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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:
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
https://docs.google.com/spreadsheets/d/1y8quPLqAwNsBGvNUrJuMTqVwz-P59ms1A8ZDLE8Dc24/edit?usp=sharing
https://docs.google.com/spreadsheets/d/1y8quPLqAwNsBGvNUrJuMTqVwz-P59ms1A8ZDLE8Dc24/edit?usp=sharing
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
$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)
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
If thesis =
AND I have new money to invest, I look to buy my second tranchGoal is to add at a BETTER VALUE POINT than my first buy
So, I'm looking for
P/E, P/S, or dividend yieldwhich 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
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 BUYHow?
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
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)
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
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!
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
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
