Thread by @BrianFeroldi

How to build positions at "better and better value points"

Let say I wanted to build a position in $MA from scratch

Here's my step by step process

1) Enter ticker into Yahoo Finance and click on "statistics"

More: 👇👇👇👇👇👇👇👇👇👇

2) Open up the "Buy/Sell" tab on my spreadsheet

docs.google.com/spreadsheets/d…

3) Let's say I want to build in $1,000 increments

$MA current price is $335.31

So $1,000 is 3 shares

I start by buying my first traunch immediately

4) I then fill in the info on the spreadsheet

Tracking the:

Ticker: $MA
Date: 9/23/20
Price: $335.31
Shares: 3
Trailing P/E: 47 (yahoo)
Forward P/E: 38 (yahoo)
P/S: 21.2 (yahoo)
Div yield: 0.47% (yahoo)

5a) I wait at least 1 quarter

If thesis = ✅ AND I have new money to invest, I look to buy my second tranch

Goal is to add at a BETTER VALUE POINT than my first buy

So, I'm looking for ⬇️ P/E, ⬇️P/S, or ⬆️ dividend yield

which MAY OR MAY NOT be at a lower share price

5b) I want my next purchase to be:

Trailing P/E < 47
Forward P/E < 38
Price / Sales < 21.2
Dividend Yield > 0.47%

Ideally, all four

EVEN IF SHARE PRICE IS ⬆️ FROM MY FIRST BUY

How?

A) $MA financials ⬆️ & price ⬇️

OR

B) $MA financials ⬆️ & price ⬆️ but < financials

6) Ideally, I buy the same stock over and over again at better and better values, EVEN IF THE PRICE IS HIGHER EACH TIME

So long as revenue / net income / dividends are growing FASTER than the share price, I'm happy

7) This isn't always possible

Some AMAZING stocks -- like $SHOP -- are doing so well that you have to add at worse value points

I'm OK with that as long as:

1) the business is crushing expectations
2) the story has had a major positive change (like COVID-19 & e-commerce)

8) Tom Engle -- the inventor of this method -- also uses Cash Flow Yield as a value point

Calculation:

Free Cash Flow (Cash From Operations - Capital Expenditures) / Market Cap

9) This system allows you to steadily build your position as your knowledge about the business grow

Your knowledge about a company compounds too!

10) The reverse is also true

You can use this idea to sell OUT of a business

Trying to sell at worse and worse value points over time

And roll the proceeds into other great stocks