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Reality | Rodent Regatta

Reality

11 March 2004

Interviews and news reports have overworked the phrase ”jobless recovery” to describe the move out of a ”technical recession,” and into a period of economic improvement. Unfortunately, too much emphasis has again been placed on stock valuation as a metric for economic enthusiasm or disappointment. Remember, we’re the same group of people who created a bubble by thinking that stock prices were near term indicators of company performance. Only over a long period of time will a company’s stock price really reflect the underlying intrinsic value and growth in book value.

Yesterday, the Dow was down over 160 points. It may go down again today. Until we begin to depend on real information and not media spin, politicized economic analysis or the latest quarterly report, we’ll get more of the same.

A business has to perform. It has to generate more cash that it consumes. For anyone just getting started with investing or those attempting to evaluate politicians and their likely impacts on free enterprise, I suggest two key resources. First, go read all of Warren Buffett’s letters to shareholders. Yes, even the one written in 1977 is relevant. It’s outstanding business wisdom.

Second, no matter how complex a business or economic event may seem, there is a simpler analysis underpinning it. You’ll get to the bottom of it if you use the principles set forth in The Accounting Game: Basic Accounting Fresh From the Lemonade Stand. No investor or business owner should lose sight of the things this book teaches.

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