Thread by @SeanPeche

Congrats, I heard you won $61bn in the lottery

Thanks, I guess inflation has some benefits

What are you going to buy?

I’m thinking shares, I don’t like the negative real yields of bonds & cash

but I’m worried about the macro outlook, so I want the latest info

Well let’s

2/
take a look at 2 companies that reported on Thursday night to see what’s on offer

For $61bn, you could buy 100% of Freeport-McMoran, (#FCX ) the world’s 3rd largest copper miner

sounds interesting, I know EVs use lots of copper

Revenue for trailing 12 mths (TTM) was $25bn

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Operating income was $9.6bn (GAAP)

and Free Cash Flow (FCF) was $5.6bn

~ 10% FCF yields sound great

Yes, but copper prices are high so maybe earnings aren’t sustainable

Ok, what do management think?

CEO - “The case for copper as a commodity is strong. I've been saying

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this for 20 years but it's never been better."

Great, what else?

Snapchat - #snap

My kids love that platform & I hear online advertising is growing

SNAP would cost you a little less, but it’s yours for $49bn

Revenue for the TTM was $4.4bn

Sorry, $4.4bn?

yes

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vs FCX's $25bn

yes

SNAP's operating income

sorry, "operating loss", was -$670m

What….operating loss?

Well talent doesn’t work for free

so it’s after $1.1bn of stock-based compensation (SBC) expense

which people exclude when calculating FCF

Exclude?

Yes because it’s

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non-cash - shares not money

but then that assumes employees cost nothing and you said,

“talent doesn’t work for free”

well the cash portion is included

Ok, so what’s their FCF for the TTM if I add back the $1.1bn

$203m

$203m!?

yes

But you said FCX generated $5.6bn

7/

I did

but FCX must make that every 2 weeks

sounds right

So buying FCX would cost a little more - $60bn vs $49bn

but yet they made 27x more FCF

yes

and how much did Freeport have to pay their “talent”?

$106m?

Hang on, $106m vs $1.1bn?

Yes

This seems crazy

It was

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crazier not long ago - SNAP has fallen 64% since September

SNAP management must be hugely bullish to justify this price

You tell me

“.. we are concerned that the operating environment ahead could be even more challenging, leading to further campaign pauses or advertiser

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budget reductions.”

But this doesn’t make sense

That's what I think,

But then I think Value investing is just common sense

apparently the "least common of all senses"

Many advisors & clients just look at historic performance when selecting funds

and in recent years,

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as interest rates fell, and higher valuations were justified, the Growth guys won

so they got the flows and bought stuff like SNAP up to crazy prices

But now the party is ending

and they/you sit with overpriced companies

with rising rates

Go look at the

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very current performance of the funds you own

Prepare for bad news, it’s ugly out there for that group

Is it too late to switch to Value?

That’s your call

Maybe the answer lies in pretending you won the lottery

and asking yourself what you’d buy today