Our pieces are drafted from a non-biased perspective with the intention to hopefully educate, raise awareness and get people thinking about some of the more seemingly uncommon facets of security analysis generally. The principal security issue being discussed in our pieces will be named in the title of each piece, alongside the publicly traded security’s ticker symbol (if applicable) and the principle noted market they are traded on. It is to be assumed that the relevant wholly or majority owned subsidiaries at the time of writing are included in or constitute the basis of everything we outline unless otherwise stated. Our pieces will generally refer to publicly traded common stock securities representing ownership of the underlying company with both the business and the security in question being collectively addressed according to any of the following nomenclature e.g. “Business”, “Company”, “Issue”, “Security”, “Security Issue”, “Equity”, “Equity Holding”, “Enterprise”, “Corporation”, “Conglomerate”, or any other similar terms not here stated. The prospective buyers or current holders of any Security Issues may be termed “Shareholders”, “Equity Holders”, “Owners”, “Business Owners”, or any similar terminology not here stated.

 

Our pieces are generally divided into 7 sections as follows:

1. Company Overview
2. Company Financials
3. Initial Discussions Regarding the Company’s Financials
4. Further Discussions Regarding the Company’s Financials
5. Valuations
6. References
7. Disclaimers and Disclosures

Below is a description of each of these 7 sections and their relevant subsections, followed by ‘some additional comments’, all of which we ask the readers of any of our pieces to be fully aware of. We also ask you to remember that this structure is generally applicable to discussions of publicly traded stocks and those concerning other security types may vary significantly.

 

Company Overview (Section 1)

All information in the first part of this section comes exclusively from the Company’s fiscal reports listed in the ‘Reference’ section at the end of our discussion. We will usually outline a brief explanation of the Company’s current operations, perhaps with a very brief history of the Company, alongside any information we deem relevant at the time, or indeed feel to mention. The second part of this section will also have a brief list of the quantitative metrics that initially attracted us to the equity holding in question. The numbers or ratios could have been soured from any financial institution, publisher of financial information, or general stock screener including but not limited to, Yahoo Finance, Seeking Alpha, Fizniv, Zacks, Bloomberg, Gurufocus, The Motley Fool, The Financial Times, Market In Out, Trading View, Msn Money, and many more. This list of relevant metrics will be followed by an initial approximate valuation, which is often guessed on account of the metrics listed. This valuation is subject to change as we; review the annual reports (and proxy statements or any equivalent, if is the case); make possible amendments to the quantitative values; and consider the qualitative features of the Business.

 

Company Financials (Section 2)

This section will normally consist of 4 tables, usually containing the following information:

1. A table typically outlining the Company’s net income, our calculated diluted earnings per share (EPS), and or any other income related metrics over the last decade if possible; usually labelled ‘Table 2 – 1’. We also provide 5- and 10-year averages of the figures presented for anybody who wishes to assess the previous showing’s reliability as to the future, as per the Concept of Earning Power segment in Chapter 37 of Security Analysis. FYI references to the ‘5-year’ averages are to do with the most recent 5 years reported.
2. A table containing the Company’s assets and liabilities reported in the latest annual or quarterly report; usually labelled ‘Table 2 – 2’.
3. A table containing what we believe to be the Company’s discernible current and total assets, the current and liabilities, long-term debt, and discernible tangible equity (the liabilities values subtracted from the asset values); usually labelled ‘Table 2 – 3’.
4. A table containing the previous information, this time allocated to each of the Company’s diluted common shares etc; usually labelled ‘Table 2 – 4’.

This section may also contain any additional tables we feel necessary to include at the time, but will generally contain the 4 just listed.

The discernible tangible equity values will be derived from the Company’s latest published figures (i.e. the information presented in the previous table), and may have an element of subjectivity around them. The ‘tangible’ assets may be moved around where we feel necessary, and some may be discarded altogether e.g. items labelled as ‘investments’ by a Company, may be moved to ‘cash and cash equivalents’, or items listed elsewhere may be moved under ‘inventory’ depending on the nature of the Company’s business. Our footnotes will generally outline the relevant adjustments. It is worth mentioning that we generally will not be counting any intangibles unless for just cause and that we generally assume all of the liabilities to be the values they are presented in the filings. The asset and equity values, will be stated as they are on the balance sheet alongside their best, average and worst-case liquidation values as per the figures given in Security Analysis ^[1] by Benjamin Graham; ergo there are 4 values for the current assets, other tangible assets and the tangible equity.

When calculating our diluted EPS and the discernible tangible equity per share, we divide the net income and discernible tangible equity respectively, by the number of shares outstanding, combined with treasury shares and those still available for issuance (e.g. for equity issuance compensation), whilst assuming full conversion privileges of any relevant items, such as preferred shares and notes convertible. When calculating our diluted EPS we do not care for the dividends of unvested securities, changes to tax benefits, stock participation in financial metrics or anything else. We also assume the total amount of dividends paid remains the same as opposed to re-adjusting the earnings accordingly etc. i.e. technically the amount per share would decrease accordingly with the total company-wide distribution amount remaining the same. We only use these figures to demonstrate a potential typical worst-case scenario as outlined by Benjamin Graham and do not proclaim this to be the most technically accurate way of calculating EPS according to any official accounting standards. Once gain it is for illustrative purposes only not to be taken as gospel and 100% accurate. For that reason, some of our values, may vary perhaps significantly from those reported by any company, or any other type of publication. If the dilution has any seemingly drastic effect on the diluted EPS or other per share calculations we shall address them as feel appropriate, say for instance any antidilutive effects. It is worth noting that unlike many companies, we account for the dilutive effect of additional shares in instances of negative earnings as well as positive ones.

 

Initial Discussions Regarding the Company’s Financials (Section 3)

In this section we comment of the Security Issues’ following 6 attributes:

1. A current-asset to current-liability ratio of 1.5 or more, and the passing of the acid test or not, both given all 4 asset value scenarios.
2. Debt, with a valuation not exceeding 110% of the net current assets, given all 4 asset value scenarios.
3. The presence or lack of earning deficits in recent years, as well as the reliability of the Issues’ previous earning power based on both the number of deficits and a visual inspection of the income stability.
4. The Company’s dividend policy, up to and including recent years.
5. Earnings growth over the last several years (6 – 7 years); and over the last decade, using 3-year averages (we use the 3 year averages in large part to account for tricks on the earnings per share as mentioned in Chapter 12 of The Intelligent Investor).
6. The current market price in relation to 120% of the net discernible tangible assets, given all 4 asset value scenarios.

It is important for all readers to remember that we use this list as per Graham’s suggestions in The Intelligent Investor ^[2], but all must remember that there are no hard or fast rules on what the numerical criterion may be, and these metrics are used for illustrative purposes only. The point is that if conservative standards are applied, then the Enterprising Investors will be able to find a suitable list of potential common stock issues from the thousands of potential issues available. The investor may add any additional suitably tailored criteria they feel may suit their goals, or temperament. It has even be said:

A group of issues, of at least average quality, meeting criteria of financial condition as well, purchasable at a low multiplier of current earnings and below asset value, should offer good promise of satisfactory investment results. ^[2]

In case anyone is wondering why we have not included a suitable price to earnings (P/E) ratio in this section, the reason is we have opted to instead comment on that in our ‘Valuations’ section. We do so in relation to the federal (or other relevant) interest rates at the time of writing. This section may also contain any additional tables we feel necessary to include at the time.

 

Further Discussions Regarding the Company’s Financials (Section 4)

This section is usually introduced with the following description:

The following points are for the more-involved investor(s)/shareholder(s); those who view common stock holdings as part-ownerships in an enterprise, irrespective of the short term public valuations, and not merely a tradable certificate “which can be sold in a matter of minutes” ^[2]. All of the points presented below have been factored into our valuation of this Issue here discussed.

Out of all sections in our pieces, this section will often be the lengthiest. It will have any given number of subsections, the quantity of which there may be little or no consistency to. There are 2 guaranteed subsections mentioned below, but apart from that, the nature of the subsections will vary on a case by case basis. The subsections will each receive their own title, and constitute topics we thought should be highlighted, be them either of a quantitative or qualitative nature. The subsection’s length will vary, from perhaps a sentence or 2, to many paragraphs with tables i.e. they do not follow a rigid structure; and a subsection presented in one piece is not assured to be present in another, as each will be presented as the author(s) feel appropriate according to their own subjective judgement. Sometimes entire subsections in one piece may be summarised in another piece under a single bullet point in another piece (in the subsection mentioned directly below).

The most consistent subsection will be ‘Additional Observations Regarding the Company’s Filings’ which will consist of 3 tiers of bullet points: those we perhaps feel impartial about; those we feel more negatively towards; and those we feel more positively towards. As previously stated, in some pieces, points listed as a single bullet may or may not have been outlined or referenced in the subsections.

There will also be a subsection with a title to the effect ‘Possible Points for XXXX’s Approximate YYYY Shareholders to Raise with Management’, XXXX generally being the Company’s name or stock ticker/symbol, and YYYY being the number of approximate shareholders or beneficiaries mentioned in the last 10-K filing or annual report (the title of this subsection is liable to change to something similar if the shareholder numbers are not provided or for any reason not immediately obvious). There will generally be an additional subsection detailing issues or questions we feel any investors may wish to raise with Management. Again, matters may be recurring on some pieces, and there are not strict rules on what must and must not be included in this subsection. These may only serve as a general guide from our point of view and any shareholders should generally review the Company’s filings, annual reports and proxy statements and decide on their own lines of enquiry for any company’s management as they hopefully deem appropriate.

 

Valuations (Section 5)

Here we give our comments on the discernible tangible assets per share, the diluted earnings per share, and our opinion on the margin of safety relative to the current interest rates (at the time of writing of course). We will also remind the according to our understanding and belief, the ‘margin of safety’ principle is not to exclusively be identified in one way. This will generally be followed by comments on the Issue’s P/BV ratio (‘BV’ here representing our calculated discernible equity per share value), and P/E ratio (‘E’ here representing our calculated diluted earnings per share), as well as whether or not the multiplication of these 2 numbers, returns a value greater than, less than, or equal to Graham’s recommended figure of 22.5 as per The Intelligent Investor ^[2].

We will then comment on the credence we give to the original points which aroused our interest in the discussed Issue, as outlined in the ‘Company Overview’ section, before commenting on whether or not the Issue appears overvalued by the current and previous quantitative showing (generally in reference to former). At times, we will then immediately comment on the Issue’s qualitative factors, and how they factor into our feelings towards the Issue at hand, however this inclusion will be circumstantial should it arise.

Finally, we will assign the Issue a valuation based on our findings presented throughout the entire piece, and not merely the P/E × P/BV ratio. This will include the bullet points listed under, ‘points we feel may be considered neither positive nor negative’, ‘points we feel may be considered negative’ and ‘points we feel may be considered positive’ as well as all other matters presented and discussed in all other sections and subsections. We cannot stress enough that there is no single factor that alone determines the final valuation, be it a bullet point, section, or subsection. As said in our disclaimer, the valuation we assign to any security is not related to whether the price of a security will go up or down over any specific time frame, but is in relation to its current market valuation and this figure’s disparity to what we feel may be the approximate, conservative-intrinsic-value at the time of writing, which is both subjective and a snapshot in time. Both values may go up or down, and latter may never in fact be reflected in the former. The valuation ranking in descending order is, ‘Blue Diamond’, ‘Musgravite’, ‘Gold’, ‘Silver’, ‘Bronze’, ‘Lead’, ‘Plastic’, ‘Rubber’ and ‘Dust’. There may also be ‘+’ or ‘-’ assigned to the valuation similar to that which is sometimes used in formal education grades e.g. ‘Musgravite^–’ or ‘Silver⁺’.

The valuation we assign the issue will typically be followed by some closing comments which may concern: any heavy quantitative factors, any heavy qualitative factors, any extenuating circumstances, any notably peculiar observations, any heavily subjective opinions, the investment strategy or type of investor we feel the Issue may perhaps be suitable for, the market generally, the Issue’s industry generally, or any other facet of security analysis.

 

References (Section 6)

This section contains the references to the publishing from which we form the basis of all our pieces. The conservative-value-investing-principles, our pieces were influenced by are outlined in both Security Analysis ^[1] and The Intelligent Investor ^[2], and it is for that reason, we always place them first on our reference list. We do not own these works. Following on from the first 2 references, we will then generally list the Company’s most recently used filings in chronological order of publication, then followed by any other relevant information sources.

 

Disclaimers and Disclosures (Section 7)

The final section is a section and page on it’s own right, and we ask all site visitors to carefully read our ‘Disclaimers and Disclosures’ before reading any of our pieces or doing anything else related to the site. A link to this section is usually provided at the end of each piece e.g. ‘https://tlcvi.com/disclaimers/’ or ‘https://wp.me/PcbS4Q-V’.

 

Some Additional Comments

• Any Company’s actual results and future financial condition may differ materially from those expressed in our pieces as a result of many factors.
• There is no specific time frame for which our pieces would become ‘invalidate’ as such, say after new filings have been published or new information has come to light. Everyone is required to utilise their own judgement regarding this matter.
• We usually outline somewhere in the piece whether or not any mention of a given calendar years’ “annual report”, or “report”, “filing”, refers to that same year that fiscal 10-K was filed, or the year it was for the period ending.
• Any mention of a “quarterly report” will report to a 10-Q filing or equivalent which may encompass a quarterly report.
• Any mention of a given calendar year’s proxy statement (DEF 14A) generally refers to the proxy statement published of the same year. This will typically be the one affiliated with the previous annual report (10-K) for the previous year e.g. the 2018 proxy statement will typically correspond with the 2017 annual report.
• We generally only look at the most recent annual reports, when discussing individual securities past earnings showing (partly to avoid speculative trajectories into what the next annual report’s figures may look like). The reader is advised as always to do their due diligence and investigate any changes which may have occurred between the latest filing or report we may mention and any time after that. We may at times comment on the most recent quarterly report if we feel it is so warranted.
• When looking at the Company’s assets and liabilities, we look at the most recently published filing. This is because unlike the annual earnings, no extrapolation is needed. We believe these figures can be taken as-is at any time.
• We may count certain items which reappear in the filings as recurring non-recurring items. These may differ from the opinions of other, and may include asset impairment charges and restructuring charges. The focus here is more the principle of whether the amounts are repeatedly deducted from the income statement.
• Our Discernible Tangible Equity values, may not include all items in the consolidated balance sheet. It is for each individual, institution or whoever it may concern to amend the figures should they feel necessary. As said in our disclaimer, our pieces are for illustrative purposes only.
• Due to the unpredictable nature of leasehold valuations and recalculations etc., (as mentioned by Graham himself), we tend to leave recalculations of these items alone.
• All fiscal data is in our pieces are denominated in the currency known as USD (US Dollar), unless stated otherwise.
• We may reference ‘related party transactions’ regardless of any SEC filings deem them ‘notable’, or ‘material’, although we will usually need the Company’s acknowledgment of them before we are able to even mention them ourselves.
• We do not typically comment on social, economic, or political trends etc. unless we feel they are so obvious to the point where even the average layman cannot help to consider them.
• We generally do not comment on, or consider the information presented by any media outlets relating to a company’s past, present or future outlook.
• Any figures we present have been rounded off to 1 or 2 decimal places, which means your recalculated figures may slightly differ even if we follow the same mathematical steps to arrive at any given values.
• The comment section to our pieces can be viewed on our ‘Comment Sections and Community Discussions’ page and is for our Gold Members only.
• The phrase ‘Management’ in our pieces may refer to anybody with seniority or significant influence amongst the Company, including but not limited to, any persons named in the annual reports, any named executive officers, any directors, any trustees, committee members, spokespersons, chairpersons or persons with senior principle positions etc.
• You may frequently encounter some acronyms in our written pieces or on this site generally. Below is a comprehensive list of what is probably the most frequently occurring acronyms:
  • Book Value (“BV”)
  • Discernible Tangible Equity (“DTE”)
  • Earnings per Share (“EPS”)
  • Price to Book Value Ratio (“P/BV”)
  • Price to Discernible Tangible Equity per Share Ratio (“P/DTE”)
  • Price to Earnings Ratio (“P/E”)
  • Price to Earnings Ratio (multiplied by) Price to Book Value Ratio (“P²/BV*E”)
  • Accounting principles generally accepted in the United States of America (“GAAP”)
  • Real Estate Investment Trust (“REIT”)
  • Securities and Exchange Commission (“SEC”)
  • New York Stock Exchange (“NYSE”)
  • NASDAQ Stock Market (“NASDAQ” or “Nasdaq”)
  • Named Executive Officer (“NEO”)
  • Executive Officer (“EO”)
  • Chief Executive Officer (“CEO”)
  • Chief Financial Officer (“CFO”)
  • The Federal Reserve System (“FED”)
  • The United States of America (“US” or “USA”)
  • The United Kingdom (“UK”)
  • COVID-19 (“COVID”)

 

References

1. Graham, B., Dodd, D.L., Security Analysis, (6^th edition), (Warren, B.E., Klarman, S.A., Grant, J., Laderman, J.M., Lowenstein, R., Marks, H.S., Merkin, J.E., Berkowitz, B., Greenberg, G.H., Greenwald, B., Abrams, D), McGraw-Hill Education, 2008 – {ISBN 10: 0071592539 / ISBN 13: 9780071592536 & ISBN-13: 978-0071592536 / ISBN-10: 0071592539}
2. Graham, B., The Intelligent Investor, (Revised Subsequent Edition), (Warren, B.E., Zweig, J), Harper Business, 2006 – {ISBN-10: 9780060555665 / ISBN-13: 978-0060555665}