ABC of Investing

Hi Maynard,

Thanks for posting the Q1 review, and well done on the performance. I hope it continues into Q2 and beyond.

I was really interested to read the following point in your blog:

Here’s one mad example. For almost every company I look at for SharePad, I manually transcribe the income, balance sheet and cash flow statements for at least the last ten years into my own spreadsheet.

I do the transcribing because I want to check as much as I can. That way restatements, exceptional items, pension deficits and other nasties come to light and help form a judgment.

Do you take the numbers from the annual report of the companies in question, or do you take the numbers from Sharepad?

Can you expand on what this adds to your research? I can imagine that the process of just doing this forces you to look at the numbers (which can otherwise be easy to skip over)?

Do you use the format which the company reports in or have your own template for all companies that you research? I wonder if you would be happy to share such a template?

Many thanks, and Happy Easter

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Hi James

I take the numbers from the annual reports. The process forces me to look at the figures, which in turn gives me a feel for the company’s complexity. The process is a breeze for some companies as they are straightforward, others not so much. The more adjustments, restatements etc, the more likely any ratio interpretation could be incorrect. Accounting has various nuances, which you will not spot from simply downloading the figures from SharePad. So you have to go through the accounts for yourself. Most people don’t bother, which I like to think creates an advantage for the people who do.

I use the format in which the company reports. I start with the latest annual report and work backwards. E.g. I will start with the FY20 report and transcribe the figures for FY20 and FY19, then to the FY19 report and transcribe the figures for FY18 – while checking the FY19 figures are the same as in the FY20 report.

The spreadsheet is very simple. Just a list of entries plus a few ratios, which I will add to if more analysis is needed. I include 5-/10-year totals/differences, and especially in the cash flow statement I look to the larger totals to pinpoint the more significant movements.

For these SharePad articles I tend to make notes as a I go along, and focus on some key issues. Avon Rubber spreadsheet attached as an example. Quite a few P&L restatements there, and the recent disposal made a lot of the historic numbers redundant anyway. But it never hurts to check and the process is a good discipline to adopt I think.

Maynard

AVON Analysis EXCEL.xlsx (517.7 KB)

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Very many thanks indeed, especially for the template.

I’m going to start this with my top 10 holdings - wish me luck!

Regards
James