July 27, 2016


“The Interpretation of Financial Statements” is the classic book by Benjamin Graham. Widely regarded as the founder of value investing, Benjamin Graham’s principles of value investing have impacted scores of individuals from Warren Buffett to Bruce Berkowitz. Written in 1937, “The Interpretation of Financial Statements” guides the reader through the core concepts found in balance sheets, income and expense statements, and financial ratios. There are seven key points found in this book: working capital ratio, current ratio, intangible assets, cash, notes payable, liquidation value and net current asset value. The working capital ratio is one of the most important ratios to look at when analyzing a business. Working capital is calculated by subtracting current liabilities from current assets. A healthy working capital shields the company from being unable to meet demands, fund emergency losses and helps with the prompt payment of bills. A bank when analyzing a business for a loan request will look at the working capital ratio. The current ratio can be calculated by dividing the current liabilities from the current assets. As Graham states, “When a company is in a sound position the current assets well exceed the current liabilities, indicating that the company will have no difficulty in taking care of its current debts as they mature.” Graham informs the investor that notes payable is the most important item to watch among the current liabilities. Here, notes payable tend to represent bank loans or loans from other companies or individuals. In the case that the notes payable have increased at a faster rate than the sales over the years, it could be a negative sign for the company because it signals an over-reliance on borrowings from the bank. Another important part of value investing is margin of profit which is calculated by dividing the operating income by sales. This margin will help tell an investor how well a company is performing. It’s important to look at any company over a number of years and not simply a three to six-month period. Look as far back as five years if necessary. If you’re taking a value investing approach, then understand that you’re looking to buy shares of companies you want to hold onto for the long term. When you invest ask yourself, am I investing for capital gains or am I investing for cash flow? While you’re young you can seek to build a large portfolio, but as you get older you’re going to need passive income to supplement social security or possibly replace it. This book is not only helpful for investing in paper assets, but you can also take this financial knowledge and apply it to look at real estate financials if you want to invest in a real estate property or even business financials if you want to own a business asset. If you’re going to buy something from someone, and a sizeable amount of money is involved ask to see the financials of what you’re buying. The worst, the seller can say is no. This scenario is purely from an investor’s standpoint. The point is doing your due diligence to know if it’s a good investment, and if there’s no cash flow, then why are you doing the deal?


For many young adults, it seems easier to put off any investing decisions until their financial situation becomes, at least theoretically, more stable. Twenty-somethings, however, are actually in a prime position to enter the investing world, even with college debt and low salaries. Here are five advantages for investing in your 20’s: time, take on more risk, learn by doing, tech savvy, and human capital. By starting in your 20’s, a person has the advantage of time on their side. If you use the principle of compounding and constantly re-invest your earnings over time, a person’s investment will grow. A single $10,000 investment at age 20 would grow to over $70,000 by the time the investor was 60 years old (based on a 5% interest rate). That same $10,000 investment made at age 30 would yield about $43,000 by age 60, and made at age 40 would yield only $26,000. The longer money is put to work; the more wealth it can generate in the future. My mustard seed concept can teach you how to take advantage of the principle of compounding. If you want to learn more, then message me in the contact me section. People investing in their 20’s are also able to have more aggressive portfolios, which can be vulnerable to volatility in the market, but can also have larger gains. I suggest that if you invest in a 401K or if you’re building your own portfolio that you make sure you examine your portfolio at least once a year. After five years, you may need to adjust your investment strategy. Younger investors also have the opportunity to make mistakes and learn from those mistakes. If you invest later in life, you run the risk of losing your investment which not only affects you but your family also. The younger generation is a tech savvy one, able to study, research and apply online investing tools and techniques. Online trading platforms provide countless opportunities for both fundamental and technical analysis, as do chat rooms and financial and educational web sites. Human capital, from an individual’s perspective, can be thought of as the present value of all future wages. Since the ability to earn wages is fundamental to investing and saving for retirement, investing in oneself – by earning a degree, receiving on-the-job training or learning advanced skills – is a valuable investment that can have strong returns. The most important thing any young investor can do is start investing today. Time will not stop for you, and opportunity will pass you by. A young investor can invest in dividend stocks that can produce an income stream for as long as he owns it. In my opinion whether you start in your 20’s or 30’s, look for assets that produce income, and learn how to manage and if possible transfer risk. Again the single most important reason to start investing now is time. “A person’s days are determined.” (Job 14:5 NIV).


There is no denying that many big budget movies such as “Wall Street” are entertaining and can give a glimpse, albeit a sensationalized one, into the wild world of finance and trading. For every blockbuster, must-watch finance movie starring A-list celebrities, there are dozens of small-budget films and documentaries that often give a more genuine insight into the true side of investment banking. What they may lack in star power, these films make up for with closer looks into the real world of high-stakes trading. Five movies suggested in this article are: Billion Dollar Day, Floored, Too Big to Fail, Trader, and Boiler Room. Billion Dollar Day focuses on the lives of three forex traders and it is a BBC documentary set in 1986. Floored is a 2009 documentary set on the Chicago futures trading floor and shows how the Internet is impacting finance. Too Big to Fail is an adaption of Andrew Sorkin’s novel, and tells the story of the 2008 financial crisis. Trader tells the story of hedge fund trader Paul Tudor Jones. Boiler Room is one of the movies on this list that I’ve seen. This little-known drama released at the end of the dot-com bubble tells the story of an ambitious college dropout going to work in the boiler room of a small stock brokerage. He quickly becomes entrenched in the firm’s culture of greed and corruption. The movie stars Giovanni Ribisi, Vin Diesel, and has a cameo by Ben Affleck. Each of these movies will help give you insight into the world of investment bankers. It’s important, so you can see how they make their money, and help you ask the important question, what’s he really trying to sell you?

If you have a prayer request, or if you’re in need of a financial checkup you can reach me in the contact me section.

I recently finished watching the Big Short, and I encourage you to watch this movie to see another side of the financial crisis of 2007-2008. I’ve included a YouTube clip which gives an animated explanation of the crisis:

“But those who want the best for me, Let them have the last word—a glad shout!— and say, over and over and over, ” GOD is great—everything works together for good for his servant.” I’ll tell the world how great and good you are, I’ll shout Hallelujah all day, every day.”

Psalm 35:27-28 MSG


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