| What are we gonna say more often than not when studying a company? | It is too hard :) |
| Rule #1 investors by stock based on what (2 things) ? | 1) Future earnings of the company
2) Equity of the company |
| What is important for Rule #1 Investor at the conclusion of the research? | To have determine the fair value of the company |
| What do Rule #1 investor do when they have discovered the fair value of the company? | The take 50% to find the targeted purchased price |
| What does the PE reflects? | The expected amount of future earnings (Price / Earnings) |
| Which inidcator gives us the expected amount of future earnings of a company? | The PE Ratio |
| What does the market consider to be a reasonable PE? | 2x the revenue growth rate of a company
If growth is 5% then PE is 10
If growth is 15% then PE is 30 |
| 2 times the revenue growth is considered reasonable BUT what is really important to do still ? | To check if the range is reasonable range compare to the sector or industry your company is in |
| What are the 4 growth rate metrics we use to calculate Future Growth Rate? | 1) Book Value Per Share (BVPS)
2) Earning Per Share (EPS)
3) Operating Cash Per Share (OCPS)
4) Sales Per Share (SPS) |
| What do we add to the BVPS number for our future growth rate calculation? | We had dividends (so BVPS + Dividends) |
| Why do we use 4 metrics to calculate Future Growth rate? | So that the study is well rounded and cannot be manipulated (like manipulating sales with discount promotion) |
| What is very important to look for when studying the growth number? | Study to find the "outliers" |
| Where can you find the numbers to get to the BVPS? | In the balance sheet |
| What is the BVPS formula and what should you add? | Equity / Outstanding shares
add (+) Dividends / Out. shares |
| What is the formula for Earning per share (EPS)? | Net Income / Outstanding shares |
| Where do you find the numbers for the EPS calculation? | In the Income Statement |
| What is the formula for Operating Cash flow per share (OCPS)? | Operating Cash Flow / Outstanding shares |
| In which document do you find the numbers for the OCPS calculation? | In the cash flow statement |
| What is the formula for the Sales per share? | Revenue / Outstanding shares |
| in which document do you find the information for the calculation of the SPS? | In the Income statement |
| For the BVPS, where do you find the Equity numbers and what other names Equity can be under (2)? | 1) Equity can be find in the Balance Sheet
2) Can be also called Stockholder Equity, Shareholders Equity |
| What does Stockholder Equity represents? | The accumulated wealth of the company |
| What is an example of an action the decrease the equity and therefore the BVPS of a company? | Buy backs (see Starbuck from 2017 to 2018 for example) |
| Another word for Other Income is? | Revenue (i.e. Other Income Expenses) |
| Why are we doing the 3M well before going to the numbers study? | Because if there is a Outlier, it would be really difficult to find it and understand it |
| If Future Growth Rate (FGR) is not a formula, what is it then? | It is more of an assessment made by evaluating the company's performance from multiple perspective (BVPS, EPS, OCPS, SPS) |
| If you are assessing the FGR without completing the 3M, what are you in fact doing? | Guessing (as opposed to estimating) |
| How many different perspective are their to look at the Future Growth Rate (FGR)? | 5 |
| What are the 5 different perspectives you can have to look at Future Growth Rate (FGR)? | 1) Rear View Mirror
2) Market Relativity
3) Company Guidance
4) Sector Guidance
5) Analysts Consensus |
| What is the Rear View Mirror perspective? | Look at the numbers from 1 year to 10 years and understand what is happening? |
| 4 top questions when looking at the Rear View Mirror Perspective? | 1) Are the Moat Growth rate growing, flat or compressing?
2) Are the older rates even relevant today (i.e. merger)?
3) Has an event caused the decline?
4) Do you expect the decline to continue and for how long? |
| Besides the Moat numbers, which other numbers should be look at to determine the FGR numbers (2)? | 1) ROE - Return on Equity (to be greater than 10%)
2) ROIC - Return on Invested Capital (to be greater than 10%) |
| What is the formula for the ROE? | Net Income / Equity |
| What is the formula for the ROIC? | Net Income / (Equity + Long term debt) |
| What the ROE and ROIC number % growth should be? | 10% or greater |
| The Asses the FINANCIAL HEALTH of a company, what is the single greatest metric to look at if we were to pick only 1 and Why? | 1) The ROIC
2) Because it takes into account Debt |
| Why do we study the past 10 years and the growth rate of several metrics? | To help predict the future of the company and therefore invest with more certainty |
| What does CAGR means? | Compounded Annual Growth Rate |
| What is CAGR does CAGR tells you / represents? | 1) CAGR, is the average annual growth rate of an investment over a specified period of time longer than one year.
2) It represents one of the most accurate ways to calculate and determine returns for individual assets, investment portfolios, and anything that can rise or fall in value over time |
| What is CAGR in simple term (2 things)? | 1) It is the annual growth of your investments over a specific period of time.
2) it is a measure of how much you have earned on your investments every year during a given interval. |
| What is the Stock Market CAGR over history? | 7.5% |
| Why are we looking at CAGR overtime? | To see how our company will growth compare to the 7.5% Stock Market CAGR |
| What are the 3 main questions when we look at our company growth rate versus the Stock Market CAGR history of 7.5%? | 1) Will our company grow with the market?
2) Will our company grow faster than the market and why?
3) Will our company grow slower than the market and why? |
| What are some additional sources of information to help determine the future growth rate of a company (5) ? | 1) 10K
2) Letter to Shareholders
3) Quarterly call transcript
4) Google what will be the Sector Growth !!
5) Analyst's Consensus (in the tool box / company / earning estimates) |
| How to extra Growth information from the 10K with Imac? | Press command F for search in the 10K and type "Growth" |
| As you look for HOW the company will grow in the future, name 4 possible ways to look at it? | 1) Increase selling price
2) Cut its cost
3) Add more products or services
4) Grow into new markets |
| Why it is so important to know where the Growth will come from in the future? | Because Growth or EXPECTATION of Growth in profit will make the company stock price go up in the long run |
| When you look at Analysts' Consensus of your company Future Growth rate, they say for 5 years but how many years their analysis is really for? | 2 years |
| Name the 5 different ways to look at the Future Growth Rate? | 1) Rear View Mirror
2) Market Relativity (Compare Growth with Stock Market CAGR)
3) Company Guidance (from growth explanation in 10K)
4) Sector Guidance (from Google Sector search)
5) Analysts' Consensus (from toolbox / Company / earning estimates) |
| What does Spot checking means when calculating the Future Growth Rate (FGR)? | After studying the a) Company, b) Sector and c) analyst so we can come up with d) MY Estimated FGR number, we want to see what would be the Market Cap in 10 years to see if the Market Cap will make sense or if, because of the FGR nbr selected, the projected Market Cap in 10 years is unrealistic |
| What formula do we use for the FGR Spot Check? | 1) 72/FGR number (no %) = number of years it takes to double
2) Market Cap times 2X Number of year (i.e. if 3 years MCx2x2x2) |
| We use 3 valuation method. What are they and what are they based on? | 1) MOS based on earnings and growth
2) Payback time based on free cash
3) 10 Cap based on owner earnings |
| What is the enemy of good investing? | Optimism :) |
| Is FGR a strict formula or an educated guess? | It is an educated guess before no one knows the future |
| What are the 2 things involved in the FGR? | 1) Involved looking back in time at the performance of the company
2) Looking forward through reading about the company, the industry and the competition / peer |
| What is the maximum FGR we can allocated to a company? | 15% unless the company and its study is AMAZING AMZING AMAZING |
| How many time the Market cap will double in 10 years, if the FGR is 15% | 2 times (the market Cap will double twice in 10 years) |
| At which FGR %, I should think there might be an issue in investing in this company? | below 7% |
| Why we should reconsider investing in a company if we find the FGR is 7% or below? | Because average market cross of decades is 7.5% so no point investing in a company if the FGR cannot even match the market over the next 10 years of us holding it |
| When do we use a 10 Cap valuation? | When a company is not currently growing, just doing their thing (like a building in real estate) |
| Why are Analyst FGR% mostly higher than what we see / find? | Because they think about FGR for the next 2 years only so a high growth spurs is possible but we look at 10 years horizon (long term value investing) where sustaining a growth rate at 15% seems really high |
| If the 4 moats numbers are going down? what should be the question / "worry"? | Is the Moat of this company being challenged and how strongly? |
