Money in Plain English

Stocks • Markets • Money 📈
What moved. Why it matters.
Money in plain English.

[Money in Plain English @MoneyinPlainEng]

A company reports an incredible ROE.
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Great.
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But WHERE did it come from?
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The DuPont formula breaks ROE into:
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Profit margin
×
Asset turnover
×
Financial leverage
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Same ROE.
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Three very different ways to get there.

[Money in Plain English @MoneyinPlainEng]

One question that can expose a business FAST:
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"If this company disappeared tomorrow, how difficult would it be for customers to replace it?"
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Easy replacement?
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Competition has power.
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Painful replacement?
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The company might.
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Sometimes the best moat is simply being incredibly difficult to remove.

[Money in Plain English @MoneyinPlainEng]

A company can have fantastic demand...
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and STILL disappoint investors because it cannot produce enough product.
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Demand is only half the equation.
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Capacity matters.
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Supply matters.
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Execution matters.
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You cannot recognize revenue on a product you cannot deliver.

[Money in Plain English @MoneyinPlainEng]

A grocery chain can report growing sales while quietly losing merchandise to:
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Theft
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Damage
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Spoilage
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Administrative errors
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That loss is called shrink.
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A few percentage points can matter enormously in a business already operating on thin margins.

[Money in Plain English @MoneyinPlainEng]

You can own ONE defense company for the next 15 years:
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$LMT
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$RTX
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$NOC
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$GD
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Which one are you taking?
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And you only get the point if you can explain WHY in one sentence.

[Money in Plain English @MoneyinPlainEng]

One valuation concept every investor eventually runs into:
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Cost of equity.
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Owning stocks is risky, so investors generally expect a higher return than they would from something considered much safer.
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The higher the return investors demand...
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the LESS today's price can justify for the same future cash flows.

[Money in Plain English @MoneyinPlainEng]

@AndySkraga PDF

[Money in Plain English @MoneyinPlainEng]

ETF "tracking error" and "tracking difference" sound almost identical.
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They are not.
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Tracking difference looks at how far the fund's return ended up from its index.
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Tracking error looks at how CONSISTENT that gap was over time.
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Same benchmark.
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Two different questions.

[Money in Plain English @MoneyinPlainEng]

One number that can quietly tell you a lot:
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SG&A as a percentage of revenue.
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If sales keep growing while selling and administrative costs grow much slower...
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The company may be gaining operating leverage.
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More revenue does not always require proportionally more overhead.

[Money in Plain English @MoneyinPlainEng]

You can know ONE thing about every CEO before buying the stock:
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How they allocate capital
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How they handle a crisis
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How they treat shareholders
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How well they hire executives
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How accurate their past guidance has been
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Which one are you choosing?

[Money in Plain English @MoneyinPlainEng]

Two companies both owe $5 billion.
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Company A's debt is secured by valuable assets.
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Company B's debt is unsecured.
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If things go badly, those lenders may have very different claims on what is left.
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Debt is not just:
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"How much?"
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The TYPE matters too.

[Money in Plain English @MoneyinPlainEng]

A company can have NEGATIVE shareholder equity...
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and still be profitable and operating normally.
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How?
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Years of buybacks, accumulated losses, dividends and accounting adjustments can push book equity below zero.
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Negative equity sounds terrifying.
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But by itself, it does not tell you whether the actual business is healthy.

[Money in Plain English @MoneyinPlainEng]

Here is the part of a DCF that should make every investor humble:
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Terminal value.
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A huge percentage of the estimated value can depend on assumptions about what happens YEARS into the future.
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Tiny changes to those assumptions can move the valuation dramatically.
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The spreadsheet may show $147.83.
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That does not mean the business is worth exactly $147.83.

[Money in Plain English @MoneyinPlainEng]

A credit card company can process MORE customer spending...
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without necessarily creating the same increase in interest income.
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Why?
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Some customers pay the entire balance every month.
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Purchase volume and revolving loan balances are two different things.
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Same card.
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Different economics.

[Money in Plain English @MoneyinPlainEng]

$10 billion of debt sounds scary.
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Until you learn the company produces $8 billion of EBITDA.
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Or terrifying...
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when it produces only $500 million.
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That is why investors often look at leverage ratios like:
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Net debt ÷ EBITDA
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Debt needs context.

[Money in Plain English @MoneyinPlainEng]

A company has $500 million of accounts receivable.
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That does NOT mean management expects to collect every penny.
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Companies can estimate how much customers may never pay and record an allowance for credit losses.
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Revenue is nice.
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Collecting the cash is better.

[Money in Plain English @MoneyinPlainEng]

An asset manager says:
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"Assets under management increased 15%."
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Great.
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But WHY?
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Did customers actually add money?
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Or did the investments they already managed simply rise in value?
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AUM growth and new client money are not the same thing.

[Money in Plain English @MoneyinPlainEng]

Two investors place limit orders to buy the same stock at $50.
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Who gets filled first?
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On markets using price time priority, the order that arrived first generally gets priority at that price.
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Same price.
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Different place in line.
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Even stock orders can have a queue.

[Money in Plain English @MoneyinPlainEng]

A company can have a lawsuit worth billions hanging over it...
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without showing a giant liability on the balance sheet today.
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Accounting for legal contingencies depends partly on how likely and measurable the potential loss is.
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Sometimes the biggest risk is sitting in the FOOTNOTES.

[Money in Plain English @MoneyinPlainEng]

Stock investors:
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What is ONE red flag that can make you stop researching a company immediately?
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Not "the valuation is high."
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Something about the actual BUSINESS or management that makes you say:
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Nope.