ALB

Looking at the different excuses I could use to think that a particular company is a good investment and almost concluding that consistent profitability trumps everything. And wasn't Buffett asked "What makes a good investment?" and didn't he answer "Well, it makes money." Now, did he mean, idiotically, it makes money for him, or for you? I don't think so. I think that by "makes money" he meant in the accounting sense: the company you are investing in is profitable.

ALCO

Now, if you read Graham, there are other things he says to look at. For example, maybe the company makes money, but maybe its share aren't cheap. Cheapness is, in the abstract, a measure of how much money the company "makes". The company might make money, but not make a lot of money, only make a little money ... "little" ... how do you define that? ... at any rate, it's relative to what you can get the share for. Perhaps it would be better to buy the shares of a company that makes a lot of money, somehow, relative to what you can get those share for than one that only makes a little, like that. And then there are more things to check. How is the company's current account? Is the company leveraged? Oh, by the way, do you like what they do? So, it gets complicated.

Here is a chart. The company consistently makes money. What we're interested in is the situation in mid 2015, for obvious reasons, but, would it have been obvious at the time? Well, the stock was down down down right then ... and it consistently makes money. Making money is an accounting term. Year after year the company's revenues exceed its expenses ... and the excess amount accrues to the company's bottom line. Now, in mid 2015, ALB was making, by extrapolation, $2.50 a share in profits (on two and a half billion dollars of specialty chemical revenues), so at $25 (a share) it would have been very cheap, but it was selling at $42 ... which is still actually cheap, or, at any rate, reasonable.

What are we looking at, here?

We would have been looking at this, it, ALB, because it was down sharply. Then we would have noticed that it was reasonably priced and consistently made money - consistently means year after year, making money means Earnings, positive Earnings or Net Income, same thing, positive Net Income. So there.

Then we would have noticed that the company is quite leveraged, which, in a sense, Graham says is to be avoided. But I'm starting to wonder. It's not even that ... I've been wondering ... I mean, I'm somewhat leveraged myself.* Is that supposed to be a bad thing? I mean, aren't most people somewhat leveraged? What's more, it seems to me smart people are more leveraged than us dumbos! Of course, really stupid people are leveraged all the time, and to the hilt, and then they get their comeuppance, and all sorts of innocents suffer with them, or even for them, but we're talking about moderation, now ... and not propriety ... right? So if this company makes money year after year, and some leverage seems to be part of its business model ... and it's huge, the company, and impressive ... maybe we shouldn't look a gift horse in the mouth.

It was down, down on the year, or on the half year, and now dipping sharply. By the end of September it had even made an interesting candle, on the monthly chart. This was near, price wise, sort of, a prominent low of some years before, and the whole ten year chart was a big flag, meaning up and down big and above earlier ... an earlier price range. It would have made us feel it could be a good thing, and then it would have turned out it was a vary big and consistently profitable company trading at a reasonable price (relative to earnings ...) ... with debt. Debt is a bad thing?

OK, well, the result, at least for now, is history.

* It's not just that. And it's not just that leverage can be, apparently, put to good use. I mean, it is that ... leverage exists for a reason ... some companies might have a reason to finance their operations through the issue of bonds. I don't really understand it. It seems to me lots of companies that are leveraged do well ... the shares do well. Sometimes, when I'm looking at financial statements, it feels like the company's debt might make sense, just be a part of normal operations. I can't actually tell ... but ... if things are going along like that year after year after year ... and maybe not even changing that much (I'm wary of explosive growth ... not that I'm not interested ... I'm thinking some kind of sense of consistency to what's going on might be more important than almost anything ...) ... then it starts to look like normal course of operations ... If, then ... in the course of normal operations ... the company makes money ...