Not a Game of Difficulty
“Investors should remember that their scorecard is not computed using Olympic-diving methods: Degree-of-difficulty doesn't count.” — Warren Buffett
It was during the morning break.
I'd gone into the lobby for refreshments.
There must have been close to 500 people there.
Each year, Columbia Business School holds an investing seminar.
It gets former alumni and great investors to speak and have panel discussions.
It draws the best and brightest from the investment world.
I grabbed a cup of coffee and wandered over to a group of newly minted MBAs.
Many of these kids had spent upward of $100,000 to get their MBAs.
They'd worked during the day and gone to classes at night. These kids were sharp.
I listened in on their conversation about a company.
I stood there for 10 minutes, sipping my coffee, and listened.
But for all the time that I was there, all they talked about were numbers: price to earnings, free cash flow, revenue growth — it went on and on...
There was no mention of who was running the company. I knew something about the company and didn’t hear one of them talk about the competition it was facing.
They were talking and valuing the company as if it were just a jumble of numbers and ratios...
The Sum of Its Parts
I’ve seen this same rookie mistake happen many times over the years.
Investors forget that a company isn't just a bunch of numbers. It’s not wiggles and jiggles on a chart either.
Instead, a company is a business run by its managers and employees.
A business is about making things or providing services and selling things or services. That’s pretty much it.
You need to ask the simple questions before you dive into the numbers.
Before I even look at the numbers, I want to know how the business makes money, what competitive advantage they have, and who's running the business.
These would be the same questions I'd ask regardless of whether I was buying into a lemonade stand or Apple.
If you can’t understand the business, then you can’t value it. If you can’t value it, then you shouldn’t invest in it. Period.
It doesn’t get much simpler than that...
Why I Love This Monopoly
One of the stocks in the Park Avenue Investment Club portfolio is Sirius XM Holdings (SIRI).
I recommended Sirius in July 2017 at $5.41 per share.
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Sirius is a simple business to understand. The company provides a subscription-based digital radio service — mainly through new and used cars.
Sirius’ competition? It's the only satellite radio company in the U.S, so the company has a virtual monopoly.
After I understood the business, I then looked under the hood at the numbers.
Management has done an outstanding job at running the business.
The company generated more than $400 million in free cash flow, money that's left after paying all expenses, for four of the past five years.
So far, we're ahead more than 20% since adding Sirius to the portfolio. And we're in the early innings of what I see as a possible tenbagger.
But Sirius is just one of our positions that have tenbagger potential.
There’s another emerging technology that’s quietly being adopted by corporations and citizens alike.
It has such life-changing potential that every billionaire I know is scrambling to invest in it.
It’s that big.
And just like Sirius, the company behind much of this potential has a giant moat around it that separates it from the competition. And that's because it's protected by a mountain of patents.
To find out what I’m talking about, be sure to check out the exclusive presentation that I’ve prepared. It provides you with an in-depth explanation of why this company will be the dominant technological force for the next 50 years.
All my best,
Founder, Park Avenue Digest
Charles cut his chops on the trading floor of the New York Futures Exchange before he moved on to become a wildly successful money manager on Wall Street.
And with more than 35 years of recommending stocks under his belt, Charles has knocked the cover off the ball. He's compiled an amazing record of success and posted gain after gain for his loyal readers. He's the founder of Park Avenue Investment Club and Insider Alert newsletters.
Charles is also the author of the highly acclaimed book Getting Started in Value Investing.