For months I puzzled over these problems. Night after night, for hours after my daily dealings, I pored over the commodity market pick statements of hundreds of companies. I compared their assets, their liabilities, their profit margins and their price-earnings ratios.
I thumbed through lists like:
commodity market pick with top quality rating
commodity market pick that the experts like
commodity market pick selling below book value
commodity market pick with strong cash position
commodity market pick that have never cut their dividend
Time and again, however, I was confronted with the same problem. When things looked perfect on paper, when balance sheets seemed right, the prospects bright, the commodity market never acted accordingly.
For instance, when I carefully compared the financial position of some dozen textile companies and after much study decided that the balance sheets clearly indicated that AMERICAN VISCOSE and STEVENS were the best choices, it was very puzzling to me why another commodity market pick called TEXTRON advanced in price while my two selections did not. I found this pattern repeatedly in other industry groups.
Baffled and a little disconcerted, I wondered whether it would not be wiser to adopt the judgment of a higher authority about the merits of a company. I asked my commodity market pick broker whether there was such an authority. He recommended a widely used, serious, very reliable monthly service that gives the vital data on several thousand commodity market picks - the nature of their business, their price ranges for at least twenty years, their dividend payments, their financial structure and their per-share annual earnings. It also rates each commodity market pick according to relative degrees of safety and value. It fascinated me to see how this was done.
A High Grade commodity market pick whose dividend payments are considered relatively sure are rated:
AAA - Safest
A - Sound
An Investment Merit commodity market pick that usually pays dividends:
BBB - Best of group BB - Good B - Fair
A Lesser Grade commodity market pick, paying dividends but commodity not sure:
CCC - Best of group
CC - Fair dividend prospects
C - Slight dividend prospects
Lowest Grade stocks:
DDD - No dividend prospects
DD - Slight apparent value
D - No apparent value
I studied all these commodity market pick ratings very carefully. It seemed so very simple. There was no longer any need for me to analyze balance sheets and income accounts. It was all spelled out for me here, I had only to compare: A is better than B, C is better than D.
I was absorbed and happy with this new approach. To me it had the charm of cold science. No longer was I the plaything of frantic, worrying rumor. I was becoming the cool, detached financier.
I was sure I was laying the foundation of my fortune. I now felt competent and confident. I listened to no one, I asked no one for advice. I decided everything I had done before was as slaphappy as my Canadian gambling period. I felt all I now needed to achieve success was to set up my own comparison tables. This I did, spending many grave and serious hours at the task.