Originally Posted by
SparkyTheClown
Without wanting to promote further argument, it seems we have two schools of thought here. Much as we have fundamentalist vs technicians, we have two kinds of fundamentalists, being "homeworkists" vs "balance sheetists".
I am a homeworkist, Snoopy is a sheetist.
Homeworkists use the balance sheet information, annual report information and other external data as "screeners", but don't see this as the be all and end all. We use earnings/revenue/growth/debt data to confirm that this is a company we wish to consider investing in. However, it is not the only tool we use. We like to ring and email the company, perhaps even visit them in person to ask questions about the company, management style, industry challenges and any other reasons to exclude or encourage investment. Homeworkists wouldn't visit a company without reading the balance sheet or other external data. They would normally weed out bad investments by using the data to screen out hopeless cases. What the homeworkist does is seek to find value in a company where things are getting better than the historical data available lets on, or not proceed further because behind the positive data are aspects of the company or industry that unimpresses the homeworkist.
Balance Sheetists predominately or solely rely on the historical information available. Asking questions of management or others is hopeless because people are too self interested to give honest answers. Management lie or can be evasive, and brokers are keen to push their own book which they profit from. They are only too happy to hurt smaller investors. External research like that issued from brokers rely too much on assumptive data and from people whose ethics or motives should be questioned. The only information that can be trusted is that which is published and audited. Therefore the only way to understand a company is to apply various metrics that are used to identify risk or reward. These metrics of course can be criticised as backwards looking, arbitrary, misleading and confusing. Equally, they help build a level of safety for the investor because unless the fiscals stack up, you'll never take the risk using news or information that isn't verifiable.
So who is right? Well, that's the thing about investing. You decide with what you are more comfortable with.