THE DAILY TICKER PODCAST: Expectations Investing. Michael J. Mauboussin and Alfred Rappaport suggest that an investor start with a known quantity, the stock price, and ask what it implies for future financial results.

This is The Daily Podcast. Today we talk with David Trainer from New Constructs. The market took a little bit of a beating today. Could you have seen the selling that happened in the market? We're going to take a look at that.

Stock Discussed: AAPL Apple Inc, W, Wayfair, AirBNB ABNB and SQ Block Inc.

New Constructs
https://www.newconstructs.com/

TWO MUST READ BOOKS FOR SPECULATORS

The first one's on the fundamental side. Expectations Investing. Most of those companies have what's known as a growth appreciation period. But longer term thinking is when a company has a product or service.

Expectations Investing: Reading Stock Prices for Better Returns
by Michael Mauboussin, Alfred Rappaport

https://www.amazon.com/Expectations-I...

EXPECTATIONS INVESTING

Expectations investing is the absolute most intelligent way to approach valuation from a fundamental perspective. We have built the best ever platform for investors to apply the expectations investing concepts. And I'm going to show you four examples of that today.

SHORT TERM ANALYSIS AND TAPE READING

The second book I want to talk about is a little bit more on my side of the business. The other book is this one right here, Studies and Tape Reading by Richard Wykoff. These two books have heavily influenced me, especially this one on the short term side of things.

Studies in Tape Reading
by D. Richard Wyckoff

Rollo Tape is the pseudonym of Richard D. Wyckoff. Wyckoff was the publisher of "Ticker Tape" a magazine devoted to stocks and which later changed its name to "The Magazine of Wall Street."

https://www.amazon.com/Studies-Tape-R...

Twitter User, @QCompounding

Michael Mauboussin is the best investment teacher in the world. I compiled a document with all his public writings. The PDF contains 1600 pages.

  / 1683212450538110977  

WERE WE RIGHT TO SELL THE MARKET?

Everything we're talking about here is for educational purposes. You just need to be on top of the trade management.

THE NEW CONSTRUCTS FILTER: RISK REWARD VS. STORY

New Constructs uses a math driven, logic driven narrative to look at stocks. Once you understand what to look for, it's not that hard to find stocks that have stacked order flow. Having a system that does this for 3000 plus stocks, eventually all stocks in the world I think is powerful.

WAYFAIR: CAN THEY JUSTIFY THE STOCK PRICE?

Wayfair would have to immediately improve its margin pretax margin to 3%, and grow revenue by 15% compounded annually for the next eight years. In the last 46 trading days, the stock has nearly doubled off of those projections. Buy stocks with low expectations, lower than your expectations.

BETTER THAN SPECULATING: THE CASE FOR TECH STOCKS

You've got to have a good argument from a fundamental perspective about the realistic future of the business. Do you think it's likely those best case scenario projections are going to happen or what the stock has historically done is likely? That's really where the longer term investment discussion starts.

APPLE: A GOOD STOCK? AAPL

We boil it down to green is good and red is bad. Apple is a pretty great example of good company, not so good stock. They got positive economic earnings, a really high return on invested capital, but not necessarily good stock because you've got some pretty high expectations baked into the stock price.

APPLE: GROWTH APPRECIATION PERIOD

What would be the next thing that would catapult Apple to another growth appreciation period? That justifies new all time highs and beyond. You're not buying what they did, you're buying what the outlook would say. Those are things you need to think through.

AIRBNB VALUATION IS HIGH, BUT

Airbnb has to grow revenue compounded annually in this optimistic scenario at 11% for 30 years. Tell me what kind of innovation Airbnb has to bring to the table in order to maintain that kind of growth.

RETURN ON INVESTED CAPITAL FOR AIRBNB

In 30 years, Airbnb could generate almost 40 billion a year in free cash flow. With the price of Airbnb, again, how can they increase to hit those numbers? It's super interesting, the emotional part of a hot stock market for a period of time.

REVERSE DCF ANALYSIS

How do you come up with the growth appreciation period? He says it's all about quantifying the future cash flows implied by the stock price. And this model will go all the way out for 100 years, Expectations investing is all about not predicting.

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