​​​​​​Or you can just buy BRK-B. The best management team, lots of cash, fairly priced.

This. Hopefully this post inspires some folks to step away from these casino like SPACs when there are plenty of companies out there that are undervalued with strong fundamentals that provide significant margin of safety for your hard earned money. Here's a few I picked up on sale at various times last year:

SKYW up 140%

REGI up 260%

STLA up 135%

SOI up 61%

PUMP up 263%

EGY up 97%

SND up 288%

It doesn't take a rocket scientist for the individual investor to find these companies that have positive free cash flow and alot of cash on hand(Margin of Safety) in distressed industries that trade at unnecessarily low valuations.

I cannot stress Margin of Safety enough.

"It is a tenet of my investment style that, on the subject of common stock investment, maximizing the upside means first and foremost minimizing the downside. The deleterious effect of permanent capital loss on portfolio returns cannot be overstated."

Dr. Michael J. Burry

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Value investing is the key to big returns. Buying lows is much easier than selling high.

so, theoretically speaking, what sources could a novice consult to find a company with ‘+ free cash flow’ with cash in a ‘distressed industry’? I’m asking for a friend.

congrats on those nice returns.

Thanks. First I highly recommend reading a couple books first, The Acquirer's Multiple by Tobias Carlisle and The Little Book that Beat the Market by Joel Greenblatt. Both are quick, easy reads. Pair those with Investopedia.com where you can look up any terms you don't understand and get additional education on how to read an income statement, Balance sheet, and Cashflow statement. One Up on Wallstreet by Peter Lynch is another great book to follow up with. Also a relatively quick read.

Next you begin your research which starts with selecting your screening method and a good screener. I look for companies that have low EV/EBIT multiples(Enterprise Value to Earnings Before Interest and Taxes). It's essentially a better version of Price to Earning ratio (PE Ratio) because it adds the net debt of the company to the market cap so you have a better sense of the company's capital structure. I use The Acquirer's Multiple $45 a month screener. Gurufocus(also $45) is another great screener for EV/EBIT or EV/EBITDA screening. Free screeners are plentiful but those usually limit you to PE ratio screening with no EV related screening options.

Once I run the screener I look at the cheapest companies then look for quality. I search for a company that has enough cash to cover all its long term debt, is free cash flow positive in operations, and has decent return on invested capital. Almost all the companies I listed I have never heard of in my life so it's was intriguing to learn about the businesses reading their 10k. Some of these companies are so undervalued while gushing cash I invest after less than 20 mins of reading. I typically invest in 12-15 companies (anything more than that is a pain to track) equally sized.

Overall the key to all this is to realize you are purchasing pieces of a business not pieces of paper. If you take the time to learn how to accurately value businesses in the long run the market will reward you.

In the short term the market is a voting machine, in the long term it's a weighing machine, and it's weighing the free cash flows generated by the business. Your goal is to find companies that are trading at low to rediculously low valuation relative to its cashflows.

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Trip7 , can you please tell us what your annualized rate of return has been for the last 5 years, adjusted for cash flows in and out (XIRR)? What about 10 years? Your posts are very consistent regarding valuation and I’m curious to know how your methods have performed.

For me, plain old long term, buy, hold, sit on my hands of “nosebleed valuation, bubble stocks” has been 30% annualized which is about 20% above the S&P for the same time period. I do expect that to tick down around 1% or so this quarter.

Also, more or less thunderstorms in the summer this year?

I just started value investing last year. Before that I was soley in Index funds and Real Estate with 3% of my money in a "Sandbox" for playing with individual stocks. After extensive research on stocks I jumped into Individual stocks last years and with admitly fortune timing as the Market collapsed and offered me cashflowing businesses at low prices. In 2020 I returned 60%

I have no doubt you did 30% annualized with growth stocks. If you believe that will continue for the next 10 years at current nosebleed valuations good luck. Unless the majority of your portfolio is reasonably valued growth stocks like Google, Facebook and Microsoft history has shown those type of runs that are disconnected from fundamentals end very badly. Time will tell.

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You seem to read a lot about investing. Maybe too much? Everyone, their brother and their pets publish their tried and true method, their valuation models, their fool proof ratio etc. That’s all so complicated. We look for numbers to validate our feelings or something we just read. Conveniently, whomever published the book or article you’re reading can find all the data needed to back up what they sold you.

Im not opposed to reading these types of things for some abstract ideas, but when they narrow it down to something simple like “If XYZ ratio is below this # it’s a buy”, I disregard that.

How is this for value investing; if you invest in a company today, ignoring “valuation” and instead believe it’s product will expand around the world and revolutionize an industry (Tesla comes to mind, often touted as the ultimate overvalued stock) don’t you think today’s price is a value compared to what it is in 10 years?

My problem with looking at “multiples” and “ratios” is they cannot look at the possibility that a company like Tesla will grow car sales, battery sales, solar sales, satellite launch sales, satellite internet sales, car software subscription sales, boring company sales, electrical grid rebuilding sales and so on. Dividing this number by that number just simply cannot take potential into account. Do your value models take into account WHAT these companies are doing with all of that cash? If so, how does that fit into a mathematical equation. To me, what they’re doing with the money is more important than the money itself. Are they investing in technology? Sales? Advertising? Management bonuses?

The only shot we have is investing in companies poised for significant growth. I’m talking 10x and beyond. Sure, I can invest in a paper company with great cash flows but what returns will that give me?

My personal favorite example and holding is Shopify. For the years I’ve held it since IPO, it’s always been “overvalued”. It’s valuation was “rich”. It’s “multiples” were stratospheric. And yet, it’s returned over 20x (at times) for me. Will I give some of that back if I keep holding? Sure. The last two weeks I’ve most definitely given some back, but is that because it’s a bad company or it’s multiples didn’t fit into some Wall Street or CNBC model? No. Just tech not being in Vogue the last couple of weeks. Consider what Shopify does, the size of the addressable market and the vision that the leader has for the company and I’ll take that any day over PE.

Admittedly, I don’t know your situation or age so perhaps what you’re doing is best for you. But from a simple future potential standpoint, if you’ve got 20-30 years to retirement, this is the only true shot a lowly airline pilot like me has at Ed Bastian type fortunes.

Final note; do be sure to keep track of your performance vs a benchmark like the S&P, ultimately it’s the only thing that matters.

whew.

With investing there is not necessarily good and bad companies, just good and bad prices. I hope TSLA and SHOP are not significant parts of your portfolio because you likely will give back ALOT causing your future returns over the next 10 years to be drastically different. Heard of the Nifty 50?

https://www.investopedia.com/terms/n/niftyfifty.asp

TSLA and SHOP are story stocks. They are great businesses who's stock prices have become disconnected from reality due to the story/hype. The businesses will be fine, but those who invested at eyewatering prices will likely suffer permanent loss of capital. To justify its CURRENT valuation, TSLA would have to sell more cares than Toyota, VW, and Daimler combined at Porsche margins. Once again Good Luck

If TSLA stock drops 90%(quite possible) I'll be one on the first in line to pick up shares of a great growing business at a reasonable price with downside protection :)


https://uploads.tapatalk-cdn.com/202...d01ece3eb3.jpghttps://uploads.tapatalk-cdn.com/202...02d8b88e17.jpg

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You’ve got to do what works for you. But you are taking someone else’s work, Morningstar in this case, and assuming their “model” is an accurate depiction of current and, more importantly, future value. They adjust those “fair value” numbers on a quarterly basis simply because that is what they are paid to do. Imagine if they picked a fair value for 2040 and didn’t change it or give updates, how much business would they get from subscriptions. Wall Street analysts are even worse. Consider Morningstars fair valuation is a split adjusted price of $1750/share. Go back 2-3 years and see what their fair value was then. How does their fair value keep going up? What happens if you keep waiting for it to “come back down to earth” and reach fair value (hint, you lose out) and Morningstar doesn’t care. Because they keep churning out numbers that people pay them to churn out since it makes them feel smart.

If you want to give Tesla the title of a “story” then I’ll read it all day long. You mention it’s “unhinged from reality” but how was launching rockets into space and landing them on a postage stamp in the ocean within a couple of years part of our reality.

You’ve limited your investing to looking at a number that is the result of dividing one number by another taken from a quarterly report. You cannot achieve outsized growth without understanding technology, how it advances society and believing in the story which becomes a new reality every day.

You often talk about how valuations are extreme and I keep saying that in order to say this you somehow know exactly what a company is worth. So I ask you, what is Shopify worth? How about Tesla? What is this based on?

I don’t pretend to know those nor focus energy on trying to know. I don’t care. I look at what they’re doing, how they’re doing it and how they’re investing their capital.

Again, The doomsday bear thesis always sounds smarter. If that’s what’s important to you, roll with it. I’ll be the idiot in the room day dreaming about the potential of space x landing on Mars while I write investing posts to this board in my cyber truck which is being up linked via starlink internet as I smoothly bypass traffic in the massive tunnel under Las Vegas.

EDIT- For fun I checked on the history of morning star fair valuations. Their lowest since 2014 was 34.20 adjusted all the way up to its current “nose bleed” fair value of $349. Since 2014, if you anchored the price of Tesla based on Morningstar models and never bought because of it, you’ve missed out on some incredible growth. Like 15,000% kind of growth. And yet, Morningstar continues to “adjust” fair value up. What does that tell you?

The Motley Fool.

This is my only source for investing ideas.

This entire post sounds errily like Tech investors in 2000, or Real Estate investors in 2007. Be careful out there.

"The key to investing is not how much an industry will affect society or even how much it will grow, but rather its ability to make and sustain profits. And history tells us that eventually all excessively exuberant markets succumb to the laws of gravity"

Burton Malkiel

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A couple things;

First-
Its very in vogue to compare the market today to the dot com bubble. So I’ll ask you this; is there a difference between Tesla and pets.com? That’s why this isn’t the dot com bubble. Tesla is launching more starlink satellites today.

Second-
I added this update to my previous post and I want to repost it here, because it’s important“EDIT- For fun I checked on the history of morning star fair valuations. Their lowest since 2014 was 34.20 adjusted all the way up to its current “nose bleed” fair value of $349. Since 2014, if you anchored the price of Tesla based on Morningstar models and never bought because of it, you’ve missed out on some incredible growth. Like 15,000% kind of growth. And yet, Morningstar continues to “adjust” fair value up. What does that tell you?”

Third-
Do you think because you’re investing in “value stocks” today that they’re immune to the burst of a bubble? Bubbles, when they pop are indiscriminate and typically take entire economies with it. Based on your thesis you should not invest at all, and perhaps stash cash under your mattress.

Fourth-
I challenge what Mr. Burton Malikel says (what makes him so smart, anyways?). My challenge is based on this chart of the S&P alone (link attached. Still don’t know how to paste images to this board);

https://ibb.co/whR5RKNhttps://ibb.co/whR5RKNhttps://ibb.co/whR5RKN


Fifth-
When you invest in a company, do you want them to slow growth (be it geographically or by investing less in new technology) in an effort to maintain less EBIT and higher EV/EBIT, or would you rather they expand and invest heavily so as to increase EV in the future at the expense of the ratio today?

First, you keep mentioning new things Tesla is going without even an utter of how much cash flow the company will make off these innovations. The Concorde was very innovative and did JFK to LHR in 3.5 Hrs, costing airlines millions instead of making money. Moreover, a better comparison for Tesla would be Cisco. Blue Chip company, still around, founder is still a Billionaire. Those that invested at irrational levels? Permanent Loss of Capital.

2nd, this is not a question for someone who understands fundamentals of investing should ask. A stock's intrinsic value is it's future cashflows discounted to the present value. Over time a stock's intrinsic value will grow relatively close to its return on invested capital. As far as missing out on "growth", an value investor will always miss out on substantial "growth" with bubble assets. Folks that didn't mindlessly jump into GME at $200-400 a share missed out on lots of growth. You know what they also missed out on? Permanent Loss of Capital

3rd, Value Investor Joel Greenblatt returned 140% the year the tech bubble burst after underperforming the market for 2 years. I'm not completely immune to loss during a downturn, but my risk of permanent loss of capital is significantly reduced as I invest in businesses at a reasonable price that generate significant cashflows now with ample cash reserves instead of paying exorbitant amounts for "Hopes & Dreams"

Apple is a once in a generation company and probably the best company in the history of the modern business world. Not once did it trade at the irrational levels TSLA and SHOP are trading at. Once again, be careful out there. Permanent Loss of Capital is real and the emotional effects on an investor can be devastating. The chart below is likely the future of Tesla and Shopify, Billionaire owners, great businesses but a significant amount of investors facing permanent loss of capital due to buying the stock at irrational prices.

https://uploads.tapatalk-cdn.com/202...6c4af1fafd.jpg

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You said “permanent loss of capital” a lot in that post. Your investing seems to be fear driven which is very institutional in nature. “Investing is scary and risky” says Wall Street. “Let us take care of it for you; we are smart” they say.

Im not sure the relevance of GME to this discussion. It’s a typical case of a brick and mortar company not innovating and keeping up with the times. Hardly a SHOP, TSLA or AMZN. Their fate was sealed when the internet was invented and they failed to move beyond physical game sales. It’s current movements are irrelevant to this discussion.

Since you’re cherry picking time horizons with CSCO to justify your theory I’ll do the same. Here is CSCO from 2004–Present. How is this a permanent loss of capital? A great investment? Meh. Not really. But if I bought a share in 2004, for $18 and it’s worth $50 today....I’m not sure I’m following the point you’re trying to make. See image.

https://ibb.co/0GdNq2S

Now “this is not a question for someone who understands fundamentals of investing should ask.” You say. But if you understand fundamentals why are you relying on fair value estimates from morning star. Compare that to any other analyst firm out there and their fair value is different. So does everybody NOT understand fundamentals? Don’t forget, the market is future looking, not backward. All of your data you’re using to inform your decisions for investing are using historical data that cannot harness the future of innovation and technology.

All that being said, you’re still in the 1% of people who even care to invest time to learning some sort of investing acumen. You’ve done your research and while our methods are very different, you’ll still come out ahead than those that don’t. I have no doubt about that. I’ve got my data, let’s reconvene in 5 years when you have yours. I recommend creating a simple spreadsheets that tracks cash in flow and out flow with dates. From there it’s very simple to run an XIRR calculation to compare your performance to an index. Good luck!

You are confusing Tesla with SpaceX. The two have the same CEO, but are financially independent.

Right click on the image you want to post. A menu will appear. Left click on the menu item; copy image. Come back here place the cursor where you want the image to appear press cntrl/v together and presto:

https://i.ibb.co/yFXHX8n/95379-F10-C...-B03-D0126.png

No confusion. What you’re saying is true, the common thread (Elon) is the investment. When SpaceX IPOs I’ll be first in line for that stock too, hoping to get a crack at it in MicroVentures before IPO, actually.

thanks! To this day I still cannot log into the forums on my desktop. I can only post from my iPhone. It’s been that way for years. Thus my inability to paste an image.

I get what you’re saying, and I’m kicking myself for selling SHOP a couple months ago, but Trips numbers on those stocks he posted, are pretty phenomenal. He may not get as many 10x and 20x trades, but really, how many are actually out there from year to year? Trips system has uncovered (I didn’t count) 8-10 doubles and triples in a year and a half, and like he said, timing has been on his side, but it obviously works. What’s wrong with using his system? It’s obviously working for him. I actually bought one of the books he mentioned to do MODD. Also, because I just love reading about different ways to approach investing and trading.

I think you’re being a little too critical on his approach to the markets, when there are people who are more risk averse out there than others. And even though companies like SHOP and TSLA have out performed the markets by a factor of 8-10+, there has been more risk in holding those companies.

The important point of all of this is that, all it really takes is a few outsized returns to generate the wealth. The only way you can do this is long term, buy, hold and wait. You cannot let a ratio inform the decision.

Trip has done great. There are many ways to skin a cat, but his data cannot be considered statistically significant. If we are playing the short term game, for every double or triple he has produced I can produce a 10x for the same time period. What matters is long periods of time and outperforming a benchmark. A few names have become the bulk of my PF much like a few names dominate the S&P. That’s how it works. That’s my point. Let growers grow and they provide the outsized returns over time. It doesn’t take many. The rest become fodder and, yes, every now and again some go to zero and result in the :::gasp::: permanent loss of capital.

Investing (trading) in and out based on dividing a couple numbers will cost growth and by no means disproves that growth is dead.

What I want to do is provide a counter to Trips incessant posts about “nose bleed valuations” so that, perhaps, others interested in investing for growth aren’t driven by fear and ratios, but by seeing the bigger picture. It’s worked for me, I have the data, it can work for others.

And with that, there isn’t much else I can say without repeating myself. The valuation game is an age old tradition that ultimately leads to price anchoring and missed opportunities.

Look forward to the 5 year checkup when real statistical data can be provided. Until then! 🍻

Food for Thought
 

There are lots of great ideas on how to invest, what to buy, etc.

Is the end goal a large pile of cash or is there a purpose for the pile?
How do you generate cash flow from the pile, so you can retire?

For me, the goal is to retire early and not end up in an unfortunate position like so many in our industry of empty promises. I see investing as my only chance at that. If I retire at 55 and If on my last day of life there isn’t a penny left in my accounts I did well. If there is some left, good for the kiddo.

Make no mistake, I am not anti growth. I own FB. I own several Biotech and Healthcare companies. I go where ever I can find sheer outrageous value. What I'm warning against is, no offense, statements like you're above where you are ready to jump headfirst into SpaceX's IPO with no idea of the company's financials solely because they are launching rockets. What Space X is doing is pretty cool but so was the dawn of the jet age which caused permanent loss of capital for many airline investors.

With that said if you are trading these story names using Technicals and Momentum that is more reasonable than saying you are buying and holding. At least in most cases the technic signals will save you from horrific losses

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Sir, I couldn’t disagree more. Do you value “invest” and are a technician as well? We probably won’t ever agree so Let’s just leave it at that. Like I said, I’ve got data to back up my methods. Let’s talk when you do too.

I don't think much about the market. Don't day trade. Have a brokerage account but don't use it. I dollar cost average my money into my 401k, max out the 415c limits / personal limits, have two kids' college half-funded through Post-9/11 GI Bill (plus some 529 money) and have one rental house that generates minimal income (principal still being paid down). I'll also have a little mil retirement at 60 and an even smaller civil service retirement at 62.

Anyone care to quantify what I'm missing by not diving into all this stuff you folks are discussing here? I like to learn new hobbies and new skill sets, but this sounds like a time-suck I'd rather not take on. Am I in for major regrets when I retire in 15 or 20 years, or beyond? The very basic retirement calculators tell me I'm "ahead" when mapping current retirement savings vs age (even without considering any pension funds), and my finance guy says he's happy with my trajectory toward "work optional." What do y'all money home-brewers say?

The things I've said on this thread are nothing more than the result of a couple decades of tinkering with investing. Seeing what sticks and what doesn't. Ultimately, what I've come full circle to realize is that what you're doing is the way to go. That is, keep throwing money onto the pile and max all those tax advantaged accounts out. If you want to index in those accounts, go for it! I choose individual equities to juice my returns, but I essentially do the same thing as you and dollar cost average into my favorite companies. It's worked out excellently.

While the vehicles within our accounts are different, we have the same approach; ignore talking heads and their ratios, average in, rinse and repeat, ignore noise etc. So, no. You're not doing anything wrong!

The time suck can come in when you are researching individual companies to invest in. I can get lost on The Motley Fool for hours (it's great reading material to download for a long flight though). I do lots of reading and research about these companies, I don't crunch many numbers. It's a hobby of mine. So if you want to learn basket weaving and have some skin in the "game", keep doing what you're doing!

And whatever you do, don't watch the clowns on CNBC.

I’m with you. I’m more of a ‘set it and forget it’ type person when it comes to investing. It does not interest me in the least, and I don’t want to learn it. I’m happy to max out all of my tax advantaged accounts and dump excess cash into other investment accounts that are managed by others.

But, I don’t want to be screwed come retirement time. I assume that the average Delta pilot makes enough money for this strategy to work, but don’t know that for a fact.

It really depends on when you start investing and how high your annual expenses are. I would think most Delta pilots can invest enough to live a comfortable retirement. If you’ve been spending every dime you’ve earned until you’re 50, then you might have some catching up to do.

amen to that one!

Absolutely nothing wrong with that. Set it and forget it investing with index funds and ETFs is a solid plan that should give any Delta Pilot a solid retirement. Investing in Individual stocks beyond a very small part of your portfolio requires significant time for education and research. I only recommend it if you are passionate about Businesses and Investing.

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Much of the Side Hustle discussions lately have centered on investing techniques. The broader discussion includes businesses, side jobs, etc that generate a source of income outside of the airline job. It's all about spending a little bit of time building a safety net or second income stream. As far as retirement goes, I would expect your approach leaves you in good shape. Beating the S&P by investing directly in individual stocks over decades is an oddity more than the norm. The Motley Fool is one of the better routes to take if you are playing that game.

You can spend hours if you really want to get into it, but a set it and forget it approach works well for most pilots. I've spent a fair amount of time with options trading, day trading (in fractions), active and passive real estate investing. The stocks/options are more of a hobby that is about to get replaced with GA flying. Real estate management and investing is the Side Hustle that generates income.

In your situation, with a set it and forget it approach a few passive real estate investments could be a good fit. If you are inclined to take on a more active role, adding a few houses over the next couple years could be a good approach. Depending on the amount of capital you are willing to invest outside of stocks, ETFs and mutual funds, you may even consider buying a storage facility, RV park or apartment community.

Anyone gotten their RE license and become their own agent for purposes of selling a house? Create your own LLC to do so?

Bought a new construction home where the builder was also his own agent under an LLC. He essentially paid himself the seller’s 3%. Smart.

Anybody else just spend recklessly on stupid hobbies as a side hustle?

I am going to start a landscaping side hustle because I like having a truck and being outside 🤡.

I actually have made a slight profit selling my homebrew recipes to brewers.

Might buy me a used Miata with my financial windfall.

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I’m sure the paperwork would make it prohibitive but I can’t be the only one on APC who’d buy a bottle or two.