Why Gotham’s Greenblatt Likes ‘Gushing’ Cash-Flow Stocks

Good video by one of the market’s great, Joel Greenblatt. Joel also wrote one of the best book on investing ever with one for the worst title ever: You Can Be a Stock Market Genius: Uncover the Secret Hiding Places of Stock Market Profits.

“We try to stick to companies gushing free cashflow. Huge returns on capital, meaning they deploy their capital well.

That avoids some of the value traps from ‘traditional’ value. I think that brings up the point – we don’t really think of value as low price-to-book, low price-to-sales investing. We’re actually valuing businesses based on cashflow, like a private equity investor would.

So if you’re trying to figure out what a company’s worth and buy it for less, at a bigger discount, that will never go out of favor even if value as defined by companies like Morningstar, which is low price-to-book or low price-to-sales investing. That may or may not stay in vogue. It may be out of favor sometimes, in favor, it may not even outperform the market going forward.

That doesn’t mean that much to me because those have been correlations that have worked with more than your fair share of companies that are out of favor. I imagine they’ll come back a some point. We’re actually valuing businesses based on cashflows. That’s what stocks are, ownership shares in businesses.”

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Durable Principles for Real Asset Investing

I got my hand on a copy of the presentation Bruce Flatt from Brookfield Asset Management (BAM) did at Google. Here’s the video of the Google Talk presentation.

Here’s the Talks at Google – Brookfield Presentation – Aug2018 and below are my favorite slides. It’s a good guideline to follow if you want to became a better investor.

I want to start my three favorites slides:

Dubai in 1991 and today:

BAM Dubai 1991
Dubai 1991
BAM Dubai 2018
Dubai 2018

And a visualization of contrarian thinking:

Continue reading “Durable Principles for Real Asset Investing”

The Way to $1 Trillion

Yesterday Apple announced new iPhone models that will be bigger, will be better, faster, stronger, and—of course—more expensive. Over the summer Apple (AAPL) passed the $1 trillion in market cap value milestone. Amazon (AMZN) followed not too long after. Today one share of Apple cost $224, up 32% just in 2018.

If there’s one stock that analysts couldn’t get right, it’s Apple. Not because they are not smart. It’s the opposite, most analysts are very brilliant. The problem is that analysts are stuck playing the short-term quarter to quarter game of guessing how many iPhones Apple will sell. Apple has over 100 analysts following the company. At this moment last year, when the iPhone X was announced, analysts were saying the cost of the iPhone was too high and sales would slow down, and the stock would fall. Following Q2-2018 results, analysts changed their tune when Apple blew  the estimates out of the water. Analysts are now saying that because the iPhone X was selling so well it would eat into future revenues.  Analysts insights are interesting, but if you are a retail investor, I suggest to do your own homework and invest with a long-term horizon. And ignore the short-term noise.

How did we get to $1 trillion? The Ringer made this interesting 7 min long video.

A year and a half ago I wrote this article on Seeking Alpha. Apple was trading at $106 a share. Apple was a 205-bagger from 1990 to March 2016, without calculating dividends. But it wasn’t an easy ride. You needed an 80% loss twice in order to get it and the large majority of the gains came after the iPhone was released in 2007. This is not your classic buy and hold fairy tale. Below are a couple tables and charts that display Apple’s rocky ride to $1 trillion.

The first table summarized Apple’s stock price since the IPO in the early 80s. It wasn’t necessary a good time to buy and Apple was on survival mode for over the next decade. The stock hover around $0.50 to $2 for the large part of its existence.

Apple chart 2

This second chart shows that the multi-bagger gains came after 2007, when the iPhone was released.

Apple chart 1

Below is a 10-year chart of Apple financials. Look at the revenue growth, going from $37 billion to $229 billion at the end of fiscal 2017. And it is still growing….

Apple financials

Bruce J. Flatt “Durable Principles for Real Asset Investing”

Bruce Flatt, the CEO of Brookfield Asset Managmement (BAM), has made a rare appearance at Google for one of their Talks (video below). The most striking thing about the presentation is the lack of people that showed up to listen to one of the world’s most successful investors. In the screenshot below of the presentation, I count 10 people. Let’s say there were 15 people. If they paid any attention, these 15 people are now much better investors. I’m not sure how something like this happens. I can see 10 people showing at a talk in the basement of a church, but this is Google we are talking about, and Google is located in Silicon Valley with all that money and investors. My guess is that nobody knows who Bruce Flatt is.

The lack of people is a testimony to the low profile of Bruce Flatt and Brookfield Asset Management. Unless you are in the investment world, most people have no idea that they own some of the world’s most precious real estate with with $285 billion in assets.

Bruce Flatt Speech Google.JPG
I see 10 people. 

I have written an elaborate article on BAM in the past (read here) and it was also the subject of a podcast I did (listen here). Here is the video:

Conan & Andy’s Stock Market Cliché-Off

If blocked in your country try this link: http://teamcoco.com/node/102675

Greenblatt: Opportunity Is There If You Know How to Value Business

Greenblatt discusses active versus passive investing and some of the reasons why he still believes active investing is the better option saying:

“I was asked to give a speech at Google last year and I started it this way… I said even Warren Buffett says that most people are better off just indexing and I said I agree with him… I didn’t stop my lecture there. I said… but then again Warren Buffett doesn’t index and neither do I don’t… how come? It’s because the opportunity is there if you know how to value businesses. Which most people do not… To take advantage of the fact that the market is emotional over the short term… often!

A Primer on Mortgage-Backed Securities

This sums it up:

Warren Buffett & Bill Gates: Looking Forward

While on the topic of Warren Buffett (see previous post), Buffett and his pal Bill Gates were interviewed by Charlie Rose back in January. They discuss current affairs, the recent US Elections and issues facing the world and what they’re doing to tackle them. One key takeaway from the interview was that Buffett said, “We’ve bought $12 billion net of common stocks since the election. (Ted and Todd) have probably bought some too.”  This is coming from a guy that campaigned for Hillary Clinton. He really believes that the economy will do better even with Trump in power.

Below is the video of Charlie Rose’s interview with Warren Buffett:

Becoming Warren Buffett

This is the HBO documentary on Warren Buffett’s life. You don’t need to be a fan of Buffett or investmenting in general to enjoy this. There’s a lot you can learn from this documentary. Below are copies of the documentary on Youtube. I don’t know how long it will be there since it’s most likely an illegal feed. Below the video I have attached some notes from the doc provided by Market Folly.

Link #1:

Link #2:

Market Folly notes:

– He was always fascinated by numbers and it talks about how at an early age he discovered the power of compound interest. He concluded, “It’s a pretty simple concept, but over time it accomplishes extraordinary things.”

– He goes to McDonald’s everyday for breakfast on the way to work and has three options based on how much change his wife has given him for the day. Yup, one of the biggest owners of American Express (AXP) pays for breakfast in cash.

– He framed newspapers from various financial crises and hung them on the wall as a reminder that “anything can happen in this world.”

– As a young student, all his teachers owned AT&T at the time and he shorted the stock and showed the teachers proof to kind of spite them.

– Buffett learned two rules of investing from Benjamin Graham: Rule 1: Never lose money. Rule 2: Never forget rule number one.

– Doesn’t hang his diploma from undergrad or graduate school, but instead the certificate from the Dale Carnegie course of public speaking, which he says changed his life since he was so scared of it.

– Charlie Munger said Buffett made a lot of money early on buying thinly traded securities that were incredibly cheap statistically (“cigar butt” investing).

– Started his first partnership with $105,100 – $100 from himself and the rest from investors.

– Buffett says, “The trick in investing is to just sit there and watch pitch after pitch go by and wait for the one in your sweet spot. There’s a temptation for people to act far too frequently in stocks simply because they’re so liquid. Over the years, you develop a lot of filters. I do know what I call my circle of competence. I stay within that circle. Defining what your game is, where you’re going to have an edge is enormously important.”

– He later adds, “If you’re emotional about investment you’re not going to do well.”

– Charlie Munger had a big impact on him by shifting him to look at wonderful companies at fair prices rather than fair companies at wonderful companies.

– Buffett said he spends 5-6 hours a day reading. He likes to just sit and think. When asked to describe what one word describes his success, he said ‘focus.’

– “The biggest thing in making money is time. You don’t have to be critically smart, you just have to be patient.”

– “Look for the job you’d take if you didn’t need a job.”

My Blackberry Is Not Working!

Video from 2010, still very funny. Includes Apple and Xbox jokes.