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26 Cards in this Set

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Examples of barriers to entry

Scale, switching costs, brand, intellectual property (patents, trademarks)

Examples of good public businesses

Telecom towers, enterprise software,

What can a company do to inflate earnings in the near term?

Recognize revenues faster, push out costs / bonuses

What do you think is a better business? Goog or aapl?

Goog.

In a deflationary environment, would you rather use LIFO or FIFO to maximize near term cash flow?

If you don't care about your net income being affected in the near-term, you want to maximize your COGS such that your taxable income is lower and taxes are thus lower. In a deflationary environment, you want to use FIFO because the earlier inventory will be at higher costs, and thus will increase your near-term cash flow.

What are the qualities of a good business?

1. Strong management team that knows how to allocate capital efficiently


2. High return on invested capital


3. High barriers to entry


4. Potential for growth


5. Recurring revenues that are predictable

What kind of hedge fund do you want to work at? What are you looking for?

2 categories - investing strategy and culture / people


1. Investing strategy - looking to learn long short investing from somewhere that does deep fundamental analysis on names before deciding to invest.


2. Looking for well-regarded investors with strong reputations who I can learn a lot from. Looking to learn from good people

What investing books have you read?

Capital returns by Marathon PM. The most important thing by Howard Marks

What have you done to keep up with investing?

Kept up with the markets, read investing books, invested on my own but in mutual funds since I wasn't allowed to own single name stocks at GS and it is tough now as well

What is a book you're reading right now?

100 baggers - about investing in long-term growing companies with high returns on capital that grow 100 fold



Everything store - about Jeff Bezos and the story of Amazon

Why is recurring cash flow important?

1. Investors value predictable cash flows at higher rate (discount them less) vs. Chunky cash flows


2. You are able to lever up the business better as it is a more predictable cash flow stream


3. You are able to lever up at lower interest rates

Why is leverage good?

1. Because debt comes at a lower cost of capital and allows you to make more accretive investments (capex, M&A)


2. Mechanical leverage (betters returns for equity holders in business that


3. Requires you to put up less capital upfront

If your PM gives you a name, what would you do to get smart on it?

1. Read the 10-k, read through management presentations, recent earnings call transcripts


2. Learn the business and figure out what metrics investors really care about


3. Talk to experts in the industry and get a meeting with management


4. Do primary research -

How would you decide if you want to go long or short a name?

Long - if you expect EBITDA or EPS to go up, and you expect that the company will continue to have similar or better growth prospects, go long



Short - if you expect EBITDA or EPS to go down or you expect the company to have worse growth prospects

What kind of research would you do to see if SaaS business will grow?

If CEOs of large corporations talk about increasing IT spend, potential. If companies talk about switching to SaaS, possible

What do you think of the markets right now?

I am generally optimistic, but there's been a lot of volatility as of late. Italian elections, US tariffs

Where is the S&P, DOW, NASDAQ?

S&P at 2700


DOW at 25k


NASDAQ at 7.3k

Private vs public investments. Which needs a higher return?

Private. It gets an illiqudity discount

If you knew the IRR of 2 investments, one at 30% and one at 20%, what would you want to know to decide whether you'd invest?

Equity check size


Time horizon

Which 2 financial statements would you want to see?

IS and BS. You can build a CFS from these 2

What is the formula for days receivables/payables/inventory outstanding?

A/R / Revenue x 365


A/P / COGS x 365


Inventory / COGS x 365

Why does capital allocation matter for mgmt teams?

If you're generating cash flow, you need to be able to use that cash correctlt; whether by issuing dividends, repurchasing shares, M&A, or capital investments

What are you contrarian on?

Hm

What's a lesson you've learned in investing? What did you do wrong?

When I was looking into PBF energy, thought decreasing WTI Brent spread would continue to hurt the refiners. For a while, it played out. But this was when I learned to use second level thinking. Because prices were getting higher, this meant they would continue to drill, pushing prices back down. Crack spread started to rise again and it became good.



To not just think about immediate consequences, but one or two down the line.

What 3 metrics would you want to see from 3 financial statements?

Revenue, EBIT, CFO

What is the expected return on a company trading at 15x P/E? Company grows EPS at 3%

1/15 = 6.7% earnings yield


3% earnings growth


Flat multiple


9.7% growth