How do you Pitch a stock idea like a hedge fund manager... easy! fill the blanks
How do you Pitch an idea for a stock like a hedge fund manager?
easy! fill the blanks
I want to thank Phil Town for the original idea, he calls this the Rules Story form.
I appreciate a lot the clarity that it brings to presenting an idea.
Is amazing how people that have never presented an idea, can clarify a couple of definitions, and put their thoughts.
I also suggest going through a checklist to clarify your ideas before filling the form and presenting the idea, if you are still not using checklists I suggest reading the checklist manifesto, Im sure youll find there nothing like a checklist to make you rethink any idea you felt sure about.
I learned from a book called The Back of the Napkin to define a "problem" with the typical questions like: Who? What? How many? Where? When? How? Why?
So fill in the blanks! Enjoy!
Investment idea
Who? What? How many? Where? When? How? Why?
WHAT?:
STOCK SYMBOL: CURRENT STOCK PRICE: $
COMPANY NAME:
What does it do?
This company is in the industry.
Competitors:Market CapCompetitors: Rule One ScoreCompetitors: Management ScoreCompanyRanking By:Rank
Market Cap:
Rule One Score:
Management Score:
In the next ten years, I believe this industry will: grow shrink stay the same.This is a(n)
easy
hard
too-hard industry for me to understand because: .
I think this company is good for the world because:
Summary of Understanding: (The top three reasons to own this company for at least the next ten years)
1.
2.
3.
MOAT: (Intrinsic characteristic(s) that makes this company difficult to compete with):
This company has Brand, Price, Secrets, Toll, Switching moat(s).
The main advantage(s) this company has over its competitors is
(characteristic).
This is a durable competitive advantage because:
.
Historical Growth Rate numbers DO DO NOT help confirm the company has a good moat. Rule #1Moat Score: .
Historical Average growth rates (of all four historic periods – 10yr, 7yr, 5yr, 3yr):
Description
Average Growth Rate
Book Value Per Share (BVPS)+Dividend Growth Rate
%
Earnings Per Share (EPS) Growth Rate
%
Operating Cash Per Share (OCPS) Growth Rate
%
Sales Growth Rate
%
Based on these averages, what overall Future Growth Rate (FGR) would you project for this company? %.
If Growth Rate Numbers DO NOT confirm Moat, is this because of short-term problems the last year(s)?
Yes No
WHERE?:I found this company in my 4 Circles in the:
Talents
Passion
Does the world need this
Money circle
OTHER Ways I found this company:
WHO?:
MANAGEMENT:
The CEO is a: founder, serious owner, long-time CEO recent CEO.
He She does does-not have a Big Audacious Goal
The CEO's letter does, does-not help tell me what I need to know to value the stock.
I trust him/her with my retirement money because: _____________
Rule 1 Management Score increasing, decreasing no change
ROE increasing, decreasing no change
ROIC increasing, decreasing no change
Debt (in years of earnings) increasing, decreasing no change
The above confirm the CEO is doing a good job: Yes No
His pay and options are excessive? what are his/her motivations?
HOW MANY?Are there any other value investors buying it?
Investor % of portfolio invested Average price paid per share 1
2
3
Are there substantial put or calls float?
WHY?
Problems:
The solutions are:
The company has has-not solved these problems.
VALUATION METHODS:
CURRENT PRICE PER SHARE $
1) Earnings Power Value (multiplied by 10): EPS TTM (Earnings Per Share/Trailing Twelve Months): $ Future Growth Rate (from calculator) or your own Estimated FGR % Future EPS in ten years $ Estimated Future P/E Ratio in five to ten years
Future Value in ten years $ Minimum Acceptable Rate of Return (MARR) per year: % Sticker Price $ MARGIN OF SAFETY PRICE $ 2) PAYBACK TIME (PBT) ANALYSIS: FCF (Free Cash Flow) Per Share $ FCF Ratio % % Current Price FCF Payback Time Yrs. FCF EIGHT YEAR PAYBACK TIME PRICE $
3) Earnings Power Value * Ten Cap Rate:
INCOME STATEMENT:
Pre-Tax Income
CASH FLOW STATEMENT:
$
Plus Depreciation and Amortization
Plus/Minus Accounts Receivable
Plus/Minus Accounts Payable
Minus Maintenance Capital Expenditures
Total = Owner Earnings
STOCK AT A GLANCE:
Divide by Shares
Owner Earnings Per Share
TEN CAP VALUATION PRICE (OE x 10):
BASED ON THE VALUATION METHODS - IS THIS COMPANY ON SALE?
Yes No Close (within 20%)
STORY INVERSION
Some think my top three reasons (above) to own this business are wrong. Here is the inversion of each reason:
1.
2.
3.
INVERSION REBUTTAL:
However, I disagree with the above inversions. Here are my rebuttals for each inversion:
1.
2.
3.
EVENT
If this business is on sale, is there an Event?
Yes No
If so, describe the Event:
If not, is Mr. Market wrong about the price (high or low) or is it selling at sticker price (fair value)?
Will this Event be resolved successfully within 3 yearsor less? Yes No
Explain why or why not:
CONCLUSION (circle one): BUY WATCHLIST TOO HARD NOT WONDERFUL
Explain: