Martin Shkreli: «This Is The Number 1 Best Lesson In Investing»

all right let's look at the cash flow every year if you had to look at one thing when you look through these documents you can see that I'm pretty patient and I go through them slowly you have to look at one thing right it's this net cash provided by operating activities 4 billion in 2020 5 billion in 2021 6 billion in 2022 right that is really their business right the income statement has so much stuff going on in it that it's basically useless right if you look at the income statement the net income is just whatever it's just a big blah half the net income is coming from a tax rebate like whatever right um the only thing on the income statement you can really look at is revenue in the case of Salesforce so many accounting tricks no cash flow is going up right so this is 2020 it reads from chronologically from left to right so 4 billion 5 billion 6 billion so pretty good uh growth but remember there's no such thing as an asset that's unmowed from its price every asset you'll ever look at there's a right price and a wrong price that's investor job to determine the two good company Bad Company let me let me really drill this home cuz everybody gets this wrong and it it it pisses me off cuz it's the number one lesson in investing you know there's a a 2X two [Music] Matrix good company Bad Company good price bad price what are you looking for in investing what are you looking for which boxes good company Bad Company good price bad price so this box is good company good price well that seems pretty obvious right we want that that seems pretty obvious maybe Burks her halfway or something like that all right Bad Company bad price maybe like an Enron or FTX obviously we don't want that right no go what about these two this one's tricky we want a good company at a bad price what's a good company well we just said Burkshire hathway right what if Berkshire hathway stock market cap was $10 trillion that's a bad price right now the price is 5% of that right 95% off so why would you pay 20 times what it cost in the stock market right now that'd be a bad price I don't want that okay well let's pick a Bad Company what's a bad company company with deteriorating fundamentals I think AT&T is in a good example of a bad company right AT&T varies in all the telecom companies or how about all the old media companies like Paramount or Viacom or even Disney like some of these companies are really going to get this intermediated by social media what else is a Bad Company probably Snapchat right now struggling what else what's a bad company that you wouldn't want to be in a newspaper company maybe ganette Best Buy um Tribune a radio company um Bad Company GameStop is definitely a Bad Company yeah these are companies with bad fundamentals right but if you got them at a really good price if somebody said I'll sell you Best Buy for $1 million right now and you know the market cap is in the billions you're going to take it you're going to say this is the greatest opportunity of a lifetime you're going to sell to private Equity as fast as possible right um so all we really care about is are we getting a good price it kind of doesn't matter if it's a good company or bad company kind of doesn't matter if cash flow is going up or down right we just have to put it into our calculator and determine is is the price we're getting good is on a scale of value right I don't have my drawing tool here so this is a little sloppy on a scale of value wherever the value hits right that should be this is sort of like the barrier right this is the most we'll ever pay and if we can get the stock at this price we'll buy it right and if we can get the stock at this price we don't want to buy it we want to short it so we just have to figure out okay what's the value that I can get my hands on and sometimes that's easy sometimes that's hard um for Salesforce this company's making $6 billion made $6 billion last year probably this year they'll make 7 billion is that worth 138 billion well if they made 7 billion every year it would take you 20 years to get your money back that's pretty good actually because if the earnings are growing rapidly and rapidly doesn't have to be as rapid as you might think um for example let's let's uh let's assume this year 7 billion is free cash flows growing faster than that 25 11 so I say grow 17% and they have a lot of costs they can cut right so let's assume let's call this growth rate right here okay let's assume they can grow 8% a year for say 15 years maybe say 10 years just 10 years okay that's one 2 3 4 5 6 7 8 9 10 all right and after that uh they just grow 1% how about that they're a top software sale software companies it kind of makes sense all right now we're going to pick a discount rate um to 8% now we take the Net Present Value so we discount every cash flow and in fact we should stretch this out even further just to make [Music] sure all right so we get 100 64 billion you know what's amazing that's almost exactly the stock price every time we do one of these things we get a stock that's fairly valued why Market's pretty efficient you know there's there's not a lot of Bargains out there everybody's doing the same work we're doing and even though you would think something like a stock price is totally random here it is I did some calculations and I got um this number and I want to update the balance sheet cuz my number's a little bit better than that um the current stock price so maybe Salesforce is a little cheap but [Music] they have around 7 billion in in cash in the bank [Music] net so I'm going to add that as well cuz you that is part of the company all right so I get 170 uh uh billion which per share is $171 the current stock price is 146 is that enough of a bargain for us to take action and buy the stock probably not that's only 16% you know it's basically useless you know it would have to be a double or something like that for me to be interested um will they double can they double well if we assume they're going to grow 8% for 10 years to be worth a double they would probably have to grow what do you guys guess 10% 12% do you want to do the math with this model all I have to do is punch in a number [Music] right I can just punch in a number let me CH punch in %. if they grow 9% oh okay well then the Stock's worth 183 if they grow 10% okay stock's worth closer to like 200 if they grow cash flow 11 % a year right now we're talking 211 if they grow cash flow 12% now we're talking about a stock may be worth buying it's 225 if they grow cash 15% okay now we're talking about a double and you might say Martin they were they were growing cash 15% look 11 25 17 I think that averages out to roughly 15% so why won't they keep growing cash at 15 % well the revenue growth has slowed down right all the way down to 9% and the stock market is Val can do these calculations too and the stock market is kind of valuing it like it's going to grow quite frankly more like 7% a year so stock market's not stupid if they it was obvious they were going to grow 15% the stock would be at 300 but it seems to be coming more and more obvious that the growth will slow down so that's kind of why the stock is where it's at you know people are starting to get skeptical of like H I don't know if Salesforce can grow 20% every year now if in this next quarter they say that next year in fiscal year 23 we're going to grow or I should say fiscal year 24 we're going to grow Revenue by 15% then the stock will rally tremendously and that's why tech stocks are so volatile it's because everyone's trying to figure out this is the long-term growth rate of earnings right and you know things like interest rates and stuff like that that you guys are asking about they do impact the discount rate but if I use the same discount rate for Microsoft and for Oracle and for other software companies then it doesn't really change the way I look at the discount rate for for uh for Salesforce you know it doesn't matter right so you know it's pretty much irrelevant you know if if I use the same discount rate you know interest rates impact all the companies kind of pretty similarly so as long as I keep the discount rate kind of similar across all the companies and it doesn't make much of a difference um so I can put the npv here and you can see for Amazon I use 8% discount rate as well but I get a stock price that's double so Amazon seems a lot cheaper right and I have a plus one terminal and I have well I don't have roic for Salesforce which maybe makes it a little undervalued but regardless it looks like I'm using kind of the same framework and it looks like Salesforce is a lot cheaper than [Music] Amazon so I'm just going to upload this model you can get all these models on my GitHub totally for free I'm never going to charge you guys for anything I don't need to do [Music] that um