Many months since I last wrote.
Who imagined having a baby would take up 90% of my free time?
I certainly did not.
Kudos to all the parents out there.
If anyone has more than 3 kids, you guys deserve a national recognition.
There is another reason why I have not really written anything for a while.
I have been feeling that I got nothing important to talk about that would be worthy of your time recently.
Almost everything I think is important to outperform the markets is written somewhere in the blog.
All I do is refining the core investing principles that are shamelessly stolen from many people and made them as my own over time.
The more I think about investing, the more challenging it seems. The feeling grows each day.
It probably the same for you.
What keeps me sane?
One thing I probably have written somewhere a long time ago that might be worthy your time is Killing two birds with one stone.
It is a very simple concept but very underrated in my opinion.
There are only two reasons for any stocks to appreciate over time (other than meme stocks like AMC, GME etc.) that will make you money.
1. Fundamentals growth
If sales, earnings and/or cash flow of let’s say Company BSR grew by 30% then the underlying stock price should appreciate by 30%
2. Multiple growth
Let’s say the same Company BSR was traded at 10 times cash flow or earnings multiple but it just got discovered by people which pushes its multiple to 20 times multiple within a year.
Which one benefited the shareholder of Company BSR more?
Fundamental growth or Multiple growth?
Multiple growth for now but within 2-3 years it will be fundamental growth that will drive more returns over time.
My core holdings only have #1 Fundamental growth potential and very minimal or no multiple growth potential.
They are probably fully or over valued right now but I like keeping them around because they are my core holdings.
I can sleep well with them.
However, I am actively hunting for stocks that possess both potentials.
Undiscovered gems with top and bottom lines growing nicely but their stocks never seen sun yet.
Why not? It will give me higher returns than investing in a company with only Fundamental growth potential.
Not everything will pay out. Only few will do.
But they pay off big when they do.
How do we find them?
Study previous examples and study everything about how they were able to achieve both potentials yourself.
Again keep it simple.
Maybe take the chart and summary fundamentals of Constellation Software (the easiest to demonstrate) and see how it did.
It grew sales 20% CAGR last 10 years.
It grew EPS 26% CAGR last 10 years.
It grew its multiple from 9 times earnings in 2011 to 90 times earnings right now or 57 times last 5 years average.
Its cash flow multiple grew from 13 times in 2011 to 25 times right now.
How many funds and institution owned the stock over time? I don’t have that numbers but probably grew many folds last 10 years.
Think about who can really push the share price up.
It is funds and institutions. That’s it. Not me. Not you. It is people with much more money. We are just along for the ride.
Go through all your stocks in your portfolio right now, be honest and ask these 2 questions.
1. Will they give me sizable and consistent sales/EPS/cash flow growth next 10 years?
2. Would the multiples grow if my stocks are discovered? Are they even discoverable?
You at least need yes on question 1.
If you say yes on both questions that’s probably the stock that will give you a outsized return.