Transcripts
1. Stock Market Investing Part 6 Stock Investment Evaluation Practical Exercise 2: Welcome to stop market
investment part six, stock investment evaluation,
practical exercise. Hello, and welcome to part six of my stock market
investing course. In this course,
we're going to do a practical exercise in stock market
investment evaluation. We're going to look
at a company and evaluate it as a
potential investment. My name is John Kelly. I'm an investment banker with
over 30 years experience, and I also manage my own
portfolio of stocks and shares. This series of stock
market investing courses is designed to
empower you to have the confidence to
increase your wealth over the long term by having the confidence to invest
in stocks and shares. So far in this
series of courses, we've covered Part one, Introduction to
the stock market, part to five essential
stock market principles. Part three, Are you ready to start stock market investing? Part for what do you need
to know about stocks? And then Part five, company evaluation
and stock selection, which precedes this
course and really takes on a lot of the lessons of Part five into a
practical exercise in this course, part six. Then we're gonna walk
step-by-step through a stock market investing evaluation process as
a practical exercise. This will also in parallel form the
project for the course. The course is aimed
at beginners upwards, even if you have some investing,
investment knowledge, you will find helpful
concepts and principles, learning points to make
you a better investor. Please note this is not
a get rich quick scheme. This course will not contain investment mechanisms and
recommendations or stop tips. It's focused on the
skills and knowledge you need to become an
investor speculator. At the end of this course, you will understand how to use the Excel financial
model that I have provided with the course
to evaluate stocks. There is also a scorecard which we will use to summarize
our conclusions. The final step of the
evaluation process. I hope you find this and all the subsequent parts
of the course informative, engaging, and easy to follow. And I look forward
to working with you the extensive
knowledge base we are going to cover
with the goal of making you a better
stock market investor. Don't forget to follow me
to make sure you didn't miss any of my courses
when I publish them. So let's get started. You'll now need to decide which company you're
going to analyze. Alongside my analysis of Berkshire Hathaway as
I teach the course, enroll now and I'll
see you in the course. So thank you for
watching this video, stock market investing part six. We're going to take onboard a practical exercise in stock market
investment evaluation. And I think you're going
to absolutely love it.
2. Stock Investment Evaluation Practical Exercise Set Up: Let me introduce you now to the stock investment in
valuation practical exercise. And this lecture is
going to be explaining exactly how to set up and
get ready to get started. We're going to conduct a step-by-step
evaluation of accompany, which we have already identified as a potential
investment opportunity. Now we've identified
this company as a result of our screening
for potential stocks. And in the exercise
we're actually going to evaluate Berkshire Hathaway,
Warren Buffett's company. Although you can run this in parallel and do it
with any company, like the initial
steps are to set up a folder on your computer for all the files this
exercise will generate. So you know that you have
them all in one place. You should start by downloading ten years worth of the
companies ten K reports. And in this case,
the last ten years of Warren Buffett's famous
shareholder letters, as I have done here. You can find all these at the Berkshire
Hathaway.com website. The link is on the screen. On the Berkshire Hathaway
website you'll find a great deal more
information which I encourage you to
explore in order to get to know the company
and his management better. We shall do this once we've moved through the
evaluation steps, Leaving the most time-consuming
tasks to the end. Only if the company passes
the evaluation process. I've left the detailed
review of the ten k's deliberately until
the last section. It's the most time-consuming. And therefore you should only
complete this final task if everything else has
postural screening criteria. I've created a spreadsheet
for you to work with, which is available
with this lecture. We should be building
this spreadsheet together as we go
through the lectures, I recommend that you make your
own company selection and work with me through the process as we conduct our evaluation. The bright green cells in the spreadsheet or
the input cells, and you can replace
your company's data with that in the model. Consider this process
as a starting point. I've distilled
much of what we've covered in the course to a simple process as possible to make it as
quick and easy as possible. And you may wish to add
your own evaluation steps. It's not set in
stone by any means. You may feel that you hit an unacceptable red
flag at any point. That's absolutely fine. That's the purpose
of the exercise. Stop. Stop there and rule out
investing in that company. You won't need to go any further with that company because you've hit a buffer which is an
unacceptable red flag. The 14 steps of this
evaluation are shown here. We're going to work
through each of these step-by-step in the
process of this exercise. And then also examine and
discuss our findings. The 14 steps are the growth screen, the
profitability screen, the owner earnings screen, the mode screen, the
capital allocation screen, the leverage, debt
and equity history, common stock history
and by Imax, intrinsic value, current
market data and rule of 72, margin of safety, management
evaluation, risk analysis, 10-K. screen and commentary, and investment
rationale and decision. Let's get started. Remember, some of
the information you will need will come from the ten K statements and other information from online websites such
as Morningstar, Yahoo Finance and Gary focus. Welcome to Berkshire Hathaway. That's the introduction to this stock investment
evaluation, practical exercise. It's gonna be very detailed and we've explained the setup. The next step is to get started
with the exercise itself.
3. What Questions do we need to ask?: I wanted to start off
by simply setting out the questions that we need to ask about the
company evaluation. The first decision we need to
make is to set the list of questions that we're going to ask about the company
we are evaluating. I've showed you the 14 steps of the evaluation exercise
I've set up for you. You can see them
here on the screen. Let's quickly review these so we understand why
they're important. And as you see, it's
everything from growth margin of
safety, risk analysis. But we're gonna go
through these one-by-one, starting with the growth screen. As a long-term investor, we want to focus
on companies with a strong history of
consistent growth, growth in revenues,
growth in gross profit, growth in pre-tax
profit or income, and growth in net income. You will have to subjectively
assess the consistency. And we will look at both
5-year and 10-year CAGR, compounded annual growth rate. The profitability screen is just as important as
the level of growth. So we're looking not just at
how quickly profit is great, but what's the absolute margins? And we're going to
examine the gross margin, the operating margin,
the EBIT margin, and the net margin. In addition, we're
also interested in the return on equity and the
return on invested capital. We will also check to see
that the level of return on invested capital ROIC exceeds the weighted average
cost of capital. Number three is the
owner earnings screen. Owner earnings are
an important measure of profits for shareholders, but these needs to be calculated
as they're not reported. We would use the results in our assessment of intrinsic
value later on as well. The mode screen is
really important. We've stressed repeatedly
the importance of an economic mode. This is evidence that the
company benefits from some sustainable
competitive advantages in its business model. This is the secret to
long-term success in business. Not only will we look for financial evidence
of an economic mode, we'll see how
Morningstar analysts have assessed the company. We will also
identify the type of aggregate economic mode as there are arranged
to choose from, and there may be more than one. The capital Alice
allocation screen is one of the most important
management tasks. At its most simple, this is the key decision
that the CEO needs to make. How capital is allocated will significantly impact
future returns. It also tells us much about the quality and the rationality
of the management team. Leverage the debt and
equity history comes next. A company with an
economic mode and sustainable competitive
advantage should be highly cash generative. As a rule, we want to avoid companies which have
substantial debt. This is particularly the case as we are leaving a decade of cheap money where balance
sheets have been loaded up with debt to fund share by
banks or for acquisitions. This, for me, is a simple
green flag, red flag issue. The common stock
history and buybacks. If companies are generating
high levels of cache and management cannot find strong economic projects
to apply it to, then share buybacks are
a great way to grow the value of the company
for existing shareholders. It's also very tax efficient. Note we want to see this
done with surplus cash and not dead intrinsic value. Note that we're paying
no attention to the market valuation
of the company so far. Now we're going to
form our own view on the valuation by calculating the intrinsic value
for ourselves. Unfortunately, this is
not straightforward. We will cover a range
of different options, discount and growth rates. The current market data
and the rule of 72. Now we bring in the
current market price, the price earnings
P0 and the peg, the price endings to
growth ratios for review. We also take this opportunity
to apply the rule of 72 to find out when we
might expect some of the key financial
metrics to double. The margin of safety combines our calculation
of intrinsic value with the current market value
to enable us to interpret whether the company is currently undervalued or overvalued
by the market. The margin of safety is a critical investing
metric and you should always be aware of what it is before you make
an investment. In the management evaluation, we want to be sure that we're investing in
a business with a management team
who is focused on creating value for
its shareholders. We will therefore review
management, compensation, integrity, transparency,
and rationality. Much of this
information comes from the company's reports
and press releases, as well as external
commentary on the company. Risk evaluation. We need to ask
ourselves what might go wrong with our
investment thesis. This is your opportunity
to check whether your assumptions and
conclusions make sense. It's a double-check to ensure
that we are not rushing ahead and making an investment where the head is
ruling the heart. The heart is ruling. Behead. The 10-K.
screen and commentary. Well, if you've got
this far without identifying any red flags, then you can sit back
and spend an hour or two reading through all these
ten K reports do downloaded, focus on the reports from the management rather
than the numbers. Now, you're looking to understand the story
of the business, the decisions good and bad
made by the management team, and how this affects
your view of the company over
the next ten years. Finally, we come to our investment
rationale and decision. The final step is to
establish if you want to make an investment
and if so, why? I will not discuss the level of your investment is that it's entirely up to you and your
personal circumstances. The investment rationale is just as important
as the screening. You need to have
a view as to why the company will continue to
flourish into the future. This then is our process. These are all questions. You may have more questions and have more analysis that
you would like to do. That of course, is
completely fine. You should devise a
company evaluation process that works for you. I would hesitate to suggest
shortening this process. As I think the steps we have
included are all important. That's a run-through of the questions I think
we need to ask. And it gives you a framework
and sets you up now for the detailed evaluation of the businesses that
we're going to look at.
4. Step 1 Growth Screen: The first step of AI evaluation exercise
is the growth screen. Just as a reminder, before we get started, our evaluation in all
these lectures is focusing on Warren Buffett's
company, Berkshire Hathaway. Although of course, I would be very much encouraging you to select your own
company and work with that in parallel
with the course. The first step is to input the growth data into
our spreadsheet, which I have done for
Berkshire Hathaway. This is what the
data looks like in the spreadsheet which
you've already downloaded. We can focus on our results, which is shown here. It's important that you
interpret what you see. You just don't take the numbers, you want to understand them. The first observation
I would make is that our CAGR uses 2020
as the final year, which of course was
significantly impacted by COVID. You can see a
significant drop in revenues and profits
between 20192020. You will need to factor this understanding into
your interpretation. The results in 2018
look surprisingly poor. Why is this? In the shareholder's
letter of that year, Buffett explains the
20.6 billion loss from reduction in the amount of unrealized capital gains that existed in our
investment holdings. Sounds very curious,
doesn't hit. This was entirely due
to a change in gap, which is the
accounting standards, which require the company
to report the net change in unrealized investment gains and losses on stocks
held by the company. Which of course four, if Berkshire Hathaway is a very
substantial amount of money, It's important given
that bunch of Hathaway is a portfolio of
a $170 billion, that you understand
the impact of this gap rule going
forward from 2018, the 10-year record shows a consistent record
of steady growth, which is a major plus when evaluating growth in a business, we now understand the
impact of the gap will change and the
impact of COVID, neither of which are fundamental
issues for the company. The gap changed and
forget is unrealized. Gains or losses. There's actually no change
to the business itself. Earnings per share growth
from Morningstar of 12.72% is a good figure to
illustrate the Rule of 72. If we divide 72 by 12.72, the result will tell us how long it will take
for EPS to double. The answer in this
case is 5.66 years. This is a really useful tool for investors to
understand and use. We'll cover the Rule of 72 in detail later in this
evaluation process. While the growth figures
are not off the scale, they are very respectable. Don't forget, the company
is huge and mature. There are no red
flags at this stage. The next step is to
quickly check through the reports or any comments
or insights about growth. I want to try to
inform myself and be able to better interpret
these numbers. One of the factors which
is immediately apparent in the shareholder's
letters is that banks are Hathaway can only
report its dividends from its investment
portfolio rather than its proportionate share
of owner earnings, which is significantly
understating the real value being
created by its investments. This point is clearly
illustrated by this extract from the 2018
shareholder's letter. Dividends received
2.966 million. 2.966 billion. Share of retained earnings
is 6.8307 billion, more than twice as much. The 2015 annual report, Buffett sets out his
recipe for future growth. This highlights the benefits
of reading and researching. It's worth quoting in full. And I quote, The managers who succeed Charlie and me
will build boxes per share intrinsic value by
following our simple blueprint of constantly improving
the basic earning power of our many subsidiaries, further increasing their earnings through
bolt-on acquisitions, benefiting from the
growth in our investees. Repurchasing Berkshire
shares when they are available at a
meaningful discount from intrinsic value and making an occasional large
acquisition management. We'll also try to maximize
results for you by rarely if ever,
issuing boxes, shares. I think that says it all
as a growth blueprint. What would a red flag look like? Well, either inconsistent
growth fast one year, slow or negative than eggs, or very slow or growth below
five per cent per annum perhaps would be a cause
for serious concern. So now we have a set
of acceptable figures, but we also understand management's plan
for future growth. On this basis, we
can conclude that our growth evaluation is positive and give
it a green flag. Next up, we're going to take
a look at profitability. That completes step one
of our growth screen. And you can see by
putting in these numbers and interpreting what
they're telling you, you can understand
the historic growth of the business over a
long period of time. And that gives you
confidence for the future.
5. Step 2 Profitability Screen: Step two is our
profitability screen. We're now going to evaluate the profitability of
banks or Hathaway. We can use the
revenue and profit figures from step one to
calculate the margins. This is the raw data
from the spreadsheet. We can debate
acceptable margins for a mature business such
as bath chair Hathaway, 15% EBIT margins and 14% average net margins
are more than acceptable. We can also see that
berkshire Hathaway is ROIC exceeds its cost
of capital WACC. Again, the picture is
one of consistency, which is very important. We are aware of 20172020
as potential outliers. But across the board, the profitability screen
gives us confidence the 2018 gap change makes the operating earnings
margin the most relevant profitability margin as it is not distorted by this gap rule. A quick check through the
shareholder letters to see what Warren Buffett has to say
on this topic is important. Up to 2018, Warren
Buffet measured performance on the basis of increase in book
value per share, 2021.43610%.721723
thousand in 2018, we know about 0.4%. Compounded annual game
between 19652018 was 18.7%, which isn't incredibly
impressive track record. These figures on their
own are strongly positive from an
investor perspective. However, in 2018, He moved away from this
metric for two reasons. The greater proportion of
wholly owned businesses rather than investments which
are not marked to market. And so whose value
is understated in Book terms was
the first reason. The second reason is that he expected that
the company would be a significant purchaser of its own shares below their
assessment of intrinsic value, but above market value would itself increased
book value per share. Note the unusual level of candor and honesty from the
chairman on this point. Lesson to be learned from this consistent profitability is the power of retained earnings, which Buffett highlights in his 2019 shareholder's letter. And it's a lesson
worth emphasizing him. If it Quotes John
Maynard Keynes and explaining the benefits
of retained profits. This highlights the long-term
benefits of retaining and re-investing earnings,
which compounds growth. We've already explained
the importance of compounding and Buffett
is highlighting how this can benefit
investors when profitable businesses
reinvested earnings every time the quote is, well-managed, industrial
companies do not, as a rule, distribute to the shareholders the whole of their
earned profits. In good years. If not in all years, they retain a part of their profits and put them
back into the business. Thus, there is an element
of compound interest. Keynes's italics, operating in favor of a sound
industrial investment. Whichever companies
you are assessing, consider if there's a
better way to evaluate long-term profitability than we using in the spreadsheet
for this exercise. What does a red flag look like? Well, apart from the
level of profitability, which is obvious,
the consistency of the track record is key. If the profits
record is erratic, it is unlikely that
the company has a wide economic moat and therefore would not
pass my evaluation. I'll conclusion is that
profitability is good to strong, so it gets green flag. Next, we're going to take
a look at owner earnings, which will also help us with our intrinsic value calculations later in this valuation process. That's step two, the
profitability screen. We want to see a good level of consistent historic
profitability in the business to give us the confidence that
the company can continue to deliver
that level of property profitability
and that level of consistency going
into the future.
6. Step 3 Owner Earnings Screen: Now we come to step three, which is our owner
earnings screen. Calculating owner earnings is important to get them
valuable earnings metric. And one which we shall use later to calculate one
method of intrinsic value. We should also see
in this lecture what we can learn from
Warren Buffett himself, for whom this is a
fundamental metric. We've started from
net income and added. We've started from net income, deducted capital
expenditure and added back the depreciation and
amortization charges. Most online resources
will provide the last five years
history for free. We've also calculated
the ten year record and the margin against revenues. The five and 10-year
averages are 9.612%.65 per cent,
respectively. The 10-year history is
consistent growth with the 20182020 results
already explained. These figures and the
growth rates will feed into our intrinsic
calculations later. You should also be
aware from reading the shareholder letters
of buyer Warren Buffett, that puncture Hathaway owns two businesses which are asset heavy and which will
require investment in excessive depreciation
and replacement costs. Understanding this can
help you interpret the owner earnings numbers
and understand why berkshire Hathaway
is CapEx exceeds depreciation and amortization
and significantly, but these are only two
out of 70 businesses. We have already seen the importance of
owner earnings versus dividends in companies where at Berkshire Hathaway holds
a minority investment. There is no reason
why you cannot apply the same methodology
to companies you hold in your portfolio and then measure them over time
to see how they grow. In the 2020 shareholder letter, buffet highlighted the
Berkshire Hathaway held 281 billion of
marketable stocks, I E, minority positions. He again reminded us that
Berkshire Hathaway could only report the share of dividends,
not owner earnings. But he explained the benefits of owning owner earnings
very clearly. Those under unrecorded
retained earnings are usually building value. Lots of value for bulk share. Investees use the withheld funds to expand their business, make acquisitions, pay off debt, and often to repurchase
their stock. An act that increases our share
of their future earnings. As an aside, I also want to quote buffet
on the value of being an investor who can select the best companies
for investment, which of course is the
purpose of this course. Of course, you didn't
really need reminding. Owning a non-controlling
portion of a wonderful business
is more profitable, more enjoyable, and
far less work than struggling with 100% of
a marginal enterprise. Another lesson from the
1980's annual report stresses the importance
of owner earnings. This approach would impact our management assessment later. It's also an excellent principle for you to judge the quality of management and how they
allocate your owner earnings. Buffett says, although
our form is corporate, our attitude is partnership. What does a red flag look like? Low-level of earnings
would be concerning. As a rule, I prefer to avoid very capital-intensive
businesses as these are expensive to maintain. Capex significantly in
excessive historic investment, DNA would earn a red
flag for me in puncture, although it has these two
capital-intensive businesses. But the cost of this CapEx, it doesn't get anywhere near far enough to cause me any concern. Conclusions are
therefore positive for owner earnings and it gets a
tick in the green flag box. So we can move forward. The next screen is to
evaluate economic modes. So that's a look
at older earnings. And you've got the spreadsheet
and you can put your data into the model and see
what you come up with, whether your business
that you're evaluating and a green flag or a red flag.
7. Step 4 The Economic Moat Screen: We now come to step four, which is the economic
moat screen. We already understand
the importance of economic moats from
previous discussions. These indicate that the company has a sustainable
competitive advantage, or indeed more than one. This is the mode
screen data from the financial model which
I provided you with. The first step in the
mode screen is to see how Morningstar have
classified our company, in this case Berkshire Hathaway. The economic mode here
is rated as wide, which is the best possible rating the morning
style can give it. This is a significant plus and I would go so far as
to say that if there was no moat than the red
flag on this issue could be enough to end
our evaluation exercise. What have you identified
for your company? Next, we can examine the
ratio of free cashflow, operational cash flow
minus CapEx to revenues. Any margin above 5% is an indicator that there
is an economic mode. The result for Berkshire
Hathaway is encouraging. The 10-year average is 8.96 and the five-year
average is 9.85. The strong net margins
are also encouraging. The next discussion
is more subjective. What type of economic moat does Berkshire Hathaway benefit from? There may be more than one, particularly in a
conglomerate business like bark to Hathaway. I think straight off we can say the Berkshire Hathaway benefits from significant
scale efficiencies, particularly in its
insurance businesses. I think boxes moat goes
further than this though. Firstly, Barker is a collection of wholly owned and
minority owned businesses. And we know that one of buffets key criteria is only investing in businesses
with a strong mode. We can reasonably conclude
from this that most, if not all of the
businesses within bulkier have their own modes, even if the nature
of these vary. The second doc, economic mode, which is related to scale, is the way that Buffett and Munger control
capital allocation. This enables them to
provide benefits to their subsidiaries in the
form of capital strength, which is particularly important
in insurance businesses. From this, it follows that
the aggregation of the float, the customer premiums held within the different
insurance businesses can be allocated strategically
and not on a piecemeal basis. These factors help to
explain why Morningstar allocates puncture
or wide moat rating. What does a red flag look like? Well, this is very simple. No economic moat
equals red flag. The economic mode
may be wide or deep, but there really
has to be one that is non negotiable in
mind evaluations. The next screen we're going
to take a look at is how Berkshire Hathaway
allocates his capital. That's step four, the
economic mode screen. It's a really critical,
very straightforward, but really critical screen
that your companies must pass. My opinion, if you're going to seriously consider
them for investment.
8. Step 5 Capital Allocation Analysis: Instead of five, we're
going to take a look at the capital
allocation analysis. This analysis, we're
going to take a look at the capital
allocation strategies of management over
a ten-year period. The fundamental role of the CEO and the board is to
allocate capital. And this analysis will put
them under the spotlight. This information is taken from the consolidated cash flow
statement of the company. You will have to tailor
the categories to fit the company
you are analyzing. But this will tell
us a great deal about the priorities of management and what you can expect from them in the future. In the case of
Berkshire Hathaway, the company does
not pay dividends. The company frequently buys and sells minority holdings
as investments. The numbers are negative because these are net cash outflows. Share buybacks are
normally listed in the cashflow statement is
acquisitions of treasury stock. This is what our data looks
like in the financial model. The results are interesting to nearly 40% has been invested
in capital expenditure. This suggests that
Berkshire Hathaway is actively improving the
businesses that it owns. Twenty-five percent
is being spent on acquisitions and twenty-five
percent on investments, but only 9% has been
spent on share buybacks. Although from Buffett's
comments recently, we expect this to be
higher in the future. This reflects the
market conditions of the past ten years. The equity markets
have been very strong. Berkshire Hathaway has had plenty of investment
opportunities, but fewer acquisition
opportunities. The equity market bubble
valuations of 20202021, I've seen even fewer
investment opportunities and an increase in share
buybacks by bulkier Hathaway. These figures, of
course focus on neon cash investing
activities and do not reflect unrealized
investment gains. In 20 twenties letter to shareholders buffet
admitted boxer made no sizable acquisitions and operating earnings fell 9%. This of course was the pandemic. Yeah, we did though, increase boxes per share
intrinsic value by both retaining earnings and repurchasing about
5% of our shares. This share buyback program costs $24 billion and can be
seen in the spreadsheet. I am personally very
enthusiastic about Mr. buffets capital allocation skills by not paying dividends
on which we would, as shareholders would
have to pay tax. He retains the money
in the business to continue to
grow the business. If you don't set any
shares, that growth, capital gain is
tax-free until you do. What would have red
flag look like? I've already said
that I'm not keen on very capital-intensive
businesses with a very high proportion of
capital is allocated to CapEx. I would be nervous. The normal course of events. I'm not keen on very
acquisitive businesses, particularly if this
is funded with debt. You have to understand the
nature of the company and intelligently interpret
the numbers that you see. In summary, the capital
allocation analysis is positive and
raises no red flags. The next screen
we're going to look at is the leverage screen in the next lecture to check to see how this capital was funded. That's the capital
allocation and analysis. We're really checking to make
sure that the management is doing its job that is allocating
capital intelligently, rationally, because that capital allocation
is what is going to drive future profits and future
returns to shareholders.
9. Step 6 Leverage Screen: Now we come to step six, which is the leverage screen. In our discussions, we
identify that businesses with sustainable
competitive advantages are cash generative. Wide moves should equal
positive cash generation. We therefore prefer
to see companies with surplus cash rather than those funded on high
levels of debt. This is what this screen
is going to examine. Take a look at your
company's balance sheet. We are going to extract
cash and cash equivalents, current and long-term debt, shareholders equity, and net
cash flows from financing. This is the dataset
for this screen from the financial model
that I provided you with. It is worth commenting in
regard to Berkshire Hathaway, that it has a liability on its balance sheet,
deferred tax liabilities. This represents the
capital gains tax, which would be due for payment if the company is sold
all its investments, as long as the major
investments are held. This amounts in
effect to a loan from the federal government from which the company
continues to benefit. In the notes to Berkshire
Hathaway accounts, the company splits out selected financial data for
the past five years, which is very helpful. We can see the split of the dead between the
three main businesses. Insurance, railroad
utilities and energy, finance and financial products. Not surprisingly, the railroad utility
and energy business, which is the most
capital intensive, accounts for around 60, 60% of the dead. These are largely
regulated businesses where future cashflows are
reasonably predictable. And debt finance to cover the necessarily high CapEx
is entirely appropriate. Significantly in the notes to the accounts you will
find this disclosure. Bark share does not guarantee any debt borrowings or lines of credit of B NSF, THE,
their subsidiaries. This means from an
investor's perspective, much of this that has no
recourse to the parent company, which is highly positive. We can see throughout
the decade under review that net cash has always
exceeded net debt. A healthy sign of
financial strength. The ratio of debt to equity shareholders funds has been very stable, around 30%. We know the railroad businesses
require debt funding. We also understand that the
insurance businesses are very cash generative if
you include the float. This makes the financial
structure very well-balanced. Review of the net cash
flows from financing shows us whether the company
has been raising debt to finance the business. The data shows this
is not the case. The 10-year net total of all financing activities
practically sums to 0. Our inclusion of
shareholder equity enables us to check
the 10-year CAGR, which is a very healthy 10.91%. The Rule of 72 shows this is
doubling every 6.9 years. One final check is
to see what rating Morningstar attributes to
boxers financial strength. As you can see here, it is graded a. In summary, it is clear that berkshire Hathaway is very
conservatively finance. Cash generation is strong, as you would expect
from a collection of businesses endowed
with their own modes. What would a red flag
issue look like? A combination of
poor cash flow and high debt-to-equity above 50%. I am wary of any company
which has been through a private equity buyout and then being returned
to the market, often saddled with
high leverage. Normally as a result
of restructuring the balance sheet to pay dividends to the
private equity house. Another issue of concern
which has been common in the past decade
has been companies buying back shares
funded by debt. This has been easy to organize as interest
rates have been very low and debt markets
liquidity very high. This has lead to reductions in the number of shares of
common stock in the market. An increase in the EPSC
earnings per share, often followed by a
share price increase. The main beneficiaries of
this strategy have been the senior management who share option compensation is often measured by increases
in earnings per share. It is possible for companies
with flat revenue, profits and cash flow to nontheless increase
their share price. And EPS through this mechanism. Read the annual reports very carefully when you
see this going on. This brings us very
conveniently to the next topic, share history and biobanks. Having established
that the company is not financing with debt, we need to see how profligate or not the company has
been with its equity. This is particularly important where companies are
regularly acquisitive. That step six, the
leverage screen, we're very happy with the conservative financing
of Berkshire Hathaway, and we're very happy to
give it another green flag.
10. Step 7 Share History and Buy Backs: Let's take a look
now at step seven, the share history and buybacks. This is a relatively
straightforward screen. We want to understand
whether the company has been issuing shares
or buying them back. Highly acquisitive companies
may use their shares to grow them by paying for
their deals in shares. As a long-term strategy, this is not to be encouraged. Far better to pay with cash from the balance sheet Providing is generated from the business. Debt fueled
acquisition strategies are also to be avoided. If the company has surplus cash, then share buybacks are a tax efficient way to return
money to shareholders. And the one I personally prefer. As already mentioned, some companies borrow
to fund share by banks. This may help CEOs achieve
their earnings targets, but broadly speaking, it is not in the best interest
of shareholders. This approach has unfortunately been very popular
in recent years, but may not be so in the future as interest
rates increase. The data for Berkshire
Hathaway looks like this from the
financial model. As we can see, over
the past ten years, Berkshire Hathaway has been a net buyer of its own shares. The majority of these
had been repurchased in the last two years from
the available data. Reading of Warren Buffet
shareholder lets us makes it clear that
he is extremely protective of Berkshire
Hathaway shareholders and uses the equity very
rarely for deals. The strong cashflow of the businesses allows him
to use the company's cash. This is a very strong
point in his favor and makes a review of this
particular screen very straightforward. An illustration from
Buffett shareholder, let us illustrates
my point perfectly. In 1993, he purchased disastrously
decks tissue for Ford, had written $33
million in stock. This is his comment
on the results. The fact that I
gave boxes stock to the sellers of Dexter
rather than cash. The shares I used for
the purchase are now worth about $5.7 billion. As a financial disaster. This one deserves a spot in the Guinness Book
of World Records. The lesson he draws some stock-based acquisitions is neatly summarized
a few lines later. The intrinsic value of the shares you given
an acquisition, must not be greater than the intrinsic value of
the business you receive. What does a red flag look like? Well, debt funded
share buybacks and high levels of share issues
to fund acquisitions. It's very simple. This neatly brings us to
step eight in our analysis. Intrinsic value. That's a look at share
history and buybacks. It tells you an awful lot about how management treat and view shareholders and what they put in terms of the
interests of shareholders, whether they put those
interests first. And it's something which
you really need to look at and ideally get a handle on whether the management
has been issuing loads of shares or
weather much better. They've been buying
them back from the cash generated
from the company.
11. Step 8 Intrinsic Value Calculation: Now we come to a very
interesting screen indeed, which is the intrinsic
value calculation. Calculating the intrinsic
value of the company. We are forming our own view on the value and not just
following the market. It does come with
some complexities which need to be
explained and understood. This is what our model
data looks like. Don't be put off. I'm going to take you through
it step-by-step. We're going to discuss
these numbers in detail to better understand
the intrinsic value. We can start this process
by taking a look at what Morningstar and guru
focus have to offer. It's important that
you understand the assumptions
behind their numbers. Morningstar offers a fair value, which is shown on their
homepage for the stock. Here we can see that
Berkshire Hathaway a shares are valued at
$480 thousand each. Note, this is the
correct figure. Buffett has never
split the a shares. Give me a focus, offers two
bases for calculations. Earnings per share
and free cashflow. In both cases, they take
the trailing 12 months, the TTM values, which is the most recent possible
starting point. The given focus model
is a two-stage DCF incorporating a growth
stage and a terminal stage. Each stage is ten years, but the growth
rate is different, assuming a maturing
and slower growth. The terminal stage. The model we are using has
a 10-year DCF growth stage, but then we are using a
perpetuity calculation, dividing the value by the weighted average
cost of capital, the WACC to get a
terminal value. This demonstrates how complex and apparently
simple calculation can be. Let us review the results. The GUI focus DCF, using earnings per
share of $55 billion, incorporates growth rates
of 11.9% and then 4%, a discount rate of 8%. And this calculates an intrinsic
value of one trillion, three hundred and
twenty-five billion, two hundred and forty
one million dollars. The GUI focus DCF uses a
free cashflow of 19 billion, growth rates of 9.9%, then 4% and discount rate of 8%. This comes up with intrinsic
value of 400 billion. Model uses a discount
rate of 10%. Growth rate of 8%. Weighted average cost of
capital of 6.545 per cent. Our calculations
use owner earnings, net income, and free cash flow. These are all figures which we have input earlier in the model. The discounted value
and terminal value are added together to produce an intrinsic value for
Berkshire Hathaway, using the three
different cashflows. If we use the GUI focus, earnings per share trading 12 months and free cashflow
trailing 12 months. Figures in our model, we get similar values to
the guru focus model. Similar but not the same. If we take the average of
all three cash flows and the average of the two cashflows from the GUI focus values, we get much closer. Nine hundred and seventy, three billion and eight
hundred and fourteen billion. The guru focus DCF calculator
averages 862 billion. What conclusions can
we draw from this? The computation of
intrinsic value is very complicated and can be
confusing and contradictory. I think the owner
earnings or free cashflow or the right
cashflows to use. You will have to be
very careful with your growth rate and
discount rate assumptions. Terminal value is very sensitive to the level of
weighted average cost of capital and makes up a substantial portion
of the total value. What does a red flag look like? Well, any value materially below the current market value
is at least a hold signal. If the intrinsic value of market value remain out of line, you may never be able
to invest without breaching the margin
of safety rule. Our values indicate
an intrinsic value is significantly above the
current market price. This provides a
significant margin of safety and supports a
potential investment. We therefore Award
this session and other take in the
green flag box. The next section, the
next screen will consider the current PE and PEG ratios and look more closely
at the rule of 72. So this is a complicated
one to handle. The good news is
that Morningstar and guru focus do the
calculations for you. But you should be able to
do them for yourself and understand the
assumptions behind any calculations that you use. Coming up with your own
intrinsic value calculation and understanding what you believe to be the value of the business is however,
critically important.
12. Step 9 Current Market Data and Rule of 72: Now we come to step number nine and we're going to look at the current market data and the rule of 72 in a
little bit more detail. To this point, we have paid relatively little attention
to the current market data. The purpose of the
analysis up to this point is to form your own
view on the company. Before you look at
the market data, we have touched on margin of safety in the last lecture when looking at intrinsic value. And we will look at that more
closely in the next screen. While I have little
interest in PE ratios, except for what they can tell
you about historic trends. I find PEG ratio is
more interesting. We would also discuss and
review the Rule of 72. This is what the data
looks like in our model. Starting with the
PE and PEG ratios, the easiest way to find these is to simply
look them up on GU focus and you
can see where to find them on the screen here. The price earnings to
growth ratio, PEG ratio, is a stock's price
earnings ratio divided by the growth rate of its earnings for a specified time period. Anything below 1 suggests that the market is fairly valuing or undervaluing
the stock. Above 1. The market is valuing
the company above a level appropriate for
its level of growth. As we're interested in
the long-term growth, It's worth checking
the PEG ratio. In my opinion. The Rule of 72 is also interesting for
what it tells us about the long term
growth prospects. The rule of 72 is a quick
and easy formula to estimate the required number of years for an
investment to double. You can use the rate of
interest on the investment. You can also apply the rule to the CAGR growth rate to see how long the metric being
measured will take to double. We can apply this to
revenues, 9.34 years, net income 6.70 years, owner earnings 6.31 years, and free cashflow 7.270 years. The average of these four
matrix is 7.40 years. This is encouraging but still relatively
conservative growth. What would a red flag look like? I would be concerned if the
peg ratio is significantly above 1 and would probably
not invested over 2, maybe wait for a
market correction. As a long-term investor, I would want to see a doubling
of key metrics within ten years or there may be
better opportunities elsewhere. This obviously means looking
for growth above 7.2%. We have now done much
of the hard work. Next, we will take a look at
what our intrinsic value and the market value can tell
us about the margin of safety should we consider
making an investment? So that's a quick look at the market data and
the rule of 72, we're bringing in
the share price, the PE ratio, the PEG ratio, and seeing what
it tells us about how the market is valuing
the business today. Completely separate to
our view on valuation, which we calculated when we calculated the
intrinsic value.
13. Step 10 Margin of Safety: We now turn our
attention to step ten, the margin of safety. Let's quickly refresh what we
mean by a margin of safety. This is a term which
was a central tenet of Benjamin Graham's Intelligent
Investor strategy. It's also consistent with Warren Buffett's rule
number one of investing. Don't lose money. Rule too, by the way, is never
forget rule one. The formula is one minus the current market price
divided by the intrinsic value. This means you should only
buy a stock when it is significantly below
your calculation of its intrinsic value. Benjamin Graham
recommended a margin of safety of
twenty-five percent. We have identified that the intrinsic market calculation
is not straightforward. In fact, it's quite complicated. And you would have to
make your own judgments about the results. Here we see three of the four metrics with a
positive margin of safety, even if the Morningstar
fair value is marginal. What does a red flag look like? Well, if all your margin of safety calculations
are strongly negative, it suggests that if all
other screens are positive, then you may have to wait for a correction in
the share price or an update or improvement in the economics of the
business before investing. It's not on its own and
automatic red flag, you have to use
your judgment here. The next criteria
we're going to discuss is the management evaluation. One of the most
subjective criteria of all those we have
discussed so far. That's the margin of safety. It's not a difficult
calculation you're taking or intrinsic value and comparing
it to the market value. And ideally, your
intrinsic value is higher than the market value, and therefore you're buying in below your intrinsic value. And that's what the margin
of safety is telling you.
14. Step 11 Management Evaluation: We come now to step 11, which is our
management evaluation. We've worked through
most of the numbers and now it's time to
take stock and to consider the management and
to evaluate whether they are management team we
want to invest alongside. This task really
is open-ended and relies on you reading
extensively about the company. We can review some
objective criteria that compensation arrangements, management's integrity,
transparency, and rationality. And these are all
hurdles that we want them to be
able to jump over. The management's compensation
information can be found in the Form DEF F4 for
US listed stocks. The information in
the UK companies in the back of the
report and accounts. This will tell you about
their cash, salary, their options, and the
restricted stock grants. You can find Berkshire
Hathaway depth 14, the link shown below, or simply, as I did
just Google it. Integrity is something
that you know, when you see it all, you see it being abused. Does management own
up It's mistakes? Is it candid about events
when they don't go to plan? Does management
provides you with enough information to
evaluate the business? Some management accounting
reports and accounts are very difficult to follow and
written quite deliberately so you don't really
understand what's going on. Is the content of the
ten K and the annual report helpful or obstructive. Is Matt management's
behavior rational? This is another one
that's hard to explain. But as an example, companies that inflate
their earnings per share with debt fueled share
buyback programs? Not in my view rational. It may however be helpful for their share option incentives. Of course. Having read every one of Warren Buffett shareholder
letter since the early 1970s, it is easy to give Buffet to Charlie manga and the rest of the Berkshire
Hathaway management, a clean bill of health. And to take the green flag box. And I strongly
recommend that you read these letters as
an object lesson in how to understand a very high-quality
management when you see it. Red flag would be appropriate
if you leave with the feeling that you would not buy a used car from the CEO? I can think of one or two, but I didn't want
to be defamatory. I regard this as a total deal breaker
and I won't invest in businesses if I feel that the management doesn't
pass this screen. The next screen we're
going to consider a risk assessment of our
investment thesis to ensure that we are acting with rationality
and intelligence. That's the management
evaluation. It's really down to you to do your homework and do as much
reading as you can and form your own view as to whether the management
that you're looking at is one that you'll be
happy investing alongside.
15. Step 12 10k Screen and Commentary: Now we come to step 12, which is the ten K
screen and common tree. Yes, if you are expecting the risk analysis
in this lecture, then don't worry,
it's coming up. But I decided to move the
10-K. screen up one step. If you've got this
far and remain enthusiastic about the investment potential
of the company, then it's time to
roll your sleeves up and do some serious reading. I've kept this step
until near the end because it is probably the most time-consuming and it would
be a waste of your time if the company throws up red flags during the evaluation process. I recommend going back
at least ten years, but go back further if you want. I went back to the early 1990's to read up on
Berkshire Hathaway. It's also worth
considering reading the reports of some of the
company's competitors. Pick up and read business
biographies that great, or books about the market, which will serve to further
inform your position. Insured, you really cannot
do too much reading. While the numbers
will tell one story, often the management's report, we'll put a new light
on matters such as the company inflating its earnings with
additional debt. Partially disguise
because it also had strong cashflow but
weak revenue growth. Again, if anything
you see causes you concern, either read further, step back and wait, or reject the business as
a potential investment, but do take stock
and think about it. We will test our own rationality and intelligence in
the next lecture, the risk assessment,
which is up next. So that's Step 1210 K
screen and commentary. It's a brief lecture because
the work you need to do is very time-consuming
and essentially obvious. And I can't really give you much more of a steer on it
other than to say, go and read those ten k's for at least ten years in the past to see
what's being going on. And then form of you.
16. Step 13 Risk Evaluation: Step 13 is our risk evaluation. This is where we're
going to step back and take a critical look at all the assumptions
we've made and see if they
still make sense. By now, you should be framing your investment thesis as to why you might like to make an investment in the
company you are evaluating. But wait, we need to
conduct a risk analysis. It is time to ask yourself, what can go wrong? Because remember, it,
something can go wrong. Often, it will. You confident in the
assessment of the business. If you consider a SWOT analysis, strengths, weaknesses,
opportunities, and threats, can you identify any risks that you have
not yet considered? One of the ways to
challenge this is through an understanding of
behavioral finance. Behavioral finance could be a section of
lectures on its own. Maybe it will be one day. But the key question
you have to ask is, have you miss
appraise the company because of your own mental
failings and limitations, have you made assumptions? It is easy to fool
the fool as they say, and nobody is a
bigger fool than you. Or indeed, I remember that
when it comes to investing, patience is a virtue. You do not have to
act or buy right now. You can just wait and
see how things turn out. The do nothing strategy
is perfectly acceptable. I've referenced Warren
Buffett throughout this course and
here's some tips to summarize how you
should approach risk evaluation
following the Master. Don't forget the first
rule of investing. Don't lose money. No, your circle of competence. Be patient and disciplined. Be fearful when everyone
is greedy and greedy. When everyone is fearful. Look for good companies with an economic mode and high
sustainable returns on capital. Avoid leverage and debt and
make your own opinion first, third, rely too much on the
opinion of other people. A red flag is difficult to
define for this screen. Anything you come across
in your reading about the company or articles written about it may cause you concern. Is management considering
a major acquisition has recently been a change
of the management team. Has there been a significant
adverse development in their markets
at home or abroad? Have one of the competitors come out with a
disruptive new product. These are just examples. You need to put your objective thinking cap on and see
what you come up with. The final step in our
evaluation process is to make the decision to invest
or not to invest. We also need to understand why we're proposing an investment. And we should discuss
that in the next lecture. That's the risk evaluation is really down to you to decide. If you've missed something. Have you made an
assumption which is wrong? Are you depending on an outcome which is highly
probable or improbable, but depending on something
to go right for you, in order to make your
investment work. Whatever it is, you
need to be very objective about your
thinking in this screen. And really be
prepared to criticize your own thinking to see if
you've missed something.
17. Step 14 Investment Decision and Rationale: We now come to the final step in our investment
evaluation process, which is the investment
decision and rationale. It's now time to
take stock of what we've learned about
our company and to see whether we can
make a positive case to ourselves to invest. To assist you with this, I have created an investment
evaluation scorecard. We should revisit each step
of our evaluation process, confirming the green
flag, red flag. We're gonna make summary
notes about each stage. And if you wish, and I will, you can give each screen
a score out of ten, which you can use at the end for future comparison
with other stocks. The idea is that you can print this out and put it in a file. This will enable you
to understand in future why you took the view
of the company that you did. You will understand why you either bought the stock or not. The scorecard is
available to download in both Word and PDF formats
from the resources section, downloaded, making a
copy for each company, and then follow me step-by-step as we complete the scorecard. Step one, the growth screen, I've awarded this
nine out of ten. We know revenue growth has been affected by the COVID pandemic. But still the 10-year net
income, CAGR is 10.75%. If you exclude the
COVID year of 2020, it's 18.9109% and EPS growth
is over 10% at 12.75%. This is a strong track record for such a large and
mature accompany. It's important, of course, to interpret the impact of the 2020 results on
the CAGR as it's the denominator in the
formula calculation for the compound
annual growth rate. Step two, profitability, where I'm giving this
eight out of ten, net margins have been
very consistent. Apart from the 218 the
2018 gap adjustment, both ROIC and ROE return on equity has been
strong and consistent as well. We have double-digit
margins over 510 years. You should also bear
in mind buffets 50 year track record of
outstanding returns as well. Long-term compounding
effect well highly benefit the profitability
returns going forward. In step three, owner earnings, I wore this nine out of ten. Now we know the railroad in utility businesses offer
great long-term growth, but with substantial investment, albeit on a non-recourse basis
where the debts concerned, we know the owner
earnings are understated due to gap reporting of
minority investments. They only taken the dividends. They didn't take in the
share of owner earnings. But still the nine-year CAGR, taking the 2020
years out is 18.69%. These are really great earnings for such a large business. Step four, the economic mode, this is an easy ten. Morningstar gives the company a wide rating, which is great. But we've also discovered that each business has its
own economic mode, both the owned businesses and the minority
owned businesses. This is very reassuring
on a collective basis. Step five, capital allocation. Again, I've given this ten. Buffett, among them are the masters of
capital allocation. I've been doing this
for over 50 years. And the fact that
they handle this on a centralized basis
is another big plus. Step six, leverage, again, ten out of ten. We know there's leverage used in the railroad, in
utility businesses. These are regulated
businesses and the debt is non-recourse,
so that's fine. The company has
huge cash reserves which are implied applied to investment and to
the business highly intelligently because it's
all done on a central basis. And debt is actively avoided. Again, very happy with
the leverage situation. Step seven, shares and biobanks. Well, Buffett, on record as being very
conservative with equity. He always prefers to make
acquisitions with cash. And he's now stepping up the share buybacks in
a significant way, particularly in the
last couple of years. I'm very happy that
the management, again, to treat the equity with
a great deal of respect. Step eight, intrinsic value. I've only given this
seven out of ten. This is complex and to
a degree contradictory. Morningstar gives it a fair
value of 480 thousand. My model calculations
are more positive, but the results from guru
focus are contradictory. So I'm having to be a little
bit cautious with this one. On Step nine, market
data and the rule of 72, I've given this nine out of ten. The, both the PE ratio and the PEG ratios are
very positive. They are very modest. And I'm very happy with those. The rule of 72.47 years, but we've seen that that's
likely to be conservative. So the market data is not giving me any
cause for concern. Margin of safety. Our model shows a margin
of safety of 40 per cent. This is supported by the P and the PEG
ratios which are low. Morningstar is more conservative and
Gary focus is ambiguous. Hence the eight out of ten. For step 11 management, well, it has to be at ten for Buffett, I'd score both him and
Charlie Munger 11 If I could. Compensation tick integrity,
absolutely Transparency, totally rationality,
absolutely straight forward. He's so rational and
logical and systematic. I absolutely loved what he does. So yes to all those, management gets ten out of ten. Step 12, the 10-K. screen, again, ten out of ten. If you read Buffett's
shareholders letters as I have, you'll see that he continually
explains what's going on. He owns up when things
don't go right, or if he's missed
doing something. And he's very critical
of his own performance. So that's exactly what I
want to see from the ten k's when you read
them and you get this set strong sense of
confidence in the management. Step 13, risk analysis, nine out of ten. Well, I'm not quite sure. I haven't again, at
nine, to be honest, the market cap at the
moment is 720 billion. Of that investments
are 310 billion. The cash equivalents
are a 143 billion. You then you've got this
amazing stock of businesses, which I'm sure individually, if you worked out
the value for the more would be considerably
more than that. Hence margin of safety. The management is fantastic. There's a 50 year track
record and I'm very confident in my mind
with any swot analysis. So all in all, I don't have any further
concerns arising from my reappraisal of
the investment risk. Step 14, the rationale
rash investment rationale. Ten out of ten, I struggle to think of a better balance of quality businesses
and management. This is not, of course,
a trading stock. This is a long-term value
compounding investment. And as such, I'm very
happy to decide that if at least within the hypothetical confines
of this exercise, this would be a yes on
the investment decision. Of course, please note this is an educational process that is not an investment
recommendation. This step-by-step review
of our evaluation process, I think, is a very
useful exercise. We can reconfirm our conclusions from each of the screens. The scoring is a useful
direct comparison tool, but other investments
and the report will go into her my investment file
and be reviewed periodically. You can download the
completed review from the resources section. In the final lecture, we will address
some final comments and summarize this
evaluation process. That's it, step 14, investment decision
and rationale. I hope you appreciate the logic with which
we've approached this, the systematic way we've gone
about it and the framework, but it leaves you to work with with other companies in future.
18. Final Comments and Summary: This evaluation process has
been reasonably complicated, so I want to leave you with a few final comments
and a summary. Firstly, congratulations
on getting this far with the stock
evaluation exercise. If you followed it
step-by-step, line-by-line, I think you would have
to put a lot of working, but you would have gotten
a lot of good value out. You will recall that I set out this list of
investment screens and analysis right at the
beginning of this exercise. If you've reached this
stage with your analysis, then your company
has passed the tests and you have a series
of green flags. You now have to make
the key decision to invest or not to invest. However, before you do this, you need to consider why you think this is a good
investment decision. What this amounts
to is coming to some conclusions about the
analysis we've been doing. Starting with the big picture, are you confident that you can see the company
you want to invest in continuing to flourish and grow over the
next ten years. If we look at companies like
Berkshire, Hathaway, Apple, or Microsoft, how do you
think they will do by 2032? What about companies like Meta, Facebook, tesla, or Google? I didn't have a crystal ball and I don't expect you to either. If you happen to have one, I'd be very happy to borrow it. But this is the view you
are trying to develop. Our analysis has considered
the financials in detail, growth, profitability, balance
sheets, strength and risk. We have challenged the
quality of the company, looked at his
operational strengths, economic modes, and risks. All the sums up our view about the quality
of the company. We have gone further and study the management for the
intelligence and rationality. We have read extensively
the information provided over a decade
by the company. We have challenged ourselves
in our risk assessment. Evaluation has been
deliberately bottom-up. We're studying businesses
with a view to taking a small part
ownership in the business. Your investment rationale must
be focused on the business and not on some macro
investment theme or trend. The final screen, we pulled everything together
with the scorecard to come up with a
measurable view on the investment opportunity. Of course, it's all
based on your judgment, but it is a reusable framework for every investment
you want to consider. At the end, the
decision is yours. Make it on the basis of analysis and intelligent appraisal
of information. Decide why you do or do not
want to make an investment. And don't forget,
you can always defer your decision until something
changes in the future. You don't have to act now, follow this process
and framework. Use this as a checklist, keep your scorecards and
review them from time to time. I cannot guarantee the results, but it's far better
than throwing darts at a metaphorical
dartboard. Don't be afraid to develop
the evaluation process and model in further ways that suit you and your
investment style. I hope you found the
exercise testing, but nonetheless enjoyable
and instructive. Those are my final comments on this whole evaluation exercise. I've designed this
process to make it thorough but comprehensible, logical, and structured,
and easy to follow. And I hope you found it so.
19. Stock Market Investing Part 6 Stock Investment Evaluation Practical Exercise Summary: Now we come to the
end of the course, the summary of my stock market
investing course part six, which has been a stock
investment evaluation practical exercise. Firstly, congratulations
on completing Park six of my stock market
investing course. I hope you found it informative, engaging, and of
course enjoyable. The next step is now to
complete the course assignment. You will find the financial
model which goes with the course if you
haven't already done so in the project section, use this to conduct your own stock investment
evaluation exercise using a company of your choice. Just funded the course
lectures step-by-step. In part seven of my stock
market investing course, the final part of the course, we're going to discover
how to conduct a ten minute preliminary screen of a potential stock
market investment. For this, I've created a
simple spreadsheet model, my stock screen calculator, which also forms the
project for the course. So it's very practical
and very hands-on. Make sure you click on the
Follow button so that you get notified when my new
classes go live. Thank you for taking this course and I look forward to seeing you again in stock market
investing part seven. I'm John Kali, That's been part six of my stock
market investing course. I hope you're getting a
huge amount out of this, and I'll see you very
soon in part seven.
John Colley, Digital Entrepreneurship jbdcolley.com
