Financial Ratios Explained

If you are looking for our page relating to liquidity ratios - such as the current and quick ratio - please click here. On this page we explain many of the basic financial numbers that a private investor ought to know to help them assess a company.

How Should You Manage Money?

With the release of the new Tony Robbins book, Money: Master The Game, in late 2014, the world of private investment in the stock market has felt a little different since.

Almost certainly, nothing has changed at a macro level. Private investors still use mutual funds and pension plans and most do not invest directly in financial markets. Of those that do, most will be in the usual large cap stocks or the small higher risk penny variety taking a gamble.

The reason that things feel a little different is because Robbins' book debunked so many of the truths that most of us accepted about investing. As he explains here, by interviewing fifty of the top money managers and asset allocators in the world, he was able to get an unparalleled view of how the best think.

What became clear is that virtually all of the best financial minds he interviewed would all recommend that their friends and family simply use low cost index tracker funds for their exposure to the Wall Street (information here). This means that they believe that individual investors probably should not be worrying about the current ratio, profit margins, or ROCE. In fact, they mostly do not seem to believe in the results of their sector either!

Considering that these people have made a large part of their fortunes by charging a fee to manage other people's money, it is striking that they think their closest family would be better off avoiding money managers if they were left to their own devices.

In other words, beginners to the stock market (information here) ought to steer clear of active investment and most passive investment (information here) and just get on with life while they track the index.

The role of compounding is such that gains growing on gains, growing on gains, will make an investor wealthy in time - just look at Warren Buffett (information here) he is possibly the best example of the power of compounding mathematics in history!