Evaluating a Conglomerate Using The Sum of The Parts (SOTP) Method
Valuing a conglomerate is difficult. Instead of a single operating business, conglomerates may have a range of subsidiaries that make it impossible to analyze using a single operating metric such as the P/E ratio. Take Berkshire Hathaway, for example. It owns an insurance subsidiary, large investment portfolio, railroad, energy business, and has a massive cash pile. […]
Maintenance vs Growth Capital Expenditures – A Quick Primer
We may sound like a broken record when talking about ROIC, free cash flow per share, and DCF analysis when valuing a stock. But they are important. Making estimates for future free cash flow and ROIC requires understanding a company’s capital expenditures (capex). Specifically, investors need to understand the difference between growth capex and maintenance capex. This graphic explains the concept in […]
The Basics of the 60/40 Portfolio
Most of us will spend a lot of time researching stocks. The hunt to find a new exciting business to add to your portfolio is invigorating (at least for us investing nerds). We seem to lose this enthusiasm when talking about portfolio management and diversification. However, it can be just as or more important than stock analysis. […]
Beginning Investors: How to Analyze a Stock’s Earnings Report
In the 21st century, investors are bombarded with constant news updates on stocks. With the ubiquity of the internet and the ability to constantly track price movements, you can get new information every hour on the stocks you follow. This is especially true for popular stocks with large market capitalizations. Most of this is just […]
How to Read Conference Call Transcripts (and What to Look For)
In the 21st century, we’ve seen a democratization across the investing world. Even if you have just $100 in savings, you can easily put it to work in the stock market with zero fees. Or, you can buy index funds, which are now available at low costs to any investor. The financial world has made […]
4 Financial Statement Red Flags
The most important thing for investors is not to lose money. As Warren Buffett once said: “The first rule of an investment is don’t lose money. And the second rule of an investment is don’t forget the first rule. And that’s all the rules there are.” Buffett means that investors should first focus on the […]
Understanding Financial Engineering For Investors
According to the Britannica Dictionary, an engineer is defined as: “a person who has scientific training and who designs and builds complicated products, machines, systems, or structures: a person who specializes in a branch of engineering” Engineering drives our modern world. From the buildings we live in to the cars we drive to the computing […]
The Psychology of Investing: Overcoming Common Behavioral Biases
Brains are important in investing. To excel in financial markets, you need to understand basic mathematics, how financial statements work, and the intricacies of business models. But what if I told you there was something 10x more important than pure smarts to succeed as an investor: your emotions. Managing your psychological state and the biases […]
Understanding Share Buybacks and Capital Allocation
Buybacks are an important part of the investing world. Yet, many people misunderstand them. The S&P 500 – the largest 500 profitable businesses publicly traded in the United States – spent a collective $795 billion on buybacks in 2023 and $922 billion in 2022. Otherwise known as share repurchases (the terms are interchangeable), politicians and […]
Navigating the Basics of Tech Stocks
The world is awash in technology. If you look at a list of the 10 largest stocks in the world by market cap, eight could be considered technology companies. Of the other two, one is a state-owned oil producer, and the other is the investing conglomerate Berkshire Hathaway. Ever since the dawn of the internet, […]
