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Welcome back everyone. 
Thanks for joining. 

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I have a video for you today 
that is quite frankly a bit 

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different than my typical video.
In fact, this is one that I'm 

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debating whether or not I should
release it publicly or keep it 

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as a Patreon exclusive. 
I'm not sure. 

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Maybe we'll figure that out. 
We'll see how it goes. 

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But either way what I want to 
talk about is a conversation I 

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had over the weekend with a long
term friend of mine. 

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There's a a buddy of mine that 
I've been friends with for over 

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a decade and we spent some time 
together over the weekend and I 

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just caught up with them, saw 
how things were going and I 

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asked him how his investments 
were doing right. 

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I know that he likes investing 
in different things. 

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He has a four O 1K, but his big 
interest what he invests in is 

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the alternative assets. 
Stuff like crypto, Bitcoin, 

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altcoins, NFTS, all of that type
of stuff, this realm of 

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investing that I really have 
nothing to do with. 

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I have none of these 
investments. 

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They don't interest me all that 
much, but I listened to his 

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thesis on them and I thought 
that was overall pretty 

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enlightening. 
It was interesting. 

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He went over the main core 
thesis of crypto the fact that 

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it will stabilize a lot of 
countries that aren't as stable,

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countries like Argentina that 
have incredible amounts of 

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inflation. 
People want something that has 

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stable, you know, no inflation 
to anchor onto. 

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So there's different thesis for 
crypto and the technology behind

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it, and he's more knowledgeable 
about that than I am. 

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But part of the conversation 
swung back to me where he asked,

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why do you invest in stocks? 
Like why do you like stocks so 

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much? 
And I went on to explain why. 

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I not only like stocks, but I 
love stocks, and I think that 

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they are by far the best 
investment that you can do on 

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planet Earth. 
Beyond real estate, beyond 

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altcoins, beyond gold, beyond 
bonds. 

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I think stocks are the supreme 
pinnacle of investing, And I 

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explained in in a longer 
conversation why I thought that.

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So in this video, I want to go 
through and go through the 

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examples that I gave because I 
saw that as we are going through

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this, he thought it was 
fascinating. 

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He thought it was a different 
way of explaining things that he

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hasn't seen before. 
And I want to go through some of

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the examples that I did. 
So let's go ahead and start off 

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with why I love stocks, why I 
invest in them, why I think 

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they're the best we can look at 
every single investment. 

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And the way that I rate every 
investment is based against the 

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risk free rate. 
The risk free rate is the 

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treasury or the federal funds 
rate. 

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It's where you can get risk free
returns. 

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Right now the risk free rate is 
around 5%. 

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So that is what the federal 
funds rate is AT and that's 

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around the rate of a treasury 
bond. 

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So let's say that that is the 
risk free rate. 

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Ultimately, we can right now 
invest at 5% or put our money in

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a money market account. 
We can put it in a high yield 

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savings account and we can earn 
5% risk free. 

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Now you can even lock in this 
risk free rate for the next 20 

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years. 
So this is an opportunity over 

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the next two decades to lock in 
this 5%. 

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When I look at investing and 
again this is a 20 year period. 

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So we'll put 20 years up here, 
20 years long earning you 5% 

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interest every single year. 
This is your opportunity cost. 

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This is what I weigh every 
investment that I do. 

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It's against this opportunity of
risk free money. 

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Now the reason that people look 
at this, and I think the reason 

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that so many people are drawn to
this is because the 

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predictability of returns. 
You know when you invest in a 

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treasury and you lock it in for 
the next 20 years, the payout 

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that you get will never go up 
and it'll never go down. 

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If you buy a 20 year treasury, 
you're going to get the same 

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amount of money every single 
year. 

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So you can count on this. 
It's predictable, it's reliable.

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It gives investors a feeling of 
safety, a feeling of lack of 

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risk taking this, and that's why
it's the risk free rate. 

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Now, there's other things to 
consider. 

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There's inflation, obviously 
that eats away at some of this. 

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So you might have like 2 to 3% 
inflation. 

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So your real return is lower 
than 5%. 

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It's the difference between 
inflation and the 5%, more like 

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2% per year. 
But for the sake of simplicity 

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in this example, let's just 
pretend that there's no 

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inflation and you get a flat 5% 
return. 

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Now, stocks in the US Treasury 
have some similarities and they 

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have some differences. 
The biggest difference is that 

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with the US Treasury, you know 
what you're getting. 

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You can see it clear as day for 
the next 20 years exactly what 

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your return will be because it's
guaranteed by the government. 

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It's written on the the note 
that you get, the bond you get 

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tells you how much cash flow 
you're going to get every single

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year for the next 20 years, and 
it's flat. 

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With stocks, the big difference 
is it's unknown. 

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All you know what the stock is, 
the starting yield. 

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So we can look at the example of
Apple and we can compare this to

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the US Treasury. 
Apple right now has a starting 

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free cash flow yield, which is 
just like the starting yield of 

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a Treasury. 
But Apple has a starting yield 

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of 3.76 percent, 3.7. 
The Treasury has a starting 

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yield of 5%. 
So whether or not you buy Apple 

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or the US Treasury is based on 
these starting yields and the 

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opportunity cost from one to the
other. 

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The Treasury is a little bit 
more predictable. 

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It's guaranteed. 
Apple's a company that faces 

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competition. 
It's a bit less predictable or 

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guaranteed, but Apple has the 
potential, like every other 

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stock, to grow its cash flows 
over time. 

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That is, the largest 
distinguishing factor is Apple 

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can grow its cash flows over 
time while the treasury can't. 

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So let's assume for the sake of 
mathematical simplicity that we 

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buy a stock that has a lower 
starting yield than the 

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treasury. 
Let's say we buy one with a 3% 

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starting yield. 
So it starts down here now with 

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every stock that I buy. 
My goal is to buy a stock that 

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will grow its free cash flow per
share at 15% per year. 

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If you're a fan of the rule of 
72, that's a mathematical tool 

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you can use to see how often a 
number will AA growth rate will 

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double if you plug in 15. 
That means that if something 

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grows at 15% per year, it'll 
double every 4.8 years. 

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So we can round up to five 
years. 

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Basically, if you have a company
that's growing its free cash 

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flow per share at 15%, around 
every five years, it's going to 

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double its free cash flow per 
share. 

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So let's assume that I'm trying 
to buy a stock that will grow 

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its free cash flow per share at 
15% per year. 

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And it does it perfectly. 
It just grows its free cash flow

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per share at 15% per year. 
And let's also assume I buy that

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stock with a starting yield of 
3%. 

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We can map this out for the 
first five years, 12345 for the 

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first four years. 
This stock will earn less cash 

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flow than the treasury. 
So the interest payments on the 

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treasury starting at 5% will pay
you more than the cash flows of 

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this stock for the first five 
years. 

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So right here you have 
opportunity cost. 

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You're losing money for the 
first four years. 

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Only on year five are you making
more money than the treasury. 

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On year five you're getting a 6%
yield remember because the cash 

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flows doubled. 
So what you paid for it down 

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here you're getting a yield of 
6% on the free cash flow on your

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five way out here. 
Now if you look at this just on 

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a five year timeline and you're 
trying to judge what was a 

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better investment, I I probably 
think the treasury is, if you 

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just had this isolated view of 
just five years, starting at 5% 

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and earning the first four years
of excess cash flow is better 

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than earning less for the first 
four years and only earning more

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for one year, that's five years 
out. 

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But that's not where this stops.
Remember, this is 20 years. 

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We invest for 20 years, We don't
invest for five years. 

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The Treasury's still locked in 
paying the same amount of 

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interest every single year. 
But a stock has the opportunity 

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to continue growing and this is 
the great thing about stocks. 

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This is why I love them so much 
because they don't grow for five

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years. 
If you find a good company, 

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it'll grow for year after year 
after year. 

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Let's assume that this company 
grows for another 15% per year 

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for the next five years from 
Year 5 to 10, 12345 and we've 

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reached year 10. 
The yield that you're paying 

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today based on 10 year cash 
flows, the year 10 cash flows is

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12%. 
That sounds quite a bit better. 

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So cash flows on year 10, you're
getting a 12% yield on them and 

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then all of these years, year 
6789 and 10, you're earning 

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excess cash over what you would 
have on your 6789 and 10 of the 

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Treasury. 
So when we're measuring this 

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against the risk free rate, the 
US Treasury, many people are 

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buying the treasury today 
trillions of dollars buying up 

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treasuries. 
Many people have so much savings

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stuck in money market accounts 
earning 5%, especially if you 

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lock in a 20 year treasury, 
you're earning that yield, that 

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same payment every single year 
with the stock. 

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You're going into the unknown. 
You might have to pay a little 

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bit more. 
You might have a lower yield. 

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Starting off, you might earn 
less the first four years, but 

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if you find a good one and it 
grows, it's free cash flow, 15% 

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per year. 
Every year after year four it's 

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earning more money and every 
subsequent year that it grows, 

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it's free cash flow per share. 
You're earning more and more 

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than the previous year. 
This is where that incredible, 

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that incredible principle of 
compounding comes into play. 

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And many people underestimate 
this. 

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They're very short term focused.
They want safety and short 

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termism. 
They're focused on the starting 

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yield of 5%. 
That's higher than 3%. 

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So they pour money into the 
treasuries and they forgo the 

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opportunity to have these 
incredible stocks that grow free

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cash flow every year. 
And you might not think the 

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companies can do this, grow free
cash flow per share 15% per 

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year, but I can show you many 
examples. 

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There's many companies that I 
know that I've done this in the 

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past. 
Let's assume that right now, 

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year 10, we're only halfway 
through this journey. 

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Remember, we have another 10 
years to go to get through a 20 

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year investment horizon. 
Well, in this case, we know what

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the Treasury's going to do. 
It's going to pay you the exact 

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same amount that it did year 
one. 

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There's no increase or decrease 
in cash flow. 

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But let's assume that this is a 
great stock, it's a compound 

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machine and it's just 
compounding and doing buybacks 

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and growing organically, doing 
price hikes that has a nice Moat

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and monopoly and it grows 
another 15% per year, which 

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would double the free cash flow 
per share in another five years.

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So we have year 11121314 and 15.
The yield that we would get on 

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year fifteens free cash flow is 
24%. 

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That seems absurd, but that is 
accurate. 

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And the years of cash flow that 
you're getting in excess of the 

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the treasury year 11121314 and 
15 is obscenely high. 

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It's way more than you're 
getting when you're buying the 

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treasury for those years. 
So as you go out in the 

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company's growing cash flows, 
now this company it's it's way 

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more cash flows than you're 
getting with the treasury that 

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has the fixed cash flow. 
Now another way of stating this,

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which I think is even more crazy
to think about and this is 

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something that I think is mind 
blowing is if you bought the 

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company with a 24% yield on 15 
year cash flows. 

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So 15 years out as a 24% yield 
on those cash flows. 

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That means that the cash flows 
on year 15 are enough to buy 

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back the entire market cap that 
you're paying for the company 

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today every four years. 
So this amount of cash flow 

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would pay back on your starting 
valuation of the company every 

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four years. 
Because of math is pretty 

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simple. 
If you assume we have a 25% 

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yield, we round up to a 25. 
That means that if something 

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cost you $100 and it produces 
$25.00 worth of cash flow every 

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year, it can buy back the entire
thing in only four years. 

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Now if we look at this again, 
you might think that that's 

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absurd and there's no company 
doing this, there's no company 

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growing at this rate, There are 
many doing this. 

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We can again look at the example
of Apple. 

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00:11:40,960 --> 00:11:43,120
We have Apple here and let me go
ahead and just show you some 

227
00:11:43,120 --> 00:11:45,160
incredible statistics about this
company. 

228
00:11:45,720 --> 00:11:48,200
First of all, we can look at the
free cash flow per share. 

229
00:11:48,600 --> 00:11:53,080
I'll bring it up right here In 
2023, if you can see this, it 

230
00:11:53,080 --> 00:11:56,200
says that the free cash flow per
share that Apple produced was 

231
00:11:56,200 --> 00:12:01,040
$6.33. 
Remember that number, $6.33. 

232
00:12:01,520 --> 00:12:03,200
Now we go to Apple's stock 
price. 

233
00:12:03,640 --> 00:12:07,960
We go back about 15 years, 
around that time period, maybe 

234
00:12:07,960 --> 00:12:13,400
around 2014 and 15. 
Apple is trading for around 26 

235
00:12:13,400 --> 00:12:16,360
dollars, $25 a share. 
This is when Warren Buffett was 

236
00:12:16,360 --> 00:12:19,400
buying it. 
So Apple is trading at 24 to $25

237
00:12:19,400 --> 00:12:22,760
per share. 
Now we have 6. 

238
00:12:23,200 --> 00:12:25,400
Remember 6.3 is what it's 
producing. 

239
00:12:25,400 --> 00:12:28,920
Last year in free cash flow and 
the company, the whole company 

240
00:12:28,920 --> 00:12:37,360
cost $24.15 years ago 612-1824. 
The free cash on a per share 

241
00:12:37,360 --> 00:12:41,280
basis could have bought the 
entire company of Apple in four 

242
00:12:41,280 --> 00:12:44,800
years 15 years ago. 
Another way of illustrating this

243
00:12:44,800 --> 00:12:48,000
which I think is another 
interesting viewpoint is we can 

244
00:12:48,000 --> 00:12:49,360
just look at the total free cash
flow. 

245
00:12:49,760 --> 00:12:53,480
Apple generated last year, $100 
billion of free cash flow. 

246
00:12:54,040 --> 00:12:56,640
We can look at the market cap if
we had the market cap pulled up 

247
00:12:56,640 --> 00:12:59,160
here. 
The market cap around 2014 and 

248
00:12:59,160 --> 00:13:02,720
2015 was around 400 to 500 
billion, meaning that the cash 

249
00:13:02,720 --> 00:13:04,560
flow the company produces every 
year. 

250
00:13:04,560 --> 00:13:09,320
Today, $100 billion is enough to
buy the entire company in four 

251
00:13:09,320 --> 00:13:14,160
years 15 years ago, which would 
mean that it trades at a 24% 

252
00:13:14,160 --> 00:13:18,400
yield on 15 years cash flows. 
That's exactly the yield the 

253
00:13:18,400 --> 00:13:21,200
Apple trades at over a 15 year 
period. 

254
00:13:21,200 --> 00:13:24,480
It grew its free cash flow per 
share to the point where it had 

255
00:13:24,480 --> 00:13:28,800
a 24% yield 15 years out. 
Apple's an example of a company 

256
00:13:28,800 --> 00:13:31,000
that's done this and that's why 
the shareholders like Warren 

257
00:13:31,000 --> 00:13:33,200
Buffett have trounced the 
market. 

258
00:13:33,200 --> 00:13:34,560
They've trounced the risk free 
rate. 

259
00:13:34,960 --> 00:13:37,040
They've crushed other investors.
He's made hundreds of billions 

260
00:13:37,040 --> 00:13:38,240
of dollars on this one 
investment. 

261
00:13:38,840 --> 00:13:41,720
Now, he didn't know perfectly, 
with certain clarity that would 

262
00:13:41,720 --> 00:13:44,440
produce 15% free cash flow 
growth every year. 

263
00:13:44,760 --> 00:13:47,280
But he knew it was going to grow
really fast, much faster than 

264
00:13:47,280 --> 00:13:49,120
the market. 
He understood the opportunity 

265
00:13:49,120 --> 00:13:50,880
cost. 
Warren Buffett understands 

266
00:13:50,880 --> 00:13:53,160
compounding. 
That's why he's so biased 

267
00:13:53,160 --> 00:13:55,280
towards stocks. 
That's why he loves owning 

268
00:13:55,280 --> 00:13:58,160
stocks that will grow their free
cash flow per year, every single

269
00:13:58,160 --> 00:14:00,680
year. 
And Apple's not the only 

270
00:14:00,680 --> 00:14:02,920
example. 
There's many companies we can 

271
00:14:02,920 --> 00:14:05,600
look at in plain sight, ones 
that you know about that are 

272
00:14:05,600 --> 00:14:07,760
doing this. 
Look at Visa for example. 

273
00:14:08,040 --> 00:14:10,760
If you think Apple's just an 
outlier and one in a million, 

274
00:14:10,760 --> 00:14:14,160
and it's an extreme example of 
survivorship bias, we can take a

275
00:14:14,160 --> 00:14:16,560
look at Visa. 
Everyone knows about Visa. 

276
00:14:16,560 --> 00:14:19,400
Everyone uses Visa. 
It's grown as free cash flow per

277
00:14:19,400 --> 00:14:23,360
share at 25% for the past 
decade, 12% for the past five 

278
00:14:23,360 --> 00:14:26,920
years, so a little bit lower for
the past five years, 18% for the

279
00:14:26,920 --> 00:14:30,720
past two years, so somewhere 
between 12 to 17%. 

280
00:14:31,200 --> 00:14:33,640
That's right in line with this 
example. 

281
00:14:33,920 --> 00:14:36,720
Visa's another one. 
We also have MasterCard, 

282
00:14:37,040 --> 00:14:38,760
Mastercard's another company 
that has done this. 

283
00:14:38,760 --> 00:14:42,280
We also have Costco, Costco, 
everybody knows this company. 

284
00:14:42,400 --> 00:14:43,760
You probably have a membership 
there. 

285
00:14:44,000 --> 00:14:46,360
We can look at Costco's free 
cash flow per share and over the

286
00:14:46,360 --> 00:14:50,640
past decade it's 17% above this 
example. 

287
00:14:50,640 --> 00:14:53,240
So if you're saying this is 
extreme, Costco has beat it. 

288
00:14:53,800 --> 00:14:56,440
The company that I've invested 
in for seven years has beat this

289
00:14:56,440 --> 00:14:59,560
example and over the past five 
years it's grown at 19%. 

290
00:15:00,040 --> 00:15:01,960
That's really trounced this 
example. 

291
00:15:01,960 --> 00:15:04,240
So Costco is not only doing 
this, it's doing it at a higher 

292
00:15:04,240 --> 00:15:07,480
speed. 
And again, this isn't something 

293
00:15:07,480 --> 00:15:10,360
where it's it's survivorship 
bias or looking at only few 

294
00:15:10,360 --> 00:15:12,400
companies. 
Many of the companies that we 

295
00:15:12,400 --> 00:15:14,400
know and understand are doing 
this, we can again look at 

296
00:15:14,400 --> 00:15:17,800
Google. 
Google's a company that everyone

297
00:15:17,800 --> 00:15:20,880
uses on almost a daily basis. 
Who doesn't have a Gmail 

298
00:15:20,880 --> 00:15:22,360
account? 
Who's not on YouTube? 

299
00:15:22,360 --> 00:15:25,120
You're on YouTube right now. 
Listening to this, Google has a 

300
00:15:25,560 --> 00:15:31,040
free cash flow per share growth 
over the past decade of 20.5%. 

301
00:15:31,680 --> 00:15:35,280
It would be faster than this 
example, a better investment 

302
00:15:35,280 --> 00:15:37,560
than this. 
If we look at Google's free cash

303
00:15:37,560 --> 00:15:40,520
flow per share over the past 
five years, it's 27%. 

304
00:15:40,880 --> 00:15:44,720
It's growing at a staggering 
rate, and there's other examples

305
00:15:44,720 --> 00:15:46,320
I can list. 
I can continue on. 

306
00:15:46,600 --> 00:15:49,960
This isn't just survivorship 
bias, but it's a small pool of 

307
00:15:49,960 --> 00:15:51,640
companies that are compounding 
machines. 

308
00:15:51,840 --> 00:15:54,920
They have the economics, the 
Moat, the pricing power to 

309
00:15:54,920 --> 00:15:58,280
continually do this. 
Companies like FICO and Chipotle

310
00:15:58,280 --> 00:16:01,200
and the railroads and so many of
them that are growing their free

311
00:16:01,200 --> 00:16:08,080
cash flow around 13 to 17%. 
So what I try to do is I try to 

312
00:16:08,080 --> 00:16:10,720
look for companies that will 
grow their free cash flow per 

313
00:16:10,720 --> 00:16:13,440
share at 15%. 
And then the hard part is trying

314
00:16:13,440 --> 00:16:14,720
to get into these great 
companies. 

315
00:16:14,920 --> 00:16:18,120
At 1/2 decent starting yield, we
don't want to go too low with 

316
00:16:18,120 --> 00:16:20,760
the starting yield because if 
you get down to 2%, if you get 

317
00:16:20,760 --> 00:16:24,320
down to 1%, even if they grow 
fast, you're starting at such a 

318
00:16:24,320 --> 00:16:28,240
disadvantage that it takes a 
long time for it to surpass or 

319
00:16:28,240 --> 00:16:30,640
even get past the point of the 
risk free rate. 

320
00:16:30,640 --> 00:16:32,840
So you don't want to buy too 
expensive. 

321
00:16:32,960 --> 00:16:36,040
That's a price even high quality
investors make as they pay too 

322
00:16:36,040 --> 00:16:39,160
much. 
I'd rather start at 4%. 

323
00:16:39,680 --> 00:16:43,000
If I could get 1% below the risk
free rate and have it grow up 

324
00:16:43,000 --> 00:16:46,600
15%, then I'll be, you know, 
that's a way better opportunity 

325
00:16:46,600 --> 00:16:49,320
for me in my opinion. 
And I'd love to even get a 

326
00:16:49,320 --> 00:16:51,880
starting yield above the risk 
free rate. 

327
00:16:52,320 --> 00:16:55,920
What if you could start at 6% 
and have a company grow free 

328
00:16:55,920 --> 00:16:58,280
cash flow per share, 15% per 
year? 

329
00:16:58,960 --> 00:17:00,720
Obviously that's dramatically 
undervalued. 

330
00:17:00,800 --> 00:17:03,320
That company would be an 
incredible deal and in some 

331
00:17:03,320 --> 00:17:06,640
cases that happens. 
It happens infrequently, It 

332
00:17:06,680 --> 00:17:09,720
happens rarely, and it happens 
when a high quality compounding 

333
00:17:09,720 --> 00:17:12,280
machine gets sold off 
temporarily. 

334
00:17:12,800 --> 00:17:15,200
So there's some examples of this
happening again, it's it's a 

335
00:17:15,200 --> 00:17:16,599
rare thing. 
You have to look out for it. 

336
00:17:16,920 --> 00:17:19,720
But I think those are the best 
situation where you can find a 

337
00:17:19,720 --> 00:17:22,599
stock that will grow and grow 
and grow its free cash flow per 

338
00:17:22,599 --> 00:17:27,480
share and it starts at a yield 
of around 5% where the 

339
00:17:27,480 --> 00:17:30,760
Treasury's at or even above it. 
That's an incredible deal when 

340
00:17:30,760 --> 00:17:32,920
you can find them. 
I'll give you one example of 

341
00:17:32,920 --> 00:17:35,640
that happening. 
It happened recently with 

342
00:17:35,640 --> 00:17:38,160
Netflix. 
If we look at Netflix, this is 

343
00:17:38,160 --> 00:17:41,680
some staggering information. 
I find this so, so interesting. 

344
00:17:42,400 --> 00:17:44,720
Netflix obviously had like a, 
you know, there's a lot of 

345
00:17:44,720 --> 00:17:46,320
people that were scared about 
the company. 

346
00:17:46,640 --> 00:17:49,720
It sold off because competition 
was coming at it and it went 

347
00:17:49,720 --> 00:17:53,200
down 70%, which that number 
doesn't matter if you're an 

348
00:17:53,200 --> 00:17:56,160
investor, don't look at how much
the company sold off for or what

349
00:17:56,160 --> 00:17:59,080
it used to trade for, Just look 
at the price it's selling at. 

350
00:17:59,600 --> 00:18:04,600
In 2022, Netflix was at below 
$200 per share. 

351
00:18:05,040 --> 00:18:09,800
At that share price, Netflix had
a market cap of $80 billion. 

352
00:18:10,640 --> 00:18:12,160
That was the cost of the entire 
thing. 

353
00:18:12,160 --> 00:18:15,360
You could have bought all of 
Netflix, 100% of it for 80 

354
00:18:15,360 --> 00:18:17,000
billion. 
So if you're buying a share of 

355
00:18:17,000 --> 00:18:20,120
the company, you're buying it at
an $80 billion valuation. 

356
00:18:20,760 --> 00:18:24,480
Now keep that number in mind. 
If we look at Netflix's free 

357
00:18:24,480 --> 00:18:30,160
cash flow in 2023, it had free 
cash flows of $7 billion. 

358
00:18:30,920 --> 00:18:34,560
So in 2022, you could have 
bought the the company for $80 

359
00:18:34,560 --> 00:18:40,120
billion and then 20/23 it had 
free cash flows of 7 billion, 7 

360
00:18:40,320 --> 00:18:46,640
/ 80 is roughly 9%. 
That is the yield you were 

361
00:18:46,640 --> 00:18:50,320
getting on this company, buying 
it here and having the cash 

362
00:18:50,320 --> 00:18:53,640
flows one year later. 
So investors that bought it at 

363
00:18:53,640 --> 00:18:57,280
the low at $80 billion 
valuation, we're getting a 9% 

364
00:18:57,280 --> 00:19:01,000
yield on 2023's year year's free
cash flow. 

365
00:19:01,280 --> 00:19:03,960
If we look at this, it's as if 
you started and we can clear 

366
00:19:03,960 --> 00:19:05,760
this out. 
I'll clear this out to make it a

367
00:19:05,760 --> 00:19:08,600
little bit easier to look at. 
Let's clear out this example 

368
00:19:08,600 --> 00:19:12,640
here and let's look at Netflix 
as the example here on what 

369
00:19:12,640 --> 00:19:15,040
investors were getting compared 
against the risk free rate 

370
00:19:15,320 --> 00:19:17,720
investors that were buying 
Netflix in 2022. 

371
00:19:18,000 --> 00:19:22,800
We're getting a 9% yield on 
2023's cash flows. 

372
00:19:23,120 --> 00:19:25,920
So they had zero cash flows for 
the first year of their 

373
00:19:25,920 --> 00:19:27,680
investment. 
They didn't earn anything. 

374
00:19:27,680 --> 00:19:29,520
They had to be patient and wait 
one year. 

375
00:19:29,840 --> 00:19:33,840
But then immediately after one 
year, the starting yield was 9% 

376
00:19:34,280 --> 00:19:37,200
all the way up here and they own
a company that's presumably 

377
00:19:37,200 --> 00:19:40,160
going to grow its free cash flow
per share in the future and go 

378
00:19:40,160 --> 00:19:42,400
up overtime to even make the 
difference bigger. 

379
00:19:42,440 --> 00:19:45,400
Now if you had perfect clarity 
of the future and you had these 

380
00:19:45,400 --> 00:19:48,240
two choices presented in front 
of you, you could either invest 

381
00:19:48,240 --> 00:19:52,200
in the treasury with a 5% yield 
or you can invest in Netflix. 

382
00:19:52,480 --> 00:19:56,600
That's a 0% yield on year one, 
but then it goes to 9% year two 

383
00:19:56,920 --> 00:19:59,200
and after that it will grow 
every single year. 

384
00:19:59,480 --> 00:20:02,200
The choice becomes very obvious.
Everyone would choose. 

385
00:20:02,480 --> 00:20:06,160
To invest in this thing that has
a starting yield of 9% after 

386
00:20:06,160 --> 00:20:08,920
year one, because you're only 
sacrificing one year of cash 

387
00:20:08,920 --> 00:20:12,600
flow to instantly almost double 
your cash flow every subsequent 

388
00:20:12,600 --> 00:20:16,200
year for the next 19 years. 
This is obviously a much better 

389
00:20:16,200 --> 00:20:18,120
deal. 
It's like a double the better 

390
00:20:18,120 --> 00:20:19,120
deal, right? 
Triple it. 

391
00:20:19,320 --> 00:20:22,200
Once it became clear that 
Netflix can generate $7 billion 

392
00:20:22,200 --> 00:20:25,560
worth of cash flows, investors 
realized, oops, it was selling 

393
00:20:25,560 --> 00:20:28,280
at a 9% yield back here. 
That doesn't seem right. 

394
00:20:28,320 --> 00:20:31,200
Buy, buy, buy and they pot the 
stock like crazy. 

395
00:20:31,480 --> 00:20:34,440
It went up well over 150% in the
following year. 

396
00:20:34,800 --> 00:20:37,920
So Netflix recovered in price 
because investors became aware 

397
00:20:38,240 --> 00:20:41,280
of this bigger picture, right? 
They couldn't see the future a 

398
00:20:41,280 --> 00:20:44,440
year ago, but investors that 
could have an idea of the future

399
00:20:44,440 --> 00:20:46,880
or what Netflix could 
potentially generate in free 

400
00:20:46,880 --> 00:20:50,000
cash flow and they bought it. 
During that time period, they 

401
00:20:50,000 --> 00:20:53,000
were buying these cash flows at 
a 9% yield and that's why the 

402
00:20:53,000 --> 00:20:56,320
stock went up 150%. 
Now I realize that I'm not going

403
00:20:56,320 --> 00:21:00,160
to find companies like Netflix 
that have that 9% starting yield

404
00:21:00,160 --> 00:21:02,720
on next year's cash flows. 
That is super rare. 

405
00:21:02,720 --> 00:21:06,240
Those happen occasionally and 
frequently and hopefully I take 

406
00:21:06,240 --> 00:21:07,640
advantage of them when they 
happen. 

407
00:21:08,120 --> 00:21:11,040
But on a more common basis, what
I'm trying to find are the 

408
00:21:11,040 --> 00:21:14,040
companies that have a higher 
starting free cash flow yield 

409
00:21:14,040 --> 00:21:20,280
close to the treasury of maybe 4
percent, 4.5% around there, as 

410
00:21:20,280 --> 00:21:23,320
close as I can get or even a 
little bit above that, also have

411
00:21:23,320 --> 00:21:25,800
incredibly bright futures that 
are growing their free cash flow

412
00:21:25,800 --> 00:21:30,200
per share at 15% per year. 
That will quickly surpass the 

413
00:21:30,200 --> 00:21:32,000
opportunity cost of the 
treasury. 

414
00:21:32,000 --> 00:21:34,640
And that's what I've been 
focusing on in My Portfolio. 

415
00:21:34,640 --> 00:21:36,240
I know I'm going to make 
mistakes. 

416
00:21:36,240 --> 00:21:38,560
Not every company I buy is going
to be a winner, there's going to

417
00:21:38,560 --> 00:21:40,720
be losers. 
But if I buy a basket of like 12

418
00:21:40,720 --> 00:21:44,560
to 15 of them and hopefully most
of them do pretty well and grow 

419
00:21:44,560 --> 00:21:50,600
their free cash flow per share 
12 to 18% over time overall the 

420
00:21:50,600 --> 00:21:54,120
portfolio will have incredible 
outperformance of this 

421
00:21:54,120 --> 00:21:57,000
opportunity cost. 
It'll do really well over time. 

422
00:21:57,320 --> 00:22:01,520
So that is a a glimpse, I'd say 
a nice little overview of how I 

423
00:22:01,520 --> 00:22:04,320
view valuation. 
Now again, I want to stress just

424
00:22:04,320 --> 00:22:07,160
one last time, you're looking at
a lot of companies that I think 

425
00:22:07,160 --> 00:22:09,120
are are dangerous in their 
valuation. 

426
00:22:09,120 --> 00:22:13,120
We have companies like NVIDIA 
that have below a 1% starting 

427
00:22:13,120 --> 00:22:15,640
free cash flow yield. 
That's fine if they can grow 

428
00:22:15,640 --> 00:22:18,040
their free cash flow at an 
insane rate, which they're doing

429
00:22:18,040 --> 00:22:20,120
right now. 
But just notice the difference 

430
00:22:20,120 --> 00:22:22,840
they have to make up to get to 
the point where they're at the 

431
00:22:22,840 --> 00:22:24,720
risk free rate. 
It has to grow its free cash 

432
00:22:24,720 --> 00:22:30,960
flow 100% to get to 2% and then 
another 100% to get to 4% and 

433
00:22:30,960 --> 00:22:34,840
then another 100% to get past it
to 8%. 

434
00:22:35,480 --> 00:22:38,560
So you're talking about hundreds
and hundreds of percentages of 

435
00:22:38,560 --> 00:22:41,440
free cash flow growth just to 
get above the risk free rate. 

436
00:22:41,800 --> 00:22:44,240
That's why I think companies 
like NVIDIA and ones that are 

437
00:22:44,240 --> 00:22:47,600
incredibly high-priced, they're 
a little bit riskier. 

438
00:22:47,600 --> 00:22:50,280
Those are not the ones I'm going
into, the companies that I'm 

439
00:22:50,280 --> 00:22:52,080
buying, the companies I'm 
looking for. 

440
00:22:52,480 --> 00:22:56,880
I'm looking for that sweet spot 
of 3 1/2 percent, 4% and growing

441
00:22:56,880 --> 00:22:58,560
quite nicely. 
Those are the ones that I'm 

442
00:22:58,560 --> 00:23:00,680
targeting. 
And overall, This is why I just 

443
00:23:00,680 --> 00:23:02,640
love stocks. 
There's really nothing else like

444
00:23:02,640 --> 00:23:03,800
it. 
There's never been an asset 

445
00:23:03,800 --> 00:23:06,160
class that's outperformed it. 
It's been the best performing 

446
00:23:06,160 --> 00:23:08,240
asset class ever over the past 
100 years. 

447
00:23:08,680 --> 00:23:11,840
And even real estate, other 
great asset classes have major 

448
00:23:11,840 --> 00:23:14,320
disadvantages. 
It's a liquid with stocks, you 

449
00:23:14,320 --> 00:23:16,440
can change your mind. 
If you make a mistake, that's 

450
00:23:16,440 --> 00:23:18,760
fine, just sell the company and 
and swap it for another one. 

451
00:23:19,200 --> 00:23:21,000
With real estate, you can't 
really do that. 

452
00:23:21,000 --> 00:23:23,080
You're you're putting big down 
payments. 

453
00:23:23,080 --> 00:23:25,320
You have to deal with tenants, 
you have to deal with managing, 

454
00:23:25,320 --> 00:23:28,160
managing teams. 
You have to deal with lawsuits 

455
00:23:28,160 --> 00:23:31,080
and squatters and all sorts of 
challenges with real estate. 

456
00:23:31,440 --> 00:23:34,360
With stocks, you can sit here, 
You can do analysis from the 

457
00:23:34,360 --> 00:23:37,320
comfort of your own home and you
have the potential to earn 

458
00:23:37,600 --> 00:23:40,400
tremendous amounts of alpha and 
tremendous amounts of 

459
00:23:40,400 --> 00:23:43,360
compounding and gains if you 
construct a smart portfolio of 

460
00:23:43,360 --> 00:23:46,320
great companies that trade at 
reasonable valuations and grow 

461
00:23:46,320 --> 00:23:48,840
their cash flows quickly. 
So to me, stocks are the best. 

462
00:23:48,840 --> 00:23:50,800
I think they are the best 
investment hands down. 

463
00:23:50,960 --> 00:23:53,240
Nothing comes close. 
That's my thoughts. 

464
00:23:53,240 --> 00:23:55,000
I hope you enjoyed this little 
insight. 

465
00:23:55,000 --> 00:23:58,040
I'm sorry that's a bit different
than my normal video, but I 

466
00:23:58,040 --> 00:23:59,600
thought it was interesting that 
I would share. 

467
00:23:59,880 --> 00:24:01,320
That's all for now. 
See you in the next one.