Hey Reader, In today's issue:
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โ ๐NUGGETSโ My Favorite Findsโ Charlie Munger is fโamouโs for HATING EBITDA, Brian Ferolid explains why. Boring can be beautiful; John Deere exemplifies this perfectly. Tractors and agriculture may not be sexy, but it is necessary, we all want to eat after all. โMoats are not static, we need to understand how they expand and contract. Even Visa is not immune (I know, shocking). We all want to find great businesses, but what do we look for? In this podcast, John Huber breaks it down. โWhat are serial acquirers? How do I analyze them? All great questions and this great paper reveals all. โAll companies go through life cycles, even Microsoft. Here Michael Mauboussin teaches us how to think about them and how to invest. ๐DEEP DIVEโ Are you seeking a powerful metric to assess a companyโs financial health and investment potential? Letโs talk about the Free Cash Flow (FCF) Yield. FCF Yield is a financial ratio that compares a companyโs free cash flow to its market capitalization. Itโs a crucial indicator of a companyโs ability to generate cash relative to its valuation. The formula is simple: ๐๐๐ ๐ฌ๐ถ๐ฒ๐น๐ฑ = ๐๐ฟ๐ฒ๐ฒ ๐๐ฎ๐๐ต ๐๐น๐ผ๐ / ๐ ๐ฎ๐ฟ๐ธ๐ฒ๐ ๐๐ฎ๐ฝ๐ถ๐๐ฎ๐น๐ถ๐๐ฎ๐๐ถ๐ผ๐ป Where: โข Free cash flow = Operating Cash Flow - Capex โข Market cap = Diluted shares outstanding x market price But what does this tell investors?
So, whatโs a good FCF Yield to look for? Generally, an FCF Yield above 5% is considered attractive, while anything above 8% is excellent. However, itโs crucial to compare within industries and consider the companyโs growth stage. Remember, while FCF Yield is powerful, it shouldnโt be used in isolation. Always consider other metrics and the broader context of the company and industry. ๐Knowledge Tidbitsโ
Thanks, โ When you're ready, here's how we can help you: โValue Spotlight: Stock market investors can save time and find success by discovering the right tools and resources. If you don't know where to start, or are simply tired of wading through the endless sea of financial information, Value Spotlight was created for you. How did we do today? ๐ Loved it!โ ๐๐ผ It was okayโ โ ๏ธ Not greatโ |
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Hey Reader,One of my favorite Charlie Munger quotes and it still resonates: Over the long term, it's hard for a stock to earn a much better return than the business which underlies it earns. If the business earns 6% on capital over 40 years and you hold it for that 40 years, you're not going to make much different than a 6% return -- even if you originally buy it at a huge discount. Conversely, if a business earns 18% on capital over 20 or 30 years, even if you pay an expensive-looking price,...
Hey Reader,Did you know that Buffett's initial American Express investment returned 124% in just 2.5 years - While the broader market (Dow Jones) declined by 6% during the same period, Buffett's contrarian bet paid off dramatically by 1967 when the stock more than doubled from his average purchase price of $41.22 to $92.50. In today's issue: Brian Stoffel breaks down how to read the cash flow statement. Warren Buffett's thoughts on tariffs and trade from 2003. Pricing and peer groups from...
Hey Reader, Charlie Munger viewed market swings as opportunities, not threats. He dismissed volatility as risk, instead focusing on business quality and maintaining emotional discipline during market swings. He once said, "we don't give a damn about lumpy results." In today's issue: Warren Buffett and Charlie Munger's thoughts on risk and volatility. Important words in today's markets. Howard Marks on tariffs and credit spreads What is the strongest moat from Nick Sleep Everything about the...