Why cash matters in a drawdown.

Status — retired

This note describes the screen the site ran until September 2026. A different one runs here now. The reasoning below — on dilution, on runway, on what survivorship edits out of every backtest — carried across to it unchanged.

We tested the screen and replaced it. Over 2021–2025 it produced forty picks whose results were indistinguishable from the market: a median three months behind the Russell 2000 by 7.96%, 45% ahead of it, and every confidence interval running through zero. The premise — that a balance-sheet gate plus a sharp fall finds something the market has not already priced — did not hold.

A severe three-day decline can look like an opportunity before it has earned the name. Price tells us that expectations changed. The balance sheet helps tell us whether the company has time to respond.

That is the purpose of a cash-to-price gatekeeper. It does not declare a stock cheap, predict a reversal, or excuse weak operations. It narrows the field to businesses whose liquid resources are meaningful relative to what the market now asks investors to pay.

01 / PRICE IS THE SIGNALStart with dislocation.

A sharp drawdown is useful because it marks a break in consensus. Earnings guidance may have disappointed. A financing risk may have surfaced. The market may simply have moved faster than the facts. Whatever the cause, volatility is an invitation to investigate—not a conclusion.

Drawdown supplies urgency. Cash supplies time. Research has to determine whether time has value.

02 / CASH IS THE FILTERMeasure the cushion.

Cash and short-term investments can absorb losses, fund restructuring, protect essential research, and reduce dependence on hostile capital markets. Set against market capitalization, they also reveal how much of the quoted equity value is supported by liquid assets.

The ratio needs context. Restricted cash is not readily deployable. Debt can outrank shareholders. Persistent cash burn can make a large balance temporary. A high reading opens the file; it does not close the case.

03 / SOLVENCY IS THE TESTLook beyond the screen.

The next questions concern survival and stewardship. How many quarters of operating runway remain? Are liabilities fixed or floating? Does management allocate capital with restraint? Is the core franchise intact enough to benefit from the breathing room?

The best candidates are not merely companies with cash. They are companies able to convert financial endurance into strategic advantage while the market is pricing disorder. That combination is rare—which is precisely why a disciplined screen is useful.

04 / THE DISLOCATION GATEFifteen per cent in five sessions.

A name enters the screen only after falling at least fifteen per cent over five trading sessions. The threshold is deliberately blunt. Its purpose is not to identify a bottom but to isolate moves large enough that something has changed — a guidance cut, a failed readout, a financing scare — rather than ordinary drift.

Five sessions is short. It catches the event while it is still an event, at the cost of catching noise alongside it. A longer window would be steadier and slower. We have not tested which performs better, and we would rather say so than imply a precision the number does not have.

05 / RUNWAY IS THE CLOCKCash is a stock. Burn is a flow.

Two companies holding the same cash per share are not comparable if one spends four times as fast. Cash measures what a company has; burn measures how long it keeps it. Only the second decides whether a business reaches its catalyst or has to sell shares to get there.

Names with under two years of runway are excluded. Companies generating cash from operations face no such constraint and are never filtered on this basis. Where the figure cannot be determined from filings, the company stays in the running: an absence of data is not evidence against it.

06 / DILUTION IS THE TRAPDOORWatch the share count, not just the balance.

This is how the thesis usually dies. A company trading below its cash issues equity, and the cash per share that made it interesting is divided among more owners. The balance sheet can improve while the shareholder is diluted.

Share count is compared against the same quarter a year earlier. Anything that has grown more than twenty-five per cent is set aside. A company that issued heavily last year is describing its intentions for this one.

07 / INSIDERS ARE A WITNESSOnly open-market purchases count.

Officers and directors who buy their own beaten-down stock are spending their own money on the same question the screen asks. Form 4 filings for the past six months are checked for every published name.

One distinction does the work here. A Form 4 records grants and option exercises alongside genuine purchases, and only the last means anything: a grant is compensation arriving on a schedule, not a decision. Screens that count every acquisition report insider buying that never took place. Only transaction code P — an open-market purchase — is counted.

Insider buying is reported, never required. Insiders not buying tells you very little; insiders buying tells you something.

08 / THE FORMULA AND ITS LIMITSWhat a mechanical screen can and cannot do.

This is a formula, not a forecast. The same conditions are applied to every listed US common stock, every trading day, without discretion: a thirty per cent net cash cushion, a fifteen per cent decline across five sessions, two years of runway, no more than twenty-five per cent annual share issuance, and a minimum of $250,000 in daily turnover. Nothing is selected by hand and no company is excluded or included by preference.

A fixed rule carries a fixed limitation. These thresholds define the filter; they are not calibrated against subsequent returns, and the screen makes no claim that clearing them predicts performance. It reports which companies met stated conditions on a stated date, using figures drawn from their own filings. What happens after that forms no part of the calculation.

The formula also concentrates where its conditions occur. Results run heavily to clinical-stage biotechnology, which is structural rather than incidental: such companies raise large cash balances against small market values and then reprice sharply on trial news. No more than three names from any one sector are published on a given day, but a screen finds an anomaly where the anomaly lives.

One mechanical consequence is worth stating. A rule that selects recent decline necessarily selects against price momentum, among the most persistently documented effects in markets. Screens built on this basis have historically produced a small number of substantial recoveries alongside a long tail of companies that continued to fall. Every entry is a candidate that satisfied a balance-sheet test. None is a recommendation.

09 / SURVIVORSHIP IS THE HIDDEN EDITMost of the companies are already gone.

Between 2015 and 2025, 11,766 companies filed annual or quarterly accounts with the Securities and Exchange Commission. Today, 4,821 of them remain listed. Six in every ten have left the market — some acquired, some taken private, many wound up or delisted for failing to meet a listing standard.

This is not a remark about any particular company. It is the ordinary attrition of a public market, and it is largely invisible, because the companies that left are no longer anywhere to be seen. Every ten-year chart, every list of great businesses, every figure showing what an investment would have returned: each is drawn exclusively from the companies still present to be measured.

The record you are shown has already been edited, and the editor was survival.

The practical consequence for anyone reading a screen — including this one — is that the base rate is harsher than it appears. A candidate that satisfies every stated condition is still drawn from a population in which permanent loss is common rather than exceptional. Position sizing is the reader's responsibility, and the arithmetic above is the reason it matters.

The same problem afflicts testing. A screen evaluated against the companies that happen to be listed today is evaluated against a field from which the failures have been removed in advance, which is why such tests so often flatter the method. Our own testing builds each historical universe from the filings made at the time, so companies that later disappeared are still counted, and a holding that delists is recorded as a loss rather than quietly dropped. Where a company vanished before it could be priced at all, the figure is reported rather than concealed.