Few PROs Use This Bloomberg Function, Discount & Risk 101 | Adobe Stock Analysis | Martin Shkreli

Godel new functions, Summit comment oh yeah I updated a bunch of the functionality on godell so it's kind of neat um I don't know if you could see my screen but yeah if you wanted to like look rapid fire at every stock see where it's at you can kind of do that like this okay where's Microsoft all right all right I got my Microsoft where's my Google what else oh let me look at some biotech where's my favorite stock in Tia oh yeah yeah what's up with that stock Summit uh tars you know any stock you you would you know could look at uh IBM you mentioned Viking this actually reminds me of my old terminal back in 2000 where it's hard to like rapidly check each each stock very quickly I don't know about Summit it's like this highly volatile stock a lot of people think that because of one Chinese study we're going to see pd1 VF by specifics take over the problem is it's very easy to make um a PDF VF by specific a pd1 VF by specific it every single drug company will have one in the clinic next year and drug companies like mer can put can start 25 clinical trials whereas um company like Summit may not be able to now Summit could do a deal with Johnson and Johnson or something like that they did do a uh deal with uh when they were pharmacyclics they did a deal with J&J and they got bought out by Avy so it's certainly possible that ABY or J andj go to Summit and say look you know we we want to pay a billion dollars and this is the this is what we want to do and you know we we'll co-market this drug or whatever it is and I think that you know your average company is going to say can we just make it ourselves you know that's going to be a uh an option casavo will be dead by the end of the year or in January I think it's going to be closer to the end of the year but you Cassava bulls are newbies can never guess with these things what's important is that you know it's going to go to zero which I I'm so sure and at some point I'll put my thoughts together in a long form kind of like piece of some document of some kind but uh for now I haven't looked at dopy in a while another Indian CEO these cassava bus are so stupid it's so obvious they're all brand new to the stock market they're just like praying and hoping that they make a huge return there's no such thing as a four-year cycle you know that's an imaginary thing Bitcoin people made up to try to like I don't even know it sounds so stupid I don't if you guys know this but I'm a pro all right right so when I hear noobs doing Noob stuff I hate that within one trial assuming there's no fraud you did have a within one trial the summit drug vastly outperform the other group and so you kind of have to respect that within one trial it did happen no matter what other trial show right you did see that so why why would we doubt that the benefit's there that's one way to look at it another way to look at it is remember opdivo was out uh out foxed by pmro which was a year and a half later right so don't assume Summit will win this race no the idea as you may know is that the one arm of the VF is bound to the cell because the PD one arm is bound to the cell that's the theory I I'm not sure in practice that that actually happens and I don't know that it matters like the theory is like you're not going to hit the vasculature you're not going to get the side effects of those of like the VF freely circulating antibody but I think the bispecific is freely circulating too and that's just a that's just kind of a uh a theory you know it's it's their Theory but I don't think it makes sense but the other question that becomes how do you explain the results you know I China's come a long way you know it's not the same place it was 10 years ago or 20 years ago so I don't know I I feel like you don't have to trade every stock it's that's the trade trade and invest when you have an edge get get comfortable saying look I don't have to be in this one why do I have to be in this one CU everyone else is in it I don't know that the it's China thing is is the thing anymore I do think you get some a like very amorphous benefit from having in one agent of course Ro had this big incentive to get AAS a standard to care aast never added very much in lung yeah what happened with the comparative arm is the question and again flukes do happen and if you look at the sensoring of each there's a whole bolus of patients that data is not mature that data can can mature and and look uh look pretty ugly Tesla versus TESLA vs NVIDIA NEXT 5 YRS Nvidia for the next five years I don't know I like both of them but they're not like my favorite I think they'll both do well and again the next 5 years It's Tricky cuz you can have recessions and Market down drafts for 10 years we just haven't seen them lately so we're all kind of you know used to gains when it's very easy to see profound losses for a long time that's why I like to Advocate and teach about short selling people think there's something wrong with s Short Selling or there's something unethical about it listen where I'm from you got to protect your neck it's survival at all times you can cry about ethics and portfolio uh and what's fair and what's not fair later get this money first rule number one just make money rule number two never forget rule number one and if you got a problem with that you shouldn't be investing I think Tesla is a bet on mosque doing something Innovative and I think that's probably yeah I wouldn't bet against the guy seems like he's uh pretty good amazing [💎] Adobe: amazing growth growth for Adobe man it's amazing company they and they always uh kind of find always find a way to win it's like really just well-managed so this guidance was disappointing maybe it's just conservative just getting my ducks in a row here on Adobe real quick sucks I haven't looked at it in so long it's such an important company yeah I do see the rpos slowing down quite a bit there right so Do's uh def have to drill down in the guidance but my dad who passed away he he'd always say and he passed away about a year ago almost to the day but uh he's gone one year now but he uh whenever I tell nibbles to shut up or you're stupid kitty he would message me and say don't say that she's not stupid she's very smart what do you notice about Adobe look deeply into the numbers no look deeper feel the numbers let them speak to you breathe in the Difference between RPO and Revenue (adobe) numbers to truly understand them look at the difference between RPO and revenue should we graph it this is RPO I mean RPO should be a leading indicator for Revenue right so what's the guidance David wadwani is the president of digital media yeah I'm not sure I did Cassava up?! (dead cat bounce) great research on Summit it's it's very let's see what's going on in the market actually yeah I'm telling you guys this cassava is a a zero every dollar it's above zero is free money listen Kitty get the get the hell out of here you so on godell if you type in Focus you get this little thing and you can do whatever you want with it put it on big screen TV and just watch like an idiot all day okay so it's up a dead dead cat bounce let's look really quick immun so this is m104 with Gem and uh what are they called that p p pxel again is that uh abaan two out of five response rate is that is that really uh come on five patience dogs I don't think this is gonna has this drug allegedly work pan Rass inhibitor yeah I don't know about this one exactly berer has taken a position in cassava Sciences our first ever biotech investment we could not resist all the fraud and it was just too attractive after Consulting with Matt yeah I saw the uh there a lot of rumors about the [💎] What discount rate to use? (what is beta) failed IPO too yeah Byron uh that's that's the puzzle that is the puzzle of Finance what discount rate to use that is literally the puzzle that is what almost all Finance boils down to what does that mean discount rate is one of these things where we just don't know how are we thinking about the risk of a company let me let me let me show you quick quick thing I got Bloomberg on the other screen that I want to show you the evil empire software that we're making a much better version of but let me show you this just one one thing this is the historical return histogram on Bloomberg very few people use this function I actually updated this function about 15 years ago with my messages to Bloomberg I am banned from Bloomberg but thing about scy is scy finds ways around B all right Can't Ban the Snowman Can't Ban the Snowman oh Bloomberg does not like me for a number of reasons one is I'm trying to compete with them so the question is what is beta why do we care about beta why do we discount cash flows in the first place all these questions are really important we we we have to we're worrying about risk right we're worrying about risk to our cash flows here's another function I'll Bloom everything it's a little newer called Equity risk premium and uh the risk free rate is here right I think this is Corporate bonds and then this is the equity risk premium the beta beta is the interesting thing here do we want to use beta to represent risk does that make any sense to you doesn't make a lot of sense to me so like to me the beta of adobe which is kind of like a the beta is um hi beta here's the I guess this is versus the other S&P constituents yeah pretty sure or are these daily changes let's see okay no these are the price movements this is the one dist change distribution percentage changes so R SAR is correlation here's low correlation I'm not sure that is the best measurement for risk I mean most people don't think it is either right this is 52 weeks it looks like right weekly return and yeah so beta beta is is volatility but it's also and it's supposed to represent risk and we use it in Black shs we use it in equity risk premium it shows up all over finance and you know basically tries to measure how if the Market's up how much more or less will will the stock be [💎] How I and Buffett think about cashflow vs risk up but the way I think about cash flows is very different and I think the way Buffett thinks about is very different is it's really about like what is the risk that I'm going to get this or not it's nothing to do with the stock price right you don't use beta in Black shs well you use them in ply right maybe we used a different uh sort of the same same thing in a lot of ways um maybe we used a different like barrier option valuation model but you can use black shs too so yeah I I think the the risk to the actual cash flows is what matters and some companies have different risks The risk to Adobe like the risk to Adobe is the risk of growth more than it is the risk of downside likelihood and that's a lot like um hedge funds in hedge funds the downside ball matters way more than the upside ball you want asymmetric volatility right um so you can actually be very high beta and not have downside ball which kind crazy if you think about it so to me we were looking at corporate bonds yesterday like I think Adobe is super safe um and we can actually see where their debt trades let's see they don't have too much debt but let's take a look they have 2034 bonds they priced them at 5% a while back they're trading at 4 and a quarter 4.3 so the bond is trading at 4.3 why would we pay why would we expect to get 7% out of the equity shouldn't we expect to get less than that the bonds the risk of defaulting in the bond is is so low now the equity is of course priced little little differently and one of the things we have to do is just adjust our valuation for different businesses like so if I took the discount rate here right and I want to compare it to well what are we discounting our Microsoft cash flows by let's take a look 7% as well well Microsoft has a lower discount rate than Adobe right Microsoft's a bigger Microsoft to Adobe cashflows comparison business it's more diverse it's it's really the risks to its cash flow are very different so I can't really in good faith say Microsoft should be at seven and Adobe should be at seven Adobe should be maybe at eight if if that's the case changing the wrong one and if that's the case it looks a little overvalued if the growth Slows To 7% and then in terminal 1% it's a bit overvalued um we got to double check cash flow cuz I think their cash was a little higher than this so maybe it might be that like maybe this represents it a little bit better but either way it's not massively different the Adobe has this issue where [💎] The adobes issue like they have these big brands that have been around for a long time but they're kind of tired and that's why the figma acquisition was going to be really good for for them and you know the FTC or whatever blocked the figma deal so they've they've grown so much in that one area creative software apps seems like it's really hard for them to find a new Avenue now that's been the story for a long time and they've just kept growing and growing and growing and I think content is one of these things that there there is really big appetite for Content um and it it only continues with with the way the internet and the way kind of the world is going yeah Doby doesn't look particularly attractive I I will say that their generative I mean I know the AI space I mean they their Adobe and AI generative plans and their generative stuff kind of sucks and I do see them like spending too much to buy some like you know I don't know Buy Mid Journey or something like that spend $40 billion to buy mid Journey or some all right so let's see if they grow Revenue by [💎] FOrecasting 10% a year I mean you basically are yeah it takes a lot to see upside in Adobe it's sort of have to like grow forever I don't like this stock at all it's a great company don't get me wrong great management and I'm sure they'll steer their way out of it but the assumptions are somewhat heroic now I didn't do this part which I should do so all that cash does pile up if they're going to hate let them hate just let the money pile up wise philosopher once said that 2% a day there's a guy in our Discord what's up Ken there's a guy in our Discord who says he makes 2% a day he's pretty lit every day including weekends quintillionaire oh you don't have a quintilian yet oh you broke discord.gg martiny don't fall for the scam don't fall for the scam anybody promising you 2% a day is is lying to you and trying to steal your money anyone promised you 1% a day is doing the same so if you think a software company is like zero risk to the cash flows disappearing you can I think you could discount as low as close [💎] And the risk? to risk-free rate because at the end of the day what matters is the realized risk all this stuff is imaginary it's kind of like math in math you play with these different objects that are just made in your mind they're not real you can't touch a manifold or you know cut the real numbers with a scissor they're just imaginary um discount rate is the same we're discounting next year's cash flow and the year after but when that time comes you know basically you either get the money or you don't yeah I have a bit of a nervous energy I mean one of my favorite techniques is as you guys can see you set the npv solve for the market cap right now and see okay this is what would have to happen they would have to grow 10% until 2030 and then grow cash flow 1% so they're growing Revenue 10% to be clear and then grow earnings 1% forever thereafter thereafter they have to return three % on their money and at 8% discount rate that's the current npv is that cheap or not will they beat that or not that doesn't sound that far from that doesn't sound conservative I mean to to go up 10% every year from for the next six years not easy we don't know that they'll do that and then the 1% at ter at maturity I don't know what'll happen there but you know some people are saying there's the software we're going to see the end of the software industry and stuff like that so even if they just grow a small amount the stock gets cut in half and obviously it's not clear that they can grow 20% ever again that's the only way you can double your money it's pretty pretty good pass or even a maybe a short but again Management's really good and that's kind of The X Factor in every stock and you can you can sort of quantify that with with these ratios you can say well maybe the growth's not going to be great but I really believe in management Management's going to make really good Investments so the return on their Capital that they invest is going to be 20% you know they're going to Great make great Acquisitions then the Core Business doesn't have to grow the new deals uh take care of itself so you really have to sense management and say okay I think I think Management's really good that's why I put these and I want to compare them against other companies so if I say the RO for Adobe is 3% but Microsoft is 6% I think Microsoft's going to earn 6% on its money because Microsoft does great deals like Activision uh or the make R Investments most of these S&P 500 companies they're not in fact most companies in general in Corporate America they're not going for broke with their balance sheet they're very conservative yeah but there definitely changes a foot in the creative space mid journey is a good example and Adobe is like the low hanging fruit like torch pie torch is very natively like adjusts photos where you know you you can represent photos and tensors very easily whereas uh things like CAD you know are a little different there's a Affinity you said yeah current Bond rates are are a good example but the most important thing on discount rates is comparing them to [💎] The most important thing at discount rate (Adobe) other companies in the industry so if you set your Adobe discount rate to eight and you have your Microsoft discount rate at seven you have to adjust to see okay is Adobe a little more risky than Microsoft or is it more deserve a nine or 10 so it doesn't actually matter what the percentage is the differential is what matters