Sell-Side Equity Research gets its fair share of criticism from investors, but it’s also a good training ground where you can learn about the investment process and become a better investor.

Here are 10 things I learned during my time on the sell-side

1. Writing

Putting your thoughts into paper forces you to think more clearly and organize your arguments and conclusions. There’s no better way to crystallize your thinking than by writing down what you think, and doing it on a weekly basis creates a very powerful lasting habit.
2. Primary Sources

Don’t read news articles, Bloomberg or third party sources as your 1st stop for company news or information

Always go to the primary source (company filings/press releases), become familiar with them, learn how to read these documents and digest them yourself
3. Financial Modeling

Modeling may lead to false precision, but in practice it’s a great way to learn how a company makes money, how to value it and what the future may look like under various assumptions

First they should be complex & over time become simpler (via @PrefShares)
4. Stock pitching

Pitching a stock helps you craft your views in an organized form, by explaining them succinctly to someone else, who in turn can ask questions and test your knowledge. It also forces you to compress the thesis into the most important drivers of returns.
5. Research Process

The most useful content from the SS are initiations, company deep dives and industry notes. They’re also the most research intensive and what most closely resembles what an investor should do. It helps mold your process to learn a new company/industry from 0
6. Talking to clients

Your clients are PMs and Analysts, many smarter and more experienced than you. Need to build a track record, credibility and be able to handle push back. Having a good discussion with someone smart who is on the opposing side of you is a great skill to have
7. Management

One of the best perks is having access to senior management. Speaking to management teams helps you differentiate b/t the good and bad ones and ask the right questions. What do they say vs. what do they do? How consistent are they? Are they upfront and transparent?
8. Earnings

The craziest and busiest time is always earnings season, and it’s important to develop a process. Know which companies report in which format and the most important KPIs to look for; keep a balance between the quarterly performance variability and the long term view
9. Following companies you don’t own

Every great investor needs to be capable of studying a company in-depth without falling trap to the sunk-cost fallacy that may lead you to invest b/c of time spent.
Be capable of studying a company for a long time without having to own it.
10. Circle of Competence

You spend your entire workday covering 20 companies in 1-2 sectors and over time you start to develop a circle of competence. It probably takes ~3 years, but importantly you learn how to learn, and can replicate it again over time to learn a new sector

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More from @SleepwellCap

23 Nov
$CSU.TO Decentralized M&A
$CSU.TO How do you train a solid investment team and what are the skill sets for deploying capital?
$CSU.TO on the use of leverage
Read 4 tweets
27 Oct
Take a break from earnings.

Here I’ll highlight some companies that did massive repurchases over time.

Friendly reminder to account for SBC and % of mkt cap when calling any share-repo “massive” and best to look long term.

Let’s take a look at some real cannibals

Moody’s $MCO

A classic capital light compounder and one of the best businesses around. Shares outstanding are down 41% in 20 years.
Verisign $VRSN

Boring company nobody has heard of that operates domain name registry for the internet, like .com

shares outstanding down 58%
Read 11 tweets
27 Oct

-MAU 381mm (+19% y/y, high end of guide)
-Premium 172mm (+19% y/y, midpoint of guide)
-Rev +26% (fx adj)
-Ad-Supported revs up 75% (13% of revs)
-Gross margin 26.7% (up 200bps y/y,above guide)
-ARPU up y/y from price increases
-FCF of 99mm EUR

More details to follow.
This is a good print. Let’s dive in.

MAUs DD growth across all regions, back to trend (after 2Q of misses)

Strength in RoW, specifically India, Philippines, Indonesia. Also called South Korea, Bangladesh, Pakistan.

Just in case These are huge population countries.
Premium subs growth strong and in-line with trend. Helped by various partnerships with telcos, hardware providers and financial institutions.

Churn down q/q and up y/y (historic low, tough comp). Still expects churn to be down for the full year
Read 21 tweets
26 Oct
My views on $FB and why I’m not invested:

Is it “cheap”? Yes, by many measures. It’s an incredible business, one of the best in the world.

But I disagree with most adjustments people make (cash, core/ex blah earnings, WA, growth capex)

I don’t value it that way. Why?

1/n 🧵
As a shareholder you either want cash flows back quickly and in size, or be very patient and get a big payday down the line in return.

Even though you can slice the numbers to make $FB look really cheap, you’re not seeing many of those earnings returned to you

Let’s take a look
It trades at a ~3% (30x) ‘22 FCF yield — cash flow, minus guided capex, adj for SBC; which is roughly equal to buyback minus SBC. Call it ~$30b (75-31-12)

As a shareholder that’s the only cash you’re seeing TODAY. You can’t buy it for that reason, you have to expect a big payday
Read 6 tweets
25 Oct
$FB revenues up a cool 35% y/y
Total expenses up 39%
EBIT 36% vs 37% y/y

New reporting segments
FoA: Family of Apps (fb/ig/wa)
FRL: Facebook Reality Labs (ar/vr software, hardware, content)

Getting serious about the Metaverse.
Let’s try to put all these tech buybacks in context by netting out SBC please.


$50B buyback announced
$10B SBC
$40B adjusted buyback (~4% of s/o)
How is it that $FB plans to spend $30+B in Capex in 2022 from a ~$140B revenue base when $GOOG spent $22B last year on $183B of revenues? I’d think FB was lower given they’re not a hyperscale cloud provider

What makes it so capital intensive?
Read 4 tweets
25 Oct
Transformation at $ROP expected to keep going.

Would not be surprised if this is a pure software company in ~5 years (~60% today with recent divestitures)

Adding fmr $DHR CEO to the board is a fantastic move who will help on new acquisitions & also brings spinoffs to the table
How the Board operates in $ROP
$ROP on software valuations, what they look for and what they will be paying.

~18x EBITDA is a good deal for a very high quality business (equiv to low 20s fcf)

They just sold ~$3B of industrial companies for 20x EBITDA (more capex, wc intensive, cyclical and lower growth)
Read 4 tweets

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