Investing in Stocks Flashcards
4 Ms to investing in company stock
meaningful to you
moat (you must iD the moat)
management
margin of safety
meaningful
it has meaning to you and you would own it
as if it your life depended on it
10:10 rule
u wouldn’t own it for 10 minutes unless u
would own it for 10 years
5 moats
brand trade secret exclusive control ubiquitous in everything you do lowest prices
5 big # companies must have
ROIC or ROC growth Sales growth EPS growth Equity growth cash growth
the 5 big # must meet _____ in all 5 # for
the past _____, ______, ______, and _____.
10% growth 10 yr 5 yr 3 yr 1yr
equity is aka as _____
book value per share (bvps)
rule # 1
never lose money
3 keys to investing
determine worth
buy at 50% off
sell when it’s overpriced
where do you find equity and debt #?
balance sheet
where do you find sales and EPS #?
income statement
where do you find cash #?
cash flow statement
ROIC
return of investment capital
BVPS
book value per share
free cash is the _____ minus the _____.
cash out
cash in
rule of 72
take the # 72 and divide it by the interest
rate and you will get the # years it will take
to double your money
years to double your money = _____
72/interest rate
interest rate =
72/# years to double money
growth rate approximations are calculated
by taking the ______ divided by ______
which will give you the avg. years it takes
to _____. the growth rate is then
approximated using the _____.
of times that it doubles
the total years
double
rule of 72
the most important growth # (of the 4
that we have to calculate) is _____. this
is because the “sticker price” is the _____
and it will most closely follow the _____.
equity growth
value of the company
equity growth
priority of growth rates
#1 equity growth #2 EPS growth #3 sales growth #4 free cash growth
the single most important # is _____
ROIC growth
ROIC =
(net operating profit after tax)
divided by
(equity - debt)
MOS is created by buying the stock _____.
at 50% less than the sticker price
the sticker price is the _____ of the stock
that the market _____ be selling the stock.
fair value or retail price
should
to calculate the sticker price u need 4 #
current EPS
estimated EPS growth rate
estimated future PE
minimum acceptable rate of return
the sticker price is calculated by knowing
the amount of money a business is going
to make in the ______.
future
future market price =
(future PE)(future EPS)
ttm EPS
trailing 12 month EPS
most important # for determining future
EPS is _____.
the equity growth rate
growing equity comes from _____ and this
is what makes a business valuable.
surplus cash
sticker price determination has 3 steps
1) grow current EPS using estimated EPS growth rate for 10 yr. 2) multiply future EPS by future PE 3) shrink future market price by the minimum acceptable rate of return per year
if the market thinks a company is going to
grow really fast then it will give it _____.
a high PE
quick rule of thumb for future PE is _____
double the estimated EPS growth rate. this
is called the default PE.
PE =
Price/EPS
PE is how much we are willing to pay ____.
for a dollar’s worth of company earnings
default PE =
double the estimated EPS growth rate
pick the lower PE from the 2 following
historical PE or default PE
pick the lower estimated EPS growth rate
from the 2 following
analysts estimated EPS growth rate
historical estimated EPS growth rate
minimum rate of return is at least _____.
15%
use rule of 72 to determine _____. take 72
and divide it by estimated EPS growth rate
to determine _____. then determine how
many times it will double in _____. use
_____ and calculate future EPS
future EPS
# of years to double
10 years
current EPS
because we use ____ as our minimum
rate of return and we use the rule of 72,
the sticker price will double _____ in 10
year; therefore our sticker price will always
be _____ of the future market price.
15%
twice
1/4
2 times to sell
when the company is no longer wonderful
market price > sticker price
market cap
price/share times all the shares
3 tools to determine when to buy/sell
MACD
Stochastics
Moving Averages
use past BVPS to determine the years it
took to double, then find the avg. years it
took to double and divide 72 by it. this =
equity growth rate
operating cash flow
the cash created from profitable operations
before it buys equipment or pays dividends
