evaluations/ investing Flashcards
cogs= more pencils I sell is a variable cost bc sometimes if you sell more it costs more to sell
grow = new sales/old sals-1
gross margins went down but what I sold was more expensive to me, for a company like this for very specific technology understand why gross margin went down say I am a restrauant company I can make my sales go up by opening a lot of stores but if those stores are unprofitable in a store by store basis, even though my sales numbers goes up we are losing money from all the other expenses we are incurring, so you have to understand how to build a communize income statement, so after I figure out my sales growth, then have to describe everything as % of sales to notice sales overtime*
so take each line item and ask what % of our sales is this
if you go from cost of sales being only 33∞ of my rev venue to being 37% we would also see that play out in our gross margin numbers we were at 67% but now at 63% that is worth further investigating
cogs= more pencils I sell is a variable cost bc sometimes if you sell more it costs more to sell
grow = new sales/old sals-1
gross margins went down but what I sold was more expensive to me, for a company like this for very specific technology understand why gross margin went down say I am a restrauant company I can make my sales go up by opening a lot of stores but if those stores are unprofitable in a store by store basis, even though my sales numbers goes up we are losing money from all the other expenses we are incurring, so you have to understand how to build a communize income statement, so after I figure out my sales growth, then have to describe everything as % of sales to notice sales overtime*
so take each line item and ask what % of our sales is this
if you go from cost of sales being only 33∞ of my rev venue to being 37% we would also see that play out in our gross margin numbers we were at 67% but now at 63% that is worth further investigating
we care about does it desrve to bemore expensive or less expensive and that is where judgements come in!
we care about does it desrve to bemore expensive or less expensive and that is where judgements come in!
DCF
gives us almost entirely intrinscit to company hey given past operating performance and what we think will happen with cash flows in the future, what is the actualy dollar value of that company today?
highly senesitive to our assumptions, projhections and our thoughts about the company in tis future, but that we can do mostly withut having to think abotu other stuff itself, w are really thinnking about company itself, so when w are trying to value a compnay, lets say I do all my fany analysis if itis 16.47 cents per share fair vlaue, there will obviously be a whole lot of room for error in that
so it is about coming up with a range, so on multiples it may be close to something 15 dollars a share, DCF 20 bucks a share need to build in a margin for yourself
grow = new sales/old sals-1
for income statement!
- grow = new sales/old sals-1
for ex from biotechnne fiscial quarter release 2024
- if you go from cost of sales being only 33∞ of my rev venue to being 37% we would also see that play out in our gross margin numbers we were at 67% but now at 63% that is worth further investigating
- not crazy yr over yr growth but cost of sales went up more than revenue did which isn’t a great thing more expensive for me to sell my water bottles, ok my cost went up bc of inflation or whatever possibility can I push that through in terms of my pricing as I sell to customers, some companies can and do some companies are less able to* so why did these costs go up would be worth of further investigation
so sales went up but cogs went up
for operating expenses like SGA our fixed costs went up by a meaningful amount what is happening there is that salary, so asking hey what is underneath that
legal infrastructure of business
now compare there stats to competitors* so is 4.5% sales growth a lot of a company like this or is it bad, so have to do cohort analysis look at other similar companies** look at whole universe of medical supply companies, ones that have the same kind of customers they have
net income is down* 11.61%
so last year for every dollar and sales they made they were keeping 18.41% of every dollar they made, this year they are only keeping 11.61%
forge in currenty translation income loss= for other comprehensive income (loss) also called AOIC, this just means ok we made stuff in a country with 1 currency and sold stuff in a country with a different currency and exchange rates change overtime in 2023 they were bad fo run 11,602 minus, but in 2024 foreign currency was good to us, some companies will have derivative instruments related to foreign currency and other stuff if you ar really really getting into teh weeds, again the only looking at 2 years it is diminimus for this year, if trying to hedge exposure to whatever this could be a thing worth understanding more do they just suck or is ti too small it doesnt matter
comprehensive income= net income and other nonoperating things*
EPS = once we start talking about valuation like a PE ratio
what we are doing with P/E gives us a standardized way to compare valuations across different companies, so if our price were at 21 dollars per share, and I had earnings per share of 0.21C that would be 100x PE ratio** so PE ratio is = share price / earnings per share
so trying to figure out how much the market values the earnings of a specific company avoids us having to belike is 21 cents per share is that a lot or a little, is the share price of 100 dollars a lot or a little, it depends, it depends on what hte earnings per share is, gives us a standardized way of going back to standardized measure across cohorts, lets say apple ha a PE of 25-30 and lets say amazon’s a PE of 35-40 that is the market saying we value amazon more highly than apple even if that isn’t true in apple or dollar amounts, we are willing to pay more for your earrings than other companies earnings
almost like Cz scoring I want a standardized measure by which I can compare different things to make an apples to apples comparison, lets say company XYZ and company ABC
SGA on their income statemetn
so sales went up but cogs went up
for operating expenses like SGA our fixed costs went up by a meaningful amount what is happening there is that salary, so asking hey what is underneath that
legal infrastructure of business
now compare there stats to competitors* so is 4.5% sales growth a lot of a company like this or is it bad, so have to do cohort analysis look at other similar companies** look at whole universe of medical supply companies, ones that have the same kind of customers they have
net income is down* 11.61%
so last year for every dollar and sales they made they were keeping 18.41% of every dollar they made, this year they are only keeping 11.61%
forge in currenty translation income loss= for other comprehensive income (loss) also called AOIC, this just means ok we made stuff in a country with 1 currency and sold stuff in a country with a different currency and exchange rates change overtime in 2023 they were bad fo run 11,602 minus, but in 2024 foreign currency was good to us, some companies will have derivative instruments related to foreign currency and other stuff if you ar really really getting into teh weeds, again the only looking at 2 years it is diminimus for this year, if trying to hedge exposure to whatever this could be a thing worth understanding more do they just suck or is ti too small it doesnt matter
comprehensive income= net income and other nonoperating things*
EPS = once we start talking about valuation like a PE ratio
what we are doing with P/E gives us a standardized way to compare valuations across different companies, so if our price were at 21 dollars per share, and I had earnings per share of 0.21C that would be 100x PE ratio** so PE ratio is = share price / earnings per share
so trying to figure out how much the market values the earnings of a specific company avoids us having to belike is 21 cents per share is that a lot or a little, is the share price of 100 dollars a lot or a little, it depends, it depends on what hte earnings per share is, gives us a standardized way of going back to standardized measure across cohorts, lets say apple ha a PE of 25-30 and lets say amazon’s a PE of 35-40 that is the market saying we value amazon more highly than apple even if that isn’t true in apple or dollar amounts, we are willing to pay more for your earrings than other companies earnings
almost like Cz scoring I want a standardized measure by which I can compare different things to make an apples to apples comparison, lets say company XYZ and company ABC
EPS
once we start talking about valuation like a PE ratio
what we are doing with P/E gives us a standardized way to compare valuations across different companies, so if our price were at 21 dollars per share, and I had earnings per share of 0.21C that would be 100x PE ratio** so PE ratio is = share price / earnings per share
so trying to figure out how much the market values the earnings of a specific company avoids us having to belike is 21 cents per share is that a lot or a little, is the share price of 100 dollars a lot or a little, it depends, it depends on what hte earnings per share is, gives us a standardized way of going back to standardized measure across cohorts, lets say apple ha a PE of 25-30 and lets say amazon’s a PE of 35-40 that is the market saying we value amazon more highly than apple even if that isn’t true in apple or dollar amounts, we are willing to pay more for your earrings than other companies earnings
almost like Cz scoring I want a standardized measure by which I can compare different things to make an apples to apples comparison, lets say company XYZ and company ABC
shipping ex eco tank
unles you reallu really know what you are talking about domt touch shipping
beta
line of best fit
beta is the slope of this line, it is a comparison of the stock itself to the market can have it of 2 or .5% may be good on downside only down by .5%
stock ABC has a beta of 2 based off of statistica analsis what is the beta of IBM stock
all that says is for this company the SPwhich is hte market goes up by 1% then the company itself goes up by 2% if beta of 2 then if market goes down by 1% stock goes down by 2 %
magnifies in each direction so beta just multiples market move and tells you what you could expect to happen with an individual stock
if we are diversified investors we limit our risks, when times are bad thats how you find out who is good at their job and who is not so for a certain stock. Stock I
Beta explanation
variance= measure of stock I
measure of stock itself and stock market itself proxy for economy
so variance says I care about how it moves in relation to the entire market, I only care about beta as my measure of risk if I am diversifid investor* if I am able to own things in tiny amounts across all asset classes**
we can limit risk but we can’t limit the entire economy impact on a good
vs soy bean farmer, if that is my reality I care about what is happenign with soy beans, if I am not diversified I care about soybeans but if I am diversified I care about hwo it moves in relation to other things***
warren buffet:
“Only when the tide goes out do you learn who has been swimming naked.”
if stock 1.5 beta
if market goes down by 1.5% stock goes down by 1.5%
if market goes up by 1.5% then stock goes up by 1.5%
Eugene fonda efficient markets
nobel peace prize GURU
if I want highe returns or more returns I have to take more risk**
but flip side of that like retail investors which has a prejorartive connotation but like UPS guy buying stocks
if you want more return than just putting money in SP then have to pout your money into stuff that is riskier and risk in our world is defined as beta
no such thing as a free lunch in markets
0 risk put money in treasury bond
this is a bond issued by the federal government still a bond
this is the risk free asset
1 billion is the sweet spot
say hedgefun is super small but still publicly traded companies, comanie worth 20 mill can’t ploy 1 billion dollars into it
so warren thinks its a great company all I can do is invest 100 million dollars that will not do much to my overal profolio
arbitratge.. too high too low
Arbitrage is when an asset (stocks, currencies, etc.) is bought in one market and sold in another for a higher price. The types of arbitrage are spatial, statistical, and merger arbitrage. The temporary price difference for the same asset between the two markets lets traders lock in profits.
funds like reninance tech identify miss pricing and try to close and identfy that gap, bc markets are efficient those gaps are hard to find and small these days so if you aren’t first that gap will get competed away by other people
this bond is priced at 100.05 and should be 100.01 try to caputre that 4 cents but I have to do it 10x times to make it worth my while
the ebst anaology is to pick up pennies infront of a steamroller*
use fancy math to idetnfiy mispricing, bc miss pricing is soo small use a ton of borrowed money to make it big, if I am tryign to make it worth my while I need 1 billion pennies to do it so have to put a huge amount of money in it
ex of guys 100 to 1 every 1 dollar of their moeny they borrowed 100 dollars of money from the banks. htey were the fancy hedgefund so all the banks were dyijng to lend them money, this was Long Term Capital- printing money for a while
long term capital ex
so treasury bonds government issues bonds with regularity but theoretically if two bonds had the same payment and same maturity and same everythign should have same price bc theroeticall they are basically identical, but turns out with quirk of market, investors lazily preferred the newest version of these as opposed to teh older versions of these even if the bonds were identical so these guys were like this makes no sense these prices should be the same, the one that is overpriced they would short and the one that was udnerpiced they woud buy in the hope that the gap would close elegan trade but pennies* so had to do a ton of leverage to do it* very vyer high risk but consistently profitable* then in 98 had asian fianncial currency crisis spread all throughout asia then russian debt default. they had absolte certaintiy and they were right but markets do crazy things and bc of those macro gloabl events everyone said risk off put my money in safest things possible, knock on affect to all those trades so instead of spread continuing to close like they hoped, it blew otu lost money in short side and long side and they were insolvent went out of busines*
markets can stay irrelational asl long as you can stay solvent, like silicon valley bank if can hold on for a couple years would have been fine
beta patrick notes again
beta notes part c
