John Del Vecchio and Tom Jacobs have written a book called What’s Behind the Numbers published by McGraw Hill companies 2013. Mr. Del Vecchio helps run the Ranger Equity Bear (a $260 million fund) and Mr. Jacobs is a value oriented investor believes you can make money by avoiding companies likely to become losers.

Blackstar Funds studied the performance of all the shares traded on major stock exchanges from 1983 to 2007. Some made money as the market rose 900%, however , 39% of all those stocks produced a negative total return; 20% lost at least 75% of their value; and 64% performed below the average index fund.

The above means 25% of the stocks on the stock exchanges produced most of the gains. The big question is how do you ensure your money is in the 25% rather than the 75%?  The authors believe checking companies to see if they are stretching the generally accepted accounting rules is the best way. If you paid your bills on time, generally you would likely pay x amount of days after you received the bill. If money is tighter the x days would begin to stretch. The same thing with companies – they would want to show the economy has not changed the outlook for the company. One useful tool to check is day sales outstanding. This is a comparison number, how long does it take to get paid by customers; how long does it take to pay its bills? If you see the numbers are getting longer, you know something is not stable. Then after more research you will reach a decision. There is great deal more information in the book, but the premise is always how do you narrow the list of potential stocks to be in the 25%.

Linking to dividend paying stocks – the premise is more stock investments, half the battle is picking companies that do not lose your money, one of the best methods is to start with dividend paying companies. Most companies on the stock exchange do not pay dividends (paying dividends helps narrow the field) and if you also add companies that have paid for a number of years and the dividend has increased over that time, you will continue to narrow the field. If you stick to these types of companies you will be better off in the long run.

There are more questions than answers, till the next time – to raising questions.