okay, cool. I think that's what I was trying
to ask without being able toactually speak English. So I
appreciate that.
Sean Cooper (30:25):
Right. Yeah. So a day trader, they're probably not
going to care about that cashflow that I was talking about.
There, they're not going to careabout most of those ratios that
we discussed, because those,they are pictures in time. But
they're, they're typically usedfor longer term investing, they
care more about those, thetechnical analysis that we
(30:49):
talked about that visual, theymight care about, you know, the
current stock price, becausethat that percentage that I
talked about, really does impacttheir rate of return, you know,
if you can buy something that'squite a bit cheaper than a few
bucks on a percentage basis,goes a lot farther.
Chris Holling (31:11):
Yeah, absolutely.
Makes sense.
Sean Cooper (31:13):
So another aspect that we haven't talked about,
and because we've talked alittle bit about the timeframes,
and you know why you're choosingto invest. But another area that
you might use to evaluateindividual securities. And this,
I would argue, is notnecessarily an evaluation of the
(31:35):
security itself. But it is anevaluation of the market, the
market's response to a securityand that there's an entire
branch of finance calledbehavioral finance. And it has
nothing to do with actualvaluations, it's not even a
visual thing. It has everythingto do with psychology, it has to
(31:55):
do with what how investors aregoing to respond.
Chris Holling (32:01):
Okay,
Sean Cooper (32:01):
and that is a very legitimate investment
methodology. I don't personallyuse it, but I can see where it
would fit. And how it could bevery useful, especially in
today's market where there is somuch information. So what the
behavioral finance person mightlook at, these are just some
(32:22):
examples, they might look attoday's news, and there was, you
know, some positive news on acompany, they might view that as
a buying opportunity. However,and this is where it gets very
convoluted. They might look atit and go, okay, the positive
news is out there, the company'salready gone up, I'm going to
invest as a contrarian and say,that was overblown, people have
(32:45):
bought in, it's gone up morethan it should have based on
that news, eventually, the it'llblow over and drop back down. So
I'm actually going to sell andwait for it to drop back in so I
can buy,
Chris Holling (33:00):
like political science investing.
Sean Cooper (33:03):
Kind of, kind of, yeah, and so the same thing
might be true On the flip side,so really bad news comes out
about a company and so if youget in early, you sell out right
off the bat, you can takeadvantage of that negative news
and ride the downtrend or morelikely, you know, you already
missed the the dip thathappened. And so you're going to
(33:24):
take advantage of the fact thatit's likely to have dropped more
than it really should have,which when things when news
comes out, that is what tends tohappen is it tends to swing more
widely than what is actuallyfounded based on that
information. So people willoften buy or sell expecting the
(33:48):
rebound, if you will.
Chris Holling (33:50):
Yeah, that that makes sense. Actually, I I think
it's we're, we're far enoughaway from it, that I can
reference it I saw that happenspecifically with Boeing, once
we had the very first initialCOVID dip. And every you know,
everything came to a big hardstop for travel. And there was a
big, big dip just in generalbecause people weren't flying
(34:12):
anymore at all
Sean Cooper (34:13):
right.
Chris Holling (34:14):
And I think something else happened on
Boeing's side that was kind of,I don't want to say political
but kind of PR based, I think itwas like discussions about the
possibility of bankruptcy or, orsomething along those lines. But
I, I remember watching it, dipand dip and dip and dip and I
personally felt like I knew thatit was going to come back. And
(34:35):
then I had all my capital tiedup in other things. So I should
have done something about it.
But it if you go back and have alook at it, I'd have to pull up
the exact numbers, but it had asignificant dip and the return
came back relatively quickly inthe matter of a couple of weeks
to a month and it was justspecific to what you're talking
about where it was, it wasconversational. It was specific
to current events that happenedand it was In my opinion blown
(34:57):
out of proportion via the media,which made it a good opportunity
to, to buy, and I see whatyou're saying about like, basing
it solely on that for everyinvestment doesn't make sense to
me. But you know, opportunitieslike that do happen and you know
Sean Cooper (35:16):
absolutely
Chris Holling (35:17):
to its is absolutely important.
Sean Cooper (35:19):
Yeah. GameStop same thing except
Chris Holling (35:21):
Oh, yeah,
Sean Cooper (35:21):
on the reverse side. So yeah. Yeah, it strictly
has to do with the psychology ofit. And mostly it's psychology
of investors and the masses kindof trading something well out of
(35:42):
proportion of what the actualvaluation is, or should be
Chris Holling (35:46):
sure.
What did you call it again?
Sean Cooper (35:48):
What do you mean,
Chris Holling (35:49):
the Wasn't there a title of
Sean Cooper (35:51):
behavioral finance,
Chris Holling (35:52):
behavioral finance?
Sean Cooper (35:53):
Yeah, I talked about it in chapter or two. In
the book, and looking at periodslike 2008, where the market has
Well, 2007 2008, where what yousee is people start to invest,
(36:17):
and they do well, and they telltheir friends how well they're
doing, and they want to part ofthat. So they jump in, and it
becomes kind of this euphoricthing of, let's, we're all just
making money, and there's noactual basis in reality in terms
of the valuations of theinvestments, it's just
everybody's getting in. And thenwhen that starts to topple, you
know, as, as people start totake their profits, it starts to
(36:40):
slow and then turn. And thenpeople tend to be in denial
initially of, well, you know,this is just temporary, look how
well it's been doing. And thenmore people start to get out.
And as it continues, more andmore people start to panic, the
media latches on to it andspreads the panic. So more
people are informed and theypanic, and they start selling.
(37:00):
So it starts this kind of spiraleffect, whether it's up or down.
Of what you end up with is panicselling. And part of what
happened in like 2008, is youalso had some different
technology that kicked in thatwas your algorithms that trigger
trading, that that hit and onceyou surpassed a certain point of
(37:24):
losses, they automatically soldregardless, and that spurred
more selling, but it fed intothe overall psychology of it.
And what I'm getting at is, ifyou look at periods like 2008,
there were companies that didperfectly fine. They had no
issues, they did really well,their stock still suffered just
because everybody soldeverything, they weren't
(37:47):
rationally deciding, oh, well,this is a good investment.
Still, this is a bad investmentat this point, you know, the
tech bubble, okay? You got outof tech, but that doesn't
necessarily mean that thismanufacturer of tractors was
suffering for any particularreason.
Chris Holling (38:08):
Sure.
Sean Cooper (38:08):
You see what I mean, and so, but everybody just
blankets, their selling process,and the media makes things
infinitely worse. So it's a veryirrational period, that has
nothing to do with actualvaluations for the most part. So
(38:30):
that all falls under behavioralfinance as well.
Chris Holling (38:34):
Okay, no, those are those really good points.
Sean Cooper (38:36):
Alright, so those would be a number of different
ways of evaluating a particularcompany. So an individual
security and you can use thatfor evaluating their stock or
their bonds, the the generalprocess is the same. It's about
what you're investing in, whatyour timeframe is, and what you
want to focus on. So again, Italked about my strategy is long
(38:57):
term, large cap domesticequities tends to be a value and
dividend focus, you might beinvesting in growth companies,
you might want to invest ininternational. So what you
utilize for each piece can varyquite a bit. And you might want
to be investing in preferredstocks as opposed to common
stocks, or, you know, the bonds,you might alter a little bit or
(39:17):
you might want to do convertiblebonds instead of traditional
bonds. So each of thosevaluations can vary to a certain
degree, what you're focusing on,and which type of analyses
you're going to be completing.
One of the things I wanted tocover though, was how you might
want to evaluate like, if you'reif you're not investing in
(39:39):
individual securities, butyou're, you want to evaluate,
say, a mutual fund or anexchange traded fund, so that
you can get broaddiversification but you're not
having to pick each of theindividual the underlying
assets. To evaluate those.
There's a couple of differentthings that you can look at if
it whether it's a mutual fund oran ETF. You want to make First
(40:00):
and foremost that thatparticular mutual fund or ETF is
going to fit the particularsector, the asset class that you
are trying to target, they mightsay that they are, but you want
to look at some of theunderlying holdings to make sure
that that is the case, if you'rebuying into a large cap fund,
and they have 10 20% invested insmall caps, that really doesn't
(40:23):
fit the bill. You know, whetherit's international domestic, you
want to make sure that they'reactually following what they say
they're supposed to betargeting, because otherwise
it's going to throw yourportfolio out of whack.
Chris Holling (40:36):
Right.
Sean Cooper (40:37):
Another thing that we've talked about is the
expenses. expense is the biggestthing that you can control when
investing mutual funds tend tobe more expensive than exchange
traded funds, individualsecurities, the advantage, there
is the only you're getting hitwith trading costs, most likely,
but there are no internalexpenses associated with buying
(40:58):
individual stocks. Whereas theETFs, and mutual funds have
internal expenses that have todo with their, you know, cost of
trading their their companies,their managers, all of that. So
the cost is something to focuson. And then another aspect that
you want to focus on is themanager, especially if it's a
(41:19):
mutual fund, you want to look atwho the manager is, what their
tenure is, and if there's styledrift. So that goes back to that
first comment that I made aboutwhether they're investing in the
asset class that you want. Butas far as the manager is
concerned, if you're looking ata mutual fund, for example,
that's done, you know, prettywell over the last 10 years,
(41:41):
it's a viable investment optionthat has, you know, low costs,
if it's all the, you know, allthe checkmarks that you want,
but they just brought in a brandbrand new manager, so the
manager that all that those last10 years is based on is no
longer relevant, they just ifthey traded out all of their
analysts, their manager,everything's been flipped, that
(42:02):
that historical info is largelyirrelevant. So things like that
are what you want to look at.
Chris Holling (42:09):
Okay? So you're saying that when you're when
you're doing the evaluations forthese formulas, and you're,
you're looking at these thingsto just just to, you know, put a
bow on it, like I like to, thenyou're also addressing the the
costs that are behind it, anditself, and the people that are
running it, because even if theformulas and the purchase for
what you're looking at is good,then then underlying things
(42:30):
might need to take, you mightneed to take those into
consideration
Sean Cooper (42:33):
specifically for mutual funds and ETFs. If you're
doing individual stocks, thenthis this is not what you're
looking at.
Chris Holling (42:40):
Okay, yeah
Sean Cooper (42:40):
there is no manager associated with individual
stocks, there is no, you know,now you might look at the CEO of
the individual company. Youknow, you might look at their
board of directors, if there'sbeen lots of changes there that
that could impact yourinvestment decisions.
Absolutely. You know, lookinginto the annual reports, and
(43:01):
seeing what's changed and whatthey're looking for in the
future. So yeah, absolutely.
Chris Holling (43:06):
Yeah, that that makes a lot of sense. I think
those are, those are goodpoints. I always I always find
myself going through these andthen at the end of it going, Oh,
yeah, I wouldn't have thought ofthat. Thanks Sean
Sean Cooper (43:18):
that's the goal.
Chris Holling (43:21):
Like I was like I was talking about with you
earlier, I feel like I feel likeinvesting. I'm just I'm just
this is Pitbull and you justyou're just like controlling me,
and then you like point me adirection or go.
I feel like,I feel like that's that's pretty
accurate.
Sean Cooper (43:35):
Yeah, we should have been recording that
earlier. good conversation.
Chris Holling (43:39):
It, it, you know, it was a good conversation, but
I get the feeling there wouldhave been a lot more bleeps and
blanks in that conversation thatthat I wasn't particularly
interested in doing. So.
Sean Cooper (43:51):
That's fair.
Chris Holling (43:53):
Okay, great.
Well, are we missing anything?
Are we? We looking pretty good.
Is that a good? Good bow on itall
Sean Cooper (43:58):
No, I think that's a good, good wrap up. So
probably opens up a bunch morequestions. And like I said, I've
said before, if somebody wantsmore info on a particular area,
let us know. We'll do a podcastdedicated to that particular
subject.
Chris Holling (44:13):
Yes. Always, always open to all of those
things. And I'd have to go backand look at the lesson plan to
figure out what we're doing inthe future here but well, you
know, we'll figure it out. Whatare you guys gonna do you know,
control what I do? Or the themaster editor? I think not.
Yeah, we've got stuff planned.
So come back for the next one,whatever blank thing is, but
(44:34):
thank you, again for taking timeto listen to us and taking the
time to want to betteryourselves. Here on the truth
about investing back to basics.
My name is Chris Holling.
Sean Cooper (44:50):
And I'm Sean Cooper.
Chris Holling (44:51):
And we will catch you next time. podcast
disclaimer, disclaimer. Thedisclaimer following this
disclaimer is the disclaimerthat is required for this
podcast to be up and running andfully functioning and moving
forward. This is going to be thesame disclaimer that you will
(45:12):
hear in each one of ourepisodes. We hope you enjoy it
just as much as we enjoyedmaking it. All content on this
podcast and accompanyingtranscript is for informational
purposes only. opinionsexpressed here in by Sean Cooper
(45:32):
are solely those of fitfinancial consulting LLC, unless
otherwise specifically cited.
Chris Holling is not affiliatedwith fit financial consulting,
LLC, nor do the views expressedby Chris Holling represent the
views of fit financialconsulting, LLC. This podcast is
intended to be used in itsentirety. Any other use beyond
(45:58):
its author's intent,distribution or copying of the
contents of this podcast isstrictly prohibited. Nothing in
this podcast is intended aslegal accounting or tax advice
is for informational purposesonly. All information or ideas
provided should be discussed indetail with an advisor,
(46:23):
accountant or legal counselprior to implementation. This
podcast may reference links towebsites for the convenience of
our users. Our firm has nocontrol over the accuracy or
content of these other websites.
(46:44):
advisory services offeredthrough fit financial
consulting, LLC, an investmentadvisor firm registered in the
states of Washington andColorado. The presence of this
podcast on the internet shallnot be directly or indirectly
interpreted as a solicitation ofinvestment advisory services to
(47:07):
persons from anotherjurisdiction unless otherwise
permitted by statute. Follow upor individualized responses to
consumers in a particular stateby our firm in the rendering of
personalized investment advicefor compensation shall not be
made without our first complyingwith jurisdiction requirements,
(47:31):
or pursuant an applicable stateexemption. For information
concerning the status ordisciplinary history of a broker
dealer, investment advisor ortheir representatives, a
consumer should contact theirstate securities administrator.
This has been a test of theemergency disclosures system.
(47:57):
Don't Don't let the good the Oh,don't let the screen door hit
you where the good Lord splityou.
Sean Cooper (48:04):
Yep.
Chris Holling (48:06):
If, brains were leather, you wouldn't have
enough to saddle a Junebug.
Sean Cooper (48:12):
I Like that one You'll get quite a few different
Sean's Phone (48:17):
Let me out, I'm stuck in your pocket
Chris Holling (48:19):
I'm starting to think you're doing that on
purpose. I might start leavingthem into the podcast.
Sean's Phone (48:25):
Let me out, I'm stuck in your pocket.
Chris Holling (48:26):
Cuz you know, the fact
Sean Cooper (48:28):
You have left them in. you left them in last time.
Chris Holling (48:29):
I probably did.
But like, you know, so that thebeauty of editing is I can take
a block and just remove it andthen people are like, how, how
do they have such greatformulated thoughts? They never
have a moment of spacing out orbeing confused or anything
happened because because themagic of editing just allows
that to happen. And I might justI might just leave them in
(48:53):
there. You know, maybe, maybejust Oh, did you did you guys
know that Sean's not perfect? Ididn't know that. But here's
here's an example of Sean notbeing there's plenty of evidence
for them knowing I'm notperfect.
Sean's Phone (49:09):
Let me out, I'm stuck in your pocket.
Chris Holling (49:10):
It's now it's I'm it's on purpose. At this point.
I'm Yep. This Welcome. Welcometo the to the Sean's not perfect
show.
Sean Cooper (49:28):
All right.
This is the truth about investing back to basics
podcast. We want to help youtake control of your personal
finance and long terminvestments. If you're looking
for a way to learn the why andhow of investing then you found
the right place. Thank you fortaking the time to learn how to
(00:23):
better yourselves.
Iwanted to share Southern phrase
idioms because I'm wanting tolearn more as I think they're
Sean Cooper (00:42):
oh boy
Chris Holling (00:44):
I want to have more of these available like his
cornbread ain't done in themiddle
Sean Cooper (00:52):
Yep
Chris Holling (00:55):
oh yeah we totally did go through some of
these That's right. Having acome to Jesus meeting I still do
that. I still say that wellbutter my butt and call me a
biscuit I need to slide that insomewhere this week the phrase
not the butter
Sean Cooper (01:12):
Yeah, I was like that follow up comment was
Chris Holling (01:18):
sorry I realized after afterward I this is this
is not that kind of show Oh, theever so classic bless your heart
Sean Cooper (01:30):
yes which can mean oh so many things
Chris Holling (01:34):
yes but mostly bad
Sean Cooper (01:36):
Yes,
Chris Holling (01:37):
mostly bad there's there's nothing quite
worse than like hey, can you canyou tell me what the the answer
to two plus two is? Seven Oh,honey bless your heart
Sean Cooper (01:52):
yeah
Chris Holling (01:53):
that that it cuts you real deal is what it does my
actually one of my personalfavorites just because I think
it's a good visual is the like abull in a china shop. I work
with a lot of people that arelike bulls and a china shop
Sean Cooper (02:11):
probably works to their advantage in your line of
work
Chris Holling (02:13):
you know sometimes it does just like you
go go go do stuff and then theygo in there and things crash and
then things get better and yougo huh Good job.
Sean Cooper (02:26):
Well when you start out with a place that's on fire
I mean
Chris Holling (02:31):
yeah, I that's actually kind of the beauty of
it is that there's not a lot youcan do to make it you know,
worse like the pretty much theonly way you can make it worse
is by not doing anything is kindof
Sean Cooper (02:45):
right
Chris Holling (02:45):
I've starting to find so yeah, don't
Sean Cooper (02:47):
don't throw any more fuel on it I suppose. But
Chris Holling (02:49):
right.
Go do stuff.
Okay. You didn't do enoughstuff. Go do more stuff. I ain't
seen you in a month of Sundays.
God how long is that? That'slike, like if it was a bunch of
Sundays
Sean Cooper (03:05):
Be 30 months?
Chris Holling (03:07):
Well, I mean, I guess it's a month like it's not
like the whole you know, what'swhat's heavier?
Sean Cooper (03:11):
A month of Sunday's would be, you have to divide by
four
Chris Holling (03:13):
A pound of feathers or a pound of? Hmm.
Sean Cooper (03:16):
You got to divide by four so it'd be seven and a
half months, well ish
Chris Holling (03:20):
seven
Sean Cooper (03:23):
Not perfect. But yeah
Chris Holling (03:24):
A month of Sundays is approximately seven
and a half months. Okay. Okay,maybe you should start doing
that we're like somebody
Sean Cooper (03:30):
Probably closer to seven
Chris Holling (03:31):
somebody talks to you about like, Hey, we we're
going to reevaluate yourportfolio here and approximately
a month of Sundays like a butwhat oh, it's about seven and a
half months it's it's a goodsolid investing amount. You
know, a month of Sundays. ShouldI still talk to this guy?
Sean Cooper (03:52):
That's like, fortnight just number you know.
Chris Holling (03:56):
Oh,
Sean Cooper (03:57):
Time frames that people are not familiar with
anymore? Y
Chris Holling (03:59):
eah, absolutely. I should use the
term fortnight instead. Like
Sean Cooper (04:05):
You should
Chris Holling (04:06):
we. We get paid once a fortnight
Sean Cooper (04:10):
You would
Chris Holling (04:11):
full as a tick on a hound dog. hanging in there
like hair in a biscuit.
Sean Cooper (04:19):
Ah,
Chris Holling (04:20):
oh, you know what? Actually, I heard one
the other day that was realgood. They're more more confused
than a fart and a fan factory.
Let's see. Oh, you know what?
This is a good one. Okay, nowI'm trying to figure out how to
how to tie this in there.
(04:42):
Welcome back, ladies andgentlemen, to I've got a plan
here. Just stick with me. Allright.
Sean Cooper (04:47):
Okay,
Chris Holling (04:48):
welcome back, ladies and gentlemen to another
episode of the truth aboutinvesting back to basics where
common sense isn't a flower thatgrows in everyone's garden
Sean Cooper (04:59):
Jeez
Chris Holling (05:03):
And here we, we like to grow those flowers and
have that green thumb available
Sean Cooper (05:08):
Cultivate those flowers
Chris Holling (05:13):
Like to water.
Water that lawn. Welcome back.
My name is Chris Holloing
Sean Cooper (05:22):
And I'm Sean Cooper and I'm wondering what we're
supposed to be doing here today.
Chris Holling (05:27):
I don't know anymore. It's it's, there's
there's certainly not enoughbutter in my biscuit or is that
what it was? Dang it butter? No,
Sean Cooper (05:39):
no it was
Chris Holling (05:40):
butter my butt and call me a biscuit all right
Sean Cooper (05:42):
cornbread it had to do with the cornbread not being
baked all the way or something
Chris Holling (05:45):
there's just so many I know I'm gonna confuse
those where it's gonna be like,you know, Piece of undone
cornbread doesn't grow ineveryone's garden you know what
Sean Cooper (05:55):
Are you the biscuit farmer
Chris Holling (05:59):
Or like the like with boondock Saints or whatever
the you know, because what theysay people in glasses houses,
glass houses sink ships, like apenny saved is worth two in the
bush, you know?
Sean Cooper (06:14):
Yeah.
Chris Holling (06:15):
Whatever. Yeah, well, welcome back. Everybody
Sean Cooper (06:18):
I should watch that show this weekend.
Chris Holling (06:20):
Oh, yeah. That's you should
Sean Cooper (06:21):
I like that movie.
Chris Holling (06:21):
It's a great movie.
Sean Cooper (06:22):
Yeah.
Chris Holling (06:23):
We today we are talking about security analysis.
Right, right.
Sean Cooper (06:30):
Yes, indeed.
Chris Holling (06:31):
Whoo. Good. Okay, I guessed that without even
having to pull up the lessonplan. Look at me go. So today
we're going to go over securityanalysis. And I, I've kind of
guessed what security analysiswas in the last episode, the the
security analysi, sort of, kindof, but if I'm recalling
(06:56):
correctly, security analysis is,is when you have a bouncer that
looks at a line of people andanalyzes the situation. And
that's, that's when they get inthat that big ol crossed arms
thing. And theydo. Yeah. You, no, not you not,
you no, you sit over thereThat's a Yeah, you. And that's,
(07:19):
that's Yeah, that's about right.
Let's, let's let's do that.
That's, that's that's securityanalysis, right.
Sean Cooper (07:29):
Sure.
Chris Holling (07:29):
Okay.
Sean Cooper (07:30):
Yeah, you got it.
Chris Holling (07:32):
And then No, I, I remember that we were kind of
trying to talk about it. And ittook forever to sort through my,
my thoughts on it, whatever, onthe on the second episode, so
how about you tell us what we'redoing today, rather than me
really confusing everybody.
Sean Cooper (07:54):
So security analysis is really just a
continuation of the topics thatwe've been discussing up to this
point. So we talked aboutfundamental and technical
analysis, those are aspects ofsecurity analysis, we also
talked about portfolio analysis,that would be analyzing the
overall mix of the portfolio,whereas here, we're delving into
(08:15):
each individual holding, whichis why the technical and the
fundamental can apply. Itlargely depends on your
investment timeframe, and whatyou're investing in, how you're
investing in it, things of thatnature, and then your overall
methodology.
Chris Holling (08:33):
Okay. Okay, that sounds good. And so how do we,
how do we get started with it?
Or we're just
Sean Cooper (08:40):
Well, we, we mentioned previously that there
for fundamental analysis, youoften look at ratios to help
analyze a company so we can jumpinto those in a little bit more
detail, or at least list themout so that people have an idea
of what they might be lookingfor and how they might be used.
(09:05):
We can also talk a little bitmore about some of the
methodologies that I tend toprefer and then there's some
other ancillary options that wecan discuss that may be of use
depending again on yourinvestment timeframe and what
(09:25):
you're trying to achieve withyour investments.
Chris Holling (09:28):
Okay, well explain it to me like I'm five
I'll you know what, I'll takeeight I'll do eight
Sean Cooper (09:35):
Yeah, let's go a little older because
I don't know too many five yearolds that would get a lot out of
this
Chris Holling (09:40):
like a really smart eight. I'll go with that.
Sean Cooper (09:43):
Okay.
Chris Holling (09:44):
But like you know, sometimes gaps and then
you realize that, you know,while I'm interested I might
want to bag a gushers orsomething like that. That's the
level. That's that's where weneed to go.
Sean Cooper (09:55):
Okay, well, so as we talked about the fundamental
Analysis relies on the financialstatements and then ratios from
numbers on those financialstatements. So one set of
financial or ratios that wecould evaluate would be
liquidity ratio. So how muchliquidity does the company have?
Do they have the cash flow orthe assets to be able to
(10:22):
generate the income, they needto pay off liabilities and
things of that nature nature. Soyou've got the current ratio,
which is your current assetsdivided by current liabilities,
you have the acid test ratio,which is your current assets
minus inventories divided bycurrent liabilities, and they
subtract out inventories thereto kind of account for the fact
(10:46):
that the inventories aren'tnecessarily as liquid as the
rest of your current assets. Thecash ratio, which is cash and
cash equivalents divided bycurrent liabilities. So that
would be a very, very stringentview of your cash on hand to
actually cover those short termliabilities. And then the one
that I've talked aboutpreviously, which is operating
(11:07):
cash flow ratio, which is youroperating cash flow, divided by
your current liabilities,
Chris Holling (11:11):
and you do this, when you're comparing these
amounts, it's, it's to everysingle asset right? Or are you?
Are you comparing these withinlike an asset class? Do you keep
them separate? As you'recomparing these? Or is it like
we are looking at
Sean Cooper (11:25):
It wouldn't necessarily, it wouldn't
necessarily be an asset class somuch as a sector of companies.
So for example, you wouldn'tnecessarily compare the
liquidity ratios of a oil andgas company to even a utility
company, for example.
Chris Holling (11:45):
Okay,
Sean Cooper (11:46):
you want to necessarily compare he or you
would likely compare like Googleto Apple? or Bing, or Microsoft?
You know, depending on whatlevel you're investing in I
realize one's owned by theother, but you get my point
Chris Holling (12:05):
fight fight.
Sean Cooper (12:07):
Yeah. But you wouldn't compare, you wouldn't
to be likely to compare a techcompany to a, you know, hard
asset company,
Chris Holling (12:22):
right? That makes sense,
Sean Cooper (12:23):
okay, their ratios are completely different the the
way their balance sheets orincome statements or statement
of cash flows are structured,and where they have let employ
leverage and things of thatnature, from one industry to
another is can be very, verydifferent. So you end up with
what looks very good in oneindustry might actually be
(12:47):
really bad in another industry.
Chris Holling (12:49):
Gotcha. Okay.
Sean Cooper (12:50):
So yes, you can compare them across the board.
That's the advantage of theratios, but the Compareability
of them gets very loose as youspan different industries.
Chris Holling (13:04):
Okay. Okay.
Sean Cooper (13:08):
So another set would be your leverage financial
ratios, see how much leveragethe company is employing? That's
one of the things I just talkedabout, you know, how is this
company heavily reliant on debt?
Or are they operating off oftheir own income sources or
their financing ability via,like IPOs, and things of that
(13:28):
nature. So debt ratio is yourtotal liabilities divided by
total assets. debt to equityratio would be total liabilities
divided by shareholders' equity.
interest coverage ratio would beyour operating income divided by
interest expenses. And then debtservice coverage ratio is
(13:49):
operating income divided bytotal debt service. So just
different ways of looking atsome of the same information,
sometimes you're boiling itdown, like I was talking about
before the as you weeded outinventories from current assets
and then jump down to cash andcash equivalents for the cash
ratio, etc. divided by thecurrent liabilities, you're
(14:11):
weeding out different aspectsthat you might not want to
include in the ratio that mightbe skewing what you're really
trying to look at.
Chris Holling (14:19):
Okay,
Sean Cooper (14:20):
efficiency ratios, those are going to be how
effective the company is atturning their inventory into
actual cash, basically doingtheir day to day operations to
actually generate revenue andthings of that nature. So, asset
turnover ratio is net salesdivided by average total assets.
(14:41):
inventory turnover ratio is Costof Goods Sold divided by average
inventory. receivables turnoverratio is net credit sales
divided by average accountsreceivable. And then days sales
in inventory ratio is just 365days divided by inventory
turnover ratio, you can Adjustthat for a leap year if you
(15:02):
really want but
Chris Holling (15:03):
and so just just to address a couple things and I
and I hope that this isn'tbackpedaling too far But the
purpose of doing theseevaluations is to establish
without without being too directthe security and the how stable
these investments these assetsthat you're evaluating are Is
(15:25):
that right?
Sean Cooper (15:26):
Potentially not always really it's more just for
comparing them so yes, you canuse them to establish like we
were talking about the liquidityearlier the efficient era the
the leverage ratios those oftenhave to do with security. Same
(15:47):
with the liquidity ratios thosehave to do with security
efficiency is not necessarilyrelated to security. Same with
you know, profitability, kind ofmarket value, same thing not
necessarily directly related tosecurity, a lot of these are
used for comparison purposes. Socomparing one company to another
Chris Holling (16:10):
Okay, so kind of like you were addressing earlier
with, with this as pairing alongwith your fundamental analysis
because it is it is tools thatyou utilize in the process,
it's, it's, it's part of
Sean Cooper (16:24):
currect
Chris Holling (16:24):
Part of that, okay,
Sean Cooper (16:26):
yeah, so you know, oftentimes an analyst is they're
typically going to be monitoringa particular industry or a
sector and so their job is topull out which company in the
their industry that they'reassigned to is going to
outperform and so they'recomparing lots of different
(16:49):
companies and they use theseratios as one of their starting
points for that that comparisonpurposes
Chris Holling (16:56):
okay.
Sean Cooper (16:57):
So when I look at like the cash flow ratio, I'll
look at a bunch of differentcompanies at the same time and
compare them to each other tosay Okay, which one has the
better operating cash flowrelative to their current
liabilities
Chris Holling (17:14):
fair enough and then while you're while you're
doing these and you are you areevaluating these these different
formulas that I mean they makesense but you know, again, we
have the struggle here of ofjust having an auditory
description and that's it whenyou're looking at these formulas
and the different possibilitiesand I get that there are certain
(17:35):
circumstances that you want touse different ones are you able
to track down these differenttypes of formulas like a like a,
I don't know if there's a listper se but within investopedia
that it goes These are some ofthe formulas you may want to
consider using when doing asecurity analysis or something.
Sean Cooper (17:56):
I think investopedia does have a list of
them
Chris Holling (17:59):
okay.
Sean Cooper (17:59):
That you could utilize corporate finance
Institute has a list I think ifyou go with a lot of the
different designations so likethe CFA they're going to have a
list they probably have an evenmore extensive list than any of
the others it's going to mostlikely it'll be enough to bog
most people down but
Chris Holling (18:18):
sure I just wanted to make sure that as
we're going over this because II don't have the memory capacity
to catch all of these and thenretain them and just go Oh yeah,
of course you got to do thisformula while we're while we're
evaluating that I need areference point if I'm going to
start doing some of thoseevaluations myself on how to do
those rather than
Sean Cooper (18:36):
Where's your legal pad Chris Come on.
Chris Holling (18:39):
Don't I can't I can't write or read. I didn't
know how to break it to you II'm illegitimate.
Sean Cooper (18:46):
Illegitimate
Chris Holling (18:54):
Sorry. Anyways, I wanted to make sure that it was
like a, hey, you know, this is alot of stuff. You've never done
any of these formulas before.
Hey, remember these formulas?
What do you mean you don'tremember those formulas? Okay,
like here's a spot that you cango look and grab these formulas
if you're going to do thoseevaluations, which are those
spots that you just listed?
That's that's what I was what Iwas getting at.
Sean Cooper (19:17):
Yeah, just do a quick search whatever search
engine you use of financialratios, shall I run through the
rest of the ratios and then wecan move on
Chris Holling (19:27):
Yep sure should
Sean Cooper (19:28):
Okay, so profitability ratios? I don't
think I need to explain that perse. Okay, gross margin ratio is
the gross profit divided by netsales operating margin ratio is
operating income divided by netsales. return on asset ratio
equals net income divided bytotal assets. And return on
equity ratio is net incomedivided by shareholders' equity.
(19:50):
You'll notice a lot of thesehave like shareholders equity
built in and that's because as ashareholder, you want to know
how much they're actuallygenerating from your standpoint.
Chris Holling (20:00):
Okay,
Sean Cooper (20:01):
market value ratios. So these are different
ways of valuing the company ifyou will. book value per share
ratio is shareholders equityminus preferred equity. And then
all of that divided by totalcommon shares outstanding.
dividend yield ratio is yourdividend per share divided by
(20:22):
the share price. That one's verycommon one for people to
utilize, they want to know whattheir earning rate is from a
dividend standpoint. earningsper share ratio is net earnings
divided by total sharesoutstanding. And then price
earnings ratio is the shareprice divided by the earnings
per share. So, those areexamples of some of the big ones
(20:46):
that you might see and mightwant to consider as you're
evaluating different securities.
Chris Holling (20:51):
Okay.
Fair enough. And again, you canget those at
Sean Cooper (20:57):
Oh, you can Yeah, I'd just do a quick search of
financial ratios on whateveryour preferred search engine is,
but investopedia will have them,corporate finance Institute will
have them. CFA, CharteredFinancial Analysts.
Chris Holling (21:12):
I prefer to use Netscape as a as an internet
browser.
Sean Cooper (21:16):
I was referring to the search engine, not the
browser.
Chris Holling (21:20):
That's even worse. I prefer Netscape 's
search engine on its browser. Iwas trying to make a joke.
Dammit, Sean,
Sean Cooper (21:28):
I know I just ruined it. Because I took it too
literal
Chris Holling (21:31):
this, is our whole relationship
Sean Cooper (21:32):
you should use to that by now
You should be used to that byNow,
Chris Holling (21:39):
I'm, not.
Sean Cooper (21:40):
I don't know what to tell you that that's, that's
on you.
Chris Holling (21:46):
Okay.
Sean Cooper (21:47):
Okay. So as I think we've talked a little bit
before, some of the big onesthat I look for are that the
operating cash flow? I care alot about that, when I'm
analyzing for. So let mebacktrack a little bit.
Chris Holling (22:04):
Okay.
Sean Cooper (22:06):
As I've mentioned, it really depends on what you're
choosing to invest in whatyou're trying to focus on. So I
don't claim to be an expert onstock analysis, or bond analysis
for every single industry, everysingle sector every you know,
international, emerging.
frontier markets, what have you,there are far too many companies
(22:34):
to evaluate if you go thatroute. Now, screeners can
certainly help you narrow thingsdown. But it just becomes
cumbersome to try to stay on topof absolutely everything. So
it's best to determine whatyou're going to focus on what
(22:56):
you want to not necessarily bean expert on. But what you want
to try to excel at, if you will.
So for for myself, if I'mgetting down to individual
security analysis for stockselection, I'm doing it for
(23:18):
large cap domestic equities. I'mnot doing it for international,
I'm not doing it for micro capstocks. So large cap domestic
equities, which gives me an easyscreen, I can start with just
the s&p 500, the 500 largestcompanies in the US by market
(23:39):
capitalization, that narrowsthings down very, very
significantly. For me to view mymy pool of investable companies.
The things I look at from thereare actually based on research
I've done in the past. So I lookat Believe it or not just the
(23:59):
stock price. I've run I don'tknow how many different multiple
regression analysis is analyseslooking
Chris Holling (24:06):
Analysi
Sean Cooper (24:07):
Yeah, sure. The the performance of stocks over say a
10 year window. So I'm lookingat 10 years plus I'm not
interested in shorter term. Soagain, that has to do with what
you want to focus on. Are you aday trader? Are you just looking
for a quick return oninvestment? Or are you a long
term investor? So I'm looking at10 years plus, and over that
(24:31):
timeframe, one of the biggestfactors in determining your
return on investment is actuallythe initial purchase price. It's
that simple. It's really silly,but that is one of the biggest
factors. And that has to do withmathematics. If you make $5 on
$100 stock, that's a 5% returnon investment. If you make $5 on
(24:52):
a $10 stock, that's a 50% returnon investment.
Chris Holling (24:56):
Okay, yeah.
Sean Cooper (24:58):
So it's simple mathematics.
Chris Holling (25:03):
Math checks out.
Sean Cooper (25:05):
Yeah. Now the flip side of that, the flip side of
that is, if you're buying cheapstocks, you could be investing
in a company that is struggling,there's a reason it's not
expensive. So you want to makesure that there are other
finances financials that you canevaluate to ensure that the
(25:29):
company is not just going to gobust. That math works really
well for penny stocks. But pennystocks are also very, very
risky, that 50 cent stock,there's you know, a reason that
it's 50 cents, you have touncover what that reason is,
Chris Holling (25:47):
gotcha.
Sean Cooper (25:48):
It might be a non issue. But it also could be that
the company is going to gobankrupt, and you're gonna lose
your entire investment, whateverthat may be. So another thing
that I look for is that cashflow, the operating cash flow,
that cash flow ratio, I shouldsay, and that's operating cash
flows divided by currentliabilities, it's a very strong
(26:10):
indicator of how well thecompany is going to fare in the
near term future. Are theyactually in significant trouble?
Are they generating all of theircash flow from financing, as
opposed to actually what they'resupposed to be in business
doing? Are they going going tocontinue as an ongoing concern
(26:30):
in the future. I also focus ondividend investing. So the the
price kind of lends itselftowards value. However, I blend
that with dividend investing,because I don't want to be
entirely reliant on my returnsbeing from the the appreciation
of the stock price, theappreciation of the value of the
(26:53):
company, I like to have a steadydividend to help bolster returns
in bull markets and try to addsome cushion in bear markets,
the dividend of the company canalso be a strong indicator of
the stability of that company.
If it's paying a nice steadydividend, hopefully, one that's
(27:16):
growing slightly to offsetinflation, that tends to be a
fairly strong sign. Now, if someof the other factors are not
aligning, and they're stillpaying a dividend. So they're,
they're not generating operatingcash flow, but they're still
paying a dividend that's notsustainable, that that is going
to be a red flag. Similarly, ifthey're paying an extremely high
(27:36):
dividend relative to theirvalue, you know, you have a
dividend yield, that was one ofthe other ratios we talked
about, that's in excess of 10%.
That's something you want to diginto more you want to find out
what's actually going on? Whyare they paying such a high
dividend, relative to the stockprice, and you want to start
(27:58):
comparing that to their earningsand where they're generating
their income from, especiallyrelative to their different
liabilities and things of thatnature. So these are pieces that
could either look positive, orraise red flags that you need to
delve into more. And these arejust some of the ones that I
(28:19):
tend to focus on personally,from my experience. So
Chris Holling (28:23):
and then when you're, I don't really know how
to ask this when you'reevaluating these things. And
you're, you're paying attentionto a certain price of something
and you do this evaluation. Iimagine this is pretty
subjective, and it's just a caseby case basis, but do you? Do
you tend to look at thevaluation then then go, Oh,
well, this, this isn't workingout, right? So I'm, I'm just
(28:45):
gonna stop paying attention toit. Or, or maybe you do this
evaluation, then you go this isthis is something that could
change in the future. So I'llcome back, or is,
Sean Cooper (28:54):
how do you mean,
Chris Holling (28:55):
I guess,
Sean Cooper (28:57):
When you say it's not working out, right?
Chris Holling (28:59):
I'm not really asking the question very well, I
guess I'm saying when you'redoing these evaluations, is this
to help establish whether or notto even pay attention to the
purchase price of something ingeneral? Or is it? Is it to
evaluate if you're still goingto remain involved in the in
like, is this is this somethingto continue to check the status
(29:23):
of something you're currentlyinvested in? Or is it to help
consider whether or not you'regoing to make the purchase?
Maybe that's what I'm trying toask.
Sean Cooper (29:30):
Yeah, so for me this is to help decide if I'm
going to buy into a security
Chris Holling (29:35):
okay.
Sean Cooper (29:36):
Yeah,
Chris Holling (29:36):
okay.
Sean Cooper (29:37):
Yeah. Now, you can also use it to decide, okay, is
this time to get out? Like, isthe company starting to flounder
or, you know, have they alreadypeaked and I need to pull my
profits while I can? Yeah, youcan evaluate any aspect of it.
You can also use it to just sayis this a company that I want to
continue to monitor you know,maybe they've got things, some
(30:01):
things coming down the pipelinethat will put them on a good
track. And but I want to see howthat pans out first.
Chris Holling (30:08):
Cool. So those those are all the
opportunities that you could useit for you personally, most
commonly use it for aconsideration as to whether or
not you're going to purchase atall
Sean Cooper (30:19):
correct.
Chris Holling (30:19):
Okay, cool. I think that's what I was trying
to ask without being able toactually speak English. So I
appreciate that.
Sean Cooper (30:25):
Right. Yeah. So a day trader, they're probably not
going to care about that cashflow that I was talking about.
There, they're not going to careabout most of those ratios that
we discussed, because those,they are pictures in time. But
they're, they're typically usedfor longer term investing, they
care more about those, thetechnical analysis that we
(30:49):
talked about that visual, theymight care about, you know, the
current stock price, becausethat that percentage that I
talked about, really does impacttheir rate of return, you know,
if you can buy something that'squite a bit cheaper than a few
bucks on a percentage basis,goes a lot farther.
Chris Holling (31:11):
Yeah, absolutely.
Makes sense.
Sean Cooper (31:13):
So another aspect that we haven't talked about,
and because we've talked alittle bit about the timeframes,
and you know why you're choosingto invest. But another area that
you might use to evaluateindividual securities. And this,
I would argue, is notnecessarily an evaluation of the
(31:35):
security itself. But it is anevaluation of the market, the
market's response to a securityand that there's an entire
branch of finance calledbehavioral finance. And it has
nothing to do with actualvaluations, it's not even a
visual thing. It has everythingto do with psychology, it has to
(31:55):
do with what how investors aregoing to respond.
Chris Holling (32:01):
Okay,
Sean Cooper (32:01):
and that is a very legitimate investment
methodology. I don't personallyuse it, but I can see where it
would fit. And how it could bevery useful, especially in
today's market where there is somuch information. So what the
behavioral finance person mightlook at, these are just some
(32:22):
examples, they might look attoday's news, and there was, you
know, some positive news on acompany, they might view that as
a buying opportunity. However,and this is where it gets very
convoluted. They might look atit and go, okay, the positive
news is out there, the company'salready gone up, I'm going to
invest as a contrarian and say,that was overblown, people have
(32:45):
bought in, it's gone up morethan it should have based on
that news, eventually, the it'llblow over and drop back down. So
I'm actually going to sell andwait for it to drop back in so I
can buy,
Chris Holling (33:00):
like political science investing.
Sean Cooper (33:03):
Kind of, kind of, yeah, and so the same thing
might be true On the flip side,so really bad news comes out
about a company and so if youget in early, you sell out right
off the bat, you can takeadvantage of that negative news
and ride the downtrend or morelikely, you know, you already
missed the the dip thathappened. And so you're going to
(33:24):
take advantage of the fact thatit's likely to have dropped more
than it really should have,which when things when news
comes out, that is what tends tohappen is it tends to swing more
widely than what is actuallyfounded based on that
information. So people willoften buy or sell expecting the
(33:48):
rebound, if you will.
Chris Holling (33:50):
Yeah, that that makes sense. Actually, I I think
it's we're, we're far enoughaway from it, that I can
reference it I saw that happenspecifically with Boeing, once
we had the very first initialCOVID dip. And every you know,
everything came to a big hardstop for travel. And there was a
big, big dip just in generalbecause people weren't flying
(34:12):
anymore at all
Sean Cooper (34:13):
right.
Chris Holling (34:14):
And I think something else happened on
Boeing's side that was kind of,I don't want to say political
but kind of PR based, I think itwas like discussions about the
possibility of bankruptcy or, orsomething along those lines. But
I, I remember watching it, dipand dip and dip and dip and I
personally felt like I knew thatit was going to come back. And
(34:35):
then I had all my capital tiedup in other things. So I should
have done something about it.
But it if you go back and have alook at it, I'd have to pull up
the exact numbers, but it had asignificant dip and the return
came back relatively quickly inthe matter of a couple of weeks
to a month and it was justspecific to what you're talking
about where it was, it wasconversational. It was specific
to current events that happenedand it was In my opinion blown
(34:57):
out of proportion via the media,which made it a good opportunity
to, to buy, and I see whatyou're saying about like, basing
it solely on that for everyinvestment doesn't make sense to
me. But you know, opportunitieslike that do happen and you know
Sean Cooper (35:16):
absolutely
Chris Holling (35:17):
to its is absolutely important.
Sean Cooper (35:19):
Yeah. GameStop same thing except
Chris Holling (35:21):
Oh, yeah,
Sean Cooper (35:21):
on the reverse side. So yeah. Yeah, it strictly
has to do with the psychology ofit. And mostly it's psychology
of investors and the masses kindof trading something well out of
(35:42):
proportion of what the actualvaluation is, or should be
Chris Holling (35:46):
sure.
What did you call it again?
Sean Cooper (35:48):
What do you mean,
Chris Holling (35:49):
the Wasn't there a title of
Sean Cooper (35:51):
behavioral finance,
Chris Holling (35:52):
behavioral finance?
Sean Cooper (35:53):
Yeah, I talked about it in chapter or two. In
the book, and looking at periodslike 2008, where the market has
Well, 2007 2008, where what yousee is people start to invest,
(36:17):
and they do well, and they telltheir friends how well they're
doing, and they want to part ofthat. So they jump in, and it
becomes kind of this euphoricthing of, let's, we're all just
making money, and there's noactual basis in reality in terms
of the valuations of theinvestments, it's just
everybody's getting in. And thenwhen that starts to topple, you
know, as, as people start totake their profits, it starts to
(36:40):
slow and then turn. And thenpeople tend to be in denial
initially of, well, you know,this is just temporary, look how
well it's been doing. And thenmore people start to get out.
And as it continues, more andmore people start to panic, the
media latches on to it andspreads the panic. So more
people are informed and theypanic, and they start selling.
(37:00):
So it starts this kind of spiraleffect, whether it's up or down.
Of what you end up with is panicselling. And part of what
happened in like 2008, is youalso had some different
technology that kicked in thatwas your algorithms that trigger
trading, that that hit and onceyou surpassed a certain point of
(37:24):
losses, they automatically soldregardless, and that spurred
more selling, but it fed intothe overall psychology of it.
And what I'm getting at is, ifyou look at periods like 2008,
there were companies that didperfectly fine. They had no
issues, they did really well,their stock still suffered just
because everybody soldeverything, they weren't
(37:47):
rationally deciding, oh, well,this is a good investment.
Still, this is a bad investmentat this point, you know, the
tech bubble, okay? You got outof tech, but that doesn't
necessarily mean that thismanufacturer of tractors was
suffering for any particularreason.
Chris Holling (38:08):
Sure.
Sean Cooper (38:08):
You see what I mean, and so, but everybody just
blankets, their selling process,and the media makes things
infinitely worse. So it's a veryirrational period, that has
nothing to do with actualvaluations for the most part. So
(38:30):
that all falls under behavioralfinance as well.
Chris Holling (38:34):
Okay, no, those are those really good points.
Sean Cooper (38:36):
Alright, so those would be a number of different
ways of evaluating a particularcompany. So an individual
security and you can use thatfor evaluating their stock or
their bonds, the the generalprocess is the same. It's about
what you're investing in, whatyour timeframe is, and what you
want to focus on. So again, Italked about my strategy is long
(38:57):
term, large cap domesticequities tends to be a value and
dividend focus, you might beinvesting in growth companies,
you might want to invest ininternational. So what you
utilize for each piece can varyquite a bit. And you might want
to be investing in preferredstocks as opposed to common
stocks, or, you know, the bonds,you might alter a little bit or
(39:17):
you might want to do convertiblebonds instead of traditional
bonds. So each of thosevaluations can vary to a certain
degree, what you're focusing on,and which type of analyses
you're going to be completing.
One of the things I wanted tocover though, was how you might
want to evaluate like, if you'reif you're not investing in
(39:39):
individual securities, butyou're, you want to evaluate,
say, a mutual fund or anexchange traded fund, so that
you can get broaddiversification but you're not
having to pick each of theindividual the underlying
assets. To evaluate those.
There's a couple of differentthings that you can look at if
it whether it's a mutual fund oran ETF. You want to make First
(40:00):
and foremost that thatparticular mutual fund or ETF is
going to fit the particularsector, the asset class that you
are trying to target, they mightsay that they are, but you want
to look at some of theunderlying holdings to make sure
that that is the case, if you'rebuying into a large cap fund,
and they have 10 20% invested insmall caps, that really doesn't
(40:23):
fit the bill. You know, whetherit's international domestic, you
want to make sure that they'reactually following what they say
they're supposed to betargeting, because otherwise
it's going to throw yourportfolio out of whack.
Chris Holling (40:36):
Right.
Sean Cooper (40:37):
Another thing that we've talked about is the
expenses. expense is the biggestthing that you can control when
investing mutual funds tend tobe more expensive than exchange
traded funds, individualsecurities, the advantage, there
is the only you're getting hitwith trading costs, most likely,
but there are no internalexpenses associated with buying
(40:58):
individual stocks. Whereas theETFs, and mutual funds have
internal expenses that have todo with their, you know, cost of
trading their their companies,their managers, all of that. So
the cost is something to focuson. And then another aspect that
you want to focus on is themanager, especially if it's a
(41:19):
mutual fund, you want to look atwho the manager is, what their
tenure is, and if there's styledrift. So that goes back to that
first comment that I made aboutwhether they're investing in the
asset class that you want. Butas far as the manager is
concerned, if you're looking ata mutual fund, for example,
that's done, you know, prettywell over the last 10 years,
(41:41):
it's a viable investment optionthat has, you know, low costs,
if it's all the, you know, allthe checkmarks that you want,
but they just brought in a brandbrand new manager, so the
manager that all that those last10 years is based on is no
longer relevant, they just ifthey traded out all of their
analysts, their manager,everything's been flipped, that
(42:02):
that historical info is largelyirrelevant. So things like that
are what you want to look at.
Chris Holling (42:09):
Okay? So you're saying that when you're when
you're doing the evaluations forthese formulas, and you're,
you're looking at these thingsto just just to, you know, put a
bow on it, like I like to, thenyou're also addressing the the
costs that are behind it, anditself, and the people that are
running it, because even if theformulas and the purchase for
what you're looking at is good,then then underlying things
(42:30):
might need to take, you mightneed to take those into
consideration
Sean Cooper (42:33):
specifically for mutual funds and ETFs. If you're
doing individual stocks, thenthis this is not what you're
looking at.
Chris Holling (42:40):
Okay, yeah
Sean Cooper (42:40):
there is no manager associated with individual
stocks, there is no, you know,now you might look at the CEO of
the individual company. Youknow, you might look at their
board of directors, if there'sbeen lots of changes there that
that could impact yourinvestment decisions.
Absolutely. You know, lookinginto the annual reports, and
(43:01):
seeing what's changed and whatthey're looking for in the
future. So yeah, absolutely.
Chris Holling (43:06):
Yeah, that that makes a lot of sense. I think
those are, those are goodpoints. I always I always find
myself going through these andthen at the end of it going, Oh,
yeah, I wouldn't have thought ofthat. Thanks Sean
Sean Cooper (43:18):
that's the goal.
Chris Holling (43:21):
Like I was like I was talking about with you
earlier, I feel like I feel likeinvesting. I'm just I'm just
this is Pitbull and you justyou're just like controlling me,
and then you like point me adirection or go.
I feel like,I feel like that's that's pretty
accurate.
Sean Cooper (43:35):
Yeah, we should have been recording that
earlier. good conversation.
Chris Holling (43:39):
It, it, you know, it was a good conversation, but
I get the feeling there wouldhave been a lot more bleeps and
blanks in that conversation thatthat I wasn't particularly
interested in doing. So.
Sean Cooper (43:51):
That's fair.
Chris Holling (43:53):
Okay, great.
Well, are we missing anything?
Are we? We looking pretty good.
Is that a good? Good bow on itall
Sean Cooper (43:58):
No, I think that's a good, good wrap up. So
probably opens up a bunch morequestions. And like I said, I've
said before, if somebody wantsmore info on a particular area,
let us know. We'll do a podcastdedicated to that particular
subject.
Chris Holling (44:13):
Yes. Always, always open to all of those
things. And I'd have to go backand look at the lesson plan to
figure out what we're doing inthe future here but well, you
know, we'll figure it out. Whatare you guys gonna do you know,
control what I do? Or the themaster editor? I think not.
Yeah, we've got stuff planned.
So come back for the next one,whatever blank thing is, but
(44:34):
thank you, again for taking timeto listen to us and taking the
time to want to betteryourselves. Here on the truth
about investing back to basics.
My name is Chris Holling.
Sean Cooper (44:50):
And I'm Sean Cooper.
Chris Holling (44:51):
And we will catch you next time. podcast
disclaimer, disclaimer. Thedisclaimer following this
disclaimer is the disclaimerthat is required for this
podcast to be up and running andfully functioning and moving
forward. This is going to be thesame disclaimer that you will
(45:12):
hear in each one of ourepisodes. We hope you enjoy it
just as much as we enjoyedmaking it. All content on this
podcast and accompanyingtranscript is for informational
purposes only. opinionsexpressed here in by Sean Cooper
(45:32):
are solely those of fitfinancial consulting LLC, unless
otherwise specifically cited.
Chris Holling is not affiliatedwith fit financial consulting,
LLC, nor do the views expressedby Chris Holling represent the
views of fit financialconsulting, LLC. This podcast is
intended to be used in itsentirety. Any other use beyond
(45:58):
its author's intent,distribution or copying of the
contents of this podcast isstrictly prohibited. Nothing in
this podcast is intended aslegal accounting or tax advice
is for informational purposesonly. All information or ideas
provided should be discussed indetail with an advisor,
(46:23):
accountant or legal counselprior to implementation. This
podcast may reference links towebsites for the convenience of
our users. Our firm has nocontrol over the accuracy or
content of these other websites.
(46:44):
advisory services offeredthrough fit financial
consulting, LLC, an investmentadvisor firm registered in the
states of Washington andColorado. The presence of this
podcast on the internet shallnot be directly or indirectly
interpreted as a solicitation ofinvestment advisory services to
(47:07):
persons from anotherjurisdiction unless otherwise
permitted by statute. Follow upor individualized responses to
consumers in a particular stateby our firm in the rendering of
personalized investment advicefor compensation shall not be
made without our first complyingwith jurisdiction requirements,
(47:31):
or pursuant an applicable stateexemption. For information
concerning the status ordisciplinary history of a broker
dealer, investment advisor ortheir representatives, a
consumer should contact theirstate securities administrator.
This has been a test of theemergency disclosures system.
(47:57):
Don't Don't let the good the Oh,don't let the screen door hit
you where the good Lord splityou.
Sean Cooper (48:04):
Yep.
Chris Holling (48:06):
If, brains were leather, you wouldn't have
enough to saddle a Junebug.
Sean Cooper (48:12):
I Like that one You'll get quite a few different
Sean's Phone (48:17):
Let me out, I'm stuck in your pocket
Chris Holling (48:19):
I'm starting to think you're doing that on
purpose. I might start leavingthem into the podcast.
Sean's Phone (48:25):
Let me out, I'm stuck in your pocket.
Chris Holling (48:26):
Cuz you know, the fact
Sean Cooper (48:28):
You have left them in. you left them in last time.
Chris Holling (48:29):
I probably did.
But like, you know, so that thebeauty of editing is I can take
a block and just remove it andthen people are like, how, how
do they have such greatformulated thoughts? They never
have a moment of spacing out orbeing confused or anything
happened because because themagic of editing just allows
that to happen. And I might justI might just leave them in
(48:53):
there. You know, maybe, maybejust Oh, did you did you guys
know that Sean's not perfect? Ididn't know that. But here's
here's an example of Sean notbeing there's plenty of evidence
for them knowing I'm notperfect.
Sean's Phone (49:09):
Let me out, I'm stuck in your pocket.
Chris Holling (49:10):
It's now it's I'm it's on purpose. At this point.
I'm Yep. This Welcome. Welcometo the to the Sean's not perfect
show.
Sean Cooper (49:28):
All right.
Popular Podcasts
Are You A Charlotte?
In 1997, actress Kristin Davis’ life was forever changed when she took on the role of Charlotte York in Sex and the City. As we watched Carrie, Samantha, Miranda and Charlotte navigate relationships in NYC, the show helped push once unacceptable conversation topics out of the shadows and altered the narrative around women and sex. We all saw ourselves in them as they searched for fulfillment in life, sex and friendships. Now, Kristin Davis wants to connect with you, the fans, and share untold stories and all the behind the scenes. Together, with Kristin and special guests, what will begin with Sex and the City will evolve into talks about themes that are still so relevant today. "Are you a Charlotte?" is much more than just rewatching this beloved show, it brings the past and the present together as we talk with heart, humor and of course some optimism.
Dateline NBC
Current and classic episodes, featuring compelling true-crime mysteries, powerful documentaries and in-depth investigations. Follow now to get the latest episodes of Dateline NBC completely free, or subscribe to Dateline Premium for ad-free listening and exclusive bonus content: DatelinePremium.com
Stuff You Should Know
If you've ever wanted to know about champagne, satanism, the Stonewall Uprising, chaos theory, LSD, El Nino, true crime and Rosa Parks, then look no further. Josh and Chuck have you covered.