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Everyone should be investing in 
compounding machines, companies 

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that continue to compound their 
intrinsic value year after year 

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after year. 
What I've tried to do with my 

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investing strategy is accumulate
an entire portfolio of these 

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type of companies. 
These companies aren't just 

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financial companies, They're not
just tech companies. 

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There's some specific hidden 
attributes that make these 

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companies stand out from the 
rest. 

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Microsoft and Apple are other 
examples of companies that have 

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compounded for a long period of 
time. 

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It seems like every year for the
past decade they hit all new 

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highs. 
In fact, Microsoft soft stock 

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just today hit an all time high.
Some compounding machines are 

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much smaller. 
Texas Roadhouse, for example, is

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so small that it's not even in 
the S&P 500. 

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Yet this company has compounded 
far more than most companies in 

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the market. 
Chipotle is another example of 

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this type of company. 
The type of company that grows 

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and grows and grows and the 
price goes up more and more 

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every single year, Investors 
become perplexed of what is 

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causing this company to go up so
fast. 

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There's something about Costco 
that causes this company to grow

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and grow and grow every single 
year for decades. 

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Like a juggernaut. 
It has so much momentum it can't

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be stopped. 
All of these companies have 

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something in common. 
They're what I call compounding 

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machines, which is a title given
to a specific type of company, 

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the highest quality companies in
the world. 

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And like I've said, my goal has 
been to accumulate this type of 

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company in in a single portfolio
and to do it as best as 

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possible. 
I spent the past week creating 

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an entire presentation based 
around my investing philosophy. 

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This presentation breaks down 
compounding machines, examples 

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of them, how to find them, and 
how to hold them well. 

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It breaks down intrinsic value, 
buy and sell criteria as well as

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investor temperament. 
My goal is to create a quality 

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and concise presentation about 
my investing philosophy. 

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And in this episode, we're going
to be going over all of it. 

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I'll be walking through this 
presentation in full step by 

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step. 
So we have a lot to get to in 

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this episode. 
Let's go ahead and jump in. 

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I've been investing for a number
of years and over that time 

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period, I've been able to study 
a lot of great investors and 

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learn from some of the best. 
We have information that's 

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publicly available on every 
super investor. 

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These are investors that control
hundreds of millions of dollars.

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In some cases, they run hedge 
funds or they run their own 

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businesses. 
Either way, they're investing 

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their money and we get to see 
the performance of them 

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overtime. 
Now, out of these super 

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investors, which many of them 
are great, there's an elite few 

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that outperform the market 
consistently over a long period 

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of time. 
Investors like Warren Buffett, 

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Charlie Munger, Terry Smith, Dev
Cantasaria, Chuck Aukrey. 

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These investors aren't just 
good, but they're incredibly 

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good and they have a long 
history of outperforming the 

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market on a consistent basis. 
And what I've done is 

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deconstructed the way that they 
invest, and I've tried to 

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improve and elevate my investing
philosophy to be more like 

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theirs. 
So I've learned from these 

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investors, improve my investing 
strategy and the results have 

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shown on my Patreon. 
Every month I release a monthly 

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update on My Portfolio as a 
summary of my strategy, my total

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allocation and comments on the 
portfolio month by month. 

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In this I also have My Portfolio
performance where I put my 

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portfolios time weighted returns
against the benchmark. 

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The S&P 520 Twenty two was a bad
year. 

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The stock market went down 
18.14%. 

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My Portfolio went down 16.22%. 
So it's not immune to a sell 

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off. 
It's still sold off just like 

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the market, but it did so a 
little bit less than in 2023. 

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My portfolio's return was 32% to
the S&P 5 hundreds 26%. 

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So it not only held up on a down
year, but it also did well on an

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up year. 
Now again, I don't credit this 

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performance to myself. 
The playbook has already been 

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written before. 
US Written by investors like 

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Warren Buffett and Charlie 
Munger, they've shown the way to

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invest. 
But the real? 

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Difficulty in investing like 
them is accurately implemented. 

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Their strategy? 
A lot of investors say they 

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invest like Warren Buffett or 
Charlie Munger, and they do the 

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exact opposite. 
They invest nowhere close to 

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them. 
So my goal with this portfolio 

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is to invest as close to the 
best as possible, to have 

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exceedingly high standards for 
the portfolio for the 

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performance for every trade I do
and my temperament and 

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decisions. 
And this presentation I made is 

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supposed to be somewhat of a 
starter guide into this 

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investing philosophy. 
So let's go ahead and jump into 

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it on page one. 
Now this first initial slide 

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works as an introduction to my 
investing philosophy. 

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We have an overview here. 
To Simply put this, I believe 

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that outperformance is most 
likely to be achieved by buying,

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holding and maintaining a 
portfolio of compounding 

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machines with a disciplined and 
long term approach, never 

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speculating, gambling or 
investing out of fear, FOMO or 

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hype. 
That is easier said than done. 

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A lot of people say I'm going to
be like Buffett. 

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I'm going to invest in all these
great companies, these 

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compounding machines that just 
grow and grow and grow. 

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I'm not going to speculate and 
gamble. 

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And then a month later, they're 
looking at the latest fintech 

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speculation craze, they're 
looking at the latest EV trend. 

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They're going into companies 
that have no proven business 

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model. 
So these type of rules of never 

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speculating gambling. 
Or investing out of fear are 

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easier said than done. 
Never investing out of FOMO. 

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The fear of missing out is 
incredibly difficult to do. 

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Lots of investors meet these 
temptations, and they can't 

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resist. 
They dive into FOMO buys, they 

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dive into gambling. 
We've seen the amount of hype 

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that happens on YouTube. 
So part of this investing 

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philosophy, what's core to it, 
is maintaining this discipline. 

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I define the three different 
categories that I think are the 

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biggest categories in investing 
out performance. 

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Three main focuses are finding 
exceedingly high quality 

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companies in stock selection, 
maintaining the right 

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temperament, and exercising 
prudent portfolio management. 

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So there's three basic 
categories to investing in stock

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selection. 
This is simply finding good 

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companies to invest in, which is
much easier said than done. 

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A lot of people like to believe 
that their portfolios are full 

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of good companies. 
When I look at their portfolios,

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I don't agree. 
I think they hold a lot of 

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average and subpar companies. 
When I look at stock selection, 

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I want monopolies now, not legal
monopolies, but I want companies

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that have high barriers to 
entry. 

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I want companies with pricing, 
power, operating leverage, 

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organic growth, capital, light, 
smart capital allocation. 

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If you find a company that has 
these six attributes, that's an 

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exceedingly high quality 
company. 

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Once we have stock selection 
down, we can move on to 

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temperament. 
Even if you select great 

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companies, if you do not have 
the right temperament for 

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investing, you are going to have
subpar performance. 

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Temperament means having 
discipline, being unemotional, 

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being patient, being long term 
focused. 

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These are the four core 
categories of temperament. 

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Every investor needs to have 
this temperament. 

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Then finally, it's not only 
important to find good 

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companies, but knowing when to 
buy them, knowing when to sell 

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them, knowing how to manage 
their allocation and waiting is 

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also very important. 
So I have another section here 

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titled Portfolio Management, 
Smart Position Sizing, Specific 

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Buy Criteria, Specific sell 
Criteria, and Intrinsic Value 

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Estimates. 
We don't want to be investors 

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that just randomly buy companies
or randomly sell them. 

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We want to have some reasoning 
and structure and thought behind

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our sell and buy decisions. 
We also want to have good 

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metrics to gauge the intrinsic 
value of companies. 

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And if the intrinsic value is 
increasing or decreasing, so 

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these three categories overall, 
I believe, encompass everything 

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it takes to be a great investor 
and to have really good 

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performance. 
But I think it's important to 

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define terms and get into more 
detail of how this strategy 

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works. 
One of the terms we're looking 

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at here is compounding machines.
Now, compounding machines, like 

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any other word, is just a 
phrase, and it may have 

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different meanings to other 
people. 

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So I put down my definition of 
what this phrase means. 

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The specific attributes that a 
company must have to be a true 

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compounding machine. 
I have attractive attributes and

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unattractive attributes. 
The companies that have the 

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attributes on the right are not 
compounding machines. 

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The companies that have the 
attributes on the left are 

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compounding machines. 
So let's go through these one by

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one. 
The first attractive attribute 

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we're looking for with every 
company is monopoly. 

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And this is such an incredibly 
important attribute. 

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That I put it at the very top of
the attributes, just to 

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emphasize how important it is. 
Now, when you look at the word 

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monopoly, it has some negativity
connected to it. 

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But I'm not talking about 
illegal monopolies. 

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I'm talking about companies that
already have a large market 

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share in a very concentrated 
industry. 

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I want to look for companies 
that are already the leaders in 

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their market share. 
They're at the very top of the 

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food chain. 
Think of companies like Google 

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that have 92% market share of 
search. 

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Think of companies like Visa, 
MasterCard that have huge market

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share in this duopoly of digital
payments. 

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Think of companies like Intuit 
that already have over 80% 

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market share in taxes and small 
business accounting. 

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It's not by random chance that 
most of the companies in My 

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Portfolio have these deeply 
dominant and entrenched 

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positions in these concentrated 
industries. 

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This was intentional. 
This was one of the first things

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I looked for when buying these 
companies. 

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These companies have entrenched 
distribution, brand names, 

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install bases, and subscriber 
bases. 

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Netflix, for example, just 
reached 260,000,000 subscribers.

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They're at such a massive scale 
and they have massive 

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reoccurring revenue. 
Adobe earns over 80% of their 

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income through reoccurring 
subscription, their install base

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and relationships with colleges 
and campuses and the workforce 

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is deeply entrenched in multiple
countries. 

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Now when we find. 
Companies that already have this

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large market share that are 
already deeply entrenched with 

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their brand name, install base, 
subscriber base, their 

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distribution. 
We also want companies that have

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very high barriers to entry. 
The more difficult it is to 

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compete with them, the better. 
The 2nd attribute that I believe

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is the most important for 
compounding machines is pricing 

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power, a demonstrated history of
raising prices above the rate of

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inflation. 
This can be difficult to find 

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because a lot of companies don't
like to say that they're raising

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prices incredibly fast on their 
customers. 

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That's not a popular thing to 
say, So you have to do a little 

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bit of digging, a little bit of 
research. 

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Simply look at their core 
products, look at the pricing of

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their core products over time, 
and compare that against the 

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rate of inflation. 
These companies will have 

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histories of raising prices far 
above the rate of inflation. 

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Whether you look at MasterCard 
or Visa, whether you look at S&P

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Global or Moody's, whether you 
look at Adobe or Netflix, all of

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these companies have raised the 
prices far above the rate of 

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inflation. 
And they've done that while 

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seeing little pushback from 
their customers. 

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Now if a company raises prices 
but they lose a lot of customers

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and competition eats away at 
their market share, that is not 

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pricing. 
Power. 

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Pricing power is strictly the 
ability to raise prices above 

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the rate of inflation without 
losing customers to competition.

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Now, the type of companies that 
have a lot of pricing power are 

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ones that have few competitors. 
The fewer the competitors, the 

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easier it is to raise prices. 
This is why companies like Visa,

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MasterCard can raise prices 
every single year. 

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If there was 1000 different 
credit card issuers, then it 

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would be much more difficult for
them to raise prices. 

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So few competitors leads to more
pricing power. 

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Also, if they have a lot of 
upside in the value of their 

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product or service, if people 
like their products so much that

233
00:10:50,440 --> 00:10:53,000
they're willing to pay a lot 
more for it, that gives them 

234
00:10:53,000 --> 00:10:55,440
flexibility to raise prices in 
the future. 

235
00:10:55,560 --> 00:10:58,480
So after finding companies that 
are deeply entrenched, that have

236
00:10:58,480 --> 00:11:01,040
high barriers to entry, we want 
to find companies that have 

237
00:11:01,040 --> 00:11:03,360
pricing power year after year 
after year. 

238
00:11:03,400 --> 00:11:06,520
Now the next attribute we're 
looking for after pricing power 

239
00:11:06,720 --> 00:11:09,080
is operating leverage in the 
business model. 

240
00:11:09,360 --> 00:11:11,400
Operating leverage is a 
financial term. 

241
00:11:11,400 --> 00:11:13,280
To some people, this may seem 
complicated. 

242
00:11:13,480 --> 00:11:16,560
It's actually an incredibly 
simple concept to understand. 

243
00:11:16,960 --> 00:11:19,680
It simply means that the company
has fixed costs. 

244
00:11:19,680 --> 00:11:23,640
That stay fixed over time. 
And then variable revenue, as 

245
00:11:23,640 --> 00:11:26,600
the revenue goes up, their 
margins get higher and higher 

246
00:11:26,600 --> 00:11:28,840
and higher. 
We can look at a few examples. 

247
00:11:29,000 --> 00:11:31,760
Let's take a look at MasterCard.
MasterCard is a great example of

248
00:11:31,760 --> 00:11:35,080
a company that has a lot of 
fixed cost to run the initial 

249
00:11:35,080 --> 00:11:38,200
business and then a lot of 
variable and growing revenue 

250
00:11:38,400 --> 00:11:40,720
creating operating leverage in 
the business. 

251
00:11:40,840 --> 00:11:43,480
And we can view this by looking 
at the profit margins over time.

252
00:11:43,960 --> 00:11:47,480
Look at 1998, the profit margins
were 2% overall. 

253
00:11:47,480 --> 00:11:50,600
It was very low and very 
volatile while they were scaling

254
00:11:50,600 --> 00:11:53,200
up, but then they reached scale 
in 2007. 

255
00:11:53,280 --> 00:11:56,600
The operating leverage kicks in,
The profit margins jump up to 

256
00:11:56,600 --> 00:11:59,760
27%. 
Then what do we see over time 

257
00:11:59,840 --> 00:12:01,520
with the mechanics of this 
business? 

258
00:12:01,600 --> 00:12:03,680
The costs are more fixed than 
the revenue. 

259
00:12:03,960 --> 00:12:06,920
The revenue is outgrowing the 
cost, which makes the profit 

260
00:12:06,920 --> 00:12:11,000
margins go up over time from 36%
to 45%. 

261
00:12:11,320 --> 00:12:14,680
If I draw a line through this, 
it looks like this growing 

262
00:12:14,680 --> 00:12:16,880
profit margins over decades of 
time. 

263
00:12:17,120 --> 00:12:20,040
This is a company where every 
incremental dollar they earn, 

264
00:12:20,280 --> 00:12:22,200
the profit margins get a little 
bit higher. 

265
00:12:22,200 --> 00:12:24,840
MasterCard is a clear cut 
example of operating leverage. 

266
00:12:25,120 --> 00:12:27,760
Another company that has 
operating leverage is Netflix. 

267
00:12:28,040 --> 00:12:30,760
This is a company where they 
have an enormous amount of fixed

268
00:12:30,760 --> 00:12:34,840
costs creating their content. 
Every year costs around 16 to 

269
00:12:34,840 --> 00:12:38,240
$17 billion. 
They have to pay for that every.

270
00:12:38,240 --> 00:12:40,000
Year that they want to create 
new content. 

271
00:12:40,400 --> 00:12:44,560
So they have this big fixed cost
every year, but their revenue is

272
00:12:44,560 --> 00:12:47,800
variable and their costs don't 
scale perfectly with their 

273
00:12:47,800 --> 00:12:49,400
revenue. 
We can look at their operating 

274
00:12:49,400 --> 00:12:51,840
margin. 
In 2016, it was 4%. 

275
00:12:52,080 --> 00:12:56,240
In 2023, it was 20.6%. 
Their profit margins as well go 

276
00:12:56,240 --> 00:12:59,240
up overtime. 
We see this nice trend year 

277
00:12:59,240 --> 00:13:02,920
after year after year of their 
profit margins increasing, their

278
00:13:02,920 --> 00:13:06,160
operating margins increasing. 
This happens the most when a 

279
00:13:06,160 --> 00:13:09,440
company has operating leverage. 
One of the nice things about 

280
00:13:09,440 --> 00:13:12,040
operating leverage is that 
analysts have the most. 

281
00:13:12,040 --> 00:13:14,560
Difficult time getting this 
metric accurate. 

282
00:13:14,920 --> 00:13:16,920
Meaning that if you find a 
company that has operating 

283
00:13:16,920 --> 00:13:20,080
leverage, odds are that the 
analysts have not accurately 

284
00:13:20,080 --> 00:13:22,480
accounted for this company, 
which typically means it's 

285
00:13:22,480 --> 00:13:25,120
harder for them to accurately 
price these stocks and there's 

286
00:13:25,120 --> 00:13:27,720
more potential upside. 
Now with operating leverage, I 

287
00:13:27,720 --> 00:13:30,640
also want companies that can 
scale for a long period of time.

288
00:13:30,960 --> 00:13:33,720
Operating leverage doesn't 
matter if the total addressable 

289
00:13:33,720 --> 00:13:36,520
market is very small. 
So we're looking for companies 

290
00:13:36,520 --> 00:13:40,200
that have a long runway of a 
large total addressable market 

291
00:13:40,200 --> 00:13:42,680
to scale into. 
This is very important. 

292
00:13:42,840 --> 00:13:45,600
I've given the example of 
MasterCard and Visa as companies

293
00:13:45,600 --> 00:13:47,400
that have operating leverage 
well. 

294
00:13:47,400 --> 00:13:50,880
MasterCard and Visa also have 
the benefits of having global 

295
00:13:50,880 --> 00:13:53,520
scale. 
Everyone, everywhere can benefit

296
00:13:53,520 --> 00:13:56,240
from digital payments. 
If you're in India, If you're in

297
00:13:56,240 --> 00:13:59,560
Europe, if you're in East Asia, 
if you're in Japan, you could 

298
00:13:59,560 --> 00:14:02,560
benefit from Visa, MasterCard. 
Think about the global scale 

299
00:14:02,560 --> 00:14:04,720
potential of Netflix. 
This company offers 

300
00:14:04,720 --> 00:14:07,120
entertainment. 
Who in the world doesn't like 

301
00:14:07,200 --> 00:14:09,640
entertainment? 
So Netflix's runway of growth, 

302
00:14:09,640 --> 00:14:12,960
their total addressable market, 
is absurdly huge. 

303
00:14:13,000 --> 00:14:15,920
It's basically planet Earth, 
aside from the highly regulated 

304
00:14:15,920 --> 00:14:19,160
parts like China and Russia. 
Now, after operating leverage, 

305
00:14:19,160 --> 00:14:21,880
compounding machines have what's
called organic growth. 

306
00:14:22,120 --> 00:14:25,760
Organic growth is different than
just simple growth because a lot

307
00:14:25,760 --> 00:14:28,840
of companies try to grow by 
buying other companies. 

308
00:14:29,000 --> 00:14:30,840
They're paying up for their 
growth. 

309
00:14:31,040 --> 00:14:33,560
You may notice in My Portfolio 
that I don't have any 

310
00:14:33,560 --> 00:14:36,000
pharmaceutical companies. 
Why do I not have any 

311
00:14:36,000 --> 00:14:39,000
pharmaceutical companies? 
Well, for one thing, they grow 

312
00:14:39,000 --> 00:14:41,520
inorganically. 
They don't grow by building out 

313
00:14:41,520 --> 00:14:44,160
new drugs and tools and services
for their customers. 

314
00:14:44,480 --> 00:14:47,400
They grow by buying other, 
smaller pharmaceutical 

315
00:14:47,400 --> 00:14:50,360
companies. 
They buy growth over and over 

316
00:14:50,360 --> 00:14:52,040
again. 
That's how the entire industry 

317
00:14:52,040 --> 00:14:55,160
works, is by acquisition. 
The companies that I own grow 

318
00:14:55,160 --> 00:14:58,000
primarily through increasing 
prices and gaining more 

319
00:14:58,000 --> 00:15:00,920
customers, in the case of Texas 
Roadhouse and Chipotle. 

320
00:15:01,280 --> 00:15:04,840
They grow by increasing prices 
and opening up more locations to

321
00:15:04,840 --> 00:15:07,240
get more traffic. 
Most compounding machines are 

322
00:15:07,240 --> 00:15:09,880
also capital light. 
We have a strong preference for 

323
00:15:09,880 --> 00:15:11,960
companies that have a low amount
of fixed costs. 

324
00:15:12,280 --> 00:15:15,320
They have low R&D and CapEx 
relative to their revenue. 

325
00:15:15,560 --> 00:15:17,680
The more capital light they are,
the better. 

326
00:15:17,760 --> 00:15:20,120
And then finally, one that I 
believe is underrated by a lot 

327
00:15:20,120 --> 00:15:22,840
of investors is having smart 
capital allocation. 

328
00:15:23,240 --> 00:15:26,360
But if you find a great company 
that is above the fold, they 

329
00:15:26,360 --> 00:15:29,680
will spend their excess cash on 
buybacks, they'll spend their 

330
00:15:29,680 --> 00:15:32,920
excess cash on dividends, 
they'll spend their excess cash 

331
00:15:32,960 --> 00:15:37,040
on tuck in acquisitions, tuck in
acquisitions, are buying small 

332
00:15:37,040 --> 00:15:39,560
companies that only benefit 
their core business. 

333
00:15:39,960 --> 00:15:42,800
They don't do it for growth. 
They do it to benefit their 

334
00:15:42,800 --> 00:15:46,320
already enormous core business. 
Smart capital allocation by the 

335
00:15:46,320 --> 00:15:49,000
executive team can make or break
a great company. 

336
00:15:49,160 --> 00:15:52,240
So off to the left, there are 
these attractive attributes of 

337
00:15:52,240 --> 00:15:55,160
compounding machines. 
Now we get into the unattractive

338
00:15:55,160 --> 00:15:58,080
attributes, things that we 
actively want to avoid in our 

339
00:15:58,080 --> 00:15:59,280
investments. 
First of all. 

340
00:15:59,280 --> 00:16:01,960
Companies that participate in 
risky reinvestment. 

341
00:16:02,240 --> 00:16:05,040
They have high amounts of CapEx 
and research and development 

342
00:16:05,200 --> 00:16:08,600
with unpredictable returns on 
that CapEx and research and 

343
00:16:08,600 --> 00:16:11,120
development. 
This is the pharma industry. 

344
00:16:11,360 --> 00:16:14,760
The pharma industry puts a lot 
of money into the development of

345
00:16:14,760 --> 00:16:17,240
new drugs. 
That is a very high risk 

346
00:16:17,240 --> 00:16:19,080
venture. 
Those new drugs have to go 

347
00:16:19,080 --> 00:16:21,840
through a series of clinical 
trials, they have to go through 

348
00:16:21,840 --> 00:16:24,120
testing. 
It can take up to 20 years for 

349
00:16:24,120 --> 00:16:27,080
those new drugs to be approved 
for use to the general public 

350
00:16:27,360 --> 00:16:29,520
and then even. 
After it's approved, there's 

351
00:16:29,520 --> 00:16:32,800
always room for lawsuit or 
getting recalled, so the 

352
00:16:32,800 --> 00:16:36,040
riskiness in the reinvestment is
a big aspect that I want to 

353
00:16:36,040 --> 00:16:37,840
avoid. 
I want companies that when they 

354
00:16:37,840 --> 00:16:41,360
put money into the reinvestment,
it's very predictable. 

355
00:16:41,440 --> 00:16:44,240
They know the return they're 
going to get before they make 

356
00:16:44,240 --> 00:16:46,880
the reinvestment. 
Costco knows almost exactly what

357
00:16:46,880 --> 00:16:49,560
to expect when making the 
reinvestment in opening up new 

358
00:16:49,560 --> 00:16:52,960
warehouses. 
They have 800 warehouses of data

359
00:16:53,240 --> 00:16:55,640
to measure it against. 
It is predictable. 

360
00:16:55,640 --> 00:16:57,920
It is consistent. 
It is not risky. 

361
00:16:57,920 --> 00:17:01,440
So how predictable the ROI is on
their investments are a big 

362
00:17:01,440 --> 00:17:03,480
thing. 
And in general I like companies 

363
00:17:03,480 --> 00:17:06,160
that don't have to do a great 
deal of reinvestment to earn 

364
00:17:06,160 --> 00:17:08,280
high returns. 
Now the other thing we're 

365
00:17:08,280 --> 00:17:11,839
looking to avoid are moon shot 
bets or vanity projects with 

366
00:17:11,839 --> 00:17:14,680
high chances of failure. 
Capital allocation from the 

367
00:17:14,680 --> 00:17:17,680
executives is a huge part of 
finding a compounding machine. 

368
00:17:18,000 --> 00:17:21,880
You entrust the executive team 
to use that money wisely and I 

369
00:17:21,880 --> 00:17:24,920
avoid companies that have 
undisciplined use of cash flows.

370
00:17:25,079 --> 00:17:28,040
It's an unattractive attribute 
if the company issues too much 

371
00:17:28,040 --> 00:17:30,560
compensation to the employees 
and executives. 

372
00:17:30,840 --> 00:17:34,320
We've all seen examples of this.
The ritzy tech companies where 

373
00:17:34,320 --> 00:17:36,520
they pay their employees 
hundreds and hundreds of 

374
00:17:36,520 --> 00:17:39,560
thousands of dollars in stock 
based compensation and in their 

375
00:17:39,560 --> 00:17:41,920
salary. 
They have incredibly fancy, 

376
00:17:41,920 --> 00:17:43,560
extravagant work. 
Parties. 

377
00:17:43,640 --> 00:17:46,200
They have celebrities close by 
in the offices. 

378
00:17:46,360 --> 00:17:49,000
They will try to justify it as 
improving morale. 

379
00:17:49,360 --> 00:17:52,720
Retaining employees doing the 
right thing for the talent of 

380
00:17:52,720 --> 00:17:55,080
the company. 
In reality, it's undisciplined 

381
00:17:55,080 --> 00:17:58,120
use of cash flows from an 
executive that prefers to spend 

382
00:17:58,120 --> 00:18:01,040
the money on what he or she 
wants to spend it on, rather 

383
00:18:01,040 --> 00:18:02,520
than what's best for the 
shareholder. 

384
00:18:02,520 --> 00:18:06,360
Companies like S&P Global 
MasterCard, Moody's, and Intuit 

385
00:18:06,560 --> 00:18:09,760
have done so well, in part 
because of their culture, their 

386
00:18:09,760 --> 00:18:13,160
continual discipline, use of 
cash flows and their incentive 

387
00:18:13,160 --> 00:18:15,920
structure, the retainment, the 
rewards, and their culture. 

388
00:18:16,080 --> 00:18:18,960
On the other hand, there's many 
companies ran by executives like

389
00:18:18,960 --> 00:18:21,760
they're in a Country Club. 
They want to spend the money on 

390
00:18:21,760 --> 00:18:23,680
themselves. 
They're unwilling to return the 

391
00:18:23,680 --> 00:18:27,040
excess cash back to shareholders
through buybacks or dividends. 

392
00:18:27,040 --> 00:18:29,880
When I rank order the quality of
companies, it's a big demerit. 

393
00:18:29,880 --> 00:18:33,160
When a company has undisciplined
use of cash flows, the other 

394
00:18:33,160 --> 00:18:36,160
attribute we want to avoid is 
unpredictable cash flows. 

395
00:18:36,720 --> 00:18:38,560
Economically sensitive cash 
flows. 

396
00:18:38,640 --> 00:18:41,800
Companies that are financial 
institutions like JP Morgan or 

397
00:18:41,800 --> 00:18:44,680
Bank of America are so big at 
this point that they're less 

398
00:18:44,680 --> 00:18:47,160
sensitive. 
But smaller regional banks, 

399
00:18:47,400 --> 00:18:51,120
small fintech companies, 
Pharmaceutical industry, heavy 

400
00:18:51,120 --> 00:18:54,320
industrials, and construction, 
all of these are economically 

401
00:18:54,320 --> 00:18:56,600
sensitive and have huge booms 
and busts. 

402
00:18:56,840 --> 00:18:59,480
We also want to avoid companies 
that have unpredictable cash 

403
00:18:59,480 --> 00:19:02,120
flows because they're 
discretionary products or they 

404
00:19:02,120 --> 00:19:05,080
sell large durable goods that 
the lifespan can be extended 

405
00:19:05,080 --> 00:19:07,600
during difficult times. 
And then finally, what I like to

406
00:19:07,600 --> 00:19:09,640
avoid is dual class share 
structure. 

407
00:19:09,840 --> 00:19:12,280
I believe this is a risk to the 
management of the company. 

408
00:19:12,520 --> 00:19:15,840
If the owner has a different 
class of share that has more 

409
00:19:15,840 --> 00:19:18,720
voting rights than they do 
ownership of the company, they 

410
00:19:18,720 --> 00:19:21,600
then have a disproportionately 
high voting right to their 

411
00:19:21,600 --> 00:19:23,760
ownership. 
Which means that they're not as 

412
00:19:23,760 --> 00:19:26,800
invested in the company as the 
rest of the shareholders, but 

413
00:19:26,800 --> 00:19:28,840
they have more voting rights 
than everyone else. 

414
00:19:29,400 --> 00:19:32,360
This doesn't align the 
incentives of the executive with

415
00:19:32,360 --> 00:19:34,560
the rest of the shareholders. 
They should both have 

416
00:19:34,560 --> 00:19:37,640
proportionate ownership of the 
company and the owner. 

417
00:19:37,640 --> 00:19:40,080
In these cases where they have 
disproportionately high 

418
00:19:40,080 --> 00:19:43,200
ownership, are not beholden to 
the majority of shareholders. 

419
00:19:43,440 --> 00:19:46,320
They can do whatever they want, 
which brings in additional. 

420
00:19:46,320 --> 00:19:48,120
Risk. 
So those are the unattractive 

421
00:19:48,120 --> 00:19:49,720
attributes, the things I want to
avoid. 

422
00:19:49,960 --> 00:19:53,200
But overall, this is the CHEAT 
SHEET for a compounding machine.

423
00:19:53,480 --> 00:19:56,120
This is what I truly believe 
defines the best companies in 

424
00:19:56,120 --> 00:19:59,360
the world against the worst. 
Ones the qualities that we want 

425
00:19:59,360 --> 00:20:01,680
to have against the qualities 
that we want to avoid. 

426
00:20:01,680 --> 00:20:03,800
Now once we go through the 
overview of a compounding 

427
00:20:03,800 --> 00:20:07,280
machine, I also go through a few
specific examples of some of the

428
00:20:07,280 --> 00:20:10,320
most important financial metrics
of a compounding machine. 

429
00:20:10,600 --> 00:20:14,000
For example, the revenue, the 
top line of the company is 

430
00:20:14,000 --> 00:20:16,640
incredibly important. 
We should look for companies 

431
00:20:16,640 --> 00:20:19,600
that have strong top line 
organic revenue growth. 

432
00:20:19,800 --> 00:20:23,000
Costco is a compounding machine 
that's shown consistent revenue 

433
00:20:23,000 --> 00:20:25,120
growth, primarily through price 
increases. 

434
00:20:25,560 --> 00:20:28,280
Increases in new customers and 
opening new locations. 

435
00:20:28,760 --> 00:20:32,080
AT&T on the other hand, which we
can see the revenue right there 

436
00:20:32,320 --> 00:20:35,720
is not a compounding machine. 
Its growth has been inconsistent

437
00:20:35,720 --> 00:20:39,520
and in large part due to major 
acquisitions outside of its core

438
00:20:39,520 --> 00:20:41,440
business, so. 
At. 

439
00:20:41,440 --> 00:20:44,600
First, appearance. 
Underneath this revenue line, it

440
00:20:44,600 --> 00:20:48,120
may look like AT&T is growing. 
In fact, they just have these 

441
00:20:48,120 --> 00:20:50,840
sporadic huge jumps. 
Well, that's not really 

442
00:20:50,840 --> 00:20:52,960
accurate. 
If we went over a timeline of 

443
00:20:52,960 --> 00:20:56,600
what's happened with AT&T, they 
did different acquisitions. 

444
00:20:56,720 --> 00:21:00,400
They bought things like DIRECTV,
they bought Warnermedia. 

445
00:21:00,520 --> 00:21:03,840
When AT&T financed these deals, 
we can see the heavy toll this 

446
00:21:03,840 --> 00:21:06,480
took on the company. 
We can first look at the cash 

447
00:21:06,480 --> 00:21:09,560
and debt of the company. 
Qualtrum shows the cash along 

448
00:21:09,560 --> 00:21:11,520
with the debt. 
Now if we got rid of the debt, 

449
00:21:11,520 --> 00:21:14,840
the cash is sporadic over time, 
but the debt's the real story 

450
00:21:14,840 --> 00:21:16,920
here. 
Look at the massive amount of 

451
00:21:16,920 --> 00:21:18,920
debt. 
It is dramatically more than the

452
00:21:18,920 --> 00:21:20,840
amount of cash. 
They are heavily indebted 

453
00:21:20,840 --> 00:21:23,280
company. 
But where did this all start? 

454
00:21:23,720 --> 00:21:28,400
Right back during that first 
acquisition in 2006, boom, the 

455
00:21:28,400 --> 00:21:31,520
debt doubled. 
And this is long term debt which

456
00:21:31,520 --> 00:21:33,240
is more risky. 
They're not paying this off 

457
00:21:33,240 --> 00:21:34,600
fast. 
They're holding on to this for a

458
00:21:34,600 --> 00:21:37,000
long period of time. 
Notice when they take on this 

459
00:21:37,000 --> 00:21:40,920
debt, they never pay it back. 
Now the debt stays pretty flat 

460
00:21:40,920 --> 00:21:43,920
and then boom, they do another 
acquisition. 

461
00:21:44,240 --> 00:21:47,840
That acquisition cost them even 
more debt, more additional 

462
00:21:47,840 --> 00:21:51,120
interest payments on the 
shareholder, more of a tax on 

463
00:21:51,120 --> 00:21:52,760
the future profits of the 
company. 

464
00:21:53,360 --> 00:21:56,440
Then they raised debt further 
and further, reaching a high of 

465
00:21:56,440 --> 00:22:00,840
$180 billion. 
This massive, staggering pile of

466
00:22:00,840 --> 00:22:02,520
debt that the company has to 
deal with. 

467
00:22:02,520 --> 00:22:04,800
That sounds bad, right? 
That sounds like it wasn't worth

468
00:22:04,800 --> 00:22:06,520
it because of the amount of debt
they had to raise. 

469
00:22:06,800 --> 00:22:09,480
Well, that isn't the half of it.
They also diluted the 

470
00:22:09,480 --> 00:22:12,520
shareholder for this revenue. 
If we go down to the shares 

471
00:22:12,520 --> 00:22:15,160
outstanding, we can see the 
other half of this picture. 

472
00:22:15,160 --> 00:22:18,720
Every incremental acquisition, 
they did increase the share 

473
00:22:18,720 --> 00:22:20,720
count. 
In fact, it nearly doubled it. 

474
00:22:20,880 --> 00:22:24,320
They went from 2 billion to 3 
1/2 billion, then they went from

475
00:22:24,320 --> 00:22:28,320
4 billion here up to 6 billion, 
adding on another $2 billion of 

476
00:22:28,320 --> 00:22:30,560
share count. 
Then when they started doing 

477
00:22:30,560 --> 00:22:33,680
buybacks, which was the smart 
thing to do, they halted the 

478
00:22:33,680 --> 00:22:36,640
buybacks to do more 
acquisitions, increasing the 

479
00:22:36,640 --> 00:22:40,320
share count over and over again.
So when we talk about organic 

480
00:22:40,320 --> 00:22:43,000
growth, we're talking about a 
very important concept. 

481
00:22:43,200 --> 00:22:46,760
You want companies that have 
nice consistent organic growth, 

482
00:22:46,920 --> 00:22:49,360
not lumpy growth that has been 
purchased through major 

483
00:22:49,360 --> 00:22:52,440
acquisitions that take a toll 
with the amount of debt and with

484
00:22:52,440 --> 00:22:54,560
the amount of shares. 
Costco is an example of a 

485
00:22:54,560 --> 00:22:57,040
company that has had that nice 
organic growth. 

486
00:22:57,280 --> 00:23:00,000
When I look back through 
Costco's history, they have not 

487
00:23:00,000 --> 00:23:03,880
done hardly any acquisitions. 
They did a couple really early 

488
00:23:03,880 --> 00:23:06,640
on, but almost all of their 
growth comes from price 

489
00:23:06,640 --> 00:23:09,760
increases on their membership, 
growing more members per store 

490
00:23:09,760 --> 00:23:12,360
and increasing the amount of 
store count globally Overtime. 

491
00:23:12,720 --> 00:23:15,680
That organic growth leads to a 
nice growth chart growing 

492
00:23:15,680 --> 00:23:18,920
overtime that most importantly 
doesn't have a toll on the 

493
00:23:18,920 --> 00:23:21,280
investors. 
Costco in this respect is the 

494
00:23:21,280 --> 00:23:22,760
example of a compounding 
machine. 

495
00:23:23,200 --> 00:23:26,680
AT&T is not the next core 
financial metric we can look at.

496
00:23:26,840 --> 00:23:30,120
One that I pay attention 
possibly more than any other, is

497
00:23:30,120 --> 00:23:33,040
the free cash flow of the 
company and specifically the 

498
00:23:33,040 --> 00:23:36,080
free cash flow per share. 
Compounding machines grow their 

499
00:23:36,080 --> 00:23:39,360
free cash flow per share over 
time on a steady and predictable

500
00:23:39,360 --> 00:23:41,880
basis. 
Other companies like Citigroup 

501
00:23:42,040 --> 00:23:45,080
have unpredictable and low 
growth rates with their free 

502
00:23:45,080 --> 00:23:47,840
cash flow per share. 
So looking at the history of a 

503
00:23:47,840 --> 00:23:51,760
company, this is a telltale of 
what the quality of the company 

504
00:23:51,760 --> 00:23:53,840
is. 
And companies like MasterCard 

505
00:23:53,840 --> 00:23:56,160
are very, very difficult to 
find. 

506
00:23:56,480 --> 00:24:00,280
Ones like Citigroup, they have 
this type of sporadic free cash 

507
00:24:00,280 --> 00:24:02,880
flow per share. 
You can find these companies 

508
00:24:02,920 --> 00:24:04,640
everywhere. 
We can see this clearly 

509
00:24:04,640 --> 00:24:06,560
illustrated through all 
different examples. 

510
00:24:06,560 --> 00:24:08,520
We have Visa as well as 
MasterCard. 

511
00:24:08,720 --> 00:24:11,160
We go over to the free cash flow
chart and we look at the free 

512
00:24:11,160 --> 00:24:13,800
cash flow per share. 
The free cash flow per share is 

513
00:24:13,800 --> 00:24:16,840
a little bit different because 
it factors in some dilution of 

514
00:24:16,840 --> 00:24:20,000
the company when they buy back 
or they issue more shares. 

515
00:24:20,320 --> 00:24:23,680
So you get to see how much free 
cash flow your shares have on a 

516
00:24:23,680 --> 00:24:27,200
per share basis. 
And Visa, like MasterCard are 

517
00:24:27,200 --> 00:24:29,240
not perfectly consistent every 
day. 

518
00:24:29,560 --> 00:24:32,160
That's not realistic for a 
company that has some variable 

519
00:24:32,160 --> 00:24:35,120
expenses and taxes. 
But over time, you can see the 

520
00:24:35,120 --> 00:24:39,280
trend, it is mostly a consistent
overall trend of growing the 

521
00:24:39,280 --> 00:24:41,920
free cash flow per share. 
And these companies that are 

522
00:24:41,920 --> 00:24:45,520
very high quality do this on a 
very, very fast pace. 

523
00:24:45,760 --> 00:24:47,200
For the past five years, they've
grown. 

524
00:24:47,200 --> 00:24:51,240
There's 12% per year that is not
counting in dividends. 

525
00:24:51,240 --> 00:24:53,040
So that's an additional aspect 
of return. 

526
00:24:53,280 --> 00:24:56,120
This is just the core intrinsic 
value of the company growing 

527
00:24:56,120 --> 00:24:57,920
over time. 
We can also look at Costco as 

528
00:24:57,920 --> 00:25:00,120
another example of a company 
that's doing this right. 

529
00:25:00,360 --> 00:25:01,880
You can see the free cash flow 
over time. 

530
00:25:01,880 --> 00:25:04,560
If we filter by the per share 
count, it looks similar. 

531
00:25:04,800 --> 00:25:07,800
Costco keeps their share count 
relatively steady while they 

532
00:25:07,800 --> 00:25:10,880
grow their free cash flow and we
can see the free cash flow per 

533
00:25:10,880 --> 00:25:13,960
share over time. 
It's not perfectly consistent. 

534
00:25:14,280 --> 00:25:17,000
Visa, MasterCard have a little 
bit more predictability here, 

535
00:25:17,360 --> 00:25:20,640
but you can see the overall 
trend in the past decade. 

536
00:25:20,640 --> 00:25:24,640
You can see this even clearer. 
Costco on an overall basis is 

537
00:25:24,640 --> 00:25:27,840
growing its free cash flow per 
share on a relatively consistent

538
00:25:27,840 --> 00:25:29,600
basis. 
Companies like Citi. 

539
00:25:29,600 --> 00:25:32,400
On the other hand, financial 
institutions, pharmaceutical 

540
00:25:32,400 --> 00:25:36,480
companies, airlines, they have 0
consistency with their free cash

541
00:25:36,480 --> 00:25:38,720
flow or their free. 
Cash flow per share, even 

542
00:25:38,720 --> 00:25:40,200
zooming in over the past five 
years. 

543
00:25:40,600 --> 00:25:43,240
There is no pattern here. 
There is no consistency. 

544
00:25:43,360 --> 00:25:46,040
There's no predictability. 
If you're buying this company, 

545
00:25:46,200 --> 00:25:49,400
you have no clue how much money 
you'll earn over the next year. 

546
00:25:49,480 --> 00:25:52,040
So we want to find companies 
that have the type of history in

547
00:25:52,040 --> 00:25:55,360
this metric that MasterCard has,
or as close to it as we can 

548
00:25:55,360 --> 00:25:56,440
find. 
Now the final. 

549
00:25:56,440 --> 00:25:58,120
Example of a compounding 
machine. 

550
00:25:58,160 --> 00:26:01,840
A trait that I see similar in 
virtually all of them is the 

551
00:26:01,840 --> 00:26:05,560
shares outstanding over time. 
This is such an important factor

552
00:26:05,560 --> 00:26:08,080
to look at because when you're 
looking at buying a company, 

553
00:26:08,080 --> 00:26:10,000
you're buying it on a per share 
basis. 

554
00:26:10,200 --> 00:26:13,400
You own shares of the company 
whether or not the company buys 

555
00:26:13,400 --> 00:26:15,120
back shares or issues more 
shares. 

556
00:26:15,400 --> 00:26:19,040
That has a huge impact on every 
per share metric, especially 

557
00:26:19,040 --> 00:26:21,000
earnings per share and free cash
flow per share. 

558
00:26:21,280 --> 00:26:24,200
I have here 2 examples. 
We have the example of Moody's, 

559
00:26:24,200 --> 00:26:25,840
which is a company in My 
Portfolio. 

560
00:26:25,840 --> 00:26:28,480
It's my newest holding. 
I believe it's a very strong 

561
00:26:28,480 --> 00:26:31,000
compounding machine that meets 
almost all of these qualities, 

562
00:26:31,360 --> 00:26:33,880
especially the shares 
outstanding going down over 

563
00:26:33,880 --> 00:26:36,720
time. 
Moody's uses its excess cash to 

564
00:26:36,720 --> 00:26:40,360
buy back shares, which increases
its free cash flow per share and

565
00:26:40,360 --> 00:26:42,840
reduces the total shares 
outstanding over time. 

566
00:26:42,960 --> 00:26:46,280
Other companies like the one 
pictured here JetBlue, dilute 

567
00:26:46,280 --> 00:26:50,080
shareholders by issuing more 
shares to buy new businesses and

568
00:26:50,080 --> 00:26:53,480
pay stock based comp for their 
expensive pilots and the 

569
00:26:53,480 --> 00:26:56,560
expensive staff they need to 
have because they have all these

570
00:26:56,560 --> 00:26:58,640
costs and they don't have other 
ways to pay for them. 

571
00:26:58,840 --> 00:27:02,040
They're continually issuing more
and more shares That may grow 

572
00:27:02,040 --> 00:27:04,520
the market cap of the company, 
but it does not help the 

573
00:27:04,520 --> 00:27:06,520
investor. 
The shares outstanding is so 

574
00:27:06,520 --> 00:27:09,000
important to look at. 
Now, it's true that some 

575
00:27:09,000 --> 00:27:12,360
companies have a history of 
issuing shares when it makes 

576
00:27:12,360 --> 00:27:15,520
sense, when they're growing fast
and when they're building value 

577
00:27:15,520 --> 00:27:18,360
for the customers. 
But over time, the type of 

578
00:27:18,360 --> 00:27:21,440
companies that typically do the 
best are ones that transition to

579
00:27:21,440 --> 00:27:25,120
a steady state of buybacks. 
They don't do it based on price,

580
00:27:25,120 --> 00:27:28,200
they don't do it here and there.
They do buybacks all the time. 

581
00:27:28,480 --> 00:27:31,040
Apple started doing this in 
2013. 

582
00:27:31,520 --> 00:27:33,640
Tim Cook did not try to time the
market. 

583
00:27:33,880 --> 00:27:37,120
He just started pulling that 
buyback lever using Apple's 

584
00:27:37,120 --> 00:27:40,080
incredible cash balance to start
to buy back shares. 

585
00:27:40,320 --> 00:27:44,120
Dollar cost averaging over time.
Doing so has reduced the total 

586
00:27:44,120 --> 00:27:48,640
shares outstanding from the peak
in 2013 of 26 billion all the 

587
00:27:48,640 --> 00:27:51,440
way down to current day 15.6 
billion. 

588
00:27:51,440 --> 00:27:54,080
This amount of buybacks is why 
the stock price has increased 

589
00:27:54,080 --> 00:27:56,800
faster than the market cap. 
It's why investors that have 

590
00:27:56,800 --> 00:28:00,000
owned Apple have done so 
incredibly well, even more well 

591
00:28:00,000 --> 00:28:02,600
than the company has grown. 
They've increased the earnings 

592
00:28:02,600 --> 00:28:05,320
per share, the free cash flow 
per share at an absurdly high. 

593
00:28:05,320 --> 00:28:07,960
Pace and you can see the 
staggering results this has had 

594
00:28:07,960 --> 00:28:11,400
since 2019. 
Five years ago Apple's up over 

595
00:28:11,400 --> 00:28:14,120
400%. 
I bought my first shares in 

596
00:28:14,120 --> 00:28:17,240
Apple in 2017. 
It's been the biggest winner 

597
00:28:17,240 --> 00:28:19,640
that I've owned by far. 
Buybacks are not the only 

598
00:28:19,640 --> 00:28:22,120
important part of a stock, but 
companies that are compounding 

599
00:28:22,120 --> 00:28:25,720
machines almost always have this
trait where they return the 

600
00:28:25,720 --> 00:28:28,640
excess cash primarily through 
buybacks and then through 

601
00:28:28,640 --> 00:28:30,880
dividends. 
So I hope this part works as a 

602
00:28:30,880 --> 00:28:32,840
guide for which companies to 
pick. 

603
00:28:33,080 --> 00:28:36,680
This is all part of step one, 
which is stock selection. 

604
00:28:36,960 --> 00:28:39,160
Remember that this is only one 
of the three parts of my 

605
00:28:39,160 --> 00:28:42,040
investing philosophy. 
After stock selection, we move 

606
00:28:42,040 --> 00:28:44,880
on to temperament. 
Temperament is the personality 

607
00:28:44,880 --> 00:28:47,760
traits that determine how 
someone will react given certain

608
00:28:47,760 --> 00:28:51,160
circumstances. 
So this is basically a word to 

609
00:28:51,160 --> 00:28:53,720
describe. 
If you pick someone up and put 

610
00:28:53,720 --> 00:28:56,840
them in a certain specific 
circumstance, what do you think 

611
00:28:56,840 --> 00:28:58,640
they'd do? 
What would be their reaction? 

612
00:28:58,640 --> 00:29:02,000
What would be their temperament?
And a lot of this is genetic, 

613
00:29:02,000 --> 00:29:04,320
but we do have control over our 
temperament. 

614
00:29:04,560 --> 00:29:06,920
I fully believe that this is 
something that can be learned 

615
00:29:06,920 --> 00:29:09,280
and improved on over time. 
Some of these traits are 

616
00:29:09,280 --> 00:29:12,000
conducive to successful 
investing, while other traits 

617
00:29:12,000 --> 00:29:15,120
are detrimental. 
Not all temperament is the same.

618
00:29:15,400 --> 00:29:18,400
Controlling your temperament is 
key to long term investing 

619
00:29:18,400 --> 00:29:21,360
success. 
So we've heard this before with 

620
00:29:21,360 --> 00:29:23,680
people like Warren Buffett and 
Peter Lynch that controlling 

621
00:29:23,680 --> 00:29:25,400
your temperament is incredibly 
important. 

622
00:29:25,600 --> 00:29:28,760
But what does that mean? 
Here is what I outline as having

623
00:29:28,880 --> 00:29:32,160
good temperament for investing 
or bad temperament for 

624
00:29:32,160 --> 00:29:34,360
investing. 
Now, I'm not saying that these 

625
00:29:34,360 --> 00:29:37,320
are good and bad morally. 
I'm not saying that people that 

626
00:29:37,320 --> 00:29:39,720
have these traits on the left 
are better than these people 

627
00:29:39,720 --> 00:29:40,880
that have these traits on the 
right. 

628
00:29:41,200 --> 00:29:45,360
I'm speaking specific in terms 
of application of investing. 

629
00:29:45,760 --> 00:29:48,640
If you have the traits on the 
left, you'll be a better 

630
00:29:48,640 --> 00:29:50,920
investor than if you have the 
traits on the right. 

631
00:29:51,360 --> 00:29:54,440
That is a simple fact. 
The traits that good investors 

632
00:29:54,440 --> 00:29:57,480
have with their temperament is 
that they do not get excited 

633
00:29:57,480 --> 00:30:00,840
when the market goes up. 
They do not get sad or anxious 

634
00:30:00,840 --> 00:30:02,720
or depressed when the market 
goes down. 

635
00:30:02,800 --> 00:30:04,920
They're patient and OK with 
being bored. 

636
00:30:05,280 --> 00:30:07,440
They don't need to fit in with 
the pack. 

637
00:30:07,760 --> 00:30:10,520
They have no emotional 
attachment to stocks. 

638
00:30:10,560 --> 00:30:14,000
They're systematic, calculated 
in their decision making during 

639
00:30:14,000 --> 00:30:16,720
distressed times. 
These are the examples of 

640
00:30:16,760 --> 00:30:19,920
excellent investors that have 
control over their temperament, 

641
00:30:20,080 --> 00:30:22,400
that stay consistent to their 
investing strategy. 

642
00:30:22,480 --> 00:30:25,880
Bad temperament for investing 
are people that enjoy gambling. 

643
00:30:26,240 --> 00:30:28,680
Many people out there enjoy 
excitement. 

644
00:30:28,680 --> 00:30:31,120
They want something new and 
exciting to happen. 

645
00:30:31,280 --> 00:30:34,640
They like rolling the dice. 
That is a horrible trait for an 

646
00:30:34,640 --> 00:30:37,040
investor. 
Investors like predictable 

647
00:30:37,040 --> 00:30:39,920
returns, not exciting, 
unpredictable returns. 

648
00:30:40,280 --> 00:30:42,000
Bad temperament is being 
excited. 

649
00:30:42,000 --> 00:30:44,760
When the market goes up. 
You get happier, you get more 

650
00:30:44,760 --> 00:30:47,160
enthusiastic. 
That is something that naturally

651
00:30:47,160 --> 00:30:49,960
happens to most people. 
But we need to control this 

652
00:30:49,960 --> 00:30:52,120
temperament. 
We can't get excited when the 

653
00:30:52,120 --> 00:30:54,160
market goes up. 
We should be excited when the 

654
00:30:54,160 --> 00:30:57,680
market goes down, when we can 
buy companies at better prices. 

655
00:30:58,080 --> 00:31:01,440
Bad temperament is having 
anxious and bearish views when 

656
00:31:01,440 --> 00:31:04,960
the market goes down, the exact 
opposite of what we should do. 

657
00:31:05,080 --> 00:31:09,240
2022 was an excellent example of
people becoming bearish after 

658
00:31:09,240 --> 00:31:12,000
the market went down. 
Remaining excited and 

659
00:31:12,000 --> 00:31:14,960
enthusiastic during a time 
period where we're in a two year

660
00:31:14,960 --> 00:31:17,440
bear market becomes very 
difficult. 

661
00:31:17,440 --> 00:31:21,040
It's much easier said than done 
when the market's making all new

662
00:31:21,040 --> 00:31:24,040
lows every single week. 
When you have forecasters on 

663
00:31:24,040 --> 00:31:27,160
CNBC saying that the end is 
there, that the economy's 

664
00:31:27,160 --> 00:31:30,240
tanking, the companies can't 
post profits, that everything's 

665
00:31:30,240 --> 00:31:32,760
different now. 
That creates anxiety, depression

666
00:31:32,760 --> 00:31:35,600
and bearishness. 
Avoiding that temperament and 

667
00:31:35,600 --> 00:31:38,840
being part of the pack with 
other people that are bearish is

668
00:31:38,840 --> 00:31:42,480
imperative in investing. 
Bad temperament is making buys 

669
00:31:42,520 --> 00:31:45,400
out of the fear of missing out. 
You see stocks going up, the 

670
00:31:45,400 --> 00:31:48,240
Kathy Wood Ark investments 
during 2021. 

671
00:31:48,520 --> 00:31:52,080
Seeing those go up creates the 
fear of missing out and a lot of

672
00:31:52,080 --> 00:31:54,400
people have greed take over when
that happens. 

673
00:31:54,720 --> 00:31:57,040
They see a stock going up 
yesterday and they want to be 

674
00:31:57,040 --> 00:31:59,720
part of it tomorrow. 
Bad temperaments also making 

675
00:31:59,720 --> 00:32:02,320
sells out of Fair future losses 
during declines. 

676
00:32:02,640 --> 00:32:05,400
Seeing the market go down every 
single week, seeing your account

677
00:32:05,400 --> 00:32:08,680
become smaller and smaller and 
smaller, losing 10s of thousands

678
00:32:08,680 --> 00:32:12,200
of dollars by the day, can 
become incredibly distressing. 

679
00:32:12,560 --> 00:32:15,680
You may sell out of fear of 
future losses. 

680
00:32:15,680 --> 00:32:18,240
You may sell to preserve your 
current capital. 

681
00:32:18,440 --> 00:32:21,640
You may become convinced that 
selling now is a thing to do. 

682
00:32:22,040 --> 00:32:24,320
But good investors control their
temperament. 

683
00:32:24,640 --> 00:32:28,280
They do not buy out of fear. 
They do not sell out of fear. 

684
00:32:28,520 --> 00:32:31,520
They buy based on the merits of 
the company, the valuation, and 

685
00:32:31,520 --> 00:32:34,360
the future cash flows. 
Bad temperament takes comfort in

686
00:32:34,360 --> 00:32:37,560
following the crowd. 
You should take neither joy nor 

687
00:32:37,560 --> 00:32:39,680
comfort in following or avoiding
the crowd. 

688
00:32:39,680 --> 00:32:42,000
Your decision should be made 
independent of the crowd. 

689
00:32:42,240 --> 00:32:44,760
They should be made based on 
your own research, your own 

690
00:32:44,760 --> 00:32:47,880
judgment, your own calls. 
Many of the best buys that I've 

691
00:32:47,880 --> 00:32:50,720
made have been specifically 
avoiding the crowd. 

692
00:32:50,720 --> 00:32:53,840
When I first started buying 
Costco, it was not a popular 

693
00:32:53,840 --> 00:32:56,640
investment on YouTube. 
There was literally no one else 

694
00:32:56,640 --> 00:32:59,280
talking about Costco. 
I couldn't find another video 

695
00:32:59,280 --> 00:33:01,960
made about it. 
I invested in Costco based on my

696
00:33:01,960 --> 00:33:05,200
own conviction and on research, 
determining it was a quality 

697
00:33:05,200 --> 00:33:08,040
company that I wanted to own. 
With the size of the viewership 

698
00:33:08,040 --> 00:33:10,680
here, every investment that I've
made has had a notable amount of

699
00:33:10,680 --> 00:33:12,320
pushback. 
It doesn't matter what the 

700
00:33:12,320 --> 00:33:15,240
company is, there's always a 
number of people that harshly 

701
00:33:15,240 --> 00:33:17,000
disagree with the decisions I'm 
making. 

702
00:33:17,200 --> 00:33:20,320
I could give you the example of 
Texas Roadhouse, which has had 

703
00:33:20,320 --> 00:33:23,480
incredibly good market being 
returned since buying it, but I 

704
00:33:23,480 --> 00:33:26,440
received a lot of comments of 
why am I buying this company? 

705
00:33:26,600 --> 00:33:28,840
That makes no sense. 
I can buy a different company 

706
00:33:28,840 --> 00:33:31,080
than this one. 
I've been invested in Apple for 

707
00:33:31,080 --> 00:33:33,280
years and years and years. 
The entire time I've been 

708
00:33:33,280 --> 00:33:36,800
invested in this company, I've 
received enormous pushback that 

709
00:33:36,800 --> 00:33:39,200
the best days are behind it, 
that it's not going to have any 

710
00:33:39,200 --> 00:33:41,280
alpha. 
When Apple has turned out to be 

711
00:33:41,400 --> 00:33:44,320
one of the companies with the 
most alpha over the past five 

712
00:33:44,320 --> 00:33:47,840
years, an investor needs to make
their own decisions, make their 

713
00:33:47,840 --> 00:33:50,680
own investments, and hold true 
to their own convictions. 

714
00:33:51,000 --> 00:33:54,440
You should not be persuaded by 
whatever's popular on Twitter, 

715
00:33:54,440 --> 00:33:56,880
whatever's popular on YouTube. 
You should be buying the 

716
00:33:56,880 --> 00:33:59,520
companies that you've done your 
research in and that you know 

717
00:33:59,520 --> 00:34:01,880
our great investments. 
But if you can exercise 

718
00:34:01,880 --> 00:34:05,160
discipline and control over the 
way that you behave during 

719
00:34:05,160 --> 00:34:07,960
certain market events, you'll 
have a much better outcome. 

720
00:34:08,280 --> 00:34:11,080
So we've gone over Section 1, 
which is stock selection, 

721
00:34:11,120 --> 00:34:14,199
identifying what a compounding 
machine is, examples of it. 

722
00:34:14,440 --> 00:34:17,080
We've also gone over 
temperament, staying disciplined

723
00:34:17,080 --> 00:34:19,440
on emotional, patient and long 
term focused. 

724
00:34:19,560 --> 00:34:22,440
Now we get to the final part 
which is portfolio management. 

725
00:34:22,719 --> 00:34:25,159
This is something that's not 
talked about that much, but it's

726
00:34:25,159 --> 00:34:27,960
actually very important. 
This has aspects of position 

727
00:34:27,960 --> 00:34:32,000
sizing specific by criteria, 
specific cell criteria, and 

728
00:34:32,000 --> 00:34:34,719
intrinsic value estimates. 
The first concept we'll talk 

729
00:34:34,719 --> 00:34:37,400
about is intrinsic value. 
This is estimating the fair 

730
00:34:37,400 --> 00:34:40,000
value of a company or the value 
at which the company will have 

731
00:34:40,000 --> 00:34:43,080
market average returns. 
If a company is trading under 

732
00:34:43,080 --> 00:34:46,719
its intrinsic value, that means 
the company's undervalued, it 

733
00:34:46,719 --> 00:34:49,400
means that if you buy it now, 
you'll beat the market. 

734
00:34:49,679 --> 00:34:52,560
If the company's trading over 
its intrinsic value, well, that 

735
00:34:52,560 --> 00:34:55,199
means that company's overvalued 
and you'll likely have 

736
00:34:55,199 --> 00:34:58,280
underperformance. 
So intrinsic value is a gauge by

737
00:34:58,280 --> 00:35:01,520
which we value the actual 
company based on real 

738
00:35:01,520 --> 00:35:04,680
fundamentals of the company. 
Intrinsic value is determined by

739
00:35:04,680 --> 00:35:08,240
ranking companies by free cash 
flow growth and predictability. 

740
00:35:08,480 --> 00:35:11,640
Those are the two major 
variables in determining 

741
00:35:11,640 --> 00:35:15,160
intrinsic value, free cash flow 
growth and predictability. 

742
00:35:15,560 --> 00:35:18,960
Then we discount them by 
determining the appropriate free

743
00:35:18,960 --> 00:35:21,320
cash flow yield those companies 
deserve to trade at. 

744
00:35:21,880 --> 00:35:25,160
So we look into the future and 
see what this type of company 

745
00:35:25,160 --> 00:35:28,600
deserves to trade at with its 
free cash flow yield based on 

746
00:35:28,640 --> 00:35:30,760
the free cash flow growth and 
predictability. 

747
00:35:30,880 --> 00:35:34,640
Now a lot of investors like to 
put a finite number on this, but

748
00:35:34,640 --> 00:35:37,920
don't be mistaken, Everything 
behind this are guesses. 

749
00:35:38,200 --> 00:35:40,840
They're guesses that are 
informed by information and 

750
00:35:41,000 --> 00:35:43,760
we're trying to make our guess 
as accurate as possible. 

751
00:35:44,120 --> 00:35:47,480
Even Warren Buffett and Charlie 
Munger have said many times that

752
00:35:47,480 --> 00:35:51,240
intrinsic value is ultimately A 
subjective guess and you try to 

753
00:35:51,240 --> 00:35:54,480
get as close as possible. 
The more accurate and well 

754
00:35:54,480 --> 00:35:57,040
researched the assumptions, the 
more accurate the intrinsic 

755
00:35:57,040 --> 00:36:00,920
value estimate will be. 
So we want good information to 

756
00:36:00,920 --> 00:36:02,960
go off of. 
We want to study the financials 

757
00:36:02,960 --> 00:36:05,280
of companies. 
We want to know what to expect 

758
00:36:05,280 --> 00:36:09,960
with their growth in the future.
Now this bottom part here I 

759
00:36:09,960 --> 00:36:13,000
outlined the drivers of 
intrinsic value and I think that

760
00:36:13,000 --> 00:36:16,320
this is incredibly important. 
When we look at the growth of 

761
00:36:16,320 --> 00:36:20,080
intrinsic value over time, it's 
primarily because of three 

762
00:36:20,080 --> 00:36:21,680
different factors. 
First of. 

763
00:36:21,680 --> 00:36:23,560
All. 
Organic revenue growth. 

764
00:36:23,760 --> 00:36:26,280
We've already gone over what 
organic revenue growth is. 

765
00:36:26,480 --> 00:36:29,680
We want to see strong top line 
organic revenue growth with a 

766
00:36:29,680 --> 00:36:32,600
company. 
We want to see strong free cash 

767
00:36:32,600 --> 00:36:34,920
flow per share growth with a 
company over time. 

768
00:36:35,480 --> 00:36:38,440
And we want to see 
predictability improving. 

769
00:36:38,760 --> 00:36:41,000
That is the third driver of 
intrinsic value. 

770
00:36:41,360 --> 00:36:45,240
Predictability improving means 
that the durability, the Moat, 

771
00:36:45,520 --> 00:36:48,440
the company itself is becoming 
more entrenched, more 

772
00:36:48,440 --> 00:36:51,400
dominating, more monopolistic, 
more predictable. 

773
00:36:51,920 --> 00:36:55,120
If the company's being beaten up
by competitors, if there's new 

774
00:36:55,120 --> 00:36:58,440
products stealing customers, if 
the company's having lots of 

775
00:36:58,440 --> 00:37:02,040
employees leave and things go 
wrong with it, that lowers the 

776
00:37:02,040 --> 00:37:04,840
intrinsic value because the 
company is now less predictable.

777
00:37:05,280 --> 00:37:07,760
So we need predictability in the
mix here. 

778
00:37:07,920 --> 00:37:10,400
And that again is a judgment 
call based on studying the 

779
00:37:10,400 --> 00:37:13,440
company. 
If these three factors go up, 

780
00:37:13,640 --> 00:37:16,680
the organic revenue growth, free
cash flow per share growth and 

781
00:37:16,680 --> 00:37:20,320
predictability, the company's 
intrinsic value is increasing 

782
00:37:20,320 --> 00:37:22,840
over time. 
My estimates of intrinsic value 

783
00:37:22,840 --> 00:37:25,920
are informed by the history of 
the company assumptions over the

784
00:37:25,920 --> 00:37:29,160
financial metrics, projections 
about their future growth and 

785
00:37:29,160 --> 00:37:31,720
then what I believe the company 
will trade at in the future, 

786
00:37:31,880 --> 00:37:33,880
what their free cash flow yield 
will be. 

787
00:37:34,120 --> 00:37:37,120
Based on that, I can get an idea
of what their annualized return 

788
00:37:37,120 --> 00:37:38,800
will be. 
Once I've done that, along with 

789
00:37:38,800 --> 00:37:41,280
studying the company, I build a 
range of what I believe the 

790
00:37:41,280 --> 00:37:44,440
intrinsic value is, where I 
believe the company's overvalued

791
00:37:44,440 --> 00:37:47,160
and will have subpar returns and
where I believe the company's 

792
00:37:47,160 --> 00:37:49,560
undervalued. 
My goal is to always buy 

793
00:37:49,560 --> 00:37:53,200
companies with a margin of 
safety close to the undervalued 

794
00:37:53,200 --> 00:37:55,440
category. 
Now there's different methods to

795
00:37:55,440 --> 00:37:58,080
calculate intrinsic value. 
I don't believe that this is the

796
00:37:58,080 --> 00:38:00,880
ultimate truth, but I believe 
it's an accurate way to gauge 

797
00:38:00,880 --> 00:38:03,120
it. 
And overall, these three metrics

798
00:38:03,120 --> 00:38:05,960
of organic revenue growth, free 
cash flow per share growth and 

799
00:38:05,960 --> 00:38:09,040
predictability, I do believe are
the most important attributes on

800
00:38:09,040 --> 00:38:11,520
tracking ongoing intrinsic value
changes. 

801
00:38:11,560 --> 00:38:14,000
Now finally we get to the 
portfolio management segment 

802
00:38:14,000 --> 00:38:15,720
where we talk about buying and 
selling. 

803
00:38:16,200 --> 00:38:19,000
I believe strongly that 
successful outperformance of the

804
00:38:19,000 --> 00:38:22,200
benchmark is most likely to 
occur with a portfolio 

805
00:38:22,200 --> 00:38:25,040
concentrated into the highest 
quality companies. 

806
00:38:25,360 --> 00:38:28,240
Buying losers, which is 
something nobody wants to do, 

807
00:38:28,520 --> 00:38:32,200
can be usually avoided by 
following a discipline buying 

808
00:38:32,200 --> 00:38:35,480
and selling strategy. 
Step one is buying only 

809
00:38:35,480 --> 00:38:38,640
compounding machines. 
That is a hard rule to follow. 

810
00:38:38,880 --> 00:38:41,880
Many people sacrifice buying 
compounding machines for 

811
00:38:41,880 --> 00:38:45,400
different companies for all 
different types of reasons, or 

812
00:38:45,400 --> 00:38:48,360
they start to bend the rules a 
bit and they lower the overall 

813
00:38:48,360 --> 00:38:50,880
quality of their portfolio. 
I believe I'll have better 

814
00:38:50,880 --> 00:38:53,440
performance by strictly adhering
to only investing in the highest

815
00:38:53,440 --> 00:38:56,280
quality companies. 
So properly identifying and 

816
00:38:56,280 --> 00:38:59,400
selecting the stocks that are 
compounding machines is the 

817
00:38:59,400 --> 00:39:02,760
first step to making a new buy. 
The second one is buying when 

818
00:39:02,760 --> 00:39:05,160
they're trading below their 
intrinsic value estimates. 

819
00:39:05,320 --> 00:39:07,560
So after you study the company, 
you've run through the 

820
00:39:07,560 --> 00:39:10,240
scenarios, you've looked at the 
valuation and the ranges that it

821
00:39:10,240 --> 00:39:13,040
trades at and you've determined 
an intrinsic value. 

822
00:39:13,440 --> 00:39:16,240
You want to buy the company when
it's a bit below that intrinsic 

823
00:39:16,240 --> 00:39:18,080
value to give you a margin of 
safety. 

824
00:39:18,080 --> 00:39:21,520
These are two steps to buying 
really good companies and buying

825
00:39:21,520 --> 00:39:25,080
them at good valuations. 
The things we want to avoid is 

826
00:39:25,080 --> 00:39:28,040
do not sacrifice quality for 
valuation. 

827
00:39:28,520 --> 00:39:32,000
If you're buying high quality 
companies, there will at every 

828
00:39:32,000 --> 00:39:35,720
given time, every single day, 
every minute of the day, be a 

829
00:39:35,720 --> 00:39:39,800
different company at a lower 
valuation that is inherent with 

830
00:39:39,800 --> 00:39:43,000
the quality that you're buying. 
There's always going to be a 

831
00:39:43,000 --> 00:39:47,200
cheaper company to every 
MasterCard trading at a 34 PE. 

832
00:39:47,280 --> 00:39:49,840
There's an AT&T trading at A7 
PE. 

833
00:39:49,880 --> 00:39:52,760
Like the old phrase, in many 
cases you get what you pay for. 

834
00:39:52,840 --> 00:39:55,920
Trading quality for valuation is
a recipe for disaster. 

835
00:39:56,120 --> 00:39:59,560
Over time, your portfolio will 
become lower and lower quality 

836
00:39:59,840 --> 00:40:02,920
until you own a lot of subpar 
companies trading at low 

837
00:40:02,920 --> 00:40:06,000
valuations because they have 
distressed business models. 

838
00:40:06,400 --> 00:40:08,640
This is not the type of 
investing that Warren Buffett 

839
00:40:08,640 --> 00:40:11,400
does or Charlie Munger. 
They wait to buy grey companies 

840
00:40:11,400 --> 00:40:13,360
that have traded below their 
intrinsic value. 

841
00:40:13,360 --> 00:40:16,200
The majority of gains in the 
market, the majority of 

842
00:40:16,200 --> 00:40:19,640
companies that push the index up
higher and higher and higher are

843
00:40:19,640 --> 00:40:22,640
very high quality companies. 
They're not the ones trading 

844
00:40:22,640 --> 00:40:25,480
with distressed business models.
Now another common thing that I 

845
00:40:25,480 --> 00:40:29,160
believe is important to avoid is
do not add to companies buying 

846
00:40:29,160 --> 00:40:32,400
more of your companies in your 
portfolio if they're becoming 

847
00:40:32,400 --> 00:40:35,280
less predictable. 
If you already own a company and

848
00:40:35,280 --> 00:40:38,000
you've done initial research on 
it, but it's running into 

849
00:40:38,000 --> 00:40:41,080
distressed circumstances, it's 
becoming a little bit less 

850
00:40:41,080 --> 00:40:43,480
predictable, You can see the 
Moat fading a bit. 

851
00:40:43,880 --> 00:40:45,600
Those are not companies that I 
would add to. 

852
00:40:45,600 --> 00:40:49,000
I only add to positions where I 
believe the Moat is as strong or

853
00:40:49,000 --> 00:40:51,480
even stronger than the day I 
first bought the companies. 

854
00:40:51,800 --> 00:40:55,040
I like adding the companies that
are getting stronger, that are 

855
00:40:55,040 --> 00:40:57,240
winning more. 
Their durability is better than 

856
00:40:57,240 --> 00:40:59,440
the day you bought it. 
I don't like adding the 

857
00:40:59,440 --> 00:41:02,480
companies where they're becoming
weaker over time and I can see 

858
00:41:02,480 --> 00:41:05,040
the fundamentals fading. 
So that's another thing that I 

859
00:41:05,040 --> 00:41:06,600
avoid. 
And then we have selling. 

860
00:41:06,800 --> 00:41:09,160
This is one of the most 
difficult parts of investing is 

861
00:41:09,160 --> 00:41:12,200
knowing when to sell a stock. 
There's three different areas 

862
00:41:12,200 --> 00:41:14,320
where I think it's good to sell 
a stock, three different 

863
00:41:14,320 --> 00:41:16,840
categories. 
One of them is when you made a 

864
00:41:16,840 --> 00:41:19,640
mistake on your original 
analysis. 

865
00:41:20,160 --> 00:41:23,240
Simply put, if you just missed 
something with your analysis and

866
00:41:23,240 --> 00:41:25,040
you realize that there's 
something that's wrong with the 

867
00:41:25,040 --> 00:41:28,120
company that you didn't catch 
the first time you bought it, I 

868
00:41:28,120 --> 00:41:30,400
will admit the mistake in my 
analysis, say that I missed 

869
00:41:30,400 --> 00:41:33,280
something and exit the position.
Now, hopefully if you've done 

870
00:41:33,280 --> 00:41:36,000
your job right, you can avoid 
these type of mistakes with 

871
00:41:36,000 --> 00:41:39,160
analysis, but nobody's perfect. 
If we do make a mistake with our

872
00:41:39,160 --> 00:41:41,520
analysis, if I get something 
wrong that I missed and it 

873
00:41:41,520 --> 00:41:44,160
changes my thesis, I'll exit the
position. 

874
00:41:44,720 --> 00:41:47,600
The other bucket that I believe 
selling falls into, which I 

875
00:41:47,600 --> 00:41:52,080
think is more common, is sell in
the company no longer meets the 

876
00:41:52,080 --> 00:41:54,880
quality standards the originally
bought the company for. 

877
00:41:55,160 --> 00:41:57,640
If you buy a company because you
believe it's a compounding 

878
00:41:57,640 --> 00:42:00,240
machine, you believe it meets 
all of these quality 

879
00:42:00,240 --> 00:42:03,000
characteristics. 
And then as time goes on, the 

880
00:42:03,000 --> 00:42:05,880
quality decays, the company 
becomes weaker. 

881
00:42:06,040 --> 00:42:08,280
You can see a lot of missteps by
management. 

882
00:42:08,520 --> 00:42:11,040
They're no longer acting like 
the company that you first 

883
00:42:11,040 --> 00:42:13,080
bought. 
That's a time to sell. 

884
00:42:13,440 --> 00:42:16,840
It's tough to sell companies in 
this condition because typically

885
00:42:16,840 --> 00:42:19,920
they go down in price and you 
want to hang on for recovery. 

886
00:42:20,080 --> 00:42:23,440
We don't want to lose money, but
in most cases, holding on to 

887
00:42:23,440 --> 00:42:26,960
subpar companies that are going 
in the wrong direction is not a 

888
00:42:26,960 --> 00:42:30,560
good way to get returns. 
Rather, sell that company and 

889
00:42:30,560 --> 00:42:34,000
invest it back into a company 
that's doing everything right. 

890
00:42:34,200 --> 00:42:37,000
So even if a company that I've 
done research on, I've made 

891
00:42:37,000 --> 00:42:40,400
videos about, and I'm bullish on
at one standpoint, if that 

892
00:42:40,400 --> 00:42:43,480
company decays in its quality, 
if I no longer believe in the 

893
00:42:43,480 --> 00:42:47,240
future and it no longer meets my
standards, I will replace it. 

894
00:42:47,240 --> 00:42:50,000
For one of the many companies on
my watch list that are doing 

895
00:42:50,000 --> 00:42:52,520
everything right, there's a 
handful of really good companies

896
00:42:52,520 --> 00:42:55,440
to invest in, so I don't need to
hold any ones that are subpar. 

897
00:42:55,440 --> 00:42:58,400
And then finally, the last 
bucket of sells I believe falls 

898
00:42:58,400 --> 00:43:02,080
into this category where you 
sell a company because Simply 

899
00:43:02,080 --> 00:43:05,960
put, there's just far more of an
attractive opportunity. 

900
00:43:06,080 --> 00:43:08,680
Now, this one's a tricky 1, 
because if you have a portfolio 

901
00:43:08,680 --> 00:43:11,920
of compounding machines, in most
cases it's good to hang on to 

902
00:43:11,920 --> 00:43:13,840
them until the quality goes 
lower. 

903
00:43:14,320 --> 00:43:17,920
But when you have a company that
offers an incredibly attractive 

904
00:43:17,920 --> 00:43:20,720
opportunity while meeting the 
high standards of quality you're

905
00:43:20,720 --> 00:43:24,480
looking for, you want to raise 
capital for that opportunity. 

906
00:43:24,680 --> 00:43:27,600
In some cases, you can dig into 
your portfolio and find the 

907
00:43:27,600 --> 00:43:29,880
least attractive investment 
opportunity in it. 

908
00:43:30,200 --> 00:43:33,520
To put that money into the most 
attractive opportunity, there 

909
00:43:33,520 --> 00:43:37,160
should be a wide discrepancy 
between the attractiveness of 

910
00:43:37,160 --> 00:43:39,760
the opportunities. 
If they're close, then there's 

911
00:43:39,760 --> 00:43:43,200
no reason to take the tax burden
of trading one position for 

912
00:43:43,200 --> 00:43:45,280
another. 
And this all summarizes my buy 

913
00:43:45,280 --> 00:43:47,480
and sell criteria. 
So like I said, this 

914
00:43:47,480 --> 00:43:50,120
presentation is meant to be a 
starter pack for my investment 

915
00:43:50,120 --> 00:43:53,520
philosophy to boil down all the 
ideas that I have into one 

916
00:43:53,520 --> 00:43:56,360
simple presentation. 
It's not perfect and I'll be 

917
00:43:56,360 --> 00:44:00,200
making additions and changes to 
it over time, but this version 

918
00:44:00,280 --> 00:44:03,480
of this investment philosophy 
presentation is included for 

919
00:44:03,480 --> 00:44:06,600
free in the PIN comment below. 
So you can go to the pin comment

920
00:44:06,600 --> 00:44:09,320
and download it if you want. 
Share it with people if you want

921
00:44:09,320 --> 00:44:12,040
them to learn about this type of
investing and I really hope you 

922
00:44:12,040 --> 00:44:13,840
enjoyed it and I hope you get 
value from it. 

923
00:44:14,000 --> 00:44:16,920
If you do want to try out, 
Qualtrim this website that shows

924
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you all the fundamentals of a 
company. 

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You get all this information as 
well as a watch list in the 

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scenarios tool in a portfolio 
tracker. 

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A lot of different things that 
we're building. 

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This is $10 a month. 
It's included as part of the 

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Patreon membership with 
exclusive content and a Discord 

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00:44:31,480 --> 00:44:34,520
community, so you can try that 
out with a free trial if you 

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want. 
There's also going to be a link 

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in the description. 
I'll have more videos out soon 

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00:44:38,440 --> 00:44:41,320
on this channel with commentary 
on the latest news, earnings 

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00:44:41,320 --> 00:44:44,400
report and a lot more things on 
the market and my investing 

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00:44:44,400 --> 00:44:46,400
strategy. 
So make sure you subscribe to 

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00:44:46,400 --> 00:44:48,440
the channel if you want to see 
that and I'll catch you in the 

937
00:44:48,440 --> 00:44:48,920
next one.