Recently I committed to developing a Spreadsheet that provides recommendations. The New Advisor compares and calculates several quantitative metrics that, I feel, provide optimal Buy/Sell recommendations. I value having my own program outlining which companies are likely great companies at a great Value. Here is how I automated The New Advisor (Periodical)
The Spreadsheet makes calculations on 16 Points of Quantitative Analysis. I will share periodically and start here.
1. Assets to Market Cap.
A favored measure for an entry, or accretion, point! I first came to understand this measure from reading Graham. Market Cap is an imaginary figure determined by multiplying the last sale of the Stock by the Number of Shares. It offers a significant indication of protection and Value, revealing Assets, some intangible, backing-up the Purchase Price. Here, on the Spreadsheet, Points are allotted based upon the aforementioned percentage. If A (Assets) >= % MC (Market Cap), the Stock is allotted points. It should be understood that with a greater Percentage more points, or point accretion, occurs.
The debate, or main argument-against this; it's based upon the last sale price, Shares in circulation, and what the company last reported as Assets. Also, there is no protection against unscrupulous Managers' overstating Assets. But as an Investor should understand, Stocks are often referred to as, "Equities," for good reason. So, with thought, we must develop this puzzling question. Why did Graham point Reader's and Students of Columbia to use this assessment (Assets/Market Capitalization)? A mindful Analyst would come up While this does not illustrate or associate points for, "Equity," at this point of time in Business operations, it is the base point of what one should, in my opinion, see as potential. It is, "Time," that is fundamental of all things especially Business or Investing-in. This point of analysis is determining a good point to begin the Clock. Equity growth, or anticipated, "Vector," going further in time would only be outlined in conjunction with, A/MC along with, Vector of Equity (The margin between Assets and Liabilities).
So, one may question, "Why is the Quantitative Metric calculated using Assets rather than Equity?". I think Graham was realizing what Peter Lynch outlined in, his own, proceeding writings. We seek to find an upward, "Vector". We seek accretion in both Capital and Income from Capital (Augmenting income with Dividends). Or, at least, the former alone. So, the intention should not be to acquire a company at, what I consider to be, Book Value (The balance of the Strike Price to the Equity at Strike). We shouldn't be so strict that we are eliminating, partially or completely, risk and potential reward. Therefore, we turn to the Assets, to establish a guidance. We there may Buy at less than Equity, but very likely, indeed, then realize an increasing, "Price Vector".
So I attempt to point-out my observation here in writing. It's not the true Book Value we seek for entry... That being the Total Assets less the Total Liabilities (Equity)… We may be paying quite a premium above the Book Value but not so much as to be below the entirety of Assets. It is here Graham thought, and taught Students at Columbia, to test this entry point, as outlined early in, "The Intelligent Investor". We then are likely to realize, by comparing the Assets to Market Cap, we could Invest in a Company that recently had an irrational Downward Vector (In Price). Graham, like any rational Investor, realized that Market Cap was the greatest barometer of Sentiment. A logical explanation of Market Cap might not exist. Was it Graham's success to Invest in a Company that is slightly out of, "Favor," but maintains promise behind the scenes? I think so. Despite this metric may offer the perfect entry point we must go further in analysis to reveal promising opportunities.