The Next GE – Interview #2 With Eric Schleien of The Intelligent Investing Podcast

The Next GE – Interview #2 With Eric Schleien of The Intelligent Investing Podcast

In the first interview I did with Eric Schleien of The Intelligent Investing Podcast in 2016, we talked about more general value investing concepts, mindsets and processes.

In today’s interview, we talk about an investment I made in 2015 that I called ‘The Next GE’.

In the 27 – minute interview linked below, we go over this investment case study style that I recommended in October 2015 exclusively to Press On Research subscribers.

We do this to figure out a couple of things…

  • Why I titled this company’s recommendation issue ‘The Next GE’
  • Why they’re now up 460% as of this writing since I recommended them

Some of the other things we also talk about in the interview are…

  • Valuation
  • How this company compared to its competition
  • Where I found this company
  • How I found this company
  • How you can find extreme value in the small cap OTC and ADR arenas
  • And more

Here is the description of the interview from Eric’s podcast site…

In this interview, Eric Schleien goes through an investment case study Jason Rivera recommended to his subscribers and for the portfolios he manages about a small and obscure company that has almost tripled since 2015.

When he recommended them, he titled the issue The Next GE and in this interview we go over why he thought that.

His podcast has interviews with other great up and coming value investors as well so make sure to listen to them.

You can listen to the interview here if you don’t have iTunes.

Or you can listen here if you do have iTunes.

Make sure to follow Eric on Twitter, and subscribe to his great podcast when listening to either of the above places.

I hope you enjoy and find some great value in the interview.

Oh, and by the way…

If you listen to the interview, you also get a couple of free resources to learn from that I provided exclusively to listeners of this interview.

One I’ve never released before other than to paying subscribers.

I hope you enjoy 🙂 and let me know your thoughts on this company in the comments below once you listen to the interview and download the FREE resources.

P.S. The analysis I did on this – and EVERY company I evaluate – is based on the preliminary analysis template I developed over the last 11 years, and after evaluating thousands of companies. If you’d like a copy of this to do your own preliminary analysis, you can get yours for free here.

P.P.S. I put on a FREE webinar last Thursday teaching The 3 Secrets That Have Helped Me Beat Buffett In The Stock Market, so you can possibly do the same. If you’d like to sign up for FREE to view the replay of the webinar, you can do so here.

Throwback Thursday – Updated Recommended Reading and Viewing Page

Throwback Thursday – Updated Recommended Reading and Viewing Page

***

This is the fifth post in our new Throwback Thursday’s Series, where we share with you posts from the past blogs to bring you as much value as possible.

I’m not posting a ‘normal’ article today, instead I’m posting the updated Recommended Reading and Viewing Page in full below.

Why?

Because one of the questions I get asked most is some version of the question “What are some great books you recommend?”

Well these books, sites and videos are some of the best resources I’ve learned from over the years.

This is the most up to date version of the MOST viewed page on this blog every single year. This update includes 11 new book recommendations.

I know the resources on this post and on the Recommended Reading and Viewing page can help you reach your goals.

Jason

***

2017 Performance Review – NOW Six Full Years Beating Buffett and Crushing The Market

2017 Performance Review – NOW Six Full Years Beating Buffett and Crushing The Market

2017 is also known as the year of continuing to find a few great stocks and sit on your ass and do nothing.

Charlie Munger said this – or something similar – and it’s what I’ve done for almost 3 full years now.

I’ve bought ZERO new stock investments since April of 2015, when I bought a few great businesses, and haven’t done much since.

Why?

Well this article explains several of the reasons

Goldman Sachs says Valuations Across The Board Are At Highs Not Seen Since 1900

I’ve known this for years as I’ve searched all over the world for public company investments and around the US for multi-family apartment building investments since 2015.

But this is where we, as deep and disciplined value investors, can gain a MASSIVE advantage over other investors.

And 2017 further showed this approach of buying great companies and sitting on your ass for a few years, can make you and the people you invest in, a lot of money.

The above quote from Benjamin Graham is one of my favorites.

It means in the short-term, emotion and psychology drive the market. But in the long-term, the market – and individual stocks – get judged on how well they’ve operated and grown over time.

This is great news for us as long-term oriented value investors.

If we can find a few great companies at cheap to fair prices and hold them for the long-term, we’ll have great returns over time. Why? Because…

“Time is the friend of the wonderful company, the enemy of the mediocre.” – Warren Buffett

With this as a backdrop, below is the 2017 performance review.

For links to 2012, 2013, 2013 updated numbers, and 2014 and 2015, 2016 performance reviews, go to the previous links.

Also, as noted above in some of the individual posts, I made multiple mistakes in 2013 when calculating my returns. The numbers below – which show the six full years between 2012 and 2017 – are correct.

2017 Performance Review

I still own all the companies from 2014 and 2015 except one. I bought 3 new companies in 2016, and ZERO investments in 2017. These investments produced a 13.5% average return in 2017.

Here are the highlights from this year:

  • One of the companies I recommended while working at the investment newsletter, is up more than 300% since I recommended them in 2014 / 2015.
  • One company I recommended in Press On Research was up 154.6% JUST in 2017.
  • This same company has now QUADRUPLED since recommending them in 2015.
  • Another two Press On Research picks from 2015 have more than doubled.
  • The average market cap at the time of these recommendations was $246.4 million.
  • The average market cap of the 11 companies I still own – not including the company that was bought out last year – is now $543 million.

Below is the full spreadsheet…

2017 VIJ and POR Performance Review

If you’d like to know what these companies are, you can do so by purchasing ALL past issues at a 50% discount by using this code 2018ALLISSUES in our shop today.

Note. The only product that this code will work on is the ALL issues package here. To purchase this package for 50% off, put the ALL issues package in your cart and use the code 2018ALLISSUES before checking out.

So what does this mean for cumulative full six-year returns now?

Six Full Years Beating Buffett…

Here are Buffett’s returns that I’m referencing.

The Buffett Partnership Returns

I don’t compare myself to Buffett because I want to be the next Buffett. But because everyone knows who he is as he’s regarded by most as the best investor ever.

I want to be known as the first Jason Rivera when my career is over.

At the end, I want to be known as a better investor and capital allocator than Buffett and to produce better returns over time than he has so I can help millions or billions of people all over the world.

At least for now – six full years into my career – I am achieving this lofty goal by beating Buffett, when compared to the first six years of his career.

In the first six years of my career, I’ve produced average – non-compounded – returns of 27% each year. Or a total cumulative return of 162% over that period.

In the first six years of his career, Buffett produced average – non-compounded – returns of 23.1% each year. Or a total cumulative return of 138.8% over that period.

This means in the first six years of our careers, I’ve produced returns 3.9 percentage points better each year than Buffett did in the first six years of his career.

But what does this 3.9 percentage point excess return per year mean in dollar terms over this period?

Assuming we both started with an asset base of $10 million at the beginning of the six-year period, I would have grown that $10 million into $41.959 million after six years.

Buffett would have turned his investors $10 million into $34.798 million in that time.

This is why every point of excess returns is so important, and why you need to be aware of any fees charged to your account by your money managers.

Over a long period – or in this case six years – ‘only’ an excess 3.9 percentage points each year would have made investors $5.7 million extra.

And this further illustrates the power of compounding over time.

Last year, this difference between my returns and Buffett’s returns were 4.3 percentage points and a $5.7 million difference. This year, it’s a 3.9 percentage point difference and $7.161 million.

Even though the actual percentage point difference dropped by 0.4 percentage points, the amount increased because of the power of compounding and an extra year by $1.461 million.

Not only am I achieving my lofty goal of beating Buffett through this time, but I’m also crushing the market as well.

And Crushing The Market

From 2012 through 2017 the Dow Jones Index produced a total cumulative return of 48.9% – or almost doubled – for the six years or 8.2% per year on average.

The S&P 500 produced a 51.3% total return  – or more than doubled – for the six years or 8.6% per year on average.

And the Russell 3000 index – the closest thing to a small cap index – produced a 59% total return or 9.8% per year on average.

I’ve produced returns in excess of these indexes by 18.8%, 18.4%, and 17.2% points respectively each year over these six years.

Assuming a $10 million asset base like above, I would have produced $24.5 million more for investors over this six-year period than the Russell 3000 index would have.

  • $41.959 million minus $17.5 million the Russell 3000 would have produced.

I started posting my results publicly in 2012 because this is when I began doing ‘real’, in-depth, investment research and analysis instead of speculating.

Results have been great thus far, better than I expected. But there’s still a lot of work and improvement necessary to continue this. Especially with valuations near or at all-time highs.

Other Highlights From 2017

Thanks to you investing in yourself via sales of my products, services, and consulting jobs we continued helping Mhicaella and her family in the Philippines.

The last letter we received from her mother told us that Mhicaella is now in 1st grade. She loves P.E. and is learning to read and write.

Here is a picture of Mhicaella when we first started helping her and her family…

Here is a recent picture of Mhicaella…

Mhicaella N.
The beautiful little girl we’re all helping support and have a better life in the Philippines.

With your help, some of the things we’ve been able to help provide for her and her family over the last year are school supplies, medical and dental care, and Christmas gifts for her entire family.

A percentage of all sales of my books, services, and products sold will continue going towards charities like these well into the future.

We will expand on this in the future and help even more kids and their families.

Thank you so much for helping and being a part of this milestone.

***

Other highlights from 2017 are:

  • Got my real estate license.
  • Learned an IMMENSE amount about real estate and real estate investing.
  • Put offers in on several multi-family and single-family properties.
  • Didn’t get any of these deals due to excessive valuations and getting outbid.
  • Did a lot of consulting work for a large firm in New York and Ohio.
  • Learned an IMMENSE amount about marketing in all facets.
  • Expanded my circle of competence into single family and multi-family investments.
  • Grew our mailing list and social media following A LOT.
  • Read around 50 books this year.
  • As mentioned above we continued helping Mhicaella and her family in the Philippines survive and thrive.
  • Learned several valuable skills to help my own businesses and others business.
  • Got several value investment coaching clients this year.
  • Began to build several value investing courses.
  • Hired 4 part-time team members.
  • We helped a lot more people this year than we have in the past due to the things above.
  • Began building more products, services, courses, etc to help as many people as we possibly can.
  • And a lot more

All this will continue to grow even more as we go forward and learn and improve.

Conclusion Thoughts

We’re still beating Buffet after six full years and crushing the market but both are catching up.

Value investing works best with a falling or stagnant market so with valuations at or near all-time highs – and reaching new highs on an almost every day basis still – this is expected.

Unless the market corrects sometime soon, I would expect Mr. Buffett and the market to continue catching up to or possibly passing us in the near future.

As I said last year at this time, barring a major sell-off I expect to add few to no companies again in 2018.

This is because I will only buy something that meets my ultra-strict criteria.  Under no circumstances will I buy something because I haven’t bought in a while.

This helps keep us only in great companies and real estate investments and should help us continue producing exceptional returns over time.

No matter what the market continues to do though over time I’m confident we’ll continue to beat the market by a wide margin. And continue to compound our wealth over time.

And with the market’s march ever higher, it’s allowed me to take the time to learn other valuable business skills.

This will help us even more over the long term as we get back into buying public companies stock. And into buying private businesses and multi-family real estate investments once we reach enough revenue and cash flow.

Here’s looking forward to an even bigger and better 2018.

Thanks so much to everyone who’s been a part of this journey so far. And please let me know how I can continue to improve things going forward in the comments below.

Jason Rivera

Chairman, CEO, and Founder of Rivera Holdings LLC

Preliminary Analysis Case Study #1 Part 10 – Final Part

Preliminary Analysis Case Study #1 Part 10 – Final Part – Inventory, Footnotes, And How To Evaluate Management

Last week I announced we were going to begin doing a real-world case study on Constellation Brands – Stock Ticker STZ.

Well, after releasing this post, my team reminded me that there was actually a preliminary analysis my client did before this one. So before we get to the STZ case study, we’re doing to take a detour to talk about Canopy Growth Corp –  Stock Ticker WEED.

I didn’t want to skip this one because there’s a lot of context and talk in this discussion that we don’t necessarily go over in the later training sessions because we’ve already talked about them.

This post is a continuation of the prior posts in this ongoing case study. All parts thus far are below.

Below is his unedited preliminary analysis for reference – without any of my comments – for you to get a  look at.

Canopy Growth Corp – WEED

***

WEED – Canopy Growth Corp (Canadian Company)

All numbers are in millions of CAD unless noted otherwise.

  • FY Ends March 31st, 2017
  • 3,404 market cap (medium)
  • N/A dividend yield.
  • P/B TTM = 4.92
  • TTM Operating Margin is -39.2 and has somewhat increased over last 2 years.
    • 5 year average OM is N/A
  • Share count has done increased from 77 to 119 from FY16 to FY17. Current TTM is 149m.  Statement of shareholder’s equity??
  • Book value per share has increased from 1.34 to 1.55 from FY16 to FY17. Current TTM is 3.73.
  • Morningstar ROIC TTM is -6.58 and a little higher than the last 2 FY’s
    • 5 year average Morningstar ROIC is N/A
  • TTM ROE is -6.45 and a little higher than the last 2 FY’s
    • 5 year average ROE is N/A
  • TTM FCF/sales is -151 and we can’t tell any pattern. See con note on FCF
    • 5 year average FCF/sales is N/A
  • CCC: No info on the payable period (assume the product is cheap to grow) but DIO exploded on FY2017 to 5,494 days (FY2016 and 2015 avg is about 650 days). Research online says cannabis takes up to ½ year to grow so I would need much more investigation on why inventory takes so long to turnover.
  • EV=3,312
  • EV/EBIT is -73.6
  • EV/FCF is -37.6
  • EBIT/EV (earnings yield) -1.3%
  • FCF/EV (earnings yield) -2.6%

Cons

  • Young company – only about 3 years old after name change (used to be Tweed)
  • Note only balance sheet on Morningstar has FY2015 so we need to look at 10K for data.  We cannot really tell any direction with a 2/3 year old history
  • SG&A & Other are over 163% of Revenue
  • SG&A roughly decreasing and “Other” is increasing
  • Op Income and Margin are (-) but are generally decreasing over time
  • Outstanding shares are significantly increasing over time
  • FCF is increasingly negative as both op cash flow and CapEx are also both increasingly negative
  • Not much experience with Canadian companies
  • Goodwill and intangible assets exploded on FY2017
  • Regulation laws in Canada and USA
  • They bought a lot of companies in FY2016

Pros

  • Cash exploded in FY2017
  • FY2017 Cash & Equiv – Total Liabilities = $39m
  • Book value/share is generally increasing but only for last 3 years
  • Low Debt (also reflected by the ROE and ROIC being similar numbers)
  • Revenue is increasing over time
  • STZ bought about 10% interest in WEED.  Industry took notice and WEED most likely gained some legitimacy with large companies
  • COGS is only 23% of Revenue (doesn’t take much cost to grow product?)
  • High Working Capital Ratio = 9.8 but this high typically suggests either too much inventory or not investing excess cash…

***

In this video, we talked more about the inventory, how they’re accounting for inventory in the footnotes, a major issue in its inventory, how to evaluate management, and more.

For some reason, when I talk, the audio cuts out so I’ve added narration to the video above for context.

If you have any comments or questions, please post them in the comments section below and I’ll answer them.

I’d also love to see your preliminary analysis as well, so feel free to post these in the comments below.

If you’d like more information about the coaching program this client is in, go to this page.

For reference, he’s in the $ 10,000, year-long program, and this is only after 1 month of coaching, doing nine 1-hour training sessions via Skype.

P.S. This analysis is based on the preliminary analysis template I developed over a number of years, and after evaluating thousands of companies. If you’d like a copy of this to do your own preliminary analysis, you can get yours for free here.

P.P.S. I put on a FREE webinar last Thursday teaching The 3 Secrets That Have Helped Me Beat Buffett In The Stock Market, so you can possibly do the same. If you’d like to sign up for FREE to view the replay of the webinar, you can do so here.

Preliminary Analysis Case Study #1 Part 8 – Cash Conversion Cycle, NCAV, and More

Preliminary Analysis Case Study #1 Part 8 – Cash Conversion Cycle, NCAV, and More

Last week I announced we were going to begin doing a real-world case study on Constellation Brands – Stock Ticker STZ.

Well, after releasing this post, my team reminded me that there was actually a preliminary analysis my client did before this one. So before we get to the STZ case study, we’re doing to take a detour to talk about Canopy Growth Corp –  Stock Ticker WEED.

I didn’t want to skip this one because there’s a lot of context and talk in this discussion that we don’t necessarily go over in the later training sessions because we’ve already talked about them.

This post is a continuation of the prior posts in this ongoing case study. All parts thus far are below.

Below is his unedited preliminary analysis for reference – without any of my comments – for you to get a  look at.

Canopy Growth Corp – WEED

***

WEED – Canopy Growth Corp (Canadian Company)

All numbers are in millions of CAD unless noted otherwise.

  • FY Ends March 31st, 2017
  • 3,404 market cap (medium)
  • N/A dividend yield.
  • P/B TTM = 4.92
  • TTM Operating Margin is -39.2 and has somewhat increased over last 2 years.
    • 5 year average OM is N/A
  • Share count has done increased from 77 to 119 from FY16 to FY17. Current TTM is 149m.  Statement of shareholder’s equity??
  • Book value per share has increased from 1.34 to 1.55 from FY16 to FY17. Current TTM is 3.73.
  • Morningstar ROIC TTM is -6.58 and a little higher than the last 2 FY’s
    • 5 year average Morningstar ROIC is N/A
  • TTM ROE is -6.45 and a little higher than the last 2 FY’s
    • 5 year average ROE is N/A
  • TTM FCF/sales is -151 and we can’t tell any pattern. See con note on FCF
    • 5 year average FCF/sales is N/A
  • CCC: No info on the payable period (assume the product is cheap to grow) but DIO exploded on FY2017 to 5,494 days (FY2016 and 2015 avg is about 650 days). Research online says cannabis takes up to ½ year to grow so I would need much more investigation on why inventory takes so long to turnover.
  • EV=3,312
  • EV/EBIT is -73.6
  • EV/FCF is -37.6
  • EBIT/EV (earnings yield) -1.3%
  • FCF/EV (earnings yield) -2.6%

Cons

  • Young company – only about 3 years old after name change (used to be Tweed)
  • Note only balance sheet on Morningstar has FY2015 so we need to look at 10K for data.  We cannot really tell any direction with a 2/3 year old history
  • SG&A & Other are over 163% of Revenue
  • SG&A roughly decreasing and “Other” is increasing
  • Op Income and Margin are (-) but are generally decreasing over time
  • Outstanding shares are significantly increasing over time
  • FCF is increasingly negative as both op cash flow and CapEx are also both increasingly negative
  • Not much experience with Canadian companies
  • Goodwill and intangible assets exploded on FY2017
  • Regulation laws in Canada and USA
  • They bought a lot of companies in FY2016

Pros

  • Cash exploded in FY2017
  • FY2017 Cash & Equiv – Total Liabilities = $39m
  • Book value/share is generally increasing but only for last 3 years
  • Low Debt (also reflected by the ROE and ROIC being similar numbers)
  • Revenue is increasing over time
  • STZ bought about 10% interest in WEED.  Industry took notice and WEED most likely gained some legitimacy with large companies
  • COGS is only 23% of Revenue (doesn’t take much cost to grow product?)
  • High Working Capital Ratio = 9.8 but this high typically suggests either too much inventory or not investing excess cash…

***

In this video, we talked more about the cash conversion cycle, NCAV, and more.

For some reason, when I talk, the audio cuts out so I’ve added narration to the video above for context.

If you have any comments or questions, please post them in the comments section below and I’ll answer them.

I’d also love to see your preliminary analysis as well, so feel free to post these in the comments below.

If you’d like more information about the coaching program this client is in, go to this page.

For reference, he’s in the $ 10,000, year-long program, and this is only after 1 month of coaching, doing nine 1-hour training sessions via Skype.

P.S. This analysis is based on the preliminary analysis template I developed over a number of years, and after evaluating thousands of companies. If you’d like a copy of this to do your own preliminary analysis, you can get yours for free here.

P.P.S. I put on a FREE webinar last Thursday teaching The 3 Secrets That Have Helped Me Beat Buffett In The Stock Market, so you can possibly do the same. If you’d like to sign up for FREE to view the replay of the webinar, you can do so here.