Stock Market Investing: Invest in stocks like Warren Buffett! | Lukas Vyhnalek | Skillshare

Stock Market Investing: Invest in stocks like Warren Buffett!

Lukas Vyhnalek, Microsoft Employee, Programming Teacher

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30 Lessons (3h 25m)
    • 1. Introduction

    • 2. 01 What is Value Investing

    • 3. 02 price vs value

    • 4. 03 Why stocks get Underpriced

    • 5. 04 Why stocks get Overpriced

    • 6. 05 defensive investor

    • 7. 06 Intrinsic Value

    • 8. 07 Enterprising Investor

    • 9. 08 Margin Of Safety

    • 10. 09 Risk and Reward

    • 11. 10 Financial Statements 1

    • 12. 11 Financial Statements 2

    • 13. 12 Quantitative vs Qualitative Analysis

    • 14. 13 When to Sell

    • 15. 14 DCF Facebook Stock

    • 16. 15 Warren Buffett Rule 1

    • 17. 16 Warren Buffett Rule 2

    • 18. 17 Warren Buffett Rule 3

    • 19. 18 Warren Buffet Rule 4

    • 20. 19 Berkshire Hathaway and Managers

    • 21. 20 Psychology

    • 22. 21 Buffett vs Graham

    • 23. 22 How Warren Buffett Computes Intrinsic Value

    • 24. 23 Warren Buffet and the Interpretation of Financial Statements

    • 25. 24 Howard Marks Market Cycles

    • 26. 25 Benjamin Graham Formula

    • 27. 27 FB stock analysis

    • 28. 28 Intel stock analysis

    • 29. 29 MCD stock analysis

    • 30. 30 How to find value stocks

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About This Class

Welcome to the Value Investing course where you will learn how to invest like Warren Buffett.

Do you want to learn how to properly value companies that trade at the stock market? Are you a patient person who is willing to learn? Are you aware of the fact that you won't get rich overnight? Then you have come to the right place!

I have created this course for people who wants to start investing in the stock market but have no idea where to start. Don't worry if you are a complete beginner. The course is designed in a way that is easy to follow even for a complete beginner. On the other hand, if you are someone who has experience in the stock market, but wants to learn more about value investing and Warren Buffett's approach to investing. This course might be the right fit for you.

But if you are someone who wants to get rich quick. Who is impatient and just wants to make quick money in the stock market using a ton of leverage and technical analysis, this course is not for you.

In this course, you will learn:

  • How to properly research a company

  • How to select value stocks with a strong competitive advantage

  • How to execute qualitative and quantitative analysis

  • How to control your psychology when investing

  • How to compute the intrinsic value of a company

  • What is Discounted Cash Flow analysis and How to use it

  • How Warren Buffett computes the Intrinsic Value

  • How to read financial statements

  • What Warren Buffett wants to see in financial statements

  • Real Example: Should you buy Facebook stock

  • Why people lose money in the stock market

  • Risk vs Reward

  • Margin of safety

  • So much more ...

Warren Buffett was able to consistently generate an above-average return in the stock market using value investing and few simple principles. Investing is not easy, everyone who thinks it is easy is stupid (words of Charlie Munger). Value Investing provides several key principles that are simple to follow, if you follow them correctly they can lead you to above-average returns.

I have spent years learning about stock market investing and value investing. In this course, I try to explain everything that I learned in a simple and engaging way.

At the end of this course, I show you real-world examples of how to do quantitative and qualitative analysis on companies like Facebook. We start by computing the intrinsic value, then we move on to financial statements and compare FB to competitors. We look at the market they operate in, threats for the company (competition, regulations...) and we will value overall future prospects for the company.

I have over 130 000 students. Join them and learn how to invest like Warren Buffett TODAY!

Who this course is for:

  • An investor who wants to earn above-average returns in the Stock Market

  • People who want to learn how to invest like Warren Buffett

  • Investors looking for a low-risk, proven strategy to consistently grow their portfolio


1. Introduction: Hello. My name is new, Ken. I will be your instructor for out discourse. And this course you will learn waters value investing and how to invest like Warren Buffett . How to properly research a company, how to find value stuff with a strong competitive advantage, how to do qualitative and quantitative analysis, how to compute the intrinsic value, like Warren Buffett dust and how to control your psychology and so much more. Basically, I will show you how to consistently earn above average returns in the stock market. But don't get me wrong. This is not that kind of get rich quick course. And this is basically a course about how Warren Buffett invests. So don't expect that you will become a billionaire overnight. So who is discourse for discourse? As for an investor who wants to earn above average returns in the stock market? Also, it is a good match for people who wants to learn how to invest like Warren Buffett. And overall, if you are looking for low risk proven strategy to consistently grow your portfolio, discourse is made for you. Another thing that I want to mention is that this course is designed even for beginners, and you don't need any knowledge in finance and stock markets to follow this course. At the end of this course, you will actually research Facebook, Intel and McDonald's stock and see whether day are a goodbye at these prices. And if you get stuck, or if you don't understand something, you can always reach out to me. Mostly, I respond within a day, and that's pretty much it. Thanks for your time and I'll see you in the course. 2. 01 What is Value Investing: value in this thing is an investment strategy that involves picking stock that appear to be trading for less din their intrinsic or book value value. Investors actively research stocks the day thing. The stock market is undressed mating. They believe the market overreacts to good news and to bad news, resulting in stock price movements that do not correspond to a company's long term fundamentals. The overreaction offers an opportunity to profit by buying stocks at a discounted prices. Warren Buffett s probably the best known value investor today, but there are many others, including Benjamin Gray Hem, which was the buffets, professor and mentor. The key principle off value investing is simple. Basically, it says that you should pick stocks that have great value but are underpriced. We will talk about the reasons why day can be underpriced in following lectures. Warren Buffett used this technique for many years now. Grantley. He changed the definition off while you investing a bit. What Warren Buffett does is he picks high quality stocks that are reasonably priced, not overpriced. Don't be mistaken. It's still hard to ask to do. Value investing is the same as buying a product at a discount. For example, if you are about to buy new laptop, you know that laptops go on sale from time to time. So the obvious thing to do is to wait for the sale to happen and then biding product at a discount. The same goes for stocks. Find stocks that have great value and by them at a discount. Obviously, with stocks, it is not that easy to know when a stock is on sale, you will learn how to calculate the value of a stock later in this course. That is pretty much it for this lecture. The key take away is that value investing basically means buying high quality stocks at a discount. 3. 02 price vs value: Bryce is what you pay. Value is what you get. It is as simple as that. I recommend you browse the video for second and think about this statement. It should kind of make sense to you. Price means how much you have to pay for the stock value means what the company gives you. The devalue, maybe something like great balance sheet, great business model, great dividend or great brand. When you are buying Sock, you shouldn't think about it as if you just buy some piece of paper and then you hope that you can sell it and make some profit. This is not the way to do it. Instead, you should think about it as if you are buying a beast off the company. Also, a good thing that I always do when I buy a stock is I asked myself one simple question. Do I feel comfortable owning this company for next 10 years? For example, if something happens to me, I fell into a coma and I wake up 10 years from now, do I believe that the company will do well in 10 years from now? If the answer is yes, I will consider buying the stock. If the answer is maybe or no, I will not buy the stock. Probably. I recommend you do the same. Warren Buffett often calls this buy and hold forever, and it is a great test off whether you are happy with the investment you make. But back to Price versus Valley Deep Point is to buy stocks that have greater value than their price. For example, if Apple stock is trading for $200 but you believe the value off the stock is free 100 you should probably buy this stock, right. Warren Buffett often refers to this as buying a dollar for 60 cents. If somebody offers you a dollar for 60 cents, you would be stupid not to take this deal right. Same s in the stock market. If you properly compute the value of the stock and it is greater than price, you should probably buy it right. You will learn how to compute the value in following lectures. So the main take away is this statement. Price is what you pay. Value is what you get 4. 03 Why stocks get Underpriced: So in this lecture I will go through a few examples off Weide. Stocks get underpriced. So what? Thus underpriced means? Well, basically, it means the stock is on sale. In other words, devalue that you will get is greater than the price that you will pay. What does that mean? Well, usually, if stock is underpriced, it presents a good buying opportunity. But sometimes it is not the case. It all depends on the reason why D stock is under prized. For example, one reason could be that the quarterly results were a bit lower than expected. You can often see stock thank 5% to even 10% depending on the results. Now I want you to ask yourself, Do these results have big impact on the value off the company? Well, in some cases, it can, but usually market overreacts usually. But lower earnings in 1/4 does not affect a company in the long term, for example, in five years from now. But sometimes it can show that the company is not in good shape on a reason. Why the stock can be down is because off some recent muse, great example off death is the Cambridge Analytica scandal off Facebook. When News published the article about Cambridge Analytica, the Facebook stock got destroyed. But do you think that it means that people will stop using Facebook? Hell, no. Even if they stopped, they would start using some other Facebook app, like Instagram or what's up. So, for example, because of this news, you can find great deals in a market. Deciding whether the news are as bad as it seems is the hard thing to do. Always ask yourself whether you think these news can really threaten the company's business model. The company revenue or balance, see, usually market tends to overreact. 5. 04 Why stocks get Overpriced: overpriced stock means that the value that you get is not worth the price that she paid. In other words, you can pay $1000 for a laptop that was on sale a week ago, and it's God's only 800. So usually when the stock is overpriced, you don't want to buy this stock. Usually, stock is overpriced when there is a huge hype about the stock. For example, here is a chart off beyond meat stock price from the initial public offering. In other words, AIPO. The stock rose 800% but this company is not even profitable, and their revenue is just about a million's. But their market capitalization waas somewhere around $10 billion. It is quite obvious that these stock was quite overpriced. Stuck often gets overpriced when Derris a lot off demand for it. For example, when the stock price was around 150 a lot of emotional investors Onley look at the price of the company and didn't look at devalue emotional investor often this size based on the current trends. So this is how emotional investors think. For example, beyond meat is quite popular. People who invested few months ago have made 200% return. I should vita suck, too. You should never do this. Don't get emotional when you value a stock. This is a mistake that people often make. They like the product off some company. And because of that day by end, without even computing the value that they will get from their investment, emotional investor often goes with the trend. For example, if some stock has done well in a particular month, emotional investor buys in, and this is a huge mistake. When he evaluate company. All you should do is look a D current price you don't want to look at. How much did the stock rice in the past year? Because it will not tell you anything about the stock value. And price is what you should care about. Sometimes in the stock market, you can find so killed bubbles that basically means that something gets extremely overvalued because of emotional investors. You can see those bubbles and a chart with exponential growth, for example, the bit corn or d dot com bubble. In those examples, you can see unreasonable rice in the price. If you are value investor, you will not invest into a bubble because in bubble soaks are overpriced, and if you compute the intrinsic value, it is usually much smaller dented price. 6. 05 defensive investor: defensive investor is somebody who don't have time to research the stocks. But still, he wants to invest in stock market. I am not gonna lie to. There is a possibility that you will lose money when investing defensive investor don't want to lose money. What he decides to do is he decides to buy stocks with 50% off his money, and he buys bonds with the other half. Why? Well, overall bones are considered to be the safest investment usually pays is something around free percent per year. If you count the inflation, which is usually somewhere around 2% you will gain 1% per year. This is not much, but there is a low risk. On the other hand, stocks are risk your they can lose value as well as gain. It is not wise to risk all your money in socks if there are people dependent on to you. For example, if you have a family, you probably wants to have a bit safer investment strategy. Having a balance between stocks and bonds can provide. That defensive investor wants to balance its birth for Rio, for example, if stocks perform well and the amount of money in stocks over rates, the amount of money in bonds. Defensive investor wants to put money out of the stock and into bonds. On the other hand, when stock perform Spore Lee and drop to let a 40% of your money, the defensive investor will cash and some off those bonds and put them into stocks. If you have people who are dependent on you, you can't afford to risk everything that you have. Be smart with your investment on the other head. If you are younger and you don't have anyone depending on you, you can afford to take some risk and invest more into the stock market. The average performance off stock market is much better than the performance off bones, so if you invested wisely, you should be okay and make much more money than with bonds. But if things go poorly, you can lose money. Yeah, it's possible. It is up to you which bath you want to choose, usually if you are younger. If you don't have anyone dependant on you, you want to put your money into the stock market. On the other hand, if you have family, it may be wiser to choose a bit more defensive strategy. It is all about risk and reward. Stock offers greater reward, but also greater risk. Bonds offer smaller aboard, but also smaller risk. 7. 06 Intrinsic Value: Okay, this video will be a bit longer, but it's extremely important, so I suggest you watch it all the way to the end. Okay, So in order to calculate intrinsic value, you need to have a stable company. You will learn how to properly big a stable company in the following lectures. For now, let's just assume that have you found one? One of them could be, for example, Disney. Currently, Disney is trading at around $130 per share, so we can easily see the price that we will pay for this company. The company have great brand great products and, additionally, based dividend. Let me just start with some quotes from Warren Buffett on this topic. When asked, Warren Buffett said that intrinsic value can be defined simply. It is the discounted value off the cash that can be taken out off a business during its remaining life. As the definition suggests, intrinsic value is an estimate rather than a precise figure. And it is, additionally, an estimate that must be changed if interest rates move or forecast of the future Cash flows are advised. Two people looking at the same set off facts will almost inevitably come up to at least slightly different intrinsic value of a company. So let me start by explaining his quote a little bit. What doesn't mean guests that can be taken out of a business during its remaining life. So what he is actually referring to is, if I can take all off the profits that the company is going to make in the X number off years, how much money would I get? It is a simple as dead Warren Buffett personally computes the intrinsic value 10 years into the future. Why? Well, you can then compare the profits of the company with a safer investment that will be the 10 year Treasury bond or some 10 year corporate bond and see how well the company does. Okay, I understand that this might still be a bit confusing for you, so let me go into more detail When company reports quarterly earnings. Usually you can see something called E. B s, which is earnings per share, and other vertes how much money the company made ber one share. With that money, the company have two options. It can either put that money back into business, pay off its depth or invest. Either way, this will lead into either MAWR equity or less equity, and this will be reflected into the book value because book value is basically just equity per share. The second option that the company have is to use the EBS to reboard the shareholders either with dividends or share buybacks. So, for example, Disney Company have a dividend. So basically, the company pays you for owning their shares, but usually the company takes both options. It uses some part off the earnings for option one and the rest to Option two. So let me show you an example. For now, I don't want to distract you by using a real company. So let me explain things on this example. We have shares off a lemonade maker, and this is the 10 years performance. As you can see, in the beginnings, the book value was somewhere around $100. That would be the year 2009. For 10 years, the company made the same earnings per share $10. It also based a dividend off $1. So in 2010 the company made $10 the company invested those money back. Where does two options that I just talked about? The book value changed to $107 it also paid a $1 dividend. Obviously, if you had seven plus one, you get $8 about the company. Meet $10. So what happened to the remaining $2? This is what do you will see a lot off the times when you will vary. Eight. The company, not off the earnings per share, actually materializes into money that is shown in the book value or dividend. The important thing to keep in mind is that the market usually follows the same trend as the book value. So if the book value goes up by 7% you can expect to see the share price to move in the similar direction. When we take a look at the following year, you can see that the company get a bit more efficient and it made the book value come up by $7.5 and we can go through all of those lines. But I will just keep does. Let's move on to the last slide in here. You can see that the financial book value is $180. So now if we sum up all the e p s that we get in 10 years, we will get $100. Then if we take a look at how much D book value of our company change, we can computed by subtracting the initial book value from the book value last year and we will get 180 minus 100 dead would mean $80 and we also have to sum up all off the dividends that the company paid. This is fairly simple. 10 years, $1 per year. That means $10. So in total, we have $90.80 from the book value, 10 from dividends. So, as you can see in this example, the company is quite inefficient. It actually lost $10 from the earnings per share. But anyways, those $90 that total sum is the cash that you can take out off a business With this business, we can expect that in the following 10 years he will do about the same. So, to this point, it was fairly easy. You just to use the data that you had, but right now what you want to do is compute the value off the business in the next 10 years. So if the earnings per share off this company doesn't change, we can expect that book value of a company can be somewhere around $260. Seeing girls for dividends In the real life, you usually see some companies growing their dividend. If you do, all you have to do is count with the same rate off the growth and predict the value off the future dividends. But always keep in mind that does two things book value and dividend change the bending on the E B s. If the E. P s grows, you can expect the book value and dividend to growth as well. But if it drops, you usually see the book value, and dividends also do the same. So always look at the projected earnings per share to ensure that your estimate is realistic. Usually you want to see growth in earnings per share. If you see earnings per share dropping, you should keep your hands off this stock. So, for example, with our company, if you see the projected earnings per share going to be 11 and $12 in the following two years. You can say that this company is growing their GPS and they probably won't cut their dividend and their book value will increase. I hope that this is clear. So another quote from Warren Buffett says that this percentage change in book value in any given year is likely to be a reasonable close to debt year change, an intrinsic value. So by how much the book value of our company changed per year on average basically means how much the value off the company changed per year. Okay, well, it despite simple math, so you need to compute the change per year. So, for example, in the first year it changed by 7%. The following year it changed almost by 7.5% and so on. Then you just average out that growth rate. So you take all of those percentage numbers, Adam up and divide the number by number of years, and that is your average growth rate from here to year. So let's finally get to the Formula 40 value calculation. This formula is from Benjamin Graham's book called The Intelligent Investor. It basically says that the value is equal to current earnings times eight point half, plus two times expected annual growth rate. It is a simple as dad, but who wants to do the math on the Internet? You can find plenty of calculators literal. Do this for you. For example, this one. If the link is not working, just type intrinsic value calculator or Benjamin Graham calculator into Google. So what do you want to do? Is just put in there d informations that you have and actually compute the intrinsic value with a one click of a button. Obviously you John computed on paper with their calculator. This lecture was just for you to get an idea of how it is calculated in the next lecture, we will actually compute the intrinsic value off Disney using this calculator. 8. 07 Enterprising Investor: you already know the defensive investor who has around 50% of its portfolio in stocks and the other half in bones about who is in enterprising investor. So if you want to play defense on the stock market, you can just buy index funds like S and P 500 you will get the average return off the market without sacrificing your time. So since it is quite easy to get the average return off the market, getting returns that are higher than the average should just take a little bit of work, right? As a matter of fact, no, it explained to your work to consistently beat the market returns. So to be an enterprising investor who beats the market, you need these four things. First of all, you need to be patient and don't buy a dose high levels when everyone is buying. Also, you need to be disciplined. There is no way you will consistently be the market if you are not disciplined by sack Onley. Once you are certain that it is a great business at a reasonable price, you need to be eager to learn. Spends time learning online about a stock market read books, financial statements and so on. And last but not least, it requires a lot of time. Many investors are just not suited for this. It is easier to fall victim to overhype market and buy stocks at high variation. For example, during the dot com bubble when tech companies were given so totally unreasonable variations , some analysts said that people should buy because it is the new trend and is the future. When the dot com bubble bob, those stocks went down to a fraction off their price, for example, you can take a look at Amazon and its current evaluations. The price to earnings ratio is huge. In tech, you can consider buying companies with be ratio under 20. Maybe some reasonable exceptions may be a bit more, since it is true that the sector is growing fast. But Amazon had huge B E because of its growth, it was unreasonable, and the stock price was driven by emotional investors in the intelligent investor Brooke by Benjamin Grab. He says that the intelligent investor should avoid growth stocks as much as possible. Why, well, because the valuation is based on future earnings and future earnings are less reliable than the current earnings. Benjamin Graham also describes some core principles off a enterprising investor. First rule is to be diversified. In other words, spread your money into different sectors. Second rule is that the companies should be conservatively financed, with current ratio off at least 150% 3rd rule is that the company should reward investors, for example, with dividends or share buybacks. Four fruit is that there should be no earnings deficit in the past five years. Fifth through is that the company should have some earnings growth in the past five years. Six through is that the assets should be cheap. What I mean by that Well, the market capitalization should be higher than the tangible assets minus liabilities times 1.2 Don't worry if you don't understand what some of the metric means we will get to does when we read financial statements. And seven Through is to buy cheap companies with B ratio relatively small to the sector. When in considered his last point, you should pick stocks with B ratio of smaller than the sector average, or at least somewhere around because, for example, P ratio in deck are much higher than be ratio in financial sector, for example, since that is growing faster. Last rule I will add is this one. You should buy businesses that you understand. This one is extremely important. Don't buy the business if you don't understand how it works. 9. 08 Margin Of Safety: there is one risk, Dad, you can certainly eliminate. That is the risk of being wrong when you evaluate the company And when you compute the intrinsic value of a company, you kind of guess, for example, are you certain that the earnings growth will be is the same as projected? Of course you are not. How can you be sure there is a certain possibility that those calculations are off. That is why you should always insist on margins off safety. Margin of safety, as the name suggests, is used to can't balance the risk of being wrong with your calculations. For example, imagine you are building a bridge. They say it will be used to transport vehicles with weight. About 40 tons. Would you build a bridge that can transport vehicles with weight 41 tons or a bridge who can handle way kills with weight? 60. Done. Of course, he picked the safer option right, because you can go wrong with your math and compute something wrong. And the bridge debt can only hold up to 41 tons will fall okay. In the stock market, it is the same. For example, you should not invest in a stock that you think is worth $51 if the price of debt stock is $50 because your calculations may be wrong. So the formula that you want to use is this one. The price off the stock should be smaller, Dendy 2/3 off the value that you compute it. Okay, so basically, take the value multiplied by 0.66 and check whether it is greater than the price. And if it is not, you should maybe move on. It depends on the company, but yeah, you should really think about whether you want to put those money into this company, since it might not be as good sale as it seems. OK, just a reminder. Value is equal to current earning Stipe's April and five plus two times expected annual growth frayed based on the Benjamin Graham formula. But we will also learn other formulas how to compute the intrinsic value of a company. But that will come later on 10. 09 Risk and Reward: pretty much everyone knows the concept of risk and reward. Usually Wendy risk is higher. The Riv orchard also be higher. And when the U Risk is lower, rewards should also be lower. Great example of this could be stock bears is bonds and stock. You have high risk, but also higher award in bonds. You have lower risk, but also lower reward. This is the way it should usually work, but does it. Benjamin Graham and his book says that you don't have to take a higher risk to achieve a higher reward. What that means. Well, in the stock market, this rule off risk and reward sometimes doesn't work. Remember that price doesn't have to be the same as value. If you buy $1 or value only for 60 cents, your potential reboard is quite high, and you also have a lower risk. Then, if you can buy a better company if you for example by $1 off value only for 40 cents, your potential reboard is even bigger, and your risk is even lower. The important thing is to remember is that from time to time the market gets over optimistic or over pessimistic for example, during recessions in the stores are afraid of losing their money. That is why the stock market is over best mystic. And that is why you can get great deals. The wealth is actually made in recessions when you can buy high quality business for lower price. I think that by now it all should start to make sense. The formula for value investing. You need margin of safety and why reboard is not always correlating with risk. Right? I hope that this makes sense and I will see you in the next lecture. 11. 10 Financial Statements 1: the success of a investor really depends on the future development. When they are deciding gratitude, buy or sell a stock, you cannot be certain that the stock price will go up or down. Oh, you can do is use the data that you have in order to make a prediction that maybe sometimes wrong about most of the time you will be right. If you understand how good is the company, you can then make a better decision. Understanding the strength of a company is start together with understanding the financial statements. In this video, I will try to explain exactly how to do dad. So in order to understand the company, you need to understand the income statement and the balance sheet. I won't explain every item on these statements, since the lecture would be quite boring and also not very useful for you. So the income statement basically focuses on the revenue and expenses of a company. The statement begins with revenue and ends with earnings or net income. So how do we get earnings from revenue? Well, typically, we subtract operating expenses. In this category, you can find VAHJ is transportation, energy and appreciation. Another thing that we need to subtract is the cast off goods. So for a temp of parts that you need to assemble a product after extract both of these, you get the so called a bit in other words, earnings before interest and taxes. So now all you need to do is subtract the Texas part and the interest barred, and you will end up with earnings. In other words, net income. And that is pretty much the income statement. Balance sheet, on the other hand, is a snapshot of the company's assets and liabilities. In other words, bounce it into Bretz, how much the company owns and how much it owes, in other words, how much depth it has. What the company owns is interpreted as a asset, and what it needs to bay is a liability. That kind of makes sense. Right. Assets are divided into two categories. You have the short term assets, which is something deads you can cash out off in short amount of time. So, for example, it can be cash in a bank, inventory or liquidity ease on the other head. The second group is the long term asset, which is, for example, building or a factory, maybe some machinery and so on. The liabilities are divided into three parts. First, you have the long term liabilities, which is depth that you can pay later on. Then you have the short term or current liabilities, which is death. That is due to bait now. And lastly, you have the shareholders equity, which is basically the money that the company owes to shareholders. This may seem a bit odd, but it's gonna make sense. As Faras company is concerned, Bank its investors is a liability. 40 company. The shareholders Equity is the difference between assets and liabilities. Okay, so that is the balance sheet. Not that hard to understand, right? If it feels hard, feel free to pause the video or play it again from D. C statements. There is a plenty of numbers that you can calculate. Those numbers will help you understand the company better and make a better prediction. However, those numbers typically very from one industry to another, let me show you an example. One important rarely that you can get from an income statement is the net margin. Net margin is just earnings divided by revenue. Basically, it tells you how much money is left in the firm for potential investments or dividends. But this number is very different, depending on industry. For example, tech sector usually have much higher margins than let's say, consumer goods sector. Another important indicator is the current ratio. We can get it by dividing the current asset by current liabilities. This number indicates whether the company will be able to pay off its short term debt. The number should be higher than one. If it is smaller, the company will either have to sell their long term assets or borrow money. Benjamin Graham says that this number should be bigger than zoo, but once again it varies from industry to industry. Last number that I will explain is the BB ratio. In other words, deep price to book ratio. This number can be calculated by dividing the market cap off the company with the company assets. Once again, this is highly dependent on D industry, so that would be a quick intro into the balance sheet and income statement. Feel free to play this lecture again, since there is a lot of information to process and that's pretty much it thinks 12. 11 Financial Statements 2: First of all, let me explain the term debts you may have already heard. It is the water stocks. Watered stocks is a stock that tends to overstate assets in their bouncy. For example, companies can stay devalue off their Brende and her balance sheet as they asset. But there is no formula to compute this number, right? Sure, brands like McDonald's Apple are quite valuable. But right now I'm talking about stocks that don't have that Things brand but sell states in their bounce scene that their brand is worth billions. This kind of stock is called Water Stark. You would be surprised how many times companies ramped up their long term asset values. It happens quite often. Benjamin Graham even said that you should ignore intangible long term assets. Graham says that it is the income statement that reveals the real value off asset, not their arbitrary figures in the balance sheet. But do you remember a little detail from the income statement lecture? I said that in the income statement, you subtract from revenue the operating expenses, and I also noticed that depreciation is a operating expense. But what happens if you have a lot off long term assets that depreciate. You can pause the video and think about it for a second. Well, if the depreciation is higher, it would mean that the earnings are lower, right? So water stock assets can have negative impact on earnings. Okay, so, yeah, let's move on. As you already know, value investing means trying to find stocks Where d prices lower, Dendy intrinsic value. You already know how to compute the intrinsic value based on growth price and so on. But Benjamin Graham also created another method for computing the intrinsic value of a company. It is the book value approach. Basically, you take the assets and subtracting liabilities, and the result is the book value, the greater the book value s the better D balance sheet iss. But, as I said before, the assets can be watered. So here are free rules that you need to follow when investing based on a book value. First thing is that you need to consider the characteristic off an asset. For example, imagine that you own Tesla and you have a big give factory as a asset. But when things go wrong, and when you have to sell the gigafactory, there is not many companies that would buy this factory right. You may have a hard time selling this asset. On the other hand, let's say a bank have a couple of buildings. They are usually located in good parts off a city, and there is plenty of companies who would buy does buildings. Another thing is that assets will be probably valued lower than the market value. And last but not least, the current assets are usually more friendly, valued than fixed asset. So you need to keep these free things in mind when investing by book value. But overall, when you are investing, you should not invest on Lee based on one metric or or in other words, you should not invest on Lee based on the book value ratio are another. Another thing Onley based on intrinsic value. Whatever you should compute all of those. And then from all the data that you have, you should make a reasonable prediction. Okay, And based on that prediction, you should decide what it's buy or sell or do nothing. Yes, so that is very much it for this lecture 13. 12 Quantitative vs Qualitative Analysis: Okay, So quantitative and qualitative announces are the main competence off stock analysis. You should use both to identify great deals in the stock market. Why? Well, investors who buy stocks only because they look cheap based on their financial statements will probably not make any spectacular profit. He might do OK, but he might even beat the market, but he will not make any spectacular returns. Therefore, my own analysis consists off these two steps. 1st 1 is the quantitative analysis. This means looking at the financial statements and computing the intrinsic value of a company. If the company doesn't look good based on the financial statements, I stay away from it and don't even move onto the second part off analyzing. But if the company looks healthy based on its financial statements, I move on to the second part. This is the qualitative analysis. So what does it mean? Well, in this bar off the stock analysis, I take a look at the market trends. For example, company is operating in the e commerce market, so I take a look at the e commerce market trends, for example, whether it will get bigger in the following years and off course and not of factors, and it all should be considered when buying gay company. Then I take a look at de competition. The power of monopoly is great. For example, the Internet search monopoly of Google is one that needs to be considered when buying these stock. I also take a look at the scalability off a company and the growth and products. This qualitative analysis is much more time consuming Dendy quantitative because you can go from financial statements within minutes. But researching the market and company is much harder to do the advice I can give. Teoh is always look at riel numbers from reliable sources and also try to consider worst case scenarios. It is better to be a bit best mystic when doing research and then be surprised by the results than the other way around. The qualitative analysis is much easier to do if you are an expert in the area where the company operates. For example, I myself have a university degree and computer science, so it is easier for me to do qualitative analysis off technology star. Though it is quite hard to find good value start in the tech sector but it is not impossible Anyways. Even though you should be diversified, you should still understand the company you are buying. If you don't understand the company, you can mess up the qualitative analysis of a stock. And that can mean that you lose money on your investment. Another thing that I would probably recommend for you to do is do the qualitative analysis on company that you like on company which products you actually use on day to day basis. For example, I use Spotify or I use YouTube, right? And so the company that you like duty, qualitative analysis And when you are certain that is a great company and that you want to buy this company, you don't duty quantitative analysis and basically figure out whether D company IHS fairly priced. If it is fairly priced, you probably want to invest in it. If it is underpriced, you definitely want to invest in it. And if it is overpriced, you probably want to wait. You want to wait until the price comes down to a point where you are happy with the price that you are paying for the value that you get from the company? Okay. So desperate. Much afford his lecture. Hope you enjoyed it 14. 13 When to Sell: Let me ask you a question. Do you think that you will make money with every stock that you will buy? If your answer was no, you are correct. Obviously, it is impossible to be right 100% off the time in a stock market, sometimes even if you research the company properly. And even if you do qualitative and quantitative analysis properly, something just happens. For example, some news came out or anything else. The point is that you want to minimalize the amount off times when you are wrong. So let me address the question went to sell a stock. So, as I mentioned earlier, Warren Buffett rarely sells a stock because he made a profit on the trade. He is a value investor, and he basically buys and holds forever bad. Even he sells a stock from time to time. The first reason why he sells the stock is because a stock with potential higher return is found. So in other words, he finds a better deal. And even after taxes, you calculate that it is worth transforming your money into this new company. The second reason is that something changes in the company fundamentals, so if you remember correctly, there are these four rules off Warren Buffett, and if company doesn't meet one of them, it might be a good reason to sell. So, for example, imagine that you are buying a great company that manages depth very well. But a few years later, they start pick up more and more death. So to the level, when you are not comfortable to holding this stock, then it might be a good reason to sell the company. Also, a get advise might be that you want to sell a stark when the reason why you bought to stop it's no longer applicable. For example, the qualitative analysis changes. For example, there is a new competitors dead dust things more efficiently or the whole sector. Where the company operates is not growing anymore. So, yes, that s pretty much the thing to take away from this lecture, as Warren Buffett says is a value investor. You should buy and hold forever. But in some rare cases, very the fundamentals change. You can sell the company 15. 14 DCF Facebook Stock: All right. So welcome to this lecture and this lecture. We will use the discounted cash flow analysis on the Facebook sock. So what is a discounted cash flow? Well, it is a analysis, so basically a thing that allows you to calculate the intrinsic value of a company. And that's pretty much all there is to. The point is that you are trying to compute the future cash flow and then discount the future cash flow to the today's money worth right, And that's pretty much all there is to it. It's really not did heart. It's quite similar to the Benjamin Graham formula that you already heard about and yeah, but the thing with the discounted cash flow announces its dead. It is quite precise, and it's change is quite a lot based on the values that you put into. So it often says that if you put garbage in, you will get garbage out. And other words, be really careful about the numbers that you are putting in, OK? And don't try to trick the calculator. Don't try to change the values so that the intrinsic value is bigger or something like that . Don't do that. Police and yes. So with that being said, let's get actually into it. So in the Yao finance, I already get barbarity Facebook stock and what we will do is we will go to the financials and inside here we have the Castro statement. So yet in here, if we go all the way down, as you probably know, there is the free cash flow. It's up to you whether you want to use the trailing 12 month, which is this this this come or the last year reported. And I personally prefer to use the trailing 12 month and yet so that's like 19 546 Let me actually put it inside here 19 5 or six. And, um, yes, so that's our current cash vote. And you could also use the average free cash flow for the for example last for years or something like that. We can then change the value so that it fits this calculation the average. Okay, so for now, let's just use the trailing 12 month and because with, like, growth stocks like facebook, it this a bit, not that useful to use these averages. Right? Okay, so the another thing that we need is the total gas and the total that those who values actually don't have that big of a impact on the intrinsic value. And so you don't necessarily have to be extremely precise with those values. Okay, so what I like to do is actually I like to block in the from the bound seat I elected blacked nd current assets, which basically are the money that you can that you actually have and you can spend. And with Facebook, the cash is like most off the current assets. So I would just use the current asset s Oh, that's 54 80 if I'm not mistaken, and then we have the total That and what I like to use for the told that as the ah total current liabilities plus long term debt, those two values, I will add a map and plug them into the formula. So in this case, it's just 70 17. So let's just do that 70 17. And yet then another thing that we need is the total number of shares outstanding and yes, so that's basically how many shares are out there because we are trying to compute the value off the whole company. And we need then deep price per share. Right? So we will just divide the value of the whole company by the number of shares outstanding, if that makes sense. So in order to find that you just once again go to Yahoo Finance and there's the tap cold statistics and Dan down here is shares outstanding. Okay? And that's 241 billions. So two for 10 magnus. Cool. Okay, so, uh, then we need the expected grow. Afraid once again, as we did with the Benjamin Grand formula. We can just go to the analysis, and then inside here is the next five years, which is 17.9. And I would personally Gil with a bit lower number with Facebook. I think 15% iss. Quite reasonable since it it's still operating in the high growing tech sector. But there is a bit more competition currently, and yeah, I think the 15% is quite a reasonable. Then we have d discount rate. So what you can use is a couple of options. Usually I prefer to use the weighted average cost off capital. So in order to find it, you just typed Facebook and then w A. C C or raided average cost of capital. And then he can just click on probably the first link. There was, like, 10%. Uh, if I saw that correctly and let's see, so it should be here. Facebook 10.5%. Okay. And yes, so you can just reflect it in as a discount rate. And if you don't understand it, it's just like discounting the future cash flow into today's value. So basically, money tomorrow are worth less than money today because you can invest them today right and make a profit. And this is basically how much profit do you will make per year. So, for example, if you have $1000 today, it is worth thousands and 105 counting. That's correctly, uh, in one year. Okay, there's discount rate. Mm. Yet cool. And then we have the last multiple. This is usually a number between seven. And 12. Um, if you want, I think there is a link to the value and you can actually computed by yourself and, uh, yes. So determined value is basically just free cash flow. Times one plus growth divided by weighted average cost of capital minus growth. And if you basically boots this thing and divided by free cash flow, you should get d multiple. If my math is correct, don't take me by my word, I I'm just computing it from my head, but I think it should. It makes sense. Yeah. If you divided by free cash flow, you should get the multiple. Usually I use ah, like 10. Yeah, that I think that's quite reasonable. You can just play with that and try to use smaller numbers. And yet, and then we have the intrinsic value per share. Yet another thing is margin of safety. Um, it's up to you. You can just use zero, and then basically, based on the overvalued tap, find out what the margin of safety actually s. So if I put here the price off Facebook, which is 119 94. So 194 um, we will get that the current price is undervalued by 16% and yeah, so, um, that's basically what we came up with. That's the intrinsic value off per share off Facebook. Right? So $232 and This is the current share price. So this is the price that you are paying. And this is like this says that it is undervalued by 16 point point 58%. And that's actually not that bad, considering that Facebook is a growth stock and also that we used a bit more conservative expected growth rate. If you produce 18% that analysts expect when you forget that Facebook ISS undervalued by 31%. Okay, which is huge. And that's another thing that I just want to point out. You see how much devalued changed if I just added free more percent to the expected growth rate, right? It went like 15% more. The value of company went 15% 0 sorry. 15. The value of company went like 15% up, right? Based on Onley like 3% change in here. So you have to be really careful about the growth rate that you are putting into and also about the multiple. So if you put in here, for example, something like nine, you can once again see that it changes quite a lot. Okay, so right now it's only 12% undervalued. Yeah. Undervalued. Sorry, And yet, And also I want to point out dead if I put this back to 10. And I want to point out that this total cash and the total depth doesn't have that big of a impact. For example, if I just put in here only five billion instead of 50 Um, the value doesn't change that dramatically. And it was like a huge difference, right? So So don't be too afraid to, like, put there not that precise figure to the total cash and total that. Yeah. Okay, so let's also try to compute the free gastro based on the average. So if if inside year we will put the average of those free numbers. So if I go back to financials and guess what and we will get 15 17 and 11 and yeah, I mean, it's really it's it's nonsense to compute it based on the average for stuck like Facebook. Because, as you can see on this chart, it is growing extremely, extremely fast and at a quite steady pace. Right? And so the company is quite stable, it's steadily growing, and you can see that both on the earnings and both on revenue and yet. So, like putting dose to those free numbers together and computing the average. We would get something like around 15 if on computing it correctly from my head. I don't want to use the calculator, and I don't want you to wait for me, So I will just put 15. Obviously you want to de precise figure? Okay, bar. If I used the 15 we yet that the stock is actually overvalued by 6%. And yes. So it is really important what you put inside here also, because that's basically the base free gas flow from which you are computing the future cash flows, and it matters a lot. Okay, So really be careful about the things that ghosts into this formula. Once again, you will have the the link to this calculator added as a resource to this lecture. So don't be afraid to use it. And so that's very much it. I hope you enjoyed it. 16. 15 Warren Buffett Rule 1: Okay, so Warren Buffett has pretty much four rules off. Len, you should invest in a company. These rules all have to be met. An order for Buffett to actually think about buying a stock. So let me just go directly to the point and start with the first rule, which says stock must be managed by vigilant leaders where vigilant basically means careful . Or in other words, the leader should be on the lookout for possible danger, right, maybe danger from the competition from the market from economic or are so on. But the thing that is usually the most dangerous for company is its depth. Warren Buffett says that it is the rough times, like financial recessions, when you really see whether a company is managing its depth properly. So quite easy way to determine whether companies managing depth correctly is the dept. To equity ratio. Second option is the current ratio that I already mentioned when talking about financial statements so D dept. To equity ratio is quite simple to compute. You just add up all the depth that the company have and then divided by the equity. Simple is that from this formula, you get usually some percentage value bad. Be aware Dead in some rare cases. For example, in Facebook stock, the number is zero because the company have no depth. But usually you get a percentage value. Warren Buffett likes companies with their depth to equity ratio smaller done 50%. If the number is higher, you should really consider ready company. It's worth buying. Usually it is not. In some cases, the number is greater than 100%. That means there is more depth than there is equity. That means you want to stay away from this company. You can find it at the statistic tap in the Yahoo Finance, or you can easily computed yourself. The attitude is the current ratio, which basically is the ability to pay off cos grant depth. Warren Buffett wants this number to be greater than 1.5. Benjamin Graham, in his book even states that he is looking for two bad these days. It's quite hard to find company who has current ratio to and meets the other conditions for growth and so on. So I'm personally using buffets 1.5, even though later in this course you will actually find out that Buffett doesn't really pay too much attention to the grand ratio if the company is profitable enough and have great cash flow right, because when you have great cash flow, you can pay off your current liabilities as long as they are reasonably small, right? So you don't necessarily have to have trend ratio greater than what I mean. It is not a deal breaker, right? If the if the current ratio, it's somehow smaller than one. But if the depth of the current depth is still at low levels compared to free cash flow revenue and net income, then you can still consider buying the stock based on Buffett and his interpretation of financial statements. Yeah, but overall, it should be maybe a bit of a warning sign. And you should maybe be more of a lookout, mo. Maybe you should check out why they have so much depth and so on. Okay, and if so, that's about it. For the first through, you want the company to manage its depth properly. You also wants to, for example, take a look at some interviews with the CEO of the company to see where he actually stands on the future of the company and better, he sees the risk off D business. As Vyron Buffet often says, When you see a stock at a particular price, it is like in the baseball. They basically throw a ball at two, and you can decide whether to swing or not. And with stock market, there is a lot of balls coming your way every day, so don't try to swing too many times. Swing only when all of those four rules are met. 17. 16 Warren Buffett Rule 2: Okay, So the second rule off Warren Buffett is that de suck. Must have a long term prospects. Okay, So in order to calculate the long term prospects, you need to think about a company. So take the products and bring the most revenue 40 company. So, for example, Apple have the iPhone right, which brings the biggest revenue 40 company. Now, you want to obviously take all of the products into consideration about 40 teaching purposes. I will take only one product and demonstrate the principles on it. So you take an iPhone. Can you imagine that we will still use iPhone in 30 years from now. It is quite hard to predict what will happen in 30 years. But if you take a look at the base of the I T industry, I think that there will be some other device that everyone will use. I am not saying that it won't be Apple's device, right. It might be apple device, but it also might be a device debt some other company creates. Right, So we can probably agree that in 30 years there will be something different that people are going to use. So that is a bad thing for Apple, right? That needs to be considered when thinking about long term investments. Okay, so let's do another example. So, for example, Mag Donald's, do you think that people will still ate burgers? And 30 years from now, I think that we can all agree that we will eat burgers in 30 years from now. There might be some change to the way the burger is made. Eso, for example. The food will be healthier, maybe made with no meat, right from the meat from beyond meat, right? Instead of real beef, who knows bad. The important thing is that we will still eat burgers, right? So Mendel still might seem like a good investment to take. But you also need to consider the competition. And in here you have the Yum brands dfd Burger King, and there is a huge competition for McDonald's, right? And what is the moat, right? What? What keeps McDonald's, um, kind of above the other competition? Well, I would say probably the Brent right. The brand is and also like their products body. I think the Brent is the most valuable thing on McDonald's, and those brand modes can easily change for example, when customers are unsatisfied with foods or or something like that happens, maybe some scandals. The Brent MM is not that great s a competitive advantage against, for example, Bryce Advantage, right? If you sell product that it's cheaper, that's much better. Competitive advantage. Okay, so let's also take a look at Facebook, for example, or some games like call of duty or FIFA. So do you think that those companies will be still dead big in 30 years from now? This is quite hard to predict, right? Bad? I don't think so. For example, with Facebook, you can already see that the number of people using this side is not growing anymore, and I think it will eventually decline. Those people will start using some other abs, for example, instagram or tick talk. But when considering this ISS also worth considering, what a Facebook or overall, the company dead v. Valjevo had the ability to deal with this problem. So, for example, Facebook often deals with this problem by acquisition, right Facebook, both instagram because it was having a great growth in user base and it was a great acquisition. It really was one of the best acquisitions off all time, I believe. And yeah, it made a huge profit to Facebook because young generation started to use Instagram. And then Facebook actually used Instagram in order to battle Snapchat and basically copied all the features off Snapchat, insta instagram and people just use Instagram. So yeah, but what happens if the company won't be acquired by Facebook? For example? Snapchat refused the offer from Facebook, Right? Tic tac also probably won't be bought by Facebook, so then the company might be in trouble. Then there's serious competition and basically saying goes for other abs, for example, Games like Sure, fortnight is quite popular these days, but in 30 years I don't think that we will still play fortnight. There will be some other popular games, so I don't see didn't much of the big competitive advantage when looking at, for example, those gaming stock, right, even though they have quite good franchises, for example, like FIFA has, or electronic cards, which owns if FIFA half a bit competitive advantage because they basically owned the rights to use the name off the football players, right? You hockey player Steve. And yes, so so people like to play games with the real characters, right? Riel offense, right? So there might be a bit of a competitive advantage. But for example, what happens if I don't know the league? Just stop setting those licenses to Electronic Arts and solicit to 10 Cent, right? What happens, Danna? And they're So even though they have still a bit of competitive advantage and still have, like some user base, I'm not sure whether dentists a durable competitive advantage in 30 years from now. I am not sure, Definitely not sure And yes, then goes for Facebook. Even though everyone uses these days, I'm not sure whether everyone will use it in 30 years from now. But I'm not saying that it is impossible, right? There is still maybe some reasonable probability that people will still use Facebook and other social networks that will be owned by Facebook because he will buy them. But yeah, who knows? Right? It's also might not be the case. Facebook have great competitive advantage because of its user base, right. They have this network effect, which is a great competitive advantage, which basically says the network effect basically means that I can't go away from their network because I wouldn't have a way to communicate with all my friends. In order for dead to happen, I would have to convince all of my friends to, like, maybe transfer to some other network, right? Which is quite hard thing to do. Okay, so that is a huge competitive advantage working in favor or Facebook. But for younger people, they basically, like, choose their platform, right? They don't have their friends on Facebook. They don't have those. Those like, nine years old kids, they don't have friends on Facebook. They can choose whatever platform they want. And I see a bit of a problem with for Facebook in this. Okay, But since most of the companies I just talked about like Apple and McDonalds, they spent huge amounts of money on the research and development. So there is still a big chance that they will actually create the next friend. Right or day will bidi next trip. So, for example, better way to look at this is taking the company and the sector Day operated, for example, Johnson and Johnson, will we still use medicine? And 30 years from now, yeah, we will. There's there. There might be some new drugs on the market, which will be better about we will definitely use medicine, right? So 40 long term perspective Johnson and Johnson might look like a good investment. Okay, so let's talk about why you want to hold company for a long period of time. Well, first of all, if it is a good company with solid growth, it should sustain its earnings and reward investors with either dividends or with share buybacks. Right, And that means share price going up. But the other reason is taxes. A lot of people don't really pay attention to this bar. It is quite important if you sell stock and make a profit, you have to pay taxes. The text rate is depending on the country you live in, but still you usually have to pay taxes. Some countries, for example, Czech Republic, where I left, is trying to teach investors to invest for the long term. And it is doing that by basically giving 0% tax on profits that you will make when selling a stock after at least free years. So I'm quite lucky to live in Czech Republic bar anyways. The Texas can get a significant part of your profit. Usually Texas go down with the longer time you hold the stock. So that is why it is important to hold the stock for longer periods of time. And that is why it is important to invest in a company with long term prospect. For example, Warren Buffett. He make these huge profit right on those stocks that he both way way too early in, like, 30 years from now. Right? So he make huge profits, but he hasn't paid any tax on them. Right? So that's great thing, right? If he just bought a shared insulted with a profit, you still need to pay taxes on this, and it gets a severe percentage of your profit, right? But Warren Buffett, he just buys and holds, and that kind of makes him the best investor who ever invested in stock market. I guess so, Yeah, that's pretty much it for his lecture 18. 17 Warren Buffett Rule 3: Okay, So in this lesson, we will learn more about the third rule off Warren Buffett. In my opinion, it is the most important one. I mean, they are all important, but this one is extremely important. It basically says that you should invest only in stable and understandable company what that means and why is it important? Okay, so let me start with the first part. Company must be stable, so imagine that you have a business. This company last year generated 100% increase in revenue. But in previous years, it also reported the kinds, So you can see that the chart off their revenue is kind of all over the place. It moves up, it moves down. So how would you compute the intrinsic value of a company? While you probably use either discounted cash flow analysis or Benjamin grand formula? Both of these are highly dependent on the future earnings and growth. But how can you be sure that the future grope will be, for example, 5% If the company revenue is all over the place? You can't even if you average out all the years available, your prediction might be quite far off This is a company that can be described as a unstable company. What that means is there is no clear direction in which the revenue, earnings or growth moves right with this company. It is quite hard to predict the future value. That is why Warren Buffett would not invest in this company. On the other hand, stable company is a company that have reasonably similar growth in the past capital of years. For example, take Disney. If you take a look at their financials, it is kind of steadily growing. Or another example could be Microsoft. If you take a look and their financials and there netting common revenue, it's growing quite nicely. You can see the the kind of steady line, right? So this is a stable company. You know what you can expect from this company, and it is much more easier to compute the intrinsic value correctly. Uh, that is a company that Warren Buffett likes. Okay, this applies not only to revenue and earnings you it also applies to book value and other indicators. For example, the depth levels right, and you retained earnings. You know, the D cash that the company holds right in their current assets or, for example, like overall assets, right? If the as that's our growing right, it's always a good site. And last but not least, it's also dif free cash flow, right. You also want to see the free cash flow growing year over year. So, yes, so let's move on to the second part, which is the company should be understandable. Generally, as I mentioned before, you want to stay away from companies that you don't understand because if, for example, they change their product and you don't use it, you don't even know what they've changed, right? And even if you read some articles what they changed, you don't know how to user feels about the change. And this can be a real problem because then, if the product is no number no longer interesting for the consumer, it can have negative impact on the revenue and overall financials off the company. Right? So you want to invest in companies Onley once you understand them. Ideally, you use their products, you know their competition. He know the market, you know everything and great thing to look for is a company which basically create the same product for X number of years, right? If the product doesn't change, it's a incredible competitive advantage. And you probably know off which company I'm right now talking about. It's the Coca Cola company, right? D Coke hasn't changing. I I know, like 50 years O R. Well, that's maybe too much. I'm not sure, really. But it's the same product, and so it's and people still buy it right? It's still growing, and people will drink it in 50 years from now. Why not ride? And yes, So the cool thing for the company perspective in here is that they don't necessarily have to spend huge money on research and development. Because what is there to research about Coke, Right. You just make Coke from like like you did the last year and a year ago. You don't research anything. You may be researched some other like drinks, right? But you don't research Coke as so that's like you can t expenses right, And that means the company makes bigger product profits right? And yet another great thing about the product that stayed the same is the marketing right. If you spend market, if you spend a huge amount of money marketing a product like Coke. It's like, well deserved into the future, right? It will go into the future. People will still remember Coke, but if you in the meantime creating new product, you need to spend another large sum off your money to market D new product. Right? But with Coke, you can just spend a little bit just to keep people remembering Coke, right? That yes, eso it's it cuts your expenses if you have a product dead. It's the same for several years, right, at least. And that is always a great thing to see in a company. But also, I have to warn you, you please don't get emotional When investing in company, for example, I had a friend who liked a product of a company, and he just wanted to buy the stock, no matter what. At that is always a bad thing. If you just want to buy something, no matter what prize, it is just nonsense, right? For example, if you like coke, you say, Yeah, I like coke. I want to buy it. But would you buy coke for I don't know, $1,000,000? You wouldn't right, even though you like the product. You wouldn't. You wouldn't buy it for debt. Amount of money and the same goes in sock even though you like the company. And you like the product. And you like everything. If the price is not right, you shouldn't buy right. So keep that in mind and dough don't get emotional. Even though every analyst will say that I know you should buy because it's the new trend or something like that. If the price is not right, you shouldn't buy. Yeah, but anyway, so the main thing to take away from this lecture is that the company should be stable and understandable, and their products should be understandable. It should be clear what the company actually makes right and another great thing to maybe look after or look at is that if you imagine some sort of product, you think off the company, right? Did you want to buy? For example, if I say a smartphone, what company you think? Well, apple, right? If I say I know soft drink, what company do you think off? Well, Coke, right? Or maybe in some rare cases, Pepsi. But anyways, both of these companies are great, right? And Yeah. When I say fast food, what company you think off? Well, McDonald's, right. So that is always a good thing. If you can say industry or product and you right away, Think about the company. Right? So, yeah, that's the thing to keep away from this lecture. 19. 18 Warren Buffet Rule 4: Okay, so the last rule is the simplest. You need to buy these companies at a reasonable price. You might even say at a discount. It sounds really simple about many investors are quite impatient. They get formal quite often. If you don't know what form O means, it means fear off missing out. In other words, the stock price is going up and up and up, and the investors still kind of things like, Yeah, I mean, it's going up like, six months in a row. I got a bite us and they buy at the peak price, you know, And then the stock eventually goes back to its intrinsic value, and they usually lose money because of the fear off missing out. They fear that they will miss out on the opportunity, right? So a lot of people just can't wait when they see a sock off a business that they really like going higher. A lot of people just jump right in and buy the stock, even though the intrinsic value, it's actually smaller than the price. This is not what value investor does when you find a good business that meets all free previous rules. What he want to do is calculate the entry point, so basically calculated price at which you are willing to buy. For example, let's say that Apple is now trading at $250 you compute that the intrinsic values around $270 you computed either with the discounted cash flow or with the Benjamin grand formula anyways, then you need to add the margin of safety. This margin can change depending on how much you believe in the company are, in other words, how well the company meets those first free rules. It can be, for example, from 10% to 30% usually closer to those 20 and and more that yes. So you add a margin of safety and you figure out where do you want to actually buy the stock at this price or not? If the stock prices lower dandy value with the margin of safety you want about, If it is higher, you want to wait, and that's all there is to it. So, for example, let's say that Apple means those free rules quite well, and we decided the margin of safety will be 15%. So now we want to subtract from the intrinsic value 15%. That would mean $229. This is a good entry point for this stock based on the intrinsic battered that be computed . And don't take me by my word, I haven't actually computed the intrinsic value to be $270. There's just made a price, right. The prize is also made up. So, John, by 229 this is just a 40 teaching purposes, okay? And yes, So this is basically deprived that you are willing to pay it deprives is slow, smaller. You probably want to start buying. If the price is higher, you probably want to wait until it goes down. Because there eventually there will be some bad news that well, then maybe somehow will happen to, I don't know, USA China, where relationship or, like the new iPhone sales will drop, or something like that will eventually happen, and it will present a great buying opportunity. Still, the thing to take away from this lecture is that you don't want to get emotional when buying a stock, and you want to compute the intrinsic value, add the margin of safety and check whether it is actually smaller than the price. And if it is not, you shouldn't buy. That's what If you are a growth investor, you maybe have, like, different rules. But if you are value investor, you shouldn't actually bite he stock. Okay, so, yeah, that's pretty much it. 20. 19 Berkshire Hathaway and Managers: Okay, guys, welcome to this lecture and lecture. We will analyze the Berk Shyer head Away portfolio, which is basically the company that Warren Buffett owns, and he and he's the CEO of the company. And among with Charlie Munger and others, he basically around the company and currently, this one of the biggest company in the world. I think it's the 6th 1 And, yeah, it's really a great company. So in this lecture, the I want to take a look at deport four year old that they own. So since the whole portfolio is quite big and it is made off from many companies, I decided to only pick a few and talk about them. So, as you probably know, Warren Buffett is one of the most successful investor off all time. He has leveraged pretty much all financial crisis in order to find great value stock at a discount. I am going to demonstrate it at these couple of companies. So the 1st 1 as to be the Coca Cola Company. Warren Buffett buys this stock at 1988. So, as you can see, he really buys and holds forever. When he bought a Coca Cola company. He bought it at a P E E off about 14 and the S and P 500 had a average be off around 15. But that was during a recession. The P ratio then returned to higher levels. But as you can see, he bought this company at a discount. And currently it is trading at almost for TPE. So that is a huge jump. And if you are a value investor, you should really think about whether you want to buy a company at these high evaluations. Okay, so with the Coca Cola company, you can properly see that Warren Buffett buys stocks at a discount. And also you can see that he buys great quality businesses like Coke with huge moat and competitive advantage. Right mode is basically the competitive advantage dead Warren Buffett really likes when he buys a business and yet, but he doesn't buy just because the company is great. He also buys because the price is right and he see a long term potential 40 company. And then that's exactly what happened with Coca Cola, right? He he has made a huge returns on it, and he hasn't bait a single dollar in Texas on those huge profits. So that's another thing to keep in mind, right? You definitely want to just buy and hold forever, like Warren Buffett does. Another example could be the Apple when he bought Apple Stock de Price to earnings ratio loss around 12. Yes, around 12 where, on the other hand, the S and P 500 b ratio waas 19. And that is quite the difference. Obviously, in the essay be 500 you have some growth stocks, but still, if I show you the chart of Apple, here is where Warren Buffett bought Apple. And as you can see, the B ratio was going down because the earnings per share were moving up quite nicely. But the stock price wasn't reflecting it Dad much, and Buffett took the opportunity. Let's take a look at another company, and this one will be a bit different. I'm talking about the visa company. Burn Buffet is quite happy with this investment in Visa. He says that he regrets not buying more. Buffett believes that this is a great long term investment. This is a reason why he's slightly overpaid for Visa compared to the other companies. Visa P ratio was higher by a Lord and a safety 500 be waas around for doing bad. Visa had a B off around 20 free, which is a huge difference. So is this still a value investment? Well, as Warren Buffett puts it, it is better to buy great businesses at a reasonable price, then to buy reasonable businesses at a great price. I think we saw is a great example of this. You should always think about how good the business s not only whether it's overvalued or undervalued bad. On the other hand, do you also shouldn't bay any price? Okay, so that's also the price is also important. So keep those things in mind when you actually buy a star. And last but not least, Warren Buffett is also quite known for his investments in management. He basically, and when he decides to buy a company, a big part off his decision is that the company has to have a great CEO or great leader, right? And yes, so So basically, how do you decide whether the leader is great? Well, usually he keeps the interests off the shareholders in his mind and makes the decision based on what the shareholders might want. Okay, so, for example, great leader, usually ads by Becks program right, the rewarding investors. And they also that is a great thing to keep in mind. The CEO and those, like directors of the company should always have a skin in the game. So in other words, they should always buy stocks in their own company. They should always hold or by or and new positions to the stock that they are the CEO off, right? So what? That basically tells you Well, if the CEO is owning a lot off these stocks or a lot or a big percentage of the company, that's even better. They will keep the shareholder interest or the owner's interest in mind, right? And you as a shareholder, you definitely want to see that. So, for example, one example of this could be, for example, Amazon right? Jeff Bezos still owns a huge percentage of Amazon, even though it's almost $1 trillion company. He still owns a huge percentage off Amazon, and he is the CEO, and that is exactly the management you are looking for, right? You want the manager to be to keep the interest off the owner in mind. Right? And yes. So on the opposite side, if you see a CEO who is just telling to the public that he will just make money for the shareholders, that he will create new buyback programs, that the stock price will go up and up and up, Um and then he in the background, he sells all of his shares. This is not a CEO that you want to see, right? This is not a company you want to invest in. And another great example of this could be also that the CEO is kind of lying and, well, not necessarily lying, but maybe hiding a bit off those unpleasant information, for example, they just focus on those good things and don't tell at those quarterly meetings right that they have. They don't sell those bad things that happen in the quarter, right? So, for example, they see growth and one of their sectors, and they just talk on and on and on about that growth in that particular sector. And they talk about those good numbers, right? But they don't address the depth. Those depth date those huge depth levels that the company has. Right? So that might be one of the examples off off a kind of bad CEO and bats manager that you don't want to invest in. Okay, So you should always keep in 90 price. What accompanied us and also the managers. And yeah, that's pretty much it for this one. 21. 20 Psychology: okay, In this lecture, we will talk about psychology and why's it extremely important? In fact, most bad investments are cause biped psychology. If I simplify things a bed in your brain there are does to advisers. One of them is fear, and the other one is greed. If you listen to them, you probably won't be the market, and in some cases you will lose money. Let me give you an example. During the dot com bubble, people were buying socks because they believed that the Internet is going to be the next big thing. As a matter of fact, Internet Waas the next big thing. Bar owners. Some companies exceeded their evaluations from the dot com bubble e era, right? Even today, they are usually valued under the value that they have in the dot com bubble. Anyways, as a value investor, you should be ready to not invest in this type of thing, although it can be psychologically demanding and very hard task to do. Since everyone is buying, you know it is the future, and you also know how much money they made. And the fear of missing out is extreme. In these days, the most important thing is to stay on track. And don't let your psychology affect your decision. Making market often acts irrationally, and eventually the price will be similar to the intrinsic value of a company. You just have to wait a little while 40 price to come down and then you by the great business at a reasonable price. Howard Marks says that buying at the right price, it's extremely important, and I agree you can buy outstanding businesses. But if it is overpriced in the better case, you will have to wait a little longer. 40 returns In the worst case, you will lose money. Don't forget. Markets are irrational, but eventually the value of a company will have a impact on the price, so you should never buy the company if it is overpriced. Don't let Europe psychology affect the way you invest. Currently, if you have no money in stock market, you may think that psychology isn't the big factor. But trust me. When you have money in stock market, you will feel it. You will feel it quite badly. You fear of missing out is extreme. Really So, for example, most laments have big problems with their ego. They just can't admit that they were wrong. And they close the trade with negative return. They don't close the trade with negative return, right? They just wait and hope that it will get better. And, yeah, I just want to point out that it is okay being wrong. Even Warren Buffett. Bald Kraft Heinz. Right? And look what happens. You will not be right every single time. And sometimes things just happen, and you just can't predict them, right? So you need to be ready for them. How well the way I do it is before I buy a stock, I ride down. Why I am buying a stock. And I also write down why I will be willing to sell the stock. Now, if the reason why you buying a sock is because the price is going up, you should just go through this course of once again. If you still don't understand why this is not a proper reason to buy a stock, you should invest in a index fund or in Birch I headway. And the reason why you buy a stock can be, for example, great value, great management, competitive advantage, and so on. and you can sell this talk, for example, when the when they lose their competitive advantage right when there is some new competitors that doesn't thinks more efficiently, right? You can sell the stock because it can be a friend to its business or Wendy CEO steps down and he's replaced with I don't know some other guy who you don't trust because he don't have any shares in the company, and he's not playing planning on buying any right. So you kind of want to make a list off reasons why you are buying and why you will be willing to sell before you make the investment, and this should help you manage your psychology better. Another thing I do is I meditate. It actually helps quite a lot to come your mind and it prevents you from making a emotional decisions. So I definitely recommend that you actually start meditating as soon as possible. It's also recommended by one of the greatest investor, Ray Dalio, who is have the one of the biggest hedge funds, right? Yeah, but anyways, I don't make decision when I feel lonely, jealous or angry, right when I feel like emotionally unstable, I don't make any investment decision, and I suggest you do the same. And lastly, what I do is I have a system. When I buy a stock, a stock must meet certain criteria for me to actually buy it. And since I am a computer scientist, I created an algorithm that can tell me whether to invest or not. And good thing about computer is it doesn't have the emotions, right. So that means the decision I get is based on logic and compute, compute ations and stuff like that. So if I buy a stock and it doesn't work out the way I imagine I go back to the system and try to improve it, right, so now you don't necessarily have to create a program for this. All we have to do is write down your rules on some piece of paper. And each time you invest for all these rules and each time you don't make a profit, you maybe want to add some more or just change them, right? So, yeah, that is pretty much the thing to take away from this lecture 22. 21 Buffett vs Graham: Okay, so you probably know Dad. Benjamin Graham was a professor off Warren Buffett. Buffett learned a lot from him, mostly his approach to value investing. Graham is considered to be the father off value investing. And the first few sections off this course are actually dedicated to the Graham way off investing. And this way can be summarized into buying businesses at a discounted price. The problem here is that Graham didn't really care about D business because of that, he also bought businesses that were on discount body without any competitive advantage or bright future prospects that, inevitably, let's into grand buying, also low quality business. And that is the big difference between Buffet and Graham. Buffet wants to buy outstanding businesses with great potential. That means he computes the intrinsic value in a different way and also looks at the financial statements in a different way. I will discuss all of those things in the following lecturers. It is up to you what techniques you want to use, but I personally prefer the buffered way off investing. Uh, that is also the reason why I own Berkshire Hathaway stocks in my portfolio. When you buy Birch, our stock, You basically are buying a huge amount of company you basically by a diversified portfolio only in one stock. So maybe if you are someone who wants to invest in a index fund like SMP 500 you may want to consider investing in Berkshire Hatheway because even though it's like insurance company , it owns so many brands and so many great businesses that it's probably better investments than the S a P 500 and that is why I actually own it in my portfolio. 23. 22 How Warren Buffett Computes Intrinsic Value: Okay, So Warren Buffett method for calculating the intrinsic value is a bit harder to find online because it's nowhere to be fine. But you can kind of figure it out from Buffett's letters to shareholders. Hopefully, he will discussed the exact way how he computes the intrinsic value in his book that he promised to ride. But for now, we just have to rely on the letters to shareholders. So basically, Buffet uses his own metric, which he goes, the owners earnings, and then he uses something similar to discounted cash flow analysis. So let's get into it. First, we need to actually compute the owners earnings. In order to do that, we need the net income. We add the depreciation and amortization, and then we add change in working capital. And lastly, we subtract the capital expenditures or cap ex and short. Here is a bit off a problem. You can usually find capital expenditures in the financial statements of a company. The problem is that the capital expenditures can be divided into two groups. The maintenance capital expenditures, Andy Investments, capital expenditures. As a investor who wants to compute the owners earnings, you only want to take a look at the maintenance capital expenditures, right? The investments or, in other words, the grove capital expenditures. It's not that interesting. 40 owners earnings, right? You want the money dead are just did you need in order to run the business, right? And so, ideally, you want to subtract only the maintenance capital expenditures. But some companies just share the whole capital expenditures number and don't break it down . Introduced two categories. So if you can find the maintenance capital expenditures, you should use it bad. If you can't find his number. Just used the capital expenditures. Your calculations will be a bit more conservative, but yeah, Anyways, I would recommend at least looking at the Internet and trying to find him maintenance capital expenditures. But anyways, we will compute the owners earnings right, based on the capital expenditures already, or the maintenance capital expenditures. If you want to be more conservative with your calculations, you can use free cash flow that you can find in the cash flow statement. Right. The free cash flow should be usually a bit smaller than the owners earnings, but it should be relatively close. OK, Another thing that we need is the discount rate. In other words, required rate off return. Basically, the money that you will receive one year from now are worth less than money that you have today, right? Why? Well, because the money did you have today can be invested, and they can generate return for you. Right. So the average to return for the S and P 500. It depends on the number of years, right? But it's somewhere around, for example, 9%. So, uh, if you just invest in D S and P 500 you would have gained probably somewhere around 9%. And that means you would have 1000 and $90 the next year, right? If you invested $1000 today, and basically, when you compute this, you want to discount those future earnings right into today's value because you are computing the today intrinsic value. So that is actually why we need the discount rate or do you required rate of return? Some people use their average return in the stock market. If you have been investing for a couple of years and you have a no average return off, for example, 13% you maybe want to put 30% in there, and some other people use some evaded average cost of capital, which is what we talked about in the discounted cash flow analysis in previous lectures. And yeah, and other people just used, um, some A risk free investments and, for example, like a U. S. Treasury bond. Right. And this discount factor will have a huge impact on your resulting price. So if you want to pick the higher discount factor, you pick the lower. Your margin of safety can be right. If you pick a small discount factor. The margin of safety needs to be quite big, so maybe even try to, for example, put 9% and then change those 9% to, for example, 3% and see how much the intrinsic value change. It's quite large change, and yes, so, basically, if you the higher the number you use, the lower the margin of safety you can actually use, because the margin off safety is kind of hidden in the required rate of return. If that makes sense, however, dis lecture is about Warren Buffett. So the important thing is what Warren Buffett actually uses as the discount factor. Buffett uses the same approach as most off the financial schools. He usually uses the rate of return on Triple A bond. And it's in other words, he uses the return on the safest possible investments he can get today. I think it is under 3% and maybe even, like significantly under 3%. And so we also need the growth rate of the company. So basically a percentage value and V H D Company will is projected to grow in the next 10 years, Let's say, and all we have to do now it's plugged those numbers into a simple formula. This formula is similar to the discounted cash flow formula. Once again, there is a spreadsheet available for you, so we can just download the spreadsheet and put those numbers in and see what the intrinsic value is. Maybe if you can just play a little bit with those numbers and see how big of a impact they made, Um, that would be great. And yet another thing that I noticed is that usually when students like some company, they sense to, ah, computing intrinsic value in a wrong way. So, for example, if they like the company they just lowered the required rate over turn so that the intrinsic value is higher. And I mean, you shouldn't do that. It's it's It's like if you are just computing something and you are just making the number's up, it's It's nonsense, right? You want to find out the entrance advantage, You don't want to change the numbers so that you can buy into these stock right now, right? You want to actually compute the intrinsic value A based on debt you want to invest, right? You don't want to gonna two week the intrinsic value so that you can invest right now that doesn't make sense. And, yeah, last born use margin off safe. The margin of safety year s slightly dependent on the required rate of return or the discount rate that you choose since we chose the risk free rate or since Buffett que chose the risk free rate which is somewhere around 3% something under, we need to use fairly big margin of safety. So let's say 70% right? So that means Warren Buffett on Lee Pace about 30% off the company value. Okay, That is because he used such a low discount rate. Okay, If you use higher discount rate, the marginal safety can be smaller. And yes, so that's pretty much it on. That is how Warren Buffett computes the intrinsic value of a company. 24. 23 Warren Buffet and the Interpretation of Financial Statements: There is a great book out there, uh, which has killed Warren Buffett and his interpretation off financial statements. The book goes in depth into what Warren Buffett is looking for in financial statements. When he buys a stop in this lecture, I will try to give you a quick summary off the book, and I recommend you read the entire book. It's really one of the best, really, one of the best books I've ever rate. And since I can't cover everything in this lecture, right, Okay, so let me just start by saying that Warren Buffett is looking for consistency in the financial statements he wants to see companies that consistently grow their revenue and income that consistently spent small amount of capital on research and development and so on. The key is consistency. If you see company that is making profit each and every year, and the earnings grow at a steady rate off 10% per year, it is a good sign. On the other hand, if you see company that make profit last year about this year day, their earnings declined. It is definitely not a good sign. What one wants to see in his company is a mode, in other words, strong competitive advantage and also durable competitive advantage so that the competitive advantage is not lost when the next 10 or 20 years, it can be a pricing advantage. It can be a unique product or service, basically something that the competitors doesn't have. Okay. Also, Warren Buffett loves companies that operate an industry in which is quite hard for competitors to start. For example, rail weights or airlines. Overall, Warren Buffett likes companies that have a high rate of return on tangible assets. Also, he loves when companies reboard its shareholders with share buybacks or dividends. Also, he likes to see the growing retained earnings, and also he wants the company to produce at least $1 in market capitalization for every dollar in retained earnings. I could go on and on, but I figured dead for you. It might be better if I just put all of those rules into a text file that you can visit each time you look at a company's financial statements. So after dis lecture, you should be able to find a things document with the key takeaways from the book. If you want. I strongly recommend. Did you read the book? Since it also answers the why is it important to keep those questions in mind? Um, yeah, but anyway, that is pretty much it for this video. Electricity. I hope you enjoy the next one. 25. 24 Howard Marks Market Cycles: Our Marks is one of the great as investors of all time. He is manager at the Oaktree Capital and a good friend of Warren Buffett. He has written sound great books on investing. One of them is the most important thing. The other one is mastering the market cycle. I read both of these, and I really enjoy its reading them. I recommend them to anyone who is serious about investing. Howard Marks is a great believer and not predicting the market. So what do I mean by that? He often says that he doesn't know what will happen tomorrow on the next year or the year after. He doesn't have an idea off where the economy will be or end where the stock market will be right. But he can't sell with confidence where we actually stand in a market cycle or economic cycle based on the his story and screened data, he says that history rhymes and the four words that the investor should never say is. This time it's different. So the cycle repeats itself. There is the expansion, the markets are going up. Then they would a peak, and then there is a downtrend which once again is followed by expansion and so on. He SAIDs that psychology has a great impact on the price and on where we stand a lot of people, and announced says that there will be a recession in 2020 hovered Marks says no such thing . He just states that the current situation looks like we are still in expansion, but we may reach a peak. He notices that there's a lot of things investors should be afraid off by being afraid. And panicking are two completely different things. He believes that the portfolio should be skewed. It's over his defense, but not extremely so. In a nutshell. Howard Marks doesn't believe in timing the market. He believes that we should be aware off where we stand in an economic cycle and manage our portfolio accordingly. Judy Current situation. So, for example, after your recession, you should buy more aggressively and hold less cash and bonds, because if the history repeats itself, there should be expansion after recession. On the other hand, when the markets are going up for 10 years and the global economies are slowing down, your portfolio should be more defensive. You should hold more cash and borns, but not extremely. For example, if you take out all of your cash and you stay with all of your money in cash waiting for a recession, it is not wise thing to do. Why? Well, because the market may go up from this point another 40%. And when we hit a recession, it may go down on Lee by, for example, I don't know, 35% bad. So that's not a thing that Howard Marks would recommend, right? Don't stay all in cash. Just skew your portfolio towards defense and often offense right. So once again, the key thing to take away from this lecture is to know where we stand in an economic and market cycle and adjust your portfolio accordingly. In the following lecture, I will once again share can deduce main takeaways from the Howard Marks book called The Most Important Thing, which I definitely recommend you eat. And but if you don't at these go through those main takeaways and really trying to think about them and what day already present, okay, 26. 25 Benjamin Graham Formula: Okay, Guess so. Let's calculate the intrinsic value of the Disney company. Okay, so I got here prepared a calculator. Dad is online and that you can you simply just used the link that I provided as a resource off this lecture. Or you can just type this thing into your browser and it should take you to this page where , as you can see, you need to fill in a capital off things and just only free or actually four. And then you will get the intrinsic value per share. So let's do that. So d Disney value, Right? As you can see, the price of Disney s 146 dollars so you can even use do sense that use bad. I personally just use 146 if deep rises a bit bigger, right? Maybe above $100 or sampling dad off course. If you are trading a company, that's I know the stock price is around $5. You probably want to put even those decimal points, right? Yeah. Okay. So anyways, the other thing that we need is the EBS for the last 4/4 and it's quite easy to fight If you go to Yahoo Finance and here you should meet you should t e p s and and this dtm right ? This DTM here, it basically means trailing 12 month. So basically those last 4/4. So that's 6.64 Okay, so let's let me write down. So 6.64 and yeah, then we also need the expected grow afraid. And you should basically do the Kavala Tatis analysis and try to figure out the grow. Afraid on your own? I know that it's quite hard task to do so for now. I will just use the Yahoo finance and what d announced say so inside here. If you just go to the analysis that right here and then go down, you should be able to see the next five year grow frayed, which is 0.6%. So Disney is not expected to grow the hard Anyway, let's just plug it in and see what we will get. I think that we will not get a get daddy for the stock. The last thing is the career India on Triple A corporate bonds, and it will be pretty felt that you could just use this value, but actually, I think it's quite smaller. So if you just put Triple A corporate bond yield, you should be able to find a yet this one, for example, And there should be a chart of the Yield. And currently this at freeborn 05 So, yeah, you probably want to use this valley. So 3.5, and once you feel all of those things, you can get the intrinsic value per share, which is currently only $92. So the stock is actually overvalued by 57% and we haven't even added the margin of safety, right? Right. If you, for example, if the value should be something like 150 you still don't want to invest because you still want to adding margin of safety, right? And with this low yield, So this basically is a discount factor, and if it is slower, you want to add bigger margin of safety and if it is higher, you want to add some oil, a marginal safety. And so, for example, if you, for example, use 2% I just want to show you how much it will change, right? So if I just type in here too instead of free, the intrinsic value jumped off. No, like $40. Right? So it is really important what you type in here. And if you, for example, on the other hands, use something like, for example, five. And the intrinsic values only $56. So, yes, Benjamin Graham actually uses the Triple A corporate bond and then uses the margin of safety. Okay, so, yeah, that's probably the way to do it. 27. 27 FB stock analysis: Okay, guys. So let's actually compute whether we want to buy Facebook. And yes, so let's do that. We already computed the intrinsic value of Facebook based on the discounted cash flow, and we basically figure out the at Facebook seems to be a bit undervalued. And if you take a look at the chart, it doesn't seem that way, right? If you take a look a d summering off Facebook And if you go to like, let's say, five years, you can see that the stock has done very well over the years endeavor. A significant dips in the stock price. So do we actually want to buy Facebook? Why, Why? It is so well tile, right? It was able to go like around 30 maybe even 40% down in like, a couple of months. So you definitely need to be, like, psychologically strong. And, uh, you need to handle that. Your investment can lose 40% of your money within a couple of months. So yes, so that's definitely anything to keep in mind when buying a Facebook stock that the stock is quite volatile. And if there are some like big news coming out about for example, Facebook like some data breach or something like debt. Um, the Facebook stock usually gets quite destroyed in those days, but only that, then maybe the reason why today, it is not worth those, like $220. But it's only where those 149 and yeah, because it a lot of people are currently quite afraid off. First of all, the government breaking up the big tech right, that's a huge problem. If Facebook would have to be split it into, like Instagram, what's up? And Facebook? That would be really big, really big problem. And but on the other hand, there were a large amount off were known people who say that it is bring much impossible to break those companies up. Even Mark Zuckerberg stated in a interview, Well, it was leaked video from some intern and from Facebook. He said that basically, if they tried to break them up, he will just suit the own government, and he bet that he will win. And But at the same time, he says that it would suck to sue. You're your own government that he wants to cooperate, and Mark Zuckerberg is I think one of the greatest CEO today, and yes, so as I talked previously about what you are looking for from CEO is that he needs to be really, really great. It really matters. How good is the CEO and Mark Zuckerberg have made great acquisitions, one of the biggest acquisitions in tech. He bought Instagram. He bought what's up. He bought Oculus, and all of those acquisitions are paid off, right? And he made a huge amounts of money. But just by buying dose companies and as a blessed side, he also owns a huge percentage of Facebook. And so that's another great thing that he thinks like a owner. And you definitely want dead. You definitely want dead, and you don't have it with most of the other tech companies, right? If you take a look at Google, I'm not saying that their CEO is bad or something like Dad, but he doesn't own like, I know how how much action Mark Zuckerberg owns of Facebook, but he definitely doesn't own debt big of a stake in the company. Okay, Another thing that we may want to look at, its somehow compare Facebook to the competition. So Google. So if you take a look at these statistics and if we look at the price to earnings ratio, what company you think will grow the most you think it will be Facebook or Google? Well, in my opinion, definitely Facebook will grow much more, even though Google have also like great bets like Waymo and send like on a I. He is really a big player, but Facebook have great potential in their platforms, like Instagram, for example, Instagram checkouts could be, like extremely huge thing, right. It could really bring so much revenue to the company and, for example, the bracket also be great thing. But currently its maybe weighing the stock price a bit down and liberal may actually be the reason why the stock price is maybe a bit lower than the intrinsic value right about anyway . If you look at D B ratio, Grandest 41 the forward, it's only 21. And if we look at, for example, Google the competition, he have 28 currently, but D forward is 24 so that just demonstrate that DeGraw afraid off Facebook is higher right and also you can use the BG ratio so deep price to earnings to grow frayed. And this is five years to the future, and this is just two point to sakes. But Facebook is definitely smaller. It's only 170 right? So there's definitely a great thing to see in a company. So when we take a look at financials off Facebook, we can see the D revenue is growing quite nicely. It's it's really nice. Grow and dues are like high number growth, high double digit growth, bad yet also the the expenses are growing right. If you take a look at the research and development, it is growing. And also the selling as G A basically is also growing. But with Facebook, I think it is a bit reasonable because currently Facebook had to spend a lot of money on basically securing the platform against some data breaches and stuff like that. So he has to spend a lot of money on security, which I think in the long term will pay off. And also he has to spend a lot of money on, for example, a I that can basically figure out what the Facebook boast this all about, and then it can maybe try to fight like fake news and stuff like debt. Uh, so, yeah, I mean, those things are quite expensive to develop, but in the long surround, I think it will be It will really pay off to Facebook because, for example, if you are Twitter, you really can't afford to spend dead much money on tools like debt. But you are facing the same problems, right? You can see fake news on Twitter, just as you can see them on Facebook. Right? And it is huge problem these days, but Twitter definitely doesn't have dead. Much resource is to fight them, but Facebook really have. And I think that's a huge advantage in the long run, because the Facebook will actually be able to fight those things and then BG best platform for the consumer for the user. And it will generate more revenue and more profits. Right? So I wouldn't be debt much afraid off those things. Maybe if we take a look at Google and their financial statements, we can maybe compare it. So Google is obviously also growing their revenue quite nicely. But as you can see, they are also growing The SG A and the research and development expenses. So I think it's quite reasonable for those stick companies to in a wait and basically paying a lot of money, a lot of their revenue to just research and development. Okay, so let's move on as we can see the net income ISS actually dropping from the trailing 12 month from the from the 2018. And why is that? Well, once again, as I said, they spent a lot of money on those Ah ah, on those research and on those developed developments so on, I think it makes sense for D net income to be a bit slow, smaller as I'm saying, it's really the long term picture that I care about. And yeah, and the revenue is actually growing so that that seems fine. Onda. Also the EBS is growing very nicely. Okay, so let's actually take a look at the balance sheet, which I think the Facebook is really, really great company when you only consider the balance sheet with their read a huge cash pile right, there's 41 billion off cash and basically 50 billion if you count like Ned receivables, which you brought, issued and yeah, It's really great to see a company with debt, much current assets. And if you take a look at the long term asset, it looks quite nicely. Everything looks fine. I don't see any problems in here. And the great thing that I really like about Facebook is their liabilities. Pretty much they don't have almost no long term death, and their liabilities are really small. They can just pay off those liabilities all of those liabilities, with their current cash, and they will still have a huge amount of cash to spend on, like acquisitions and stuff like debt. Imagine what you can buy with $40 billion right? That's a lot of money. And yet, also, if you take, take a look at the retained earnings, they are growing quite nicely, and also they generated a huge amount of market cap for Onley. For for them right, that's like sen or maybe 12 times bigger, right? So that really huge. That's really great thing to see. And when taking a look at dig casual statements, um, I once again don't see any big problems inside here. Really, their Facebook is really one of the company's I really like and currently it it's not trading at a price premium. It's definitely trading at a discount, in my opinion. And yes, so if you take a look at the capital expenditures, the number is growing. Yeah, that's that's true. But also the operating guess who is growing a hand is growing much faster than the capital expenditures. So I think Facebook should be okay. Maybe we can compare it to Google, which is once again, another company that I really like. But in my opinion, it's a bit overvalued, thes days definitely compared to compared to Facebook. And as you can see, it is pretty much the same thing in here. And if we take a look, for example, at the balance sheet and it's once again a great company $109 billion in cash, that's huge. That's really a lot. And but they have a bit more in those liabilities. But really still, the current cash cash pile is enough to pay off all of those liabilities, right? Which is great to see in the company. They they manage depth quite nicely. And yeah, you maybe even want to compare Facebook to snap shut because it is like the competitors, right? Maybe one of the most direct competitors. Maybe even like dense sent. You can compare to Tencent, which is Chinese company that basically have the biggest Chinese social network called the jet. And yeah, but with snap shit. As you can see, it's not that great. They don't have that many cash. And if you take a look at those earnings, I mean, what is there to say, right? It's what is happening here. Okay. I mean, they're losing money at a rapid pace, and I'm not sure how much money it will generate in the future years, because I'm not sure whether there is really a competitive advantage that snap would have with Facebook. You really have the competitive advantage off the network effect, which is which is huge. But with Snapchat, it's usually used by younger generation, and those younger generation currently are. A lot of a lot of them transforms to actually Instagram, and another part of them maybe just switched those social networks. They definitely switched those social networks more often than those. What's a older generations like me? I never said that I'm old. That's that's weird thing to say. Anyways, Yeah, differently. Facebook have more competitive advantage. 10. Snap and differently. Those financials look much better. And as a value investor, you definitely want to stay away from snap because they don't even make a profit. And you definitely don't want to invest in like, gross stock with no profit. Even though if you look at the chart, if you bought somewhere around here, you would make a lot of money, right, Bob? Yeah. I mean, you probably don't want to even look at it. It's It's like it's just gonna be a temptation to maybe think about buying those stocks, some some like later on. And yes, so don't even think about it this way, if you would. But Facebook in the early days, you would make much more. Okay. So, as I said, let's also do the qualitative analysis, which means that let's take a look at De Facebook as a company, and I mean it operates in one of the highest drawing in the street, which is the online at industry. And definitely a lot of companies have started to spend a lot of a lot of money and a lot of time or Huns advertising online right on platforms like Facebook and on Google. And I mean, it means that Facebook will grow a lot. But the trend is clear, right? Those for example, companies that spend a lot of money on television now wants more targeted ads for users, and basically Facebook have a lot of data. Debt can provide that. But there is a lot of pressure from governments to for two Mason basically like, um, make restrictions so that Facebook cannot come collect all data around off off their users because a lot of users also doesn't like that. There were even option for people to actually pay to Facebook for basically Facebook app with, um, no ads, right? So they would pay like monthly subscription, and Facebook wouldn't collect any data and stuff like that. There were even option for debt. I'm not sure where Mark Zuckerberg standing right now, but I'm quite sure that he will make a in format of decision, and it will be the best decision for the company about anyways. If the government will regulate Facebook and Facebook would have to stop collecting dead much data about their users, they could you they could lose a lot of their profit. Because those ads, it wouldn't be as good targeted as they were. And that means less clicks. That means less revenue. Debt means less profit. And I mean, that is a huge problem for Facebook. But on the other hand, Facebook spent a lot of money on lobbying. And what do you like it or not? They can, almost by a lot off loss, and I think that yet this is really hard to tell right, But I think there is a reasonable probability that Facebook will just collect all of the data day want. And But anyways, let's also take a look at the number of users. So, as you can see when we look at the Facebook, so the Facebook platform and we take a look at the monthly active users worldwide, it is growing it is still growing. And but I'm not sure how much it can grow from this point, right. If we take a look, there's like 212 and 52.5 billion people that use Facebook, and there's like a 1,000,000,000 people in China that will not be able to use Facebook so and there's not that many people onwards. I mean, there's like, six billion people, I think, or maybe even more, but yeah, but still, if you take a look six billion people and also you need to consider that a lot of those people, for example, live in Africa and in dose countries or India, where they don't have access to Internet, actually, and there are companies that are trying to change. For example, Facebook actually started to build the infrastructure in India to provide the Internet for 40 Indian, right? And I mean they can get a lot of new, monthly active users for their Facebook platform, either from those from India and from Africa from those countries that that are not dead developed, right? I'm not sure how much growth they can see in us or in Europe, and because friendly inside here, they are pretty much established and a lot off. Just people are already using it, right? So I'm not sure how much they can grow from here. But I differently see the opportunities in those developing countries. And yes, So I would still say that the number is still going to grow into the future. And if we take a look at another statistics. This is the Instagram users, but this is from a different perspective. This is from the United States. And as I said before, right a minute ago. I don't see those countries like United States or Europe growing as much as those developing right, as you can see currently, we are at, like 106 million users, right? Bad. In four years, it will grow only to 125 which is like less than 20% increase. So that's like that? No, um, 5% per year. It was then that. So that's definitely not a good growth. 5%. I mean, McDonalds have growth off 5% and yeah, but that's only for the United States. If you take a look, if you consider those developing countries and all of those other countries, it will basically average out to quite decent growth. And yet also another big Abd at, uh is a huge kind of a future bet. 40 Facebook is the water you can. Still, Facebook has still a great potential with what's up and how it can monetize the AP and the Abbess growing quite nicely as you can see, and it's actually at 1.5 billion monthly active users, which is great. And I think a lot of people actually use this app because of the enter and encryption, which means this this app is actually like safe. 40. Users are day feel more private here, and that's a great thing. So because users are these days quite concerned about their privacy, and I also see a lot of potential for the future advertisements, right so Facebook could put a lot of ads inside this. What's up, right? They There are not that many APS these days that many ads these days in WHATS app, right? And the same goes for Instagram. They're like couple of ads, like in the stories and stuff like that. But Facebook can still add a lot off at space right for inside those platforms. And another great thing is, for example, messenger, which is a app, and I don't know how many users that have, but it's similar to Facebook, so definitely the Facebook already owns. Ah, lot off those abs and Darius. There are a lot of users, and the thing is that I'm most afraid off is they will you lose the competitive advantage to some new app to some new competitors, like tic tac? If you take a look, tick talk is quite new, and already it has around 80 million downloads worldwide, which is a huge number, right? And when Mark Zuckerberg was asked about Dick Toke to me, it seemed like he didn't put too much attention to tic tac, which is definitely a thing that I'm a bit afraid off. Maybe. Like Mark Zuckerberg just said something like that because, hey, doesn't want the public to think that he is afraid of tic tac or something like dead. I mean, there's definitely no point to panic right now because tic tac, it's still quite small when you compare it to Facebook and other platforms that Facebook owns. But still it is. It has a really nice growth, and there is a lot of people using it. Facebook is trying to actually fight, detect talk application with their new app called Last. So where it stable release in those markets that ticktock doesn't have that much users in, and they will basically try it out in Mexico, I think, and then actually kind of find out, like, fix all the box, find out what the user wants and then actually released the app in us and Europe. And yeah, what I think is that I would definitely prefer to use an app from Facebook rather than dick talk because of the privacy concerns. Right, Because 6 August, owned by China company by dense, um, and I would be definitely afraid to use the use the dick took ab. Um, but on the other hand, I would be probably open to transform for from tic tac to last. So bad. I'm not sure how many people will actually transform from tic tac toe last. So because, uh, there is a lot of people who are just lazy and don't want to download the new app and create new account. That's a lot of work, and they just don't want to do that. So I definitely see a big competitors in tic tac and I definitely afraid more. I'm definitely afraid more from off tic tac. Then I am afraid off Snapchat, right? Snapchat is these days. I don't think it is a bigger threat for company like Facebook. And yet, and on the other hand, I think that Facebook is really overbear of this and trying to find the way to fight tic tac. They still have a huge amount off monthly active users. A. I think they still have the power to actually beat dick talk. Another thing that I want to talk about is the Lee brought crypto currency, which these days are kind of hot topic, right? Libra iss basically a lot off. A lot of governments are afraid of Libra because they would basically like it would give Facebook a lot off power that they already have with the number of users that they actually have. And a lot of regulators are actually afraid of that. Mark Zuckerberg actually said that he will not release Lee, brought until all the regulators are will approve it. So So that's definitely a good thing, right? I'm really happy that he said that because there is. I think it wouldn't be wise to actually find the regulators on this topic. And yeah, it wouldn't be wise in my opinion. And yes, so I'm quite happy he said that. But as I said, I think the bracket actually changed the world off finance. I think it kills, like, really, in those developing countries where a lot of people don't have bank accounts. I think Lee bracket actually solve this problem and help a lot to these users. And obviously for Facebook, it could then mean a great source off revenue. If they put just some transaction fee, the Libra on loan could be a company that is as big as, for example, Lisa or something in some MasterCard, right? It could really be a huge bet, a huge win for for Facebook. But currently it is, um, a lot of people are actually worried that it will basically make the regulations worse. The the regulators will actually put more pressure on Facebook, and, uh, they will look more into Facebook and how it collects user data and stuff like dead. So, yeah, I think there are, like, two sides to look at. I prefer the side off looking at it like if the liberal will be approved, I think it can really change the world and bring a huge amount of revenue to Facebook. Another thing that I really like is, uh, the instagram check out so basically, uh, kind of e commerce platform make make from Instagram, a e commerce platform, which would be a huge, huge revenue source, for instance, for Facebook. And because the Instagram platform has much more users than, for example, Amazon right? And see how much profit Amazon mate. Yeah, I think, if they will managed to actually finish out. Does checkouts, I think Facebook to see a grades revenue source from the INSTAGRAM check out. And last but not least, I almost forget about the Oculus, which is once again a great company once again, kind of long term bed, which is basically it creates a We are set eso, which are a reality and also Facebook is betting quite big on those virtual reality can of games and stuff like that. It's bought a lot of gaming studios for that make actually games for We are. And I think Facebook and Microsoft are like two of those that are really betting big on the future in yeah, in those two in those areas, and I think it can really pay off in the long run. So yeah, that is pretty much all that I have to say. If you think that I forgot something, you can still mention it in the Q and A section. I will definitely come there and answer all of your questions. I will try my best. And yeah, I will see you next time. 28. 28 Intel stock analysis: Hello, gas. And welcome to this lecture. In this lecture, we will talk about the Intel Corporation. So let's get into it. As you can see on the one year charred Ah, the stock is kind of up and down all the time. Grant latest up. But there was a huge dip right here, right? It went from almost $60 too. Something above 40. And yes, So anyways, uh, it is a great stock. Probably All of you are aware off intel. It basically makes do. Is computer Teoh processors, right CPU and also does integrated graphic cards. So, for example, when you have a laptop and it is maybe a bit of a low end laptop, it's it's not a gaming laptop. You usually have a intel GPU inside it and s so I mean, it's established company. The market capitalization is huge red. So and also, DB ratio is kind of low, right? 13 p. It's it's not nothing too high when you consider that a safety 500 have p off around 20 or something under. So yeah, let me actually take a look at the Intel stock. Also, you can see they have a dividend off around 2%. And yet let me actually go and start with the financial statements. So cook nicking at the financial statements. First, let me start with the income statement inside here you can see that the revenue is is growing quite nicely, and the gross profit is also growing quite nicely. And yet another thing that you need to be aware off is that the research and development, even though it is kind of flat, is growing. But just by a little bed, um, the research and development in this area needs to be quite big, right? If you are, until you need to spend a lot of money on research and development to stay ahead of the competition. For example, a. M. D and NVIDIA. Right? Those two companies are kind of right behind Intel A and try to create new and better product. So if you are the CEO, you need to spend a lot of money on research and development. And yeah, I will get to it later on. So then we have the SG A And as you can see this SCANA steadily decreasing almost Yeah, it's very nice. Tsg a looks looks quite cool. And then when we take a look at, for example, the interest expense. As you can see, there is quite a low interest expense, and it's actually going down so that this always a good sign that the company doesn't have too much depth, right? And that's definitely a thing that you want to see and when looking at the net income, as you can see, it is like growing. But it's not that nice of a growth. It's not that steady growth that we would like to see. We would prefer to see that. But I mean, it is still growing. And with a company like Intel, I think we can handle this, right This growth. Ah, so let me actually go ahead and take a look at the competition. So if we go to a M d and we take a look at their financial statements, let's start with the income statement. As you can see, the revenue is almost like a fraction off the Intel's right. It's like 10 off the Intel's revenue or even less so that just tells you how big Intel really is, Okay? And yet, and when we take a look at the other numbers like research and development once again. And he spends a lot less money on research and development. Right, If you take a look, that's like divided by nine and you get the intel, the A M D research and development expenses. So what? That basically says, Well, um, it basically says that Intel is really spending a lot of money on the research and development. And if those money are spent correctly, it should definitely stay ahead off de competition, right? The A m d shouldn't be that big of a fret with, uh, only a fraction spent on research and development. And yet the SG A looks quite similar, right? And when we take a look at the net income and as you can see it, it's like the operating income has grown from negative numbers, okay, and the net income iss kinda all over the place, right? Those were negative years. And then there is one positive last to and I think the stock prices kind of reflecting the positive net income, and the stock just went up and up and up. The A m. D is great popular these days, and yeah, so anyway, let me just go ahead and go to the balance sheet. And once again, I will compare to Intel's balance sheet to MD. And yes, so Intel have quite a bit of cash. 11 billion cash is definitely good thing to see BAR. As you can see, the number, the amount of cash that they have is decreasing year over year at a pretty much steady pace and that it's something that you should definitely look into. End. Um, it might be a case where, until is just burning through their cash, and eventually they will have to start picking up depth in order to make those money for research and development and stuff like that. Ah, yes. So inventory gray need receivables. Who? I I think that overall there is a lot off accumulated depreciation and yeah, but you can expect dead with a company like Intel and overall, the There's a lot of assets to this company, right? It's almost half off the market cap off intel, and there is not that many liabilities. So the long term dead there is quite a lot of long term debt, and if you take a look at the direction right it. It's kind of growing up, right? It went from 20 to 25. And yes. So that is definitely I think that is worrying me a bit. Dad, they are growing their depth bar. They are losing their cash. Right? So that is definitely a bit of a warning sign. And, um yeah, and then we have, like, shareholders equity retained, earnings looks good, is growing. And the company is investing those money well, and yeah, And let's also take a look at the cash flow statements and actually compute the intrinsic value from from the cash flow statement. So inside here we have the free cash flow, which is kinda steadily growing. Kinda There was a dip right here, but yeah, I mean, it is this reasonable growth and yes, So, actually, let me take those numbers and put inside our calculators. So let's use those trailing 12 month. So 14 7 20 14 7 20 is the free cash flow. OK? D total cash. Me actually see Asus inside here in balance sheet and the total cash I usually use the current asset overall. So 28 787 and like this. And also we need the liabilities, the depth. And I also take the current liabilities plus the long term depth, which is Oh, for you on 0.7. So let's just use for you on 700. And yes, So, as you can see, the total depth is bigger than the total cash. And so let me actually go ahead and find out the shares outstanding for Intel Corporation. So go to statistics step and then inside year, where it issue here 4.45. So for for 350 and yeah, what is the expected growth rate off Intel? So what would you say? There s a huge company like Intel, which is really extremely Yes. You can see from the financial statements they are generating a lot of cash and they have a small p e. So what would you expect the growth for this company? Well, definitely. I wouldn't say that Intel is going to grow as fast as, for example, Facebook that we did in previous lecture. But on the other hand, until it's still operating in kind of high grow area, and I mean those computer chips will be needed and in the following years, and they will be Thea. Amount of them will get bigger, right? So I would still expect Intel to grow like a drowned seven or something like that. Let's let's also see the analysis off the stock. Maybe even more. Yeah, Inside here, you can see 7% is expected for Intel stock to grow. Yeah, I think that's quite reasonable. I think that's quite reasonable for a company like Intel. So let's just actually black that in and figure out what is the intrinsic value off Intel. So, as you can see, it is $46 currently illustrating at 5 57 Right. So if we put their 57 Potts 570.79 we get that it is actually overvalued by 23%. And debt is a lot, right? I would. Yet the entry point for me could be like if it would be down if it would be undervalued at least 20%. Okay, if it is undervalued, 20% and more, I will start buying the company. The same goes for Facebook, right? We figured out that it was undervalued by 16 I think percent. So, um, yeah. If if it waas under 20 I would broadly start buying Facebook and yeah, but as you can see, with the intel stuck, it is actually overvalued and what that means. Well, you definitely want to stay away from the company, and especially if you consider our debt. Intel doesn't really have that big of a moat, right? Did big of a competitive advantage. I mean, yes, it is generating a lot of money, and it is spending a lot of money on research and development. And basically, the competition, like AM D ends in video, are kind of lagging behind bod. The intel is if if Andy creates a better chip, I mean, it would be a huge problem for Intel, right? They have a kind of branding moment, right? So if you see Intel, you probably think yet it's probably well made processor or something like that. Bad. Yeah, This This is one of the easiest moat to actually break right, and I would definitely think twice about the moat off Intel Corporation. On the other hand, I can see that basically, intel and am D currently have a duopoly right on the on the computer chip market, right? Basically interlace commanding a bit more off the off the market. Dan A. M D. And there are not dead, many competition coming up. But on the other hand, a lot of companies like, for example, Amazon and and Google. They started to create their own chip write their own chips, their own processors and debt could be a huge problem for in cell. Um, because I mean companies like Amazon and Google have a lot of money to spend, and they could actually create a better product than Intel Corporation. But on the other hand, ah, they are can grading processors for not 40 consumer market, but basically for himself, usually. And so for their data centers and stuff like that. And but, for example, I mean, Google is trying to create the quantum computer right, which could be a huge thing in the following years. It could solve, like, unsolvable problems, and but on the other hand, Intel is also working on death, and they are kind of next neck and neck, right? You really can't tell. Can't predict whether Intel would be the first to actually have quantum computer or whether it will be Google and you really can't decide. But there are definitely competition in the Intel area and until definitely doesn't have dead big of a moat. And yes, so also, it is quite overvalued, so I wouldn't actually invest in until stock right now. 29. 29 MCD stock analysis: L O N well gowns with his lecture. In this lecture, I will talk actually about the McDonald's corporation. So Magdalene's is one of the most famous fast food chains, and it is like great company. And yes, so let me actually do the analysis off it. So, for example, one thing that I noticed right away is that they have quite a big market cap off 100 almost $50 billion. And another thing that I notice is that they have quite big B e ratio. And also, if you take a look at the graph, there is quite a big overgrowth right in the recent years. For example, if I put it at five years, the stock has done quite well. And and one of the reason four dead might be dead. McDonald's ISS have a reputation off a good company to hold in the recessions. Right? When there is a recession, people usually get fired. They lose their job, they don't have as much money to spend. And instead of going to restaurants and for dinner, they they just go to McDonald's because it's cheaper, usually and yeah, and so they usually McDonald's have the reputation off doing quite well in recessions, and that is maybe in my pennant. Partly the reason why McDonald's stock is has done so well in those recent years. Because and I have been in a lot of people these days are afraid of recession, and they are just moving money into maybe a bit more safer stocks, if if you will. But as you can see recently, if I just zoom it in a bed, as you can see recently it went down from almost $220 to I know that it was like trading and 1 80 at some 1 88 at some point. So maybe McDonald sock is a bit over a bit undervalued. So first thing that we may be on to look at is the P ratio. So if I put in here just m c D P E ratio and, um, it should there is a great page for it, this one macro trends and that basically show you his story off be ratio right over the years. And when it loads, um, and when it loads, you can notice dead. Actually, the B ratio waas at around 10 12 and it is steadily growing right. It is steadily growing. To those 25 it was a 28 p ratio, which is huge, right? That's like I mean, Facebook have P e ratio off for tea. And Dennis Facebook is growing quite fast about McDonnell's. I mean, Magnons isn't growing dead. Well, right is not growing anymore. And I mean, 25 b may seem like a bit of a overvalued stock, right? If especially if you take a look at the history where you can see that it was like trading at 15 maybe on average and stuff like that, right? It's Yeah, I think that Magdalene's maybe a bit overvalued just from the B ratio. But anyway, let me actually go ahead and start with the financial statements. And I also pick a company A competitors, right? Yum Brands and I will also take a look at their financial statements. So, yeah, let me start with the income statement. As you can see, the revenue has been going down and steadily going down, and but on the other hand, if I go to net income, it a scandal growing right, this kind of growing. Those trailing 12 months are a bit lower than last year. If I see it, Yeah, and yeah, I mean, but anyway, it iss gonna growing right again see the growing line in there. But inside here it is decreasing. So what is happening? Well, McDonald's is trying to transform to the basically franchise kind of model right where they don't actually operate the restaurants. But some other people basically opened up the restaurant, and they they they pay some fee to McDonalds and they pay. Yeah. Then they say, I don't know, like, a few percent right to McDonalds. And McDonald's is trying to transform from this model where day actually operate those restaurants to a model where dangers don't operate anything. But other people are opening restaurants under the franchise off McDonald's. And I think that is a good move. Right, Andi? Yeah. And so So let me actually go through dose as G. A SDA is actually quite steady at this, decreasing a bit, so that's definitely good thing. But another thing that I'm quite afraid off is those interest expenses. As you can see, it is growing, and it is growing quite nicely a hand it is growing at like 10% or something like dead. And that is definitely, I think, that you don't want to see right in the company growing their interest expenses because that means that the company is taking up more and more and more and more debt. And that's the thing that you definitely don't want to see. And yes, so anybody let me actually go to Yum Brands and take a look at their right. So as you can see the revenue of theirs, it's also decreasing right. And But it is just like fourth off the revenue off McDonald's. And when we take a look at the net income Eris, Ghana once again pretty much the same metric, right? Pretty much the same multiple of McDonald's that income. Even though McDonald's net income is growing quite nicely, the net income off Yum Brands is kind of all over the place, right? It went up and down and then kind of up, so yeah, it's ah, I would prefer to buy McDonald's and Yum Brand based on the income statement. Let's also take a look at the interest expense and yeah, this one is negative. In fact, I'm not sure. I think That's a problem off Yahoo Finance. This is like the older version off their financials, and I think that they put the negative numbers in here. But anyway, I think it should be positive. And so yeah, and it basically means they are growing their depth as well. So let's actually go to the balance sheet off those two companies. And, um, yeah, so inside here, as we can see, the total cash is growing. Going down right is going down a lot and from like 7.5 1,000,000,000 to almost like, almost like one billion. And like the total current assets, is also kind of on the down trend. Right? And that is definitely a thing that you don't want to see. And also, when looking at total asset is also going down. And like these last for years, it's been kind of study around those 32 for the free bar. Yeah, the trend, this kind of going down with asset and what is happening with liabilities? Well, with the current liabilities, it's pretty much the same. But I wouldnt bait soo much attention to it. But in the long term liabilities, you can see definitely see a nice upward trend, and that is definitely not nice to see if you are a shareholder. And also, if you take a look at the the long term debt, the company is picking up more and more and more and more depth, and obviously they will have to pay interest on them. And I mean, did balance sheet is home pose? Yeah, that that's quite horrible balance sheet, like really horrible, because the total asset it's almost the same as the long term debt, and that's like a total asset. So I think that's like, definitely think to be afraid off. And I mean, this is differently a horrible balance sheet. And based on this balance sheet, I probably don't want to invest in McDonald's unless they kind of start to cut off their long term depth. But if they will continue to grow their long term debt, I think that this will be a huge problem for the company. And yet, But if I look at the retained earnings, the figure looks quite nicely. It is growing, and McDonald's generated like $3 per $1 in retained earnings. So there's definitely a good thing, but let me also check out yum brands and how day stand. So as you can see, the format off this table is a bit different. But anyways, as you can see the total current assets, it's also kind of all over the place. But there is not that. Yeah, it's gonna kind of going down a bit. Those total assets are definitely going down, right? There are almost half of the assets, right from like in three years. That's that's huge. And yeah, but on the other hand, current liabilities are also going down. But total liabilities are going up, and death is because of the long term debt, which has been growing up. It almost tripled in like, four years, but there was like, huge gem jumped from this year to this year. And then it has been growing guy in the steadily, like just a bit, Um, but anyway, I think that the total liabilities are almost three times as big as total assets and the depth the long term depth is two times big as total assets, right? So that it's like a huge warning sign, and I would definitely not invest in yum brands and yes, so also retained earnings are kind of negative. I'm not sure whether Dallas a problem with Yahoo finance with this kind of how they show it . But if they grow retained earnings to negative numbers, I think that's like a huge problem. Um, yes. So let me actually go to the cash flow statements and compared. Oh, so, uh, let me just see. Wow, I kind of forget how to navigate in this kind of old version. I think that they changed it in most. And most companies currently have the the newer the McDonalds version off those tables, which is a lot better, in my opinion and yet, but anyway, um, when taking look at the free cash flow, uh, with McDonald's at a scanner growing kind of growing it it went down these years. And then it kind of rebounded and d trailing. To have month looks really, really nice, in my opinion. And like those capital expenditures are also growing a bit, but not as fast. So that doesn't look dead, bat. And when looking at wow, capital expenditures are a year and wow really kind find I can't find the free gas flow in here. Um, maybe I'm just missing something. Um, yeah. Anyways, so I I would expect yum brands to have kind of lower a lot lower free cash flow. And so let me actually computes the, uh, the intrinsic value of McDonald's stock. So 5 208 So that's the free castle that we will use. I I use the trailing 12 month. If you if you want, you can also try the average 40 last for years. And right now, we also need to take a look at the total cash Right on. So let's use those 40 50 free. Okay, so right here. 40 50 free. And then the total. That and there is a lot of that. A lot of that. So grand liabilities, That's like almost free and long term debt is Freddie one? So 34 uh, 34 billion. Right? As you can see, there is a lot a lot more than total cash. Um, yes. So let me actually go and find out. He shares outstanding. So statistics and then inside here shirts outstanding is currently at 759 million. So that's not a lot of share, right? And why is that? Well, because McDonalds have a great buyback program, but I will get to it later on. Um, the expected grow frayed ISS. Yes. So let me actually compute the expected growth. Frayed. Um, there is a expected growth rate off the fast food market, and it is expected to grow at around 5% during the period off 2019 to 2000 and 22. And s o, I would believe that Magdalene's would be somewhere around this kind of growth, this growth off the market. I'm not sure how much they can add to it, like maybe 1/2 of the percentage or point or something like that. But I would definitely say less than 6% for McDonald's. And let me actually take a look at body analysis. Say so. Analysis and then down here. Yeah, they say basically 6% grow. I'm Yeah, I can agree with that. I would maybe go with, like, 5.5% But anyway, let's use those 6%. And right now we get the discount rate. We use 10% kind of all the time. And with McDonald's stock, it also pays dividend right off around 2.5%. So that is definitely a good thing. And we can maybe because of the recession for years and stuff like that, we can maybe lower this a bit to, like, nine. But I would I would rather keep it at 10% and then maybe tried to do something with the intrinsic batty. Um, yeah. So, as you can see, ah, the intrinsic value is just a fraction off. Yeah, it is overvalued by 240% based on our calculations. But as I said, first of all day pay dividends. And so I would put, like, 8% in here. Ah, bad. Anyway, that's definitely not enough. And the balance sheet? It looks quite horrible. Theo, intrinsic value is quite lower. But uh huh. One thing that I really like about, uh McDonald's is if you put make down shares outstanding. Ah, once again, I also used in metro trends, which is great page for this. As he can see, it is going down quite a lot, right? It went from 1.2 billion shares outstanding to almost 0.7, so that's like almost half off. The shares were bought back by the company, and that is definitely a good thing to see. Right. And also, this might be the reason why they actually have such a horrible balance sheet because they are buying back so much off their own stock. But if I were like these days, right, they bought, like, almost 10% off those off those shares. And that is like there is extreme number, right? And that is also the reason why the stock price is going up quite steadily. Right? If you take a look how much it went down, right? It went down by half. And then if you take a look like it was you know how many years I forgot, Dad, but it went up. I think it was like, Yeah, so inside here we have it from 15. So let's actually take a look with Andy Figure like in 15. It was, like, almost been in, Let's say, Okay, this fording, Yeah, so almost been in, Let's say, and it went down by 1/3. So the stock price went up by almost 100% and something more than dead like 110 115. And you can see that only 40%. We're probably caused by those share buybacks, the share buyback programs. And, um, I think that this is a great thing to see in a company. Like if they do share buybacks, I really love it. I ah, this That's one of the best ways to return money to shareholders with McDonald's. You can also see that they pay very nice dividend and bar. On the other hand, recently, this dip was because, like disappointing quarterly results, right, that was I think this this dip, I think, and then the second dimples because the CEO actually stepped down and because of some scandals with, like, some employees, I know. But basically, day picked a new CEO, and I mean, um, I don't know much about the guy. I really like the former CEO. I think he brings a lot of value to Microsoft to to McDonalds and ah, I don't know that much about the new CEO. He he was the head of the American operations. I think he also worked at Kraft Heinz, but I'm not sure how much Ah, whether they will kind of still do a lot of those share buybacks and stuff like dead. I'm really not sure. And another thing that I'm a bit afraid off is that he doesn't really have any stocks off McDonald's. Well, currently, he is buying some shares, right because he's new CEO. I think that there is kind of pressure on him to actually buy a lot of shares of McDonald's and I saw that he was buying some some of shares. But it is definitely not that big of a amount as the former CEO. And that is definitely a thing that I'm a bit worried about. And yes, so I mean also, when you look at DP ratio and the intrinsic value that we computed, I I think that you can see that McDonald's is quite overvalued, right? If we take a look a D trend in P ratio I mean, if it would be trending at around those levels like 13 14 p e ratios, I think McDonald's could actually present a good buying opportunity and but um, they also have a horrible balance sheet, one of the most horrible balance sheets, because they have so much depth and so little assets. And, uh yeah, but on the other hand, if we take a look and the fast food industry value off their brands. I mean, might devalue off McDonald brands stim. Yeah, it should be around $130 billion $1,000,000,000. And if you take a look at the market capitalization IHS like, 150 right? So that is not that big of a difference between the value of the brand of the McDonald's corporation and the market capitalization. And yeah, I can definitely agree with the statement dead. McDonald's is actually a stock. Um, did you are actually buying a brand? And yeah, and it has a great mold off this off this bread, right? McDonald's. I'm not sure whether there are people out there who never ate at McDonalds and probably, yeah, but I think there are a lot less people who just don't know what McDonald's is. I think it's just a huge, huge brand, and I think that those 130 billions are well deserved. And yeah, another thing is that as I talked about Moz in, like previous lectures, um, the D branding mode, it's one of the kind of worst off the best ones, right? If you get me correctly, if you are, for example, creating a a, uh, kind of unique product that is much better, much better moat. And you could maybe argue a bit that McDonald's is. Usually it's actually kind of creating a unique product because you really can't get a no Big Mac burger at any fast food chains. But in my opinion, it is not as unique as I would like it to be because, uh, you can get a burger at like Burger King can. It is. Still there is not that big of a difference. Another thing is that the McDonald's definitely got it wrong with the chicken sandwiches where I D chicken sandwiches market iss huge these days, right? It's a lot like Chick fil A is a huge company, and McDonald's kind of forget about to consent, which is they were just saying, but those burgers right that they know and I think that one day actually create those chicken sandwiches and they are already destined them in some areas. I think that they could be a huge thing for McDonald's, and it can also bring and like another new revenue for 40 restaurants. So overall I wouldn't I wouldn't buy McDonald's, even though they have great brands. But But in my opinion, the financial statements look terrible, right? At least the balance sheet and also the value is is totally different. Andy Price. The price is much higher Dendy value and yet so I wouldn't buy my McDonalds. 30. 30 How to find value stocks: all right, gas. Welcome to this lecture and this lecture. I will actually talk about a stock screener and what it actually means and how you can actually find a potential value stocks in those stocks. Screeners. And yes. So what I really like to do is guilty to finbiz dot com. Right, I will link as a resource to dis lecture and inside here you have those maps. And I really like those maps because they are, like, interactive, and they look quite cool and you can actually, like color code. How much D company is up or down. And what I really like to do is actually look at, like, three months performance. And if he stuck is down a lot like, for example, Twitter, it might be a good value stock, right that you you maybe want to research the company because the stock is down so much, right? If it is down by third, it's It's a lot, right? And I bet that the intrinsic went down like two options. It it went over valued, and then it went back to the intrinsic value. And currently, this, like, fairly priced or it is just underpriced and devalues much higher. And with company like trader you and also need to do a lot of research about the developments and what kind of products they are investing into. Because with the social network platforms, I don't see that much of a bright future for Twitter. But we will see you. Right? But I wouldn't definitely can look at companies who has been going up quite nicely. Like, for example, Microsoft. Or like Apple, right? Apple is up 25%. I think that's ridiculous. And your RV? Um, yeah, but companies, for example, like, Cisco still might be a good chance to find a good deal because they have quite a big moat, even though currently, the cloud computing and stuff like that is, um, giving a hard time to Cisco. Um, yeah, but anyway, also, restaurant stocks are quite down. McDonald's is down 5%. Yem is down 10% almost 10%. Yeah, I also think Starbucks is down. Ah, bits. Yeah, and yeah, but I mean, it doesn't necessarily mean that you should buy the stock if it is down, but it means that you maybe want to research a bit the stock and see whether the intrinsic value ihsaa this may be hired indeed than the price, right? And ideally, if it is company that you already know that you are already aware off and you already did the qualitative analysis on this and you are only looking at deep price right on. And then this is a good to to actually kind of see what companies are currently doing well and what companies are doing bad. And yeah, as I said, if the company is down, like a lot of percentage in the past three months, I think that there is a good chance that is actually undervalued. And, yeah, you can even change it to, for example, one month and see, like, weather in one month and went down by a lot. Like, for example, Cisco did Home Depot and yeah, out of other other stocks. Yeah, like Buoying, right? Yes. Oh, so that is basically what I do. I kind of look at the three months I prefer, and I tried to find stocks that are actually trading at a discount. Yes. So if the stock is down by a lot of percentage, I just do the research on the company because potentially it could be a good value, A good buying opportunity, right? So yeah, that's pretty much it