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Trust the Process

"Thinking in Bets" by Annie Duke is the first stop for understanding why process is more important than results. This page is created with that in mind.

Resources needed: StockAnalysis, Morningstar, FinanceCharts (shares outstanding), QuiverQuant and SimplyWall.st for ownership, GuruFocu, YouTube, company website, SubStack, and X.

What does the company do?

Financials:

  • Market cap, cash, debt, and EV.
  • Revenue, net income trends.
  • Operating cash flow, CapEx, FCF.
    • Greenblatt tip: True FCF = Cash from Operations - (maint) CapEx +- Change in NWC
  • Estimate for growth.
  • P/E, EV/OCF, and EV/FCF ratios.
  • Share outstanding trend (buybacks or dilution), and dividend yield.
  • ROIC, cost of capital, and earnings yields.
    • Greenblatt variables, use GuruFocus.
    • Greenblatt uses ROIC = EBIT / Net tangible capital.
      • Net tangible capital is = NWC + Net equipment.
      • Eliminate excess cash, goodwill, and accts payable debt.

Management:

  • Does the investor run the company still, bonus points.
  • Insider ownership
  • Insider buys
  • AI search for proxy documents determining management compensation goals. Do these goals = shareholder value.
    • Prompt: "Provide me information about management at ***. Put in a table the executives and board members, how long each has been with the company, shares owned by each, any known insider buys, and any incentives they have to company financials listed in proxy statements."

Thesis development:

  • Listen to one company presentation from CEO on YouTube, and the last earnings call.
  • Write down your common sense bull thesis, and your bear thesis.
  • Assign probabilities of base case, bear case, and bull case. Assign magnitudes to each.
  • Assign expectations, arguably the most important step. Thesis for why it may surprise or disappoint. Review short interest here.
  • Assign a score based on probabilities, magnitude, and expectations: # of units, watch list, or pass.
  • Consider adding a target EV or stock price if viewed as a trade.
  • Use community only after this. Document other investor thoughts, and put emphasis on opposing opinions.
    • Save links for future reference.

Paul Weaver

Charlotte, NC