1. a) by my lights standard free cash flow usually refers to FCFF or “Free Cash Flow to Firm,” which is (as you mention) simply Operating Cash Flow - CapEx, think of this as the excess cash that the firm (as a whole, including equity holders and debt holders) retains. Meanwhile, FCFE or “Free Cash Flow to Equity” is FCFF - debt payments. FCFE is the excess cash that is available to only the equity holders, since it takes into account payments toward debt holders, so rather than being the excess cash retained by the firm, it is solely the equity holders. Sometimes FCFF and FCFE are the same if net debt payments = 0.

  2. But I heard that it is outdated and may not be very helpful in today's stock market. is that true?

  3. Very much so. It’s very overhyped. It was great for its day, but there are FAR better books out nowadays that are more applicable in modern day investing.

  4. Warren Buffet said anyone that truly understands chapter 8 of intelligent investor would be more likely to get a job working for BH than a off the street business school grad. Whether he actually backs up what he said, I don’t know but he did say that at a Berkshire shareholders meeting.

  5. He’s known for radical statements like that. According to my copy that’s the chapter entitled “The Investor and Market Fluctuations,” not a bad chapter at all but if you actually want to dive deep into that topic I suggest the book “Mastering the Market Cycles” by Howard Marks.

  6. Awesome, this is actually something that I totally deal with as well. I would love to test it out, could I get a link?

  7. Thank you for the information. I would like to add my personal favorite: Operating Earnings Yield.

  8. Quick question - Why Operating Earnings Yield as opposed to Regular Earnings Yield or Free Cash Flow Yield? Seems like we shouldn’t ignore expenses

  9. AMZN has literally never been reasonably valued in the company’s entire history. Don’t hate against these stocks, they’re phenomenal companies. Some companies just always sell at ridiculous companies. If you’re a strict value investor, just don’t buy them. You don’t have to predict doomsday for these companies or needlessly hate on them just because they may not fit strict value criteria. If you shorted AMZN pretty much at any time long term, chances are you got killed.

  10. Because the largest 500 companies in the United States will earn as much as they earn today each year for the next 40 years. If some companies go bankrupt, other companies that were earning only slightly less will replace them in the index. So the sum total of the earnings of the S&P 500 index will remain approximately the same.

  11. Ok now I think I understand. This seems logical at first but the problem is the time value of money, or that money in the future is worth less than money right now due to the ability to invest and earn returns on capital. This means that assuming earnings stay exactly the same for simplicity, the actual worth of the S&P would be it’s earnings this year + a little less than its earnings this year because the money must be discounted + even less than the money this year and so on. This is called Discounted Cash Flow (DCF) and it is very common in finance for valuing assets, I suggest you look into it. It’s very useful. You basically apply a growth rate to earnings and use a discount rate and then take the sum. There are more sophisticated versions but in a nutshell that’s what it is.

  12. No problem, here’s a video on the concept in case I explained it poorly:

  13. I usually use Morningstar and Stockrow for quick checkups, but if I’m serious about a company or I like what I see, I dig into their official statements on sec.gov. If you’re really serious you need to look at the official documents (annual and quarterly reports as well as earnings calls and press releases), as data found on other websites cannot always be guaranteed to be 100% accurate.

  14. Lots of opportunity in China. $GSX for example.

  15. Lynch’s books are excellent for beginners and intermediate investors. William O’Neill’s book is great, Seth Klarman’s book Margin of Safety is good and perhaps for more experienced investors, and it’s really expensive. PDFs of it can be found online.

  16. I put it there as a reminder to myself that most published ROIC numbers will be biased upwards.

  17. That’s an absolute gem, thanks for sharing.

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