How Important are Profits?

Surfers Paradise, Queensland, Australia June 23 2011:

After the banking crisis in the USA, the effects were immediately felt worldwide. Now Ireland, Spain Greece, and Portugal have been reported in the press as facing difficulties, and coming on its heel fast is Italy and the UK.

The Middle East is facing one its greatest challenges that was unthinkable 10 years ago.

RP Maths Pty Ltd, an investment analyst, has researched over the years the macro and micro issues involved when assessing the investment climate.

As an investor, being cautious is an understatement, especially in this investing climate.

If you are an investor currently, wouldn’t the questions be:

a. How will my current investment perform now?

b. Should I maintain my exposure and should I go in for more now?

The answers lies in not:

1. It has performed well in the past producing profits and this is a temporary matter.

2. I should increase my holdings, as it’s usually the best time for bargains.

In order to invest wisely, the key question any investor should now ask is “whether the investment is viable enough to withstand any external forces that are beyond its control?”.

The only way is not an analysis of its profit, as profits do not mean success.

Profits are derived after taking away allowable expenses as dictated by taxation authorities of the respective countries. It’s not a real and true reflection of the company but more of its ability to pay taxes.

Warren Buffet of Berkshire Hathaway stated in this year's letter to shareholders, "never trust the financial statements of companies, and don't just focus on profit figures....research and focus on broader financial figures", as reported by The Daily Telegraph March 7, 2011, Vol.1, No 2274. (See the following link for some interesting points raised http://www.dailytelegraph.com.au/money/david-libby-koch-buffetts-wisdom/story-fn7kk20m-1226016951515).

The RP Maths Pty Ltd’s Investment Analysis report also states, it is necessary to look at the fundamentals of the investment and to ascertain its ability to withstand the battering of external forces, which are beyond its control.

It is also necessary to evaluate the effects of internal forces which are under the control of the company, in order to invest wisely.

It’s the nuts and bolts of the company that needs to be assessed, such as its ability to use resources in the right way, all the time.

The Investment Analysis shows these two factors, external & internal, which will have different effects on the outcome of your share and stock investments.

These are some of the real questions to ask of your investment, and not only during these troubled times but even before you consider investing.

If your investment is able or has the right mechanism in place fundamentally, then this is possibly a good time to increase holdings in that company.

It may survive these transitions and may at the very least, still be operative at the start of a new era. It may be trimmed to the bone but not nearly down and out.

Having a better understanding of your investment, through an independent investment analyst is the key to investing wisely, especially in these troubled and changing times.

RP Maths Pty Ltd provides an independent assessment of your investment or intended investment and invest wisely!

You can contact RP Maths Pty Ltd on www.rpmaths.com