How to invest

Written by

Jae Jun

Right now, there is clearly a lack of value in the market. Despite the volatility and recent market movements, I’m finding value still hard to come by at the moment.

A barometer that I use to make such observations is by viewing the number of net nets available in the market.

During the crash of 08, the market was brimming with cheap companies trading for less than their liquidation value. However, as of today, there are 6-7 net nets by Ben Graham’s definition.

When the market is either fairly or over valued, quality of the investment matters. Low quality stocks have risen substantially and the downside to such stocks cancels out any margin of safety that may remain.

Piotroski Score

Quality of the business, discussed by Piotroski’s Score, is a factor to consider when searching for such investment opportunities.

To determine the quality of the business, Joseph Piotroski, devised a simple 9 point system.

A discrete score between 0-9 which reflects nine criteria used to determine the strength of a firm’s financial position. The Piotroski score is used to determine the best value stocks, nine being the best. The score was named after Chicago Accounting Professor, Joseph Piotroski who devised the scale according to specific criteria found in the financial statements. For every criteria (below) that is met the company is given one point, if it is not met, then no points are awarded. The points are then added up to determine the best value stocks. (Investopedia)

Profitability

1. Positive net income compared to last year (1 point)
2. Positive operating cash flow in the current year (1 point)
3. Higher return on assets (ROA) in the current period compared to the ROA in the previous year (1 point)
4. Cash flow from operations greater than Net Income (1 point)

Leverage, Liquidity and Source of Funds

5. Lower ratio of long term debt to in the current period compared value in the previous year (1 point)
6. Higher current ratio this year compared to the previous year (1 point)
7. No new shares were issued in the last year (1 point)

Operating Efficiency

8. A higher gross margin compared to the previous year (1 point)
9. A higher asset turnover ratio compared to the previous year (1 point)

How to Interpret the Piotroski Score

Obviously, the higher the score, the better. A company that achieves a score of 9 is fundamentally very strong. Any company that has a score 8 and above is considered excellent.

Free Piotroski Spreadsheet

I’ve created a free spreadsheet for you to calculate the Piotroski score for any company. This is a basic version offers the last 3 years of Piotroski score.

The limitation is that financial companies cannot be calculated with the spreadsheet as their financial statements are different and the required line items do not exist.

Testing the spreadsheet

• IBM has a TTM score of 7, down from 8 in 2009
• SBUX has a score of 7, up from 6 in 2009
• KO has a score of 7, up from 5 in 2009
• HANS has a score of 4, down from 7 in 2009

Requirements

• Windows ONLY. Sorry, no MAC support.
• Microsoft Excel 2000 and above.

If you have never used my free and premium stock valuation spreadsheets before, you will need to install a free Microsoft excel add-in called “SMF”, short for Stock Market Function, created by Randy from the Yahoo SMF group.

IMPORTANT!

Please read the installation guide and FAQ.

To date, I’ve been spending hours helping people with simple excel issues on a free product rather than anything spreadsheet related.

So for all excel and install problems, place all questions in the comment sections below. That way I won’t have to answer the same question again and again.

How to Download

The download has now moved.

To download the spreadsheet, you must go to the main page of Old School Value and sign up with your email to receive a list of free spreadsheets.

The list includes nine free spreadsheets, the add-in required to download data from the internet as well as all the installation help material.

Premium Spreadsheets

Feel free to check out the free version and then when ready, go to the stock valuation software page and review what you will get with the premium.

The premium version includes several valuation models as well as fundamental analysis data, historical data, charts and competitor comparison features. Just by entering one ticker, you can immediately get all that information on your favorite stock which will save you hours in your analysis.

Go now and see for yourself why people rave about the spreadsheets.

Jae Jun

I sent out this free Altman Z score spreadsheet to all the people who subscribed with their email via the sign up form on the side, below this post, or whenever it pops up. Just a way of saying thank you for your loyal readership.

From now on, I’ll be sending out the latest tools to email subscribers first. If you want to be the first ones to receive future stock investment tools, make sure you sign up with your email.

The Z Score

The Altman Z score was formulated by a professor in 1968 to predict bankruptcy. You can also read a somewhat current paper by professor Altman which includes his work on the Z score, if you’re into that stuff.

Otherwise, a good concise summary and explanation can be found at Chroma Investing (he has some great stock picks as well).

The Z-score formula may be used to predict the probability that a firm will go into bankruptcy within two years.

Z-scores are used to predict corporate defaults and an easy-to-calculate control measure for the financial distress status of companies in academic studies. The Z-score uses multiple corporate income and balance sheet values to measure the financial health of a company. - Wikipedia

The main problem with the Altman Z formula is that the formula is not suited for many industries. Industries that operate with high leverage, such as radio and utilities will produce a low Z score which equates to a high risk of bankruptcy.

When I run companies such as Entercom Communications [[ETM]], the Z score comes out to 0.42. Even Time Warner [[TWX]] and Waste Management [[WM]] is expected to fail in the near future.

This is why it is important for investors to not just blindly believe that a low Z score predicts the death of a company. Just have to be smart about it.

Download the Free Altman Z Score Spreadsheet

As you can see, it is very easy to use. Simply enter the ticker, click the “Calculate” button and it will automatically calculate the Z score for you.

To download the spreadsheet, you must go to the main page of Old School Value and sign up with your email to receive a list of free spreadsheets.

The list includes nine free spreadsheets, the add-in required to download data from the internet as well as all the installation help material.

The Altman Z score spreadsheet is completely free. You are free to edit, share, link or do anything you want to it.

Premium Spreadsheets

Feel free to check out the free version and then when ready, go to the stock valuation software page and review what you will get with the premium.

The premium version includes several valuation models as well as fundamental analysis data, historical data, charts and competitor comparison features. Just by entering one ticker, you can immediately get all that information on your favorite stock which will save you hours in your analysis.

Go now and see for yourself why people rave about the spreadsheets.

IMPORTANT!

Please read the installation guide and FAQ.

To date, I’ve been spending hours helping people with simple excel issues on a free product rather than anything spreadsheet related.

So for all excel and install problems, place all questions in the comment sections below. That way I won’t have to answer the same question again and again.

Automatic Financial Statements  Analysis Spreadsheet Major Upgrade

There’s a reason why I haven’t been writing many articles in March.

I’ve spent the majority of Feb and March on

• completely redesigning
• implementing and testing new ideas
• including new features
• making it easier to read
• helping you to save as much time

so that you can spend your precious time on analysis rather than time consuming, ugly data collection and organization.

I’ve got the dirty work covered.

The major upgrade to the automated financial statement spreadsheet will be released to all premium spreadsheet buyers very soon.

Make sure you get the spreadsheets quickly and you’ll be the first to see the free upgrade in your inbox when it is released.

Here’s a quick guide of what has changed. Some images are large so you’ll have to click to view the full size.

Cool Professional Design + Functionality

Notice the enter ticker and help button to make life easier. You wanted explanations and I listened. In the future, I’ll try to include as much info into the help as possible.

Quarterly Inventory Analysis

This section was built on the example provided in the CONN inventory analysis. The first image is an expanded view and the second is the grouped view. You use the two buttons to switch views.

Debt Interest Expense Analysis

Another example of a simple analysis that I perform when analyzing stocks. Since I do it so often, why not automate it?

EPS Due to Tax Rate Changes

Find how the tax rate change yoy or qoq can have an affect on EPS with this spreadsheet.

EPS Due to Non Operating & Non Recurring Income

You can choose which line to check. Choose from either interest income, other special charges, R&D and SG&A. Don’t forget you can find something completely different by entering in your own values.

Earnings Due to Depreciation Expense

You may think these new tabs look the same but when you look at it for yourself, you’ll notice the differences and the different methods of calculating each one.

Remember that all premium spreadsheet buyers up to 1 year ago will receive the new version in their mailbox very soon. New buyers will automatically receive it as well when released.

Of the free stock spreadsheets that I offer, the net net spreadsheet has been downloaded hundreds of times and is a favorite among many people because of its ease of use. All you have to do is enter a single ticker and that’s it. Just make sure the numbers are up to date by verifying with the latest filings from the SEC.

Since the initial version, I’ve gotten some more experience with building spreadsheets since then so I’ve cleaned it up a little on the back end to support future variations I have planned for the premium stock value spreadsheets.

The main change to the spreadsheet is the addition of NCAV (Net Current Asset Value) and a data tab where most of the relevant information is stored in case you want to expand on the spreadsheet yourself.

Benjamin Graham Asset Valuation

If you are new to the Graham concept, here are the formulas used to value the assets of a company.

NCAV = Current assets (cash, inventories and accounts receivable) – Total Liabilities

Net Net Working Capital = Cash and short-term investments + (0.75 * accounts receivable) + (0.5 * inventory) – Total Liabilities

Screenshot

How to Install

Full credit goes to Randy from the SMF yahoo groups for the add-in that is required to run the spreadsheet.

Download and read the install guide. It has ALL the details of how to install.

For those who read this blog primarily from their RSS or email, you may be interested to know that I’ve been quietly adding more stock screeners. You may also highlight a row by clicking on it.

The total of stock screens available now comes to 10. I update these screens once a week, sometimes twice. For the non micro and small cap investors, there is a Magic Formula screen where the minimum market cap is 500m as well as the Dogs of the Dow.

The recent additions of This Years Losers and Winners should interest momentum seekers as well.

Available Value Stock Screens

• Old School Value Stock Screen
• Benjamin Graham Screen based on NNWC and NCAV
• Magic Formula Screen > 50m
• Magic Formula Screen > 500m
• Cheap Stocks Screen
• Leveraged but Profitable FCF Companies
• Negative Enterprise Value Screen
• This Years Losers Screen
• This Years Winners Screen
• Dogs of the Dow

Written by

Jae Jun

[edit] Newer Version Now Available

I’ve just released a new and updated version of the best free stock portfolio tracker spreadsheet. Go check it out now.

Continuing on with the Original Article

The investment tracking spreadsheet I posted previously didn’t account for cash but I finally found a way to accommodate the portion of cash in a portfolio.

I ‘m no designer but I do understand the golden rule of keeping things simple. So if I create a tool where I have to enter more than 2 or 3 pieces of information to get started, it’s already too complicated and needs to be refined.

This is why I always had difficultly implementing a portfolio tracking spreadsheet that took into account cash.

But I finally found a sweet mutual fund portfolio tracker that I’ve modified slightly and implemented into my own tracking spreadsheet.

The new addition tracks the portfolio in the form of an index. So you no longer have to display your total portfolio value and holdings.

The only pieces of information you have to enter into the additional tab is the value of the portfolio holdings and how much cash you have. It then calculates the return of your portfolio and the S&P or Russell 2000 index based on a starting value of 100.

This data is then graphed in the Google Finance timeline gadget as shown below. The comments are optional but it will also show on the right side as well.

A great way to monitor portfolio milestones.

How to Use

The only thing you have to consider is how often you plan to update this index. I’ve set it to once a week and I did this real quick by entering a starting date (1/4/2009) and then the next date I want to update (1/11/2009).

Then you just highlight the two cells, and drag the bottom right corner box and it will magically list the dates in a 1 week sequence.

And the dates are for 2009 to just show you how it works.

This isn’t a time weighted return so it lacks in that aspect so if you have any ideas, let me know so that I can make the updates.

Go here for the investment tracking spreadsheet. The method to copy it to your own account is detailed in the previous post.