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hey welcome back to everything money we're so happy you joined us today as always it's seth nomo today we're talking more of a simplistic video for you out there this is one of the most most axed questions paul not ask asked questions we get about our eight pillar system what do you do when you have a company that meets your criteria we use our eight pillars as a high level screener to look at these companies and once we get our rate pillars now what where do i buy where do i sell if i buy low and it rises where do i exit my position all this might seem kind of confusing i am still kind of confused by this so i'm happy you're here today we're gonna look at apple an amazing company you know what you love it paul i have 17 ipads three imacs four ipads and three phones actually so yeah so anyway who has the third phone once uh one of our phones dies out we use it as our blind great idea yeah yeah anyway but guys listen so we're gonna look at apple look at the eight pillars and see how it comes out then after that we're going to use the amazing everything money stock analyzer tool this tool is coming out very soon and um and it's going to help you make assumptions to find a price target that you might want to buy and again the assumptions are up to you uncle paul is going to teach you how to fish not throw you fish and so um just like jesus paul i would like to fish actually you and him are from the same region yeah we are all in the same region right in the same i'm very close to paul people when i get a beer they say jesus yeah paul of nazareth paul of nazareth i'll show you the stock analyzer tool right now so check it out let's talk about it let's talk about apple okay so you know one of the things so a lot of people also ask me paul what books do you read about investing so one of the books that gary misharis told me to read was philip fisher's common stocks and uncommon profits i'd heard about this book for several years decades whatever it is i never read it i personally loved it and the reason being is he really talks so in warren buffett's early days and in ben graham's security analysis and intelligent investor they were very big on finding what they called like cigar butts or cigarette but the very last puff of a cigar cigarette that you could make a lot of money on it had one final hurrah in the company but you could buy it for so cheap that you made a ton of money okay philip fisher kind of brought into the idea of well wait a second instead buy good companies that have that have good prospects good management teams good margins and have good growth potential and buy them at good prices so he wrote this book in this book he has 15 checks points that you have to actually go through now it doesn't mean all 15 points at the hit but once you are done and we're gonna do the whole analysis from beginning and then i'll go through the 15 points but once you're done analyzing a company that hits a sort of high level area okay we're going to do the stock and we do the eight pillars then we do the stock analyzer tool the stock analyzer tool might tell us okay you're pretty close to the price or you're at the price you need to be or lower great now use philip fisher's 15 checkpoint list and determine through more in research through scuttlebutt which is nowadays scuttlebutt's more of go on the internet see what people are saying about the company see the recent news things like that to determine which companies have if that company has specific parts that you really enjoy and has a majority of the 15 points so we want to pick apple and the reason we want to pick apple is apple's eight pillars are phenomenal except for two which two are that seven well you call them the the metric too right or the valuation like the valuations yes the two valuation metrics are pe and price to free cash flow those are both x's so let's go look at apple right now using our software okay so we have apple here we have a two trillion dollar market cap we have a p e like i said evaluation metric 29 that's an x which is a bit high for our standards and by the way i got my profit margin idea from philip fisher's book he likes looking at profit margin um in a sense there so this is 23.45 bottom line profit margin which is phenomenal okay then we go to our income statement and again apple's got growing income year in and year out revenue here 220 325 check mark there profit same thing guys big profit growth 45 to 76. to skip ahead we go to the eight pillars assume you've done all the eight pillars or go to our software we do the work for you right seth so for 80 cents a day you have this software it does a lot of the work for you and as time goes on we're going to make the software better and better about doing more and more work for you so you can concentrate on finding good opportunities so if you want the software behind paul click the link in the description below to join our patreon you can get this right now go ahead paul okay so the two metrics here i didn't like were the valuation metrics price to free cash flow and pe everything else was a good check and a solid check so i go to my stock analyzer tool right over here and i'll go in here and i'll make my assumptions i'll type in apple and it tells me the data to the right here my historical one year five five-year and 10-year analyze different data points revenue growth share buybacks or or growth average profit margin average free cash flows percent of revenue etc so revenue growth 9.6 a year over the last 10 years 10.22 over the last five years 21.4 of the last year it actually has growing revenue which is kind of surprising for a big company such a big company that's a very surprising factor now i'm a value investor i'm going to make much lower assumptions than most people would do however for the for the sake of arguing about what would a reasonable amount would be let's look at the data and say okay let's pick a what do we think it's going to do over the next five seven years i think we would argue that we want you at home to understand the idea of value investing is simply just buying a dollar for less than a dollar much less making conservative assumptions so in this case so you want me to do a value investing approach to this sure so in this case i'm going to sit there and say listen it's apple it's wonderful but growth is not gonna be the same next seven years and it was in the last seven years so i'm gonna assume seven percent revenue growth okay it's not terribly high it's not terribly low share buyback now here's the thing about apple they're buying back a lot of shares look at this in the last 10 years they've averaged 4.73 a year the last five years 6.34 in the last year they did 2.88 buyback that's why it's a negative because they're decreasing their share count by this much per year so i think that's gonna keep going i'm gonna assume five percent buyback rate okay net present value npv this is basically the return you want to get on the investment historically 10 right but as a value investor maybe you want to have 12 return or 15 or something like that future pe for apple i think for how big of a company it is 15 pe is normal profit margin guys it's pretty much stuck in this 22 to 24 range right so i'm gonna sit there and say 22 free cash flow is a percentage of revenue it's basically the 25 to 26 percent range let's call it 25 and multiple free cash flow again 15 times free cash flow for a storage average because over long periods of time free cash flow net income earnings should be about the same how many years of analysis do you want seven i hit analyze and it's going to give me values between 53 and 60 dollars okay the price is currently 130. 130 so it's quite a bit higher than we wanted to be which by the way makes sense based on their pe and other factors here right so just two years ago it was well within this range correct and the pe is about 28 cut that in half and it's about 14 makes sense right so we're sitting there and we it it's nice when all these things jive out it's confusing when you might have a pe of 17 and the stock needs to fall a lot but at the end of the day the stock analyzer tool is just taking your inputs and just using math okay if you bought a business in full and you paid x price for it and you assumed these assumptions going forward how much money would you make if you go back to stock analyzer ball you have to make obviously sort of critical intelligent do you remember meet kevin said when tesla becomes the biggest company in the world 10 years from now he's assuming a pe of 90. 70. 70. my apologies 70 pe which was literally you know i said that's the gary i sent me kevin's video to gary about this and he just said you owe me 13 minutes of my life back yes and he said i would have started laughing when he said a 70 p e for tesla as a mature company he's just like i just thought it was 70 pe for a growing company is a very tough thing to grasp has it worked absolutely so all these assumptions are based on what you do your research say okay based on the history etc your next step then is okay i like apple i'm not ready to buy it yet but i will be ready to buy it at some point one of the best things you can do part of our software will let you pick which metrics you want in your to find so let's say for example you sit there and say your eight pillar stocks i want to find every stock that has every metric but the valuation metrics this is cool paul yes so it'll show you all the ones that are similar to apple hershey look at this paul and it keeps going so you now be able to find the companies you love look microsoft right here google these are all great companies that just need to sell at lower prices and these are important to look at seth because we want to make sure that we're ready to pull the trigger and the easiest thing to happen is that stocks fall it's not it's harder for a company to fundamentally get better and change all the other and all the other pillars it's easiest for stock prices to fall so when that does happen you want to be ready to pull the trigger so what do you do next well guys here's a great website i saw where a guy unfortunately calls it uncommon stocks and uncommon profits it's common stocks and uncommon profits but uh it's e-investingforbeginners.com and he explains all 15 philip fisher points on a company i'm gonna go through them that's okay with you just the title does the company have products or services with sufficient market potential to make possible a sizable increase in sales for at least several years years now most people get an answer of yes to this and they go i don't care what it takes right that's what we have with all the hype stocks right now tesla square all these companies people just see this one question and go oh the answer is yes i'll pay whatever for it no so a part of a big factor here is to look at this and determine this is a checkmark for a lot of great companies it's not what you buy it's what you pay correct that's how we buy second one does management have determination to continue to develop products or processes that will still further increase total sales this is a big factor guys is that growth potential is there growth potential in the company does management care about doing that how do they do that sometimes for coming like 18 t it's very difficult because of size how do you really grow at t as a company when they already do 100 plus billion dollars in revenue very difficult number three how effective the company's research and development efforts in relation to its size this one i like a lot are they investing back in themselves to find more and more opportunities for growth and if i said to you hey the company's gonna spend a billion dollars extra research and development you'll be like well that sounds pretty amazing well one of those apple they did 370 billion dollars in revenue last year very little very little what if they're a small company that did 2 billion in revenue that's a lot so relative their size are they spending adequate amounts of money how would you determine that go look at other companies in their sector and see what percentage of their revenue are they spending on capital expenditures and research development four does the company have an above average sales organization so we're getting more into the world of now this book was written a long time ago we didn't have internet we'd have marketing so i think for sales organization you've got to assume are they effective marketers right because nowadays we don't really we sales are very important sales team is very important but that shouldn't be limited to a guy in a suit or a gallon a nice business suit going out there and saying hi there i'm i'm sushi would you like to buy no it's more about also hey how are they implementing online sales strategies how are they doing other things to get sales out there okay number five does the company have a worthwhile profit margin now this is actually one of the eight pillars that might be changing soon but it's still an important one because i like to see this is where i got the idea for profit margin when i first read this i got the idea of okay i like companies with high gross margin and gross margin versus net margin gross margin is for every extra unit they sell how much that unit cost them and the gross margin the profit of that so for example apple as we saw before apple has a gross margin of 40 that means for every unit they sell they make 40 cents on that extra but a bottom line profit margin of 23 and a half the difference here is all the money they put into overhead having salaries having all these things buildings etc okay so is it worthwhile i look at this and say hey for every dollar let's say there's two companies one with five percent margin and one with 25 margin if each one goes up a dollar in revenue which one makes more money the little one no oh oh the big one for every dollar they make seven they make 25 cents on that for every dollar here they make five cents so is it worthwhile that's a great question to ask now this is not some some cut and dry black or white thing you this is part of looking at the business itself and some industries like the grocery store industry have very very low margins right amazon is now increasing their margins because they're doing aws their server business which is very very high margin so like coming like amazon has multiple revenue streams there's different areas we'll have different margins and which ones are growing which ones are not growing okay so that was point number five next what's the company doing to increase and improve those margins are they just seeing their laurels and going yeah are they doing other things like apple to make things like apples taking their chips in-house i'm sure that's going to increase their margins a little bit things like that that'll help them go through and say hey not only are we going to increase our sales if we increase our margins on every unit we're also going to make more money as time goes on it's going to be a snowball effect number seven does the company have outstanding labor and personnel relations now back in the day with a lot of factories a lot of you were there good labor relations and in every 10k which we'll get to soon when they talk every company will talk about hey we have our labor we have our unions blah blah and at this time we believe we have a good relationship with our unions i you want to make sure it's a company that's that people want to work for because one of the worst things they have is high turnover where people are leaving the jobs all the time it's really hard to get a lot of growth going now the great news is a lot of great companies these days are always listed in a lot of the best places to work apple google things like that right so cdw things like that make sure they have at least and as time goes on this will change in terms how you look at it just like how we look at sales team i look at sales team not just as people on the ground knocking on doors i look at it as marketing efforts through internet and things like that does the company have outstanding executive relations now in disclosure about my belief i believe that a lot of investors and i'm probably going to change my idea about this over the next 10 or 15 years i believe a lot of investors really really care about this and my problem is it's too subjective because they'll sit there and say do we have ethical moral all these things executives guys i'm not trying to be a jerk with thousands of publicly traded companies out there it's and how big these companies are amazon has 400 500 000 employees executive teams how big 5 10 i don't know how big the executive team is i look at it going how is it possible for them to have that many great now overall can you look at it sure but how do you determine that it's a very subjective thing i skipped that one i don't like it as much really for a normal person i'm not definitely going to be looking at the linkedin profiles of all these people correct does the company have depth to its management do they have a succession process are they just going to if management leaves if people have turned over there's going to be a problem there elon leaves well that's the problem that's the issue with the tesla like warren buffett warren buffett years ago did a good job of saying we have somebody ready and over time he gave more and more people more and more from um control over the company and decision making that way when he passes away because he's 90 years old or whatever that happens 10. how good are the companies cost analysis and accounting controls accounting is a big thing guys are they shady with accounting are they good with accounting etc these are very important things to understand and you'll get a lot of that idea in a 10k which we'll get to soon number 11 are there other aspects of the business somewhat peculiar to the industry which will give the investor important clues as to how the outstanding the company may be in relation to its competition this is a very common theme we talk about with companies go look at the sector go look at the industry how do they stand within the industry there are a lot of investors out there who won't even look at anything but the top two companies within industry that's their style more power to them so you have to see how that company stands versus other competitors right yeah great 12. does the company have a short range or long range look in the regard to profits guys what are they thinking go understand what they're doing you'll get a lot of impression for them based on not only what they say today go look at past years what did they say five years ago and did it pan out is it a company you can rely on and trust everybody jokes with me because i i think analysts are a joke the reason i think analysts are jokers is i looked at history and go they're always wrong and buy a lot so i don't even look at analysts you know what i mean same thing here for the company make sure they're capable of projecting properly in the foreseeable future the company requires sufficient equity financing is that a large number of shares and outstanding will largely cancel the existing shareholders benefit basically are they going to dilute their investors will they need so much equity financing which is money coming in from investors that'll dilute every other owner this is what i always call as a silent killer where all of a sudden that growth if obviously they go 50 but the number of shares they have outstanding increased 50 you got no benefit so that's why it's important to look at that 14. does management talk freely to investors about its affairs when things are going well but clam up when troubles and disappointments occur this to me is the most important executive thing management team to look at what do they say when times are good what do they say when times are bad because that's what everybody's everybody is screaming from the rooftops when times are good but who goes back in the rat hole the rabbit hole and cowers away and said they're not going to talk to anybody when things are bad versus who comes out and says guys that things are bad here's what we're going to do to change things around finally does the company have management of unquestionable integrity again too subjective to me what does unquestionable integrity mean is the boss having an affair with i mean i hate to bring it up like that but seth years ago i read an article about you know fortune 500 ceos have more affairs than even athletes it's like so would you not invest in any company that has i mean we just heard a recently about bill gates he built a phenomenal company that grew huge but he wasn't even he was having affairs is that unquestionable integrity it's all subjective i don't know so anyways this is an important part now the next step is the 10k the 10k luckily for you people who spend 80 cents a day of your hard-earned money is right here on our main page oh i didn't know that 10k is now on the website it's in dev mode it'll be put to live here very shortly you go to annual reports and it will pop up the 10k for apple you just click here on 10k and click on the find the most recent 10k you click on it and bam bada boom here's your 10k guys these are long and boring i read these not all the time you have to you have to decide what kind of investor you are right as long as you pick a process that's value oriented i think you will do well but be very very consistent with that process in the 10k guys i will show you all the things that that are here some of these things are hundreds of pages long risk factors unresolved staff comments properties legal all these comments here all these categories are here financials controls and procedures a lot of the things that you would see in philip fisher's list of 15 items is right here in the 10k you'll find a lot of it here and just google about the company see what outstanding um litigations out there see what people say about the company these are very simple things you can do i would look at the risk factors of the company because a lot of times they will give you hints a lot of the risk factors are very generic oh if the u.s economy goes to zero we will probably be out of business well of course by the way they don't really say that but they're very generic things other times they'll sit there and give very specific risk factors to like factor in there i can't think of an example right now but i will say about southwest airlines i wear the 10k and realize the value in southwest airlines because it was the year of the supermax issue they had spent 824 million dollars on that super max problem it cost 824 million they still had a record profit that year and nobody looked that extra almost billion dollars they would have made hit nap and i was like that super max problem is a one-time issue this is gonna be a big that's how that's how that's what i found in the 10k i didn't find it anywhere else i found out the 10k wow so these are this is a summation and thank you for doing the video it's very long but it's not as hard as as it makes out to be when i'm explaining it once you do it it goes a lot faster right i think for a normal person this is incredibly in-depth and if you're at home wondering again folks i did this for a while and i was only ever picking stocks on the ticker price was it cheap and would i think it would go up and there's a massive amount of more information you'd learn which you can hear on everything money so if you're looking at other channels a friend of ours stock mo who we loathe paul he pulls up all he does folks is he pulls up analyst predictions and then agrees with them i mean this is so in-depth and using the tools we can provide you in our patreon uh you can that's the thing the discord guys if you don't like doing this all the more reason to join and join the discord because there are people here that all you can have a conversation about the good guys i'm an apple did anybody read the 10k oh yeah i did great what did you see that you didn't like what did you see that you did like etc that's the whole point of the community there's over 3200 people in there and it's getting a lot more organized with multiple chats about different things yeah so this is our take that was apple uh it's it's a little bit overpriced now we love all the other metrics and we use the stock analyzer tool to find what price we'd like it at so using our assumptions so yeah that paul that was that was great great take and uh great software you've built there proud to be a part of it tickle the thumbs up join the patreon love you guys see you thanks so much you