“A great business at a fair price is superior to a fair business at a great price..” ― Charlie Munger
In this report we are showing 5 key steps we should do at minimum before we buy a stock/make an investment! The core idea is to help make a snap decision(in like 2 minutes) for your selected company: AAPL and evaluate if it’s a better/sound investment
Each Step is described in detail at the very bottom of this report.
Go ahead and check out Rundown reports on SecDiver.com for any stock ticker
Disclaimer:
The information on secdiver.com site, and its related publications, is not intended to be, nor does it constitute, investment advice or recommendations. In no event shall SecDiver.com be liable to any member, guest, or third party for any damages of any kind arising out of the use of any content or other material published or available on SecDiver.com, or relating to the use of, or inability to use, SecDiver.com or any content. The information on this site is not guaranteed for completeness, accuracy, or in any other way.
Data is provided as is, please do your due diligence before making any investments, Markets can be very volatile!
How to find the Rundown report on SecDiver.com
Rundown reports can be accessed : [under Dive Deep: Top Result] on any Ticker page found through the Search Page.
https://secdiver.com/rundown/<TICKER>/tags [shortcut to any ticker], e.g for Apple — https://secdiver.com/rundown/AAPL
Examples (AAPL Stock)
There are 5 tabs (the one highlighted in blue is the first tab). Each of these tabs are steps that you need to take for due diligence of the stock you wish to transact. Do explore them, we need to improve the names of these steps. Future releases will fix this but until then do try them and share your feedback. Each of these tabs are explained in detail in the next section
Detail Steps in Run down report
All the 5 steps in detail are listed below, i hope this helps you make a better judgement call on the future moat of the company.
Step 1: Is the business Good?
1.1 A business is good if its earning more than its cost of capital, essentially — one of the return on capital metrics — roa, roe, roce >= 10% (should be greater than cost of capital)
1.1.1 Tip: Great businesses have return on capital >=15%
1.2 A business is good if its able to maintain its margins for a good period of time, thus maintaining its moat
1.2.1 Tip:High Gross Margin business are good as they perform better during inflationary times
1.2.2 Tip:Great business have >=20% margins OR they are a low cost producer of a commodity like Amazon, Costco, Walmart but with significant sales/revenue numbers
1.3 Revenue Growth is very important, that will help make it a X Bagger, is it growing above or below GDP growth rate 2% or more
1.4 NetIncome, OperatingIncome growth should also be similar to the Revenue Growth, this shows moat
1.5 Make sure company has a good financial historical record atleast for 10 years
1.6 Return on Tangible Capital : Work in Progress(WIP)
1.7 Return on Incremental Capital : Work in Progress(WIP)
1.8 Dilution/Stock Based compensation(sbc) impact — is the share count maintained or decreasing [understand stock splits, they are OK, nothing wrong there]
Step 2: Is the stock Cheap?
2.1 What is the current enterprise value if you want to buy it full (this includes marketcap plus debt)
2.2 What is the yield on the stock as compared to Fixed Investment/Bank CD/(Risk Free Rate)? does it have better yield than SPY (market index)
2.3 — Reverse DCF
2.4 — Expectations : Work in Progress(WIP)
2.5 — Compare with similar peers and SPY 500 index compare FI with SPY and V
Step 3: Is the management Good?
TBD : this report is Work in Progress(WIP)
3.1 Margins and Revenue growth tell us whether management is doing a good job or not
3.2 What is the Skin in the Game for the management, How much % of stock ownership does founders and C suite leadership have
Step 4: If this sounds like a good investment, the final puzzle is Why is market valuing it cheap?
TBD : this report is Work in Progress(WIP)
4.1 This will require a good amount of research and will need a journalist/scuttle butt mentality
4.2 We recommend understanding business segment kpis, geographical split, reading 10K, 10Q filings
4.3 hearing atleast 2 investor call to understand management and what analyst are focussing on, if available for the company
4.4 Typically a lot of homework has to be done before making a position
Step 5: How many stocks to Buy/Sell? aka Position Sizing or Portfolio Construction
5.1 The next step is Position Sizing, if you are not comfortable, start with 0.1% portfolio weight and slowly ramp to 1% buying on dips [not crossing more than 3%]
5.2 if you are super comfortable, start with 0.5% portfolio weight and ramping to 1% buying on dips [not crossing more than 5%]
“Everybody’s got a different circle of competence. The important thing is not how big the circle is. The important thing is staying inside the circle.” ― Warren Buffet
As always do share your feedback using the help links, and do your due diligence, we appreciate you giving us the opportunity to serve you!
Happy Investing,
SEC Diver team
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Have a wonderful day.
Stay Blessed, Healthy, and always Happy!
Disclaimer:
The information on secdiver.com site, and its related publications, is not intended to be, nor does it constitute, investment advice or recommendations. In no event shall SecDiver.com be liable to any member, guest, or third party for any damages of any kind arising out of the use of any content or other material published or available on SecDiver.com, or relating to the use of, or inability to use, SecDiver.com or any content. The information on this site is not guaranteed for completeness, accuracy, or in any other way.
Data is provided as is, please do your due diligence before making any investments, Markets can be very volatile!
