Let’s start with a little explanation. Behavioral finance is just a fancy way of saying how your financial decisions are affecting you now, as well as how they will affect you in the future. It compares the value of an asset to the cost of acquiring and maintaining it. An example of this is the value of a company’s stock.
Now, if you were to do a comprehensive financial statement analysis on any company’s stock, you would find that the annual earnings per share (EPS) of the company’s stock usually increases over the years. This increase is because the earnings per share (EPS) is a good measure of a company’s value. If the company’s earnings don’t increase at a steady rate over the years, then the company’s EPS would probably show a decline. The same thing holds true for a company’s investment portfolio.
Now, this isn’t to say that every company’s stock price or portfolio value will decline over time. Of course, there are many factors that could affect it. However, there are some very specific things that affect how these investments perform.
For example, you can take my behavioral finance quiz for me and try to answer questions such as, “If a company’s stock price goes up, will the earnings per share go up too?” or, “If the stock price drops, will the EPS go down too?” There are several answers to each of these questions depending on the circumstances of the particular investment. If you don’t know how the question is answered, you may want to consult an investment professional or financial analyst who does. These people have studied the market carefully and can answer these questions for you in an accurate and helpful way.
In addition to the market, a company’s balance sheet, which includes its assets, liabilities, and market value of stock and common equity, is also used to predict future profits and losses. Investors and financial professionals refer to this balance sheet as a P&L. And, it tells you quite a bit about the profitability of the company. Now, it’s not possible for you to prepare your own portfolio since it would require you to do a lot of research. There are even financial statements websites that provide free Portfolio Analysis Quizzes.
One of the reasons why you may want to take my behavioral finance quiz for me is because you’re concerned about the health of your portfolio. Some investors don’t want to take risks that their portfolio could be affected by bad weather, sudden earthquakes, and other catastrophic events that could knock it down. But, they also don’t want to take on massive amounts of debt just to ensure that it holds up during these times. So, taking a look at their portfolio can be a good way to decide what investments to make and which ones to avoid.
When you get ready to take a quiz on your own financial statements, make sure you prepare them ahead of time. Otherwise, you’ll end up taking a wrong decision about an investment. Or, you might end up making a decision based on incorrect or outdated information. That’s why it’s so important to keep all of your financial statements updated.