A collection of articles, videos and podcasts that are worth learning and re-learning.
Warren Buffett
Warren Buffett’s Most Iconic Interview Ever
A 7 min clip interview that is worth watching again and again
David Gardner
David Gardner’s Step-By-Step System to Measure Risk in the Stock Market
Taken his Rule Breaker Investing podcast: Calculating Risk Foolishly
Motley Fool Stock Advisor: What We’ve Learned After 200 Picks
A very good session
3 Long-Term Investing Principles (That Not Everyone Might Agree With)
David Gardner’s Style Box for Foolish Long-Term Investing
Compounding Quality
What you need to know about Return On Invested Capital, Compounding Quality, January 5, 2023
- A high ROIC is key.
- Growth only creates value when ROIC > WACC
- Reinvestment need = (desired growth / ROIC)
Higher ROIC = lower reinvestment as the company grows - ROIC = proxy for a moat
A consistent and high ROIC is a great indication that the company has a sustainable competitive advantage.
Bill Gurley
All Revenue is Not Created Equal: The Keys to the 10X Revenue Club, May 24, 2011
The post highlighted business characteristics to separate high quality revenue companies from low quality revenue companies, and therefore are the distinguishing traits that warrant high price/revenue multiples.
John Rotonti
- An increase in ROIC always increases intrinsic business value but revenue growth does not always increase intrinsic value. Revenue growth only increases the intrinsic value when ROIC is greater than the weighted average cost of capital (WACC).
- Companies with high ROIC outperform the stock market by a country mile.
- And companies with rising ROIC (and high incremental returns on invested capital) outperform the market by even more!
- Strong and growing free cash flow (particularly FCF per share) is ultimately what we are after as investors.
- Businesses with higher ROIC generate more FCF per dollar of earnings, and the growth of free cash flow is what drives the growth of intrinsic value.
- All of the quantitative and qualitative work (due diligence) that analysts do serves one purpose only: to help us estimate (with a high-enough degree of conviction) the free cash flows a company will generate from now until the end of the life of that business and then to compare our estimates for free cash flow growth to the expectations for free cash flow priced into the stock.
- When we think the expectations for future free cash flow growth are too low, we buy the stock.
- If everything boils down to free cash flow, it may come as no surprise that companies that generate high free cash flow margins (FCF divided by revenue) and companies that provide high free cash flow yields (FCF divided by enterprise value) outperform the market by light-years.
To identify resilience, check a company’s vital signs, John Rotonti, Motley Fool, August 18, 2020
- A strong balance sheet
- High or increasing returns on invested capital (ROIC)
- Growth on the top line (revenue)
- Growth on the bottom line (earnings)
Do you have an investing checklist? John Rotonti, Motley Fool, August 4, 2020
- Does the business have a strong balance sheet, preferably with net cash?
- Can the business generate organic revenue growth powered by a large market opportunity and/or long-term tailwinds?
- Does the business have rising or stable margins, with particular emphasis on gross margins and net operating profit after tax (NOPAT) margins?
- Can the business generate high (or increasing) returns on invested capital (ROIC) and growing earnings and free cash flow (FCF)?
- Is the business led by an exceptional CEO and quality leadership team?
- Does the business have recurring revenue and/or pricing power?
- Does the company have a medium (or lower) risk profile?
- Is the business executing well (is it experiencing strong business momentum)?
- Is the company driven by a mission beyond maximizing profits for shareholders?
- Does the business have multi-bagger potential?
Interview with value investor Bill Miller, Motley Fool, August 3, 2016
Interview With Smead Capital Management: Outperformance for the Longest Time, February 22, 2017
Aswath Damodaran
His YouTube channel has lots of good educational videos. His NYU lectures in the channel are good educational material.
Valuation Tools Webcast: From First Principles to Valuation Models, Aswath Damodaran, 11 March 2022
Dreams and Delusions: Valuing and Pricing Young Businesses, Aswath Damodaran, 27 June 2022
Deepwater Asset Management
The Contrarian Mindset, Doug Clinton, February 3, 2021
- The Core Concept: The non-consensus idea is the only way to achieve extraordinary results in anything.
- Concept 2: Consensus forms around probability and acceptability.
- Concept 3: To be non-consensus, you must get uncomfortable by defying odds or breaking rules.
- Concept 4: There are 11 techniques for generating or identifying non-consensus ideas.
It’s always been about free cash flow, Cowboy Computer, June 23, 2022
- Cash flows are what determines share price in the long run.
- Our investment philosophy and process at Loup are heavily geared toward valuing businesses based on the cash they will produce and ignoring the noisiest methods like using multiples or comps. We want to hold shares for long periods of time in order to reap the benefits of business compounding.
- Over the long run, share price performance roughly matches business compounding, as measured by free cash flow, the most important metric as it relates to determining value.
- The growth of a company’s free cash flow and its share price is inextricably tied.
Concentration as a destination, Doug Clinton, August 21, 2022
- Concentration is a double-edged sword. When you’re right, you achieve incredible results. When you’re wrong, you blow up.
- The value philosophy strives to minimize the downside via a margin of safety whereas the growth philosophy strives to maximize the upside given future potential.
- In the context of value investing, it’s not worth owning ideas far down your list if you’re confident in your assessment of value with a strong margin of safety. You should concentrate on the assets where you see a limited downside with the most upside.
- Growth is different. Investing in growth often means investing in younger companies without track records of consistent earnings or maybe even revenue. When you invest in growth, you’re investing in a grand but uncertain future. Since you’re investing in an inherently less certain future, your margin of safety will be more limited, and your downside risk will be much larger than the value investor.
- A better approach for growth investors is to allow your portfolio to grow into concentration.
- Stage of investment also matters — you should take more swings at earlier-stage companies, while you can get away with taking fewer swings at more mature growers.
- Concentration is great, but it must be considered as part of the broader strategy of a portfolio. Concentration at all costs shouldn’t be the beginning demand of a growth fund while ignoring all else. A dogmatic embrace of concentration in growth invites high highs accompanied by painful blow-ups.
- Bear markets teach us lessons if we’re willing to listen. Concentration is a better destination for growth investors than a starting point.
Mental Models for Growth Investing, Doug Clinton, July 2024
- The lifecycle of a growth company can be atypical.
- A company’s growth can be fueled by their business’s knowledge, experience and profit. They allow them to build and/or acquire to pivot to the next to keep growing. The company’s multiple waves of growth can be due to the launch of new products (Apple: iPod, iPhone, other products and services) and/or business models (Adobe and Microsoft: one-time software sales to lifetime customer value with SaaS model).
- However, we may mis-estimate (overestimate or underestimate) growth curves in both the magnitude and timing. The potential can be much bigger and happen sooner and longer than expected (Amazon, Visa, Shopify). Conversely, we may overestimate the potential or it takes longer than expected. New technologies often have false starts as people get too excited and overestimate their potential (internet growth, solar, bitcoin and crypto).