This week’s AAII Weekly Digest highlights these “must-read” AAII articles:
While most investors focus on earnings to measure profitability and company success, it can be insightful to see whether cash flow generation corresponds with earnings. Earnings are calculated under the principles of accrual accounting, while cash flow measures the direct consumption and generation of cash. An accrual is any recorded amount that isn’t a cash transaction, including accounts receivable, accounts payable, allowances and reserves. So, earnings are influenced by these factors even if no cash was used or created in the process. This First Cut seeks out companies with the least aggressive accounting, where cash flow exceeds net income relative to average total assets.
A factor is a characteristic or set of characteristics common across a broad set of securities that both explains performance and provides a premium (or above-market return). By “tilting” a portfolio across certain factors, investors can increase returns and reduce risk at the same time. The factors examined in this article include market beta, size, value, momentum, profitability and quality.
In stock investing there are a few universal truths. One of them is that at some point, a stock’s price will fall. There are a number of reasons why a stock’s price falls, and it is up to you as a stock investor to determine the cause. By identifying why the price is falling, you are far better equipped to decide if it is time to sell your stock position or if the fall in value presents an opportunity to purchase additional shares of a stock. The key is neither to react every time a stock you own dips, nor to become so emotionally attached to an investment that you stay with it no matter what the news.
When you decide to sell a stock, you are changing your mind about the stock’s prospects. But changing one’s mind is easier said than done, particularly in the investment world where uncertainty and emotions run high. Human emotion can play havoc with our judgment, leading us to make poor (and unprofitable) investment decisions. This blog post discusses ways in which we can improve our discipline so we are less likely to be ruled by emotion and, hopefully, more likely to make better investment decisions.
Our Member Question for this week is:
Of these factors or characteristics, which one do you place the largest emphasis on when selecting individual stocks?
Vote to answer this week’s Special Question:
Through the first quarter of 2017, the S&P 500 posted a total return of +6.1% and closed on March 31 at 2,362.72. Where do you think the S&P 500 index will be at the end of this year?
Last Week’s Results:
Poll results are as of 9 a.m. (Central) on Monday. 2,642 respondents.
The mission of AAII for nearly 40 years has been to help individual investors become better managers of their own assets. Our readers and members tend to be self-directed investors who do their own research and manage their own accounts. To get a clearer idea of exactly how self-directed our members and readers are, we polled them to see which “financial advisers” they use (if any).
The purpose of AAII’s Stock Screens area is to provide you with access to a wide range of stock strategies and investment approaches. For nearly 20 years AAII has been developing, testing and tracking a variety of quantitative stock selection strategies to see what works and what doesn’t work. We update our stock screens monthly, covering over 60 stock investment strategies as well as the companies that pass each screen. Not only do we provide you with the passing companies and select data on the passing companies, there are also detailed articles discussing the rationale behind each screen to help you understand each strategy.