We are stress testing our portfolios for two additional risks which makes stock selection even more difficult: 1) extremely strong balance sheets – today’s recession, which is a consumer driven one, may last longer than the ones in the past.  Thus as I mentioned before access to capital markets may turn into a privilege not a birthright.  I want to own companies that don’t have a burden of debt and preferably suffer from a burden of cash. 2) normalizing profit margins, which in most cases today results in lower earnings and higher valuations (in my presentation I use Paccar (PCAR) as an example of an industrial “stuff” stock that may not be as cheap as it appears to be, see slide 35).

Here are two interviews I gave:

1. BetterInvesting Magazine interview where I discuss the Absolute P/E framework.  I developed that framework originally to answer a question so often asked by my students  – “what is the right P/E for a stock”.   Later I adapted that framework in our research process.  I discuss that framework in the book in great detail, but I’ll say the same thing say in the book:

“My goal in this discussion is to provide the qualitative framework and illustrate its possible use with quantitative examples. Using the so-called precision of math, I am trying to illustrate the process of analysis, not a secret formula that will answer investors’ prayers (sorry). The quality of any model is as good as the inputs that go into the model, and this one is no different.  

1. Second is audio interview with Vinny Catalano, (here is a link) where I discuss range-bound markets and profit margins.  I met Vinny when he moderated a CFA Society of Colorado forecast dinner in January.  I was very impressed with his interviewer/moderator skills.