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Brian Feroldi Profile picture
@BrianFeroldi
Sep 25, 2020 • 7 tweets • 3 min read • Read on X
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The 5 "Technical Analysis" Charts I use every day

⬇️⬇️⬇️⬇️⬇️⬇️⬇️⬇️⬇️⬇️⬇️⬇️⬇️⬇️⬇️⬇️
1) 5-Year Performance vs. $SPY

Winners keep on winning

It's a great sign if a stock has beaten the market over the last 5 years

It's a warning sign if it has lost badly

$MKTX ✅
$MNKD 🚫
2) Long-term Revenue Growth

Recurring revenue is the gift that keeps on giving

Consistent revenue growth -- especially through recessions -- indicates greatness

Inconsistent revenue growth = avoid

$MA ✅
$XOM 🚫
3) Margins

Ideal: Gross / Operating / Net Margin all consistent/expanding over time

Avoid: Gross / Operating / Net Margin all declining over time

$VEEV ✅
$GME 🚫
4) Returns on capital

Great businesses create value by investing at high rates of return

Bad businesses destroy value by investing at low or negative rates of return

I check ROE, ROA, ROIC

Ideal: Double-digit and expanding

Bad: Negative and declining

$FB ✅
$UA 🚫
5) Dilution

Shares outstanding rising through stock-based comp = bad

Shares declining because of stock-buybacks = good

I'm OK with <3% dilution per year if growth is high

>5%/year is bad

$VRSN ✅
$CRM 🚫
Bad performance in any of these categories doesn't exclude investment

Lots of great companies have negative returns on capital and high share dilution in the beginning

Still, always worth looking at

All data from @ycharts

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More from @BrianFeroldi

Brian Feroldi Profile picture
Apr 18
Revenue and income are NOT the same things

Costs and expenses are NOT the same things

Net income and free cash flow are NOT the same things

Confused? Let me break it down for you: Costs vs expenses
Sales and revenue mean the same things.

Both are the money that comes in from customer payments.

They both refer to the “top line” of the income statement. Image
Orders and sales are NOT the same things.

Orders are when a customer places a request for the future delivery of a product or service.

Orders become sales when the product is actually shipped, or the service is performed. Image
Read 10 tweets
Brian Feroldi Profile picture
Apr 17
The P/E ratio SUCKS.

It’s a flawed metric that deceives investors.

Here's exactly why the P/E ratio can be INCREDIBLY misleading (and what to use instead): Image
The P/E ratio's flaw is that the "earnings” can be misleading.

If “earnings” aren’t sustainable, or are artificially inflated/depressed, the P/E ratio will be wrong.

Here's all the reasons why that can happen...
1: Accrual Accounting

The GAAP income statement uses accrual accounting.

Accrual accounting is useful, but it’s basically an accountant’s opinion.

Here are some of the expenses that can cause “earnings” to be higher or lower than the actual cash flow of a business Image
Read 20 tweets
Brian Feroldi Profile picture
Apr 14
"Margin of Safety" by Seth Klarman is an incredible investing book.

But a used copy costs $1,200!

Here are 26 short investing lessons from this classic book (for free): Margin of Safety
1: Markets are volatile. Never invest unless you are sure a "margin of safety" exists.

2: Focus on the intrinsic value of an investment. Only act when there's a meaningful difference between value and price. Image
3: Focus on the downside first. Avoid taking big losses.

4: Disciplined analysis, thorough research, and a patient, long-term perspective lead to superior returns.

5: Value investing isn't easy. Expect long periods of underperformance.
Read 12 tweets
Brian Feroldi Profile picture
Apr 13
The Rule of 72 is the MOST IMPORTANT "mental math trick" for investors to know.

Here's how it works:
Humans tend to think *linearly*.

When we see a curve, we mentally approximate it by a straight line.

This helps us cope with changes in the world around us. Image
But in finance/investing, we need to think *exponentially*.

Money compounds.

Growth doesn't happen at a constant pace; it *accelerates* over time.
Read 16 tweets
Brian Feroldi Profile picture
Aug 16, 2024
WACC Cheat Sheet

What is the Weighted Average Cost of Capital?

Here's a quick primer: Image
WACC is the average after-tax expense of capital for a company from all of its sources.

This includes common stock, preferred stock, bonds, and other hybrid debt & equity instruments.

WACC is the mean rate a company pays to fund its operations. Image
WACC = [(E/V) x Re] + [(D/V) x Rd x (1 - Tc)]

E = Market value of the firm’s equity
D = Market value of the firm’s debt
V = E + D
Re = Cost of equity
Rd = Cost of debt
Tc = Corporate tax rate

WACC is a sum of the weighting of each capital source Image
Read 6 tweets
Brian Feroldi Profile picture
Jul 3, 2024
If you pick stocks, you MUST learn how to analyze a cash flow statement.

Here's how to do it in less than 2 minutes: Image
The Cash Flow Statement shows how cash moves in and out of a company over a period of time.

Its purpose is to track cash movement through a business. Image
The Cash Flow Statement uses CASH accounting.

This method only records transactions when money goes in or out of an account.

This differs from ACCRUAL accounting, the accounting method used on the Income Statement and Balance Sheet. Image
Read 10 tweets

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