LAWS OF INVESTING BY COMPOUNDING QUALITY 1. Common sense is not so common 2. Greed often overcomes common sense 3. Greed kills, 4. Fear and greed are stronger than long-term resolve 5. There is no vaccine for being overleveraged 6. When you combine ignorance and leverage, you usually get some pretty scare results 7. Operate only in your area of competence 8, There is always more than one cockroach in the kitchen 9. Over long periods of time, equities will rise in value 10. Long investing generates wealth 14. Short selling can protect wealth 412. Be patient and learn how to sit on your hands 13, Try to get a little smarter every day and read as much as possible 14, Investors often think too little and calculate too much 48, Security Analysis by Benjamin Graham is the most important book ever. Read and reread it 16. History is a great teacher 17. History rhymes 18. What we have learned from history is that we haven't learned from history 19. Investment wisdom is always 20/20 when seen in the re: 20. Avoid first-level thinking. Embrace second-level thinking 21. Think for yourself 22. In investing, that which is profitable is most often not exceedingly profitable at the end 23. Avoid herd behavior 24. The more often a stupi repeated, the more it gets the appearance of wisdom 25. Always have more questions than answers 26. You must have accounting and finance knowledge, work hard and be very competitive to be a successful investor 27. The stock market is full of individuals who know the price of everything and the value of nothing 28. Directional call buying, when consume as a steady appetite, is a mug's game and often a path to the poorhouse 29. Never buy the stock of a company whose CEO loves expensive toys 30. Avoid "The Noise” 31. Reversion to the mean is a strong market influence 32. On markets and individual equities: "When you reach success station, get off! 33. Try to buy stocks at cheap valuation levels 34. Being right or wrong is less important than how much you make when you're right and how much you lose when you're wrong 35. Too much of a good thing can be wonderful 36. New paradigms are a rare occurrence 37. Price goes before the fall 38. Consider opposing investment views and cultivate curiosity 39. Maintain a healthy level of skepticism 40. In investing, nothing is certain 41. Always control your emotions 42. "Rate of change” is the most important statistic in investing 43. In evaluating the attractiveness of a stock, always consider upside reward versus downside risk 44. Always stick to your investing strategy 45. Know what you own 46. Immediately sell a stock on the announcement of an accounting irregularity 47. Always follow the cashiflow) 48. Replace the word EBITDA with bulls*t earnings 49. Favor doing stock research over spending time on sites like riwallstreetbets 50. Find a good mentor and pay attention to what they're doing 1 © [@acempoundingy) Stearic cu anc Em =)©— BY COMPOUNDING QUALITY current Current Assets / Current Lia Ey ‘Shows you how effectively companies are using their assets to generate sales Sales / Total Assets nf ‘Measures how well a firm can pay the interest due on outstanding debt EBIT/ Interest Expense ae The total amount of debt a company has relative to its assets Debt / Assets el Measures how many years it would take a company to pay down debt if it uses all its FCF Net Debt / Free Cash Flow to Firm Creer) Se LanOs CAPITAL Bxcouenekoas return. It's their moral duty towards shareholders What is capital allocation? + Capital allocation is the most important task of management + It's the decision about what the company will do with the money it earned + Management should put cash back to work at the most attractive rate of y + Organic growth is + Acompany can also] [- Research has + Last but not least, @ the most preferred use the cash it proven that 60-90% company can also capital allocation generates to pay () of all acquisitions return capital back to choice down its debt destroy value. shareholders via + You want to invest in | | + This is especially an | | - That's why you dividends and/or companies which attractive option should always be share buybacks can reinvest a lot of when the company cautious when a + Acompany usually their earings in is in bad financial company announces returns capital back future growth shape a big acquisition to shareholders opportunities at + Ahealthy balance = when they don't attractive rates of sheet gives have any other return companies flexibility. Personally, large attractive growth M&A activities + It's essential that the | | + Consider Bill Gates only make sense opportunities company has a high at Microsoft, who a 1.Dividends: Always and stable ROIC advocated for er look at the when it reinvests a maintaining sufficient | |] 4 j4anagement has dividend yield and lot in organic growth cash reserves to Pape the payout ratio of + Why? Because sustain the compary | || 9 the company the company growth only creates for a full year with has proven to be 2.Share buybacks: value when ROIC > zero revenue Aeon It’s only create wacc (eerie) acquirer value when the in the past oe undervalued©— BY COMPOUNDING QUALITY emerge er eel ‘metric that indicates a company's profitability in rolation to its total assets, Net Income | Total Assets Financial ratio that shows hew well a company is, ‘managing the capital that shareholders have invested Net Income / Equity Shows you how effi SS ee a company is allocating its total invested capital NOPAT / Total Invested Capital ‘Shows you how efficiently a company is allocating its invested capital excluding goodwill and cash NOPAT | Total Invested Capital - Goodwill -Cash {A financial ratio that measures a company's profitability in terms of its capital employed EBIT / Capital Employed Creer) Se Lan onHOW TO ANALYZE A CASH FLOW STATEMENT BY COMPOUNDING QUALITY What is a Cash Flow Statement? > Acash flow statement shows you how much cash goes in and out a company over a certain period >The purpose of this statement is to track how much cash Is moving through a business ‘7 You want to invest in companies that generate cash and manage their cash position well Structure of a Cash Flow Statemen' /> Every cash flow statement consists of 3 parts: 1. Cash Flow from Operating Activities 2. Gash Flow from Investing Activities 3. Gash Flow from Financing Activities Cash Flow from Operating Activitie » This section shows all cash the company generated from its normal business activities » It shows you all the cash a company earned from selling its normal products andlor services » The Cash Flow from Operating Activities is comparable to net income, but it fiers out afew income and expense posts that didn’t cause actual cash to enter or exit the company {x Cash Flow from Operating Activities = net income + non-cash charges #/- changes in working capital ‘Cash Flow from Investing Activities: » The Cash Flow from Investing Activities gives you an overview about the company's investment related income and expenditures » The Cash Flow from Investing Activities consists of | major pars: 1.Capital expenditures (CAPEX) 2.Mergers & Acquisitions 3 Marketable securities ‘fi Cash Flow trom investing Activitios = Sale of marketable secur Mergers & Acquisitions - purchase of marketable securities ios + divestments - CAPEX - Cash Flow from Financing Activitie: » Measures the cash movements between a company and its owners (shareholders) and its debtors (bondholders) » This section gives you an insight about how the company is financing its business activities (fi Cash Flow from Financing Activities = Debt issuance + issuance of new stocks -alividends - debt repayments - share buybacks Changes in cash balance: » Finally, you can calculate the total changes in the cash balance fx Cash at the end of the year = Cash at the beginning of the year * CF from Operating Activities + CF from Investing Activites + CF from Financing Activities OBI © eecompoun PeCASH KPIS YOU SHOULD KNOW Zoe nck und Cash Flow from Operations Cash Flow from Investing Activities Cash Flow from Finance Activities Cash Flow to Debt Ratio Operating Cash Flow Margin Ratio Cash Burn Rate Cash Runway Free Cash Flow to Sales Ratio Free Cash Flow Conversion DESCRIPTION Measures the net cash generated or used in the business's regular operations ‘The purchase or sale of a fixed asset like property, plant, or equipment Measures the movement of cash between a firm and its owners, investors, and creditors Indicates how long it would take a company to repay its debt if it devoted all of its cash flow to debt repayment Compares a company's operating cash flow to its net revenue over a specified period Indicates how quickly the company is using up its cash reserve over a specific period Measures the number of months until the cash runs out ‘The money a company has left over after paying its operating expenses (OpEx) and capital expenditures (CapEx) Indicates how much cash a company generates relative to its sales ‘Shows how much Net Income is translated into Free Gash Flow Pe TA UT ol ae Ley aN Profit before Tax - Tax Paid + Non-cash Expenses (e.g. depreciation) - Changes in Working Capital Purchase/Sale of Long-Term Assets (CAPEX) + Purchase/Sale of Other Busineses (M&A) + Purchase/Sale of Marketable Securities Issue/Repurchase of Equity + Issue/Repurchase of Debt + Dividend Payouts and other items Total Debt Cash Flow from Operations Cash Flow From Operations Net revenue Beginning Cash Balance - Ending ‘Cash Balance Number of Months Current Cash Balance ‘Cash Burn Rate Operating Cash Flow - CAPEX Free Cash Flow ‘Sales Free Cash Flow ‘Net IncomeCHARLIE MUNGER’S CHECKLIST vd EAU RO VULAS RISK e Incorporate an appropriate margin of safety e Avoid dealing with people of questionable character e Insist upon proper compensation for risk assumed e Always beware of inflation and interest rate exposures e Avoid big mistakes; shun permanent capital loss INDEPENDENCE ¢ Objectivity and rationality require independence of thought e Remember that just because other people agree or disagree with you doesn’t make you right or wrong—the only thing that matters is N oO the correctness of your analysis and judgment e Mimicking the herd invites regression to the mean (merely average performance) PREPARATION ian ¢ Develop into a lifelong self-learner through voracious reading; A cultivate curiosity and strive to become a little wiser every day Z More important than the will to win is the will to prepare Develop fluency in mental models from the major academic disciplines =a If you want to get smart, the question you have to keep asking is Ae “why, why, why?” INTELLECTUAL HUMILITY Stay within a well-defined circle of competence Identify and reconcile dis-confirming evidence Resist the craving for false precision, false certainties, etc Above all, never fool yourself, and remember that you are the easiest person to fool ANALYTIC RIGOR e Determine value apart from price; progress apart from activity; e@ wealth apart from size It is better to remember the obvious than to grasp the esoteric , e Bea business analyst, not a market, macroeconomic, or security analyst tt Consider totality of risk and effect; look always at potential second order and higher level impacts e Think forwards and backwards—Invert, always invert Xx iTHE 5 SOURCES OF SUSTAINABLE COMPETITIVE ADVANTAGE Exar ees COMPETITIVE FORCES Moat sources Intagible Network Cost Efficient Assets Effect Advantage Scale Wide Moat Coca-Cola Oracle CME Group UPS Kinder Morgan It's just sugar Switching from _Its Ground delivery Where existing water, but Oracle's tightly clearinghouse _network has pipelines meet consumers pay _ integrated function keeps low marginal market needs, a premium databases could volume captive costs andhigh —_ competitors massive returns on have no disruptions capital incentive to enter Narrow Moat DrPepparSnapple Salesforce.com NYSE Euronext FedEx Southern Company Good brands A popular Equity volume is The high fixed- Utilities have but a lack of product, but interchangeable, cost air express _ natural scale hurts switching costs and competitors segmentis still geographic returns are low for have been alarge portion — monopolies, users stealing share of revenue but regulators restrain returns No Moat United Continental Macy's ADM Alcoa Aeroports de Paris Name Consumers Commoditized Low-cost Geographic recognition easily pick and inputs and bauxite monopoly, but doesn’t result in choose among outputs prevent resources can’t _ regulation sufficient many retailers economic offset industry _ prevents pricing power profits, despite oversupply economic profit network generation Cea TG teFREE CASH FLOW THE SAME AS NET INCOME ene —_S Free Cash Flow vs. Net Income > Earnings are an opinion, Cash Flow is a fact > That’s why you should always look at the Free Cash Flow of a company and not at its Earnings > While Earnings are an accounting metric, Free Cash Flow looks at the money that actually entered and left the firm over a certain period > The Net Income of a company contains a lot of non-cash items whereas Free Cash Flow looks at the cash that effectively entered and exited the business Net Income = Free Cash Flow = Total Revenue - Total Expenses 5 Operating Cash Flow - CAPEX To go from Net Income to Free Cash Flow, you should make the following adaptations: oe / \ / wv & Notincome Free Cash | Flow ‘stepor EP Or @ @ + Free Cash Flow can be seen as a better metric compared to the Earnings of a company because this metric is more reliable and harder to manipulate + Seek for companies which translate at least 90% of the Earnings into Free Cash Flow EMS aaa)BALANCE SHEET The Balance Sheet consists of the following elements: Current assets Long-term assets Current liabilities ‘Long-term liabilities Shareholders equity ‘The Balance Sheet is based on a simple formula: Assets = Liabilities + Equity ‘Balance Sheot shows you what a company owns and owes INCOME STATEMENT ‘An Income Statements consists of the following + Revenue = cost of goods sold = Gross profit = Operating expenses = Operating income ‘= Non-operating incomelexpense = Pretax income = Income tax let income ‘An Income Statement shows you the revenues and expenses of a company CASH FLOW STATEMENT (‘The Cash Flow Statement consists ofthe following elements: Cash Flow rom Operating Activities Cath Flow from investing Activites Ei cash Flow from Financing Activites Gash Flow from Operating Activities Net income -PNon-cash changes: + /— changes in working capital = Cash Flow trom Operations ies Cash Flow from Investing Activities = Capital expenditure Acquisitions + /oceeds from the sale of investments Cash Flow from Cash Flow from Financing Activities += Borrow / Repay debt fim tssue/ Repurchase stock = Pay dividends = Cash Flow from Financing ‘A Cash Flow Statement shows you the cash that enters and leaves the company = 6—9 ak OD) © [eacompounaing } @HOW TO FIND PROFITABLE STOCKS METRIC EQUATION THRESHOLD “ane Revenue i SG&A a SG&A Margin Gross Profit <30% i —— <30% Re? Margin : Depreciation Depreciation <10% Margin Gross Margin Interest Margin pee inicrest ae <15% Operating Income ; Taxes Corporate Tax Tax Margin Pre-Tax Income Rate Net Income Margin >20% Revenue Year 2 EPS Positive & Ps Growth eat L EES ‘SOURCE: WARREN BUFFETT AND THE INTERPRETATION OF FINANCIAL STATEMENTS (BOOK) @QCompounding DEAN e uate CAL ad' The Free Cash Flow of a company is equal to all the cash that enters a company minus all the cash that leaves a company over a certain period p> You can calculate it as follows: Free Cash Flow = Operating Cash Flow - CAPEX D> >> The Operating Cash Flow measures the amount of cash that is generated 9 @. by a company’s normal business operations ° ? >> The capital expenditures (CAPEX) shows how much money a company has used to maintain or buy physical assets WHAT CAN A COMPANY DO WITH ITS FCF? p> The company can do different things with its Free Cash Flow: + Reinvest for organic growth + Pay down debt + Acquisitions and takeovers (M&A) + Paying out dividends + Buying back shares FCF MARGIN p> This metric indicates how much cash a company is generating per dollar in sales p> FCF margin = (Free Cash Flow / sales) Visa for example has a Free Cash Flow margin of 60.2% >> This means that for every $100 in sales, Visa generates $60.2 in pure cash FCF > NET INCOME b> Earnings are an opinion, cash is a fact >> While earnings are an accounting metric, Free Cash Flow looks at the money that actually entered and left the firm over a certain period FCF CONVERSION b> The more earnings are translated into. FCF, the better b> Seek for companies with a FCF conversion of at least 85% b> FCF Conversion = (free cash flow / net earnings) FREE CASH FLOW YIELD b> The Free Cash Flow yield (FCF Yield) of a company is a great way to look at the valuation of a company @ b> Free Cash Flow yield = Free Cash Flow per share/ stock price b> The higher this ratio, the cheaper the stock on elelerane ai) aarti t litre tis autHOW TO ANALYZE A 10-K BY COMPOUNDING QUALITY What is a 10-K? * It’s an official document that contains a lot of (financial) information — about a company Form * Companies must publish a 10-K every year = 10K Structure of a 10-K: * A10-K always has the same structure: 1.Business 2.Risk Factors 3.Financial Statements 4.Management Discussions and Analysis (MD&A) Business: * Describes a company’s main products and services * It shows you how the company makes money * Never invest in companies of which you don’t understand the business model Risk Factors: * Shows the risk a company faces (in order of importance) * Be wary of companies who have a high risk of disruption Financial Statements: * This is one of the most important sections of a10-K * There are 3 Financial Statements: 1.Balance sheet: overview of a company’s assets and liabilities 2.Income Statement: show you a company’s revenue and expenses 3.Cash Flow Statement: overview about how much cash enters and leaves a company Management Discussions and Analysis (MD&A) * Management's view on the business results * Allows you to look at the qualitative factors behind the numbers on @QCompounding PVA ela lire PCVHOW TO ANALYZE AN INCOME STATEMENT BY COMPOUNDING QUALITY What is an income statement? «An income statementis also called a profit and loss account & + Itsshows the company's revenue and expenses over a certain period + The income statement provides you with a lot of insights as it tells you how much revenue is translated into net income, the efficiency of management, and much more => For a company, it all starts with its revenue or sales Revenue => Revenue is the money a company receives from selling its products andior services Cost Of Goods = Showa you all the costs a company makes to produce Rs products Sold (COGS) andior services ‘=> The profit a business makes after subtracting al the costs that are Gross profit related to manufacturing and selling its products or services: > Gross profit = Revenue - COGS Operating > Allthe expenses a company makes to run ta daly operations expenses (OPEX) > Operating income = Gross profit —OPEX Operatin; Pperating => The operating income shows you how much money a company ears from its normal business activites Non-operating “> Income and expenses that arent relate tothe normal business income activities a = Income before taxes = operating income = non-operating income and] expenses before taxes => Tells you how much profit the company has made before taxes: "=> The bottom line or net income of an income statement shows you how much money the company has made after subtracting all costs and taxes => Net income is also known as ‘earnings’ oF ‘profit => Net income = income before taxes - taxes Net income on (crete PCa CUA{£4 HOW TO ANALYZE STOCKS DRE ‘9. PROFITABILITY + How much § does the company make per $100 in sales (profit margin)? + Does the company translate most earnings. into tree cash flow? 10. HISTORICAL GROWTH 1. BUSINESS MODEL + Dol understand how the company makes money? + Does the business model ook attractive to me? 2. CAPABILITY OF MANAGEMENT + Did the company manage fo grow is revenue “Hes negara dong ack noord pereee acer? bymore tan 6% the pat? pear eee id EL] \E carnings by more tan Tin the past? yy 7. USAGE OF STOCK-BASED SUSTAINABLE COMPETITIVE SUSTAINABL esr ecee aa ares e@e - What erenists the company om tee ecard Se nat management and employees eee 7 eed (s, ATTRACTIVENESS OF THE es) (zouTi00K Ap) Te + Does the future look bright? "Bowe he end mart go tn atacive comings by eve than 5% and 9? © ra? JW Sy ‘5. MAIN RISKS, 13. VALUATION + What are the main risks forthe company? + al which valuation level does the company + Are there any potential Black Swans? trade right now? + Is the company undervalued or overvalued? (6. OWNER'S EARNINGS * Ouners earings = EPS growth + diend yal «Did the company grow ts over amings by more han 10% pot year? 6. BALANCE SHEET + Does the company have a heathy balance sheet? + Has the company a lot of goodwill on its balance sheet? ((5.HISTORICAL VALUE CREATION + Did the company create alt of shareholder val in the past? + Atwhich rate did the company compound {U sine iso? ‘8. CAPITAL ALLOCATION (FULL course \ + How efficiently does management allocate + How to find attractive companies capital? + How to analyze stocks lke a Professional + Does the company have a high and robust ROIC? 7. CAPITAL INTENSITY + How much capital does the company need to operate? + Is the company investing lot in future growth (growth CAPEX)? () © [@acempounding1 HOW T0 BUILD YOUR WATCHLIST Ce WHY SHOULD YOU CREATE A WATCHLIST? = Awatchlist is essential to bulld a successful portfolio - Ithelps you to remove all the weeds (bad companies) while keeping all the flowers (wonderful companies) DEFINE WHAT KIND OF INVESTOR YOU ARE - Every investor is unique and there are multiple roads that lead to Rome + Build your watchlist based on the kind of investor you are 1.Quality Investor 2.Value Investor 3.Growth Investor 4.Dividend Investor HOW TO BUILD YOUR WATCHLIST + There are almost 60,000 listed stocks worldwide + It's impossible to investigate them all, + That's why you should use a stock screener to build your investable universe - Here are a few great criteria to find quality stocks: HOW TO START: - Once you've entered these criteria in free stock screeners such as Stratosphere, Kofyin or Finviz, you'll be left with 250 companies that match these criteria How should you start analyzing 250 companies? I's simple. You start with the A's « Luckily, there are some tricks you can use to trim down the list even further FILTER DOWN YOUR WATCHLIST Now we'll tighten our criteria to filter down the list + Revonue growth > 9% - Earnings growth > 11% + ROIC > 20% o Profit Margin > 15% + Operating Cash flow / Earnings > 100% + Net Debt / EBITDA <1 + Now, you'll have 50 companies left, these companies can be considered high quality and are worth analyzing Examples of companies which match these criter 2 VISA @® WN Adobe ASML 73. Pe TA UT olHOW TO ANALYZE A BALANCE SHEET BY COMPOUNDING QUALITY at is a balance sheet + Abalance sheet shows you what a company owns and owes «+ Inthe balance sheet you get an overview of 3 things: LAssets 2 s 3.Shareholders Equity Balance sheet = snapshot ‘+ Balance sheet = snapshot =» at a certain point intime * Income statement & cash flow statement = video =» measured over a period of time Assets + Shows you everything the company owns + Acistinction can be made between current assets ‘and non-current assets + Shows you how much the company owes + Adistincton can be made between short- term lablties and long-term liabilities Current Assets ‘Assets that can be converted into cash within 1 year Non-Current Assets ‘Assets that are harder to convert into cash Most Liguid © Cash & cash equivalents, Short-term liabilities A financial obligation that has to be paid within ‘year ‘Long-term Debt that has to be paid > 1 year Marketable securities Financial assets © Accounts reeewvable Inventory Shareholders Equity, + The shareholders equity shows you how much money the owners (shareholders) have invested in the company. Shows you how easly a company can pay back the Interests on ts oustanding debt ae Shows you how many years It would take the [company to pay downalits debt when it would use all avaliable free cash flow. Plant, property & equipment Intangibie assets + Shareholders equity = total assets — total Least Liguia] © Goodwill liabities Great ratios to analyze a balance sheet Jnterest coverage Net Debt /free cash flow @ OD © eecompounding Der EDINCOME STATEMENT * Abalance sheet shows you what a company owns and owes * In the balance sheet you get an overview of 3 things: Assets 2. Liabilities 3.Shareholders Equity CE ASSETS == LIABILITIES = EQUITY Bm ee € @ INCOME STATEMENT * Anincome statement is also called a profit and loss account mh * It shows the company's revenue and expenses over a certain period * The income statement provides you with a lot of insights as it tells you how much revenue is translated into net income, the efficiency of management, and much more REVENUE = EXPENSES = NET INCOMEINCOME STATEMENT 0 CASH FLOW STATEMENT C6 MSN ss + An income statement is also called a profit and loss account h * It shows the company's revenue and expenses over a certain period + The income statement provides you with a lot of insights as it tells you how much revenue is translated into net income, the efficiency of management, and much more REVENUE == EXPENSES = NET INCOME @ CASH FLOW STATEMENT * Acash flow statement shows you how much cash goes in and out a company over a certain period * The purpose of this statement is to track how much cash is moving through a business + You want to invest in companies that generate cash and manage their cash position well OPERATING CF FROM FINANCIAL 4, CF FROMINVESTING _ casHFLow + activities (NET) + activities (NET) = NET CASHFLOW = fl ies Iol wy ‘CSInvesting Explained to kids BY COMPOUNDING QUALITY What is Investing ? Investing is when you put your money into something with the hope that it will grow and become more money over time. Investing is all ahout delayed gratification. You postpone buying things to be able to buy even more things in the future. © Investing allows you to make money while you sleep ¢ Financial independence is only possible when you invest inflation Why is Investing important ? ! e © Investing is the only protection again: What are the key investment rules ? © Only invest with money you don't need for the next 5 years © Try to invest at least 10% of your income ¢ Always focus on the long term In what can I Invest? Bonds : Cash : ‘+ You lend money to a company or government —* Cash equivalents, treasury bills or money market funds ** Lower risk and lower return than stocks * Low return but cash gives you flexibility Stocks : Alternative Investments : ‘* You are the owner of the company * Real estate, gold, silver, crypto at, . ‘© Highest return in the long term * Opportunity for portfolio di PURCELL Saty © BI eccompounHOW PETER LYNCH SELECTS STOCKS Trailing PE < 25 Forward PE < 15 Debt/Equity < 35% EPS Growth > 15% PEG Ratio < 1.2 Market cap < $5 billion wae A AiR Lake Uae * You don't want to « In the long term, earnings growth is the overpay for main driver for stock prices stocks ¢ Invest in companies active in a secular The lower the trend valuation, the ¢ Great examples are obesity, higher your digital payments and margin of safety panizati urbanization. You want to invest in * This ratio combines companies which are the valuation and in good financial shape the growth rate of Debt is very the company dangerous. If you're « You can calculate smart you don't need it this ratio yourself: and if you aren't smart PEG Ratio = PE ratio / earnings growth you shouldn't use it xX i ees www.compoundingquality.net SCOMPOUNDING QUALITY'S g& PORTFOLIO = ae eae a raed Er oligopolies, anita Family companies or Only one or a few Quality stocks which companies that are still companies dominate _heavily buy back their run by their founder _the entire industry own shares Goal Portfolio: Outperform the SGP500 with at least 3% per year in the long term K “aor éREVENUE GROWTH IS THE 4 MAIN DRIVER FOR STOCKS Stock price driver: s Freecith‘low = Mutiple = Margin Revenue Growth ‘Source: BCG Analysis, Morgan Stanley Researehao SPEND YOUR MONEY, es) TIME AND ENERGY WISELY Sa LD. YOUNG ADULT até ENERGYSTART INVESTING AS [J SOON AS POSSIBLE Starts at age 20 Starts at age 40 Invests $100 each _ Invests $100 each month until 60 month until 60 $584,222 $75,602 Ending value Ending valueTHE POWER OF (9 COMPOUNDING |g, If you were to double $0.01 everyday for 30 days, you would have... Day 1 $0.01 Day 2 $0.02 Day 3 $0.04 Day 4 $0.08 Day5 $0.16 Day 6 $0.32 Day 7 $0.64 Day 8 $1.28 Day ® $2.56 Day 10 $5.12 Day 11 Day 12 Day 13 Day 14 Day 15 Day 16 Day 17 Day 18 Day 19 Day 20 Sau © $10.24 | Day 21 $10,485.76 $20.48 Day 22 $20,971.52 $40.96 Day 23 $41,943.04 $81.92 Day 24 $83,886.08 $163.84 Day 25 $167,772.16 $327.68 Day 26 $335,554.32 $655.36 Day 27 $671,088.64 $1,310.72 | Day 28 $1,342,177.28 $2,621.44 Day 29 $2,684,353.56 $5,242.88 Day 30 $5,368,709.12Investing is about letting your money werk for you. You invest some money into something with the hope that it will grow and become more money over time. It’s like how a plant grows when you water and take care of it Trading is a zero-sum game, and for every winner, there's @ loser. If you're not well-prepared and informed, you're likely to be on the losing sideLET YOUR MONEY WORK FOR YOU $800,000 $600,000 @ Investor A| | Investor B + Stats at ge 25 | | « Stats a age 25 + invests $5,000. | | + vests $5,000 peryeartor 10. | | par yar rom $400,000 | yeas 59020 un age + No wera os ater age 34 $200,000 $0 25 30 36 40 45 50 55 60 65 Note: Assumes an 8% interest rata, compounded annually o ee)MUST WATCH FINANCE DOCUMENTARIES AND MOVIES " Cu)13 LESSONS FROM WARREN BUFFETT,Wy. THE COMPOUNDING MAGIC: BUY & HOLD VS SELLING $1.00 Doubling 20 times © Compounding Tax-Free Taxable at 25% $2.00 $1.75 $4.00 $3.06 $8.00 $5.36 $16.00 $9.38 $32.00 $16.41 $64.00 $28.72 $128.00 $50.27 $256.00 $87.96 $512.00 $153.94 $1,024.00 $269.39, $2,048.00 $471.43, $4,096.00 $825.01 $8,192.00 $1,443.76 $16,384.00 $2,526.58 $32,768.00 $4,421.51 $65,536.00 $7,737.64 $131,072.00 $13,540.88 $262,144.00 $23,696.54 $524,288.00 $41,468.94 $1,048,576.00 $72,570.64EVERYTHING YOU NEED What is a moat? How do you know a company "Competitive average . Q Is. condition hat puts riod of time iz «Thote are two critical factors to determine ene whether a company has a most: business to maintain 1.RoIe > Wace and increase its profit 2.The ROIC has maintained high and margin and market constant for along time err amazon AlphabetHOW MUCH YOU NEED TO RECOVER FROM A LOSS = pans °0% | 7 Required Gain a0 200% 150% a 100% _ 50% = i 20% 50% 40% 20% 70% -100% CeeHOW FINANCIAL STATEMENTS & ARE TIED TOGETHER Eine Eee)WHAT WILL PEOPLE REMEMBER ABOUT YOU Nobody will remember: © Ver snay @ How “busy” you were el er 4 © 0% many nows you worked @ sro%rmany cucei bags you owned People will remember: @ sow you made them fet © These you spent wth Sm @ yo tort yourwors © "1707 couts count on youINVESTING CHEAT SHEETSUBJECT THAT SHOULD BE MANDATORY IN SCHOOLS TAXES CODING COOKING INSURANCE & i BASICHOME SELF DEFENSE SURVIVAL INVESTING REPAIR SKILL PERSONAL PUBLIC CAR STRESS FINANCE SPEAKING MAINTENANCE MANAGEMENT sompoundingquality.net1 O LESSONS FROM THE PSYCHOLOGY Ce ENB IOBy Compounding Quality Working Capital Working capitals a measure of company’s iguity and short orm financial health current _ current Resets” Labiiies Jourrent Ratio [Company's elatonship between Ke current asets and current lables Curent As Quick Ratio Measures the capacity of 3 company to Pay is curren lailties without needing to sll inventory SusSRt ~ ventory “Curent abies Intorest Coverage Jace) Shows you how well frm can pay the Interest de on outstanding dabt ir orostExpente Fe total amount of debt a company has Debt Dobtto-Assots Risaee te asso ae TAseta Ratio used to ealoulate a company's Debt-to-equity ae cial leverage [Asset Tumnover [Shows you how effectively companies are using thelr ansets to generate sales Days Sales outstanding ie average numberof days it takes & company fo receive payment fora sale ‘Accounts Roceial Stles [inventory Turnover Measures how efcienty a company uses its inventory to generate sales Mot Debt | Froe Cash Flow to Firm Measures how many years it would tke a company te pay down allits debtINVESTMENT TIPS Fi) GRom ee BOrEERanl y} NIA We ell DECISION-MAKINGBY COMPOUNDING QUALITY eV @ eta o =. @ =~ © mmm@® =~ =. @ =O =. @=-@ - ‘stock prices are © an in companies with @ @ invest in companies © Buy stocks when there's on15 SA PRINCIPLES a (1.00) = 1.00 | as (ay) = 37.7 all \ f i15 SS PRINCIPLES xs (nor) = 37.7 xs (1.00) = 1.00 | sitll \ Ww f iNEW INVESTOR MISTAKES BY COMPOUNDING QUALITY TSSK ONLY BUYING SELLONTHE NOTREADING BUYING BASED HYPE STOCKS “FIRSTDROP INVESTING ON DIVIDEND BOOKS, YIELD oa © ~% YouTube Sy 2 call COPYING A FAILINGTO —-THINKINGLOW TRYING TO yourusess 'Svexsry eeteaoe” = BEAYSHTE Srodk Picks ALWAYS=BuY —NARKET y A |u| ne ~ TRYINGTO _MISTAKING PICKING over. TMESHE TRADING Wir WRONG COMPLETING MARKeT INVESTING” = GROKER —ONVESTING = 34 °e 9 & ae ONLY BUYING Le TRUSTING accdumnc feevsroens GNMARGN FRANCIA Fon recs ews eens iINVESTMENT LESSONS [%, FOR EVERYONE wi [BY COMPOUNDING QUALITY | Ad [By inte tons ror, stocks are tons risky than bonds Ed mort ote te mat Eb) 0 toes repeat test But Hotter rhymes Eh tems etn ationsINVESTMENT TIPS FROM BO) EE GRA ° BESEGGE008888888R888INVESTMENT TIPS FROM PETER LYNCH Know what you own Don't invest without knowledge ‘Chock the bal shoot Make u ‘Avold market timing Don't overdiversity Have some cash on the ROIG Is key Let your winners run Small caps are beaut are opportuniti Lear from your mistakesINVESTING eae BSPREaR Sree eee a | ne ae