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Computerized Investing > Second Quarter 2012

What Members Are Asking Online

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by CI Staff

Altman Z-Score Correction

Comment posted online to the Fundamental Focus column on the Altman Z-Score in the First Quarter 2012 issue:

One of the five ratios is labeled Market Value of Equity to Total Liabilities, but the first sentence of the paragraph states, “The ratio of market value of equity to total assets...”, not total liabilities. The sentence goes on to state that the ratio shows how much the market value can decline before liabilities exceed assets.

I don’t understand how a certain percentage decline in market capitalization can indicate that total liabilities will exceed total assets. Can you please explain?

—Stephen via Web inquiry

CI Editor’s Response:

We apologize for the error. The beginning of that sentence should read “The ratio of market value of equity to total liabilities...” The error has been corrected on our website and in the downloadable PDF.

Equity is measured by the combined market value of all shares of stock, preferred and common, while liabilities include both current and long-term debt. The ratio of market value of equity to total liabilities shows how much the firm’s assets can decline in value (measured by market value of equity plus debt) before the liabilities exceed the assets and the firm becomes insolvent. (Remember, assets = liabilities + shareowner’s equity.) For example, a company with a market value of its equity of $1,000 and debt of $500 (assets of $1,500) could experience a two-thirds drop in asset value before insolvency. However, the same firm with $250 in equity and $500 in debt ($750 in assets) would be insolvent if assets dropped by only one-third in value. This ratio adds a market value dimension that most other failure studies did not consider.

Quicken for Mac: No Portfolio Management

Comment posted online to “The Top Portfolio Management Software,” the Fourth Quarter 2011 Comparison article:

It should be noted that the Quicken product for Mac is not Quicken Premier. The grid shows Quicken 2007 for Mac, but in fact the current product is Quicken Essentials for Mac, which does not do portfolio management. The old product, Quicken 2007, did do portfolio management, but it is no longer offered and will not run on OS X Lion.

—Peter from Tennessee via Web Inquiry

CI Editor’s Response:

Thank you for bringing this to our attention, and we apologize for the oversight. The comparison piece mentioned that Quicken Premier runs on a Mac computer when, in fact, the Quicken product for Mac is Quicken Essentials, a personal finance software that does not include portfolio management capabilities. In the ratings table, we do specify that Quicken 2007 was the version that runs on a Mac with portfolio management capabilities. However, it should be noted that this product has been phased out and does not run on Lion.

AAII Model Shadow Stock Portfolio & Taxes

I am looking to start investing in the Shadow Stock Portfolio and was interested in the opinion of a longer-term user as to how often, on average, the model sells stocks (i.e., less than one year or more than one year). I am taking a close look at the tax implications of the portfolio, and any direction would very much be appreciated.

—Frank via Web inquiry

CI Editor’s Response:

The Shadow Stock Portfolio is updated on a quarterly basis. Typically, there are a few transactions each quarter. For 2011, there were seven buys and six sells, whereas in 2010, there were 10 buys and seven sells. There are usually around 30 stocks held in the portfolio at any given time. As you can see based on this information, most of the holds are long-term. The original premise of this portfolio is to invest in value-oriented micro-cap stocks, ones that may be overlooked by institutional investors. In addition, the portfolio was created to educate individual investors on how to invest without frequently trading.

iBank Versus Quicken

Comment posted online to “Track Your Finances on a Mac With iBank,” the First Quarter 2012 Feature article:

We have been using iBank for over a year and find that it’s an excellent option for Mac, especially now that Quicken no longer supports investment transactions in the latest Mac operating systems. One feature of iBank that is not mentioned in the review is that you can easily download many investment reports into Excel by opening an empty Excel worksheet, clicking on the report and just dragging it into the Excel worksheet. Here is one way in which iBank is superior to Quicken: Quicken makes you buy an update every three years, or they won’t let you download security prices, whereas iBank doesn’t put a time limit on that service. In addition, I have found that when I had questions about iBank, they give excellent email responses.

—Nola from California via Web Inquiry

CI Editor’s Response:

We have seen an increase in requests for Mac-based software programs, and we are making it a priority to add these programs to our more comprehensive reviews. Quicken has started focusing on its Windows customers, given its high market share, and many Mac users are searching for a replacement for Quicken’s capabilities, such as iBank. As always, we will keep our eyes open, and if any of you, our readers, have suggestions, we would love to hear them.


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