Every time I talk about investing, people are the most
excited about buying stocks research on new stocks and doing
analysis on new stocks. And I will admit that's my
favorite part of investing as well, is buying stuff, doing
research on it, doing doing fundamental analysis, looking
through the metrics and through the story of a company, I find a
lot of joy in doing that. I really enjoy the process of
doing analysis. Now, even though doing analysis
and buying new companies, is always the most motivating and
the most fun and exciting part of investing.
Down the road, things happen with companies, some of them do
poorly and their fundamentals erode over time, some of them do
really well, some stock prices, go down some, go up some, go
down and up and recover on and on, and on various things happen
with the Investments we make. And naturally over time, the
questions shift from, what should I buy to win?
Should I sell Joseph? I hold this stock.
I'm holding until. Should I sell this thing or
should? I hold onto it?
I'm holding. Amazon, I'm holding meta, I'm
holding all these different companies.
What should I do with it at this point?
Should I sell? That is one of the most
important questions that any investor should ask themselves
and aside from the little cliches?
The little sayings that Warren Buffett says to never sell a
stock, every great investor does sell stocks.
They seldom routinely Berkshire, does Terry Smith, does they do
have portfolio turnover. So, the question of when to sell
is a very important one and in this video, I want to give you
Um, insight into how I viewed this subject, when I'm looking
through my portfolio. I want to show you the biggest
things I look at to determine whether or not.
I continue to hold a stock or if I decide to sell it.
So let's go ahead and jump in and I'll give you multiple
examples. The first one that I want to
start with is Netflix. Now, with every company, I have
a little different thesis of why I stay invested in the company,
it might be a different part of their moat, or their growth
thesis. Every company has a story and
they're all different with Netflix, the story of this
company and the reason that I invested in it to begin with and
I remain invested in it today is because I believe that it is New
Media, the new version of media that is at scale, that is going
to be and is already highly profitable, and is already
circumvented and subjugated old media.
It's already taken the crown from old media and the economics
from old media. And I believe that, Alex is a bi
and a hold as long as it maintains its position of being
the king of streaming and the King of New Media, as soon as it
falters and it falls behind other companies, they take the
crown and they run away with the economics.
That's when I would be selling out of Netflix.
If I saw weakening in its position, if I saw other
companies, leapfrogging it in economics.
So that's the main gauge that I use for this company.
When determining when to buy and sell it.
Now, valuation plays a role in it, it does play a role, but the
bigger determining factor for me.
Is the fundamentals, the intrinsic value drivers of the
company. If the main profit and intrinsic
value, driver of the company is moving in a positive direction,
I'll most likely hold it. If the profit drivers and
intrinsic value direction of the company is moving towards.
The - I'll likely sell it. Those are the biggest
determining factors. So let's go ahead and take a
look. And a quick update on Netflix.
We have an article here that I want to reference.
It gives a concise update on the media streaming world right now
and it Compares Legacy Media. With New Media, the first half
of 2023 has been a colossal disappointment for media
Executives. Who wanted this year to be the
rebound from a terrible 2022. All these companies like Disney
weren't immediate Discovery Paramount.
Global had their valuations cut in half and the only one that
seems to be doing really well right now is Netflix investors
have once again become excited by Netflix's future prospects as
its Crackdown on password sharing potentially leading to
tens of millions of new signups Netflix shares have surged.
The past five months outpacing, the S&P 500.
Meanwhile, the Legacy players can't get out of their own way.
It's been a bumpy ride for Disney Executives, Bob Iger,
since you returned to lead the company late.
Last year. Disney recently finished laying
off 7,000 employees Chief Financial Officer, Kristine
McCarthy stepped down last week. The company is pulling
programming from its streaming services to save money.
It's animation. Business is in a major route
with its latest Pixar movie Elemental recording the lowest
opening weekend. Gross for the So since the
original Toy Story which premiered in 1995 shares have
struggled in the past five months, Disney continues to go
down. It's down to $88.
I build on Disney at 115 at a smaller position, in my other
portfolio. I took that opportunity to get
out at a smaller loss with it but this one's just been a
struggle and this is Disney getting crushed by Netflix an
interesting thing to look at here, One thing the to look at
with this is the size of the companies.
Now Disney is a 162 billion dollar company 16 to Netflix,
has now surpassed Disney in market cap size to 188 billion
and that is all streaming, just streaming for Netflix.
While Disney has cruises and Broadway's and blockbuster
movies and parks and Resorts all of that put together is smaller
than Now, just as a streaming company, we continue on Warner
Bros Discovery is laying off more employees after cutting,
thousands of jobs last year as it tries to boost free cash
flow, chief executive officer David, zasloff threw his weight
behind the CNN CEO. Last year, only to fire him a
month after a series of internal errors with the employees and
external mistakes with programming.
Then there's a company's movie cable and streaming businesses.
DC Studios co-chief, James Gunn and zasloff boat trumpeted, The
Flash as one of The greatest superhero movies ever made, but
the film flamed out of the box office with mediocre reviews,
this week is a staff held an emergency call with director
Steven Spielberg Martin Scorsese and Paul Thomas Anderson to
convey his commitment to Classic Movies as he lay off.
Employees at the cable network HBO.
Max is now Max, but it hasn't stopped the service from
removing programming from customers.
And while Warner Brothers discoveries having this many
internal problems, it's a complete disaster internally.
We also have reports It's that Warner Brothers discoveries in
talks, for a programming deal, with Netflix to put HBO content
on Netflix. Now, if there isn't a concession
that you've lost the streaming or bigger than licensing, your
hpl content that you've literally, never licensed to
anyone else like this on Netflix.
I don't know what else is. This is the biggest sign that
Netflix has bullied and beat up. HBO Netflix has become HBO
faster than HBO could become Netflix.
We go on and we get to Paramount Paramount, Global cut its
dividend last quarter. As a streaming loss is peaked
this year and week advertising Market exacerbates.
A terminally ill cable network, business, Wells.
Fargo released an analyst note Friday saying that the bull case
and the bear case for the company where the same selling
the thing for parts, when Warren Buffett was asked about the
company and the only thing that he could say about Paramount was
that streaming is not a great business.
And as far as Wells Fargo's saying that, Is a good
acquisition Target that they're going to sell to a different
company. I'm sure there's lots of
companies that would love their content.
They have an incredible Library. Paramount, has a lot of good
content, but who's going to buy it?
It'd be tough to buy Paramount when they have that terminally
ill Legacy Cable business. Everybody wants the content but
they don't want the Legacy Cable business and those two go hand
in hand. So this would be a very
difficult by for any company in the market right now.
Paramount Global is down 75%. 22 percent in the past five years
it's being completely destroyed along with these other streaming
companies that is the Legacy landscape.
Right now, we have Disney down over the past five years, almost
flat over the past, nine years, almost entire decade gone for
Disney investors. We have Paramount Global in the
red, over the past five years, we have Warner Brothers,
Discovery down, big over the past five years.
All of these companies struggling to become profitable,
all of them, with dying Legacy cable businesses, Even the giant
Comcast is underperforming dramatically over the past five
years. And the only reason that it's in
the green at all, is because of its internet business, not its
media properties. We have all of this going on and
then we have another Factor. That's also going to cause these
companies even more grief. All of this is happening with an
extended Hollywood writers strike going on.
In the background this week may bring even more bad news film
and TV actors are set to join a writer's strike, unless they
reach a deal with Hollywood Studios by Friday.
If the beneficiary of Hollywood work shutdowns will likely be
YouTube, Tick-Tock and Netflix, which continues to churn out
International content and is unaffected by the strike.
So, while all these companies are already struggling, there's
a writer strike, giving an advantage to YouTubers tick
stalkers that don't have a lot of riders or companies like
Netflix, which are internationally Diversified with
their production. Netflix has far more overseas
production of content than any of these Legacy corporations.
So we have a situation right now.
Where I look at my holding a Netflix and I look at the media
landscape and I determine which companies are losing and
winning. I asked myself the question.
Why am I not selling Netflix right now?
Well, why would I, why would I want to sell Netflix right now?
That is my question because it trades at a little bit higher of
a PE ratio. That's not going to be a big
factor in the long run. The big factor in whether
Netflix becomes a massive Corporation, much bigger than it
is today or whether it has subpar returns is not whether
it's a few PE ratios higher than another company.
It's whether or not it is the long-term winner in media and
able to monetize. Its massive user base.
Right now, I think directionally that answer to that question is,
yes? So right now I'm holding the
company. So simply put that's how I do
the analysis. I look at the direction.
These companies are going. If the moat is getting stronger,
I hold the company. If the intrinsic value drivers
of the company are still intact. I hold the company.
I will. Our valuation to some degree.
If the company gets widely overvalued, I'll look at
trimming the position or taking gains.
But most of my analysis, when I have large concentrated
positions is on the fundamental developments of the company.
The next one that I look at right now is Google, there's an
analyst, no on Google recently from a bank downgrading, the
stock saying it's a cell because they're not going to properly
monetize AI. These are nonsense noise, that
these analysts come up with Google still has incredible
properties. They I'll absorb most of the
advertising Market, they still have YouTube, which is New
Media. YouTube is beating out Legacy
Media, all the properties and assets of Google are incredibly
profitable, and the company's intrinsic value, drivers are
still intact and they have multiple growth drivers like the
cloud business as well. So these companies in terms of
their intrinsic value drivers, I still think they're headed in
the right direction. They are not as sell to me.
I can look at other pieces of data analysis.
Here is a chart from Alex Morris on the science of hitting and he
shared a chart of the overall streaming Time by company.
So we have all the companies here Netflix is the very bottom
one. We have YouTube Hulu Prime video
Disney plus and other streaming. YouTube and Netflix alone makeup
for over half of the shared proportion of Allah streaming
and they continue to maintain, or gain in their market share.
So, Netflix and Google are examples of two companies that
I've chosen not to sell because of the main factors that the
fundamentals and akley the intrinsic value drivers of the
company. The core businesses are still
intact still profitable and they're growing their
directionally headed in the right direction.
The moats overall, the competitive advantage of these
companies have I believe are still intact and if not getting
wider. So directionally fundamentally
the company's going in the right direction, I continue to hold
both of those companies. Now, the other example, a
company that I have sold out of as an example of one that I
chose to sell was a hard one to sell.
Because it seems like a great company on the surface, but I
sought out of it, Disney was one that I sold about.
I don't know, four or five months ago, I sold it at 1:15.
And the reason that I sold Disney, even though I like the
company into assets, it owns is. I believe just the opposite was
happening with this company. The intrinsic value drivers of
the company. The IP they had with Marvel and
lucasfilm, I believe it's weaker today than it was five years
ago. Marvel, lucasfilm all these
assets. They own our Having less profits
and less box office sales today than they were in their Heyday
five years ago. A lot of people have Marvel
fatigue, they've exhausted this content to a huge extent.
So the IP I believe is getting weaker.
The moat is also getting more narrow.
As Walt Disney has people competing with them on every
front, big Tech with sports and ESPN.
There's also new parks from Nintendo, there's more
Blockbuster films. There's more kid, animated
movies on, every single part that they compete in.
They have Competition. So both their intrinsic value
drivers and the mode of the company I believe are getting
compressed and weakened over time and overall, I believe that
Disney was becoming less predictable.
It may still do great. The company might go from 80 to
150, I don't know. The problem is, this company
became unpredictable to me. I did not know what direction it
was going to go, and I don't like holding companies where I
don't feel confident in the overall direction, the
fundamentals are going the revenue.
Seems predictable, but a lot of this is manufactured Revenue,
like buying things like 21st Century, Fox the free cash flows
are completely unpredictable. The company had free cash flows
fall over the past couple of years and never recover, not
even close to where it was in 2018.
And then the stock base comp is going up while the free cash,
flows are at an all-time low. So, expenses are going up, free
cash flow going down, we can look at the earnings and it's
the same thing. The company is, um, Predictable,
10 me to where I don't know if or when it will ever get back to
where it was. It's certainly not going to
return to this trajectory anytime soon.
So, when I'm asked, the question of when to sell, and when to
buy, when to buy a company, for me is pretty simple.
When I found a good quality, compounder that has phenomenal
fundamentals. Everything's moving in the right
direction for it, and I can buy it at a reasonable price today,
and it's a better opportunity than other companies in my
portfolio. That's when I buy a company in
many cases, The companies I buy are already in my portfolio,
when I sell a company, it's just the opposite, it's becoming less
predictable. The intrinsic value drivers of
the company, the economics are in question, the mode of the
companies being invaded by competitors and the Outlook is
murky, it looks unclear and you don't know what direction, it's
going rather than just hoping and praying the company does
good. I rather just take the Lost,
take the money out of the company and move on to one that
I have a higher degree of confidence.
That it will do well and not every case, am I going to get
this, right? And some cases, I'm going to
make the wrong move and sell their own company or by their
own company. But I think doing it this way
and focusing on the fundamental direction of the company is by
far the best way to do it. And I think that overall I'll
make more right decisions, the wrong decisions.
So that's my thoughts overall on when to sell I hope that you
thought this video was a little bit informative.
May be helpful. Let me know what you think.
See you in the next one.