But in the case of Netflix, you've got to keep an open mind, and I did keep an open mind in this case, developed a much greater appreciation for the company. So when I covered-- I've short it from 80 to 200. I covered my short. It went to 300. I felt pretty smart. Then it felt eventually to 50 navigate to this website.
It fell 80% in a matter of about three months. And I want to kill myself, because everything I predicted in my short thesis came true. And I said, Whitney, you idiot. My learning was is don't get scared out of a short. You have conviction in it, right? But that actually wasn't the right learning, though, because Netflix was a massively better company than I thought. And the key pillars of my short thesis were there's no moat around the business, and sort of wacky management, and competitors are going to come in and eat their lunch. All of my pillars of my short thesis were wrong. I was right to cover, no matter what happened to the stock. But what it did is is by gaining appreciation of the company, I was ready to pounce when the stock collapsed. And so that's a great example. I wish I were that open-minded and learned and had great experiences like that more often. So that's a good case study. Anything to add, John? JOHN HEINS: I would say a lot of it is understand why you made a mistake. It may be that you didn't really make a mistake. The analysis was good, it was sound. And then something else happened that made it go wrong. And so you shouldn't necessarily-- if you understand why you made the mistake, you shouldn't necessarily just not do that exact same thing again next time. AUDIENCE: Sorry. I have two questions. The first one is your portfolio has about 15 stocks. It has a very small number, right? So how do you screen off the thousands of stocks? What are some of the top three or five factors you use as filters? That's number one. Number two is my general impression is that the market tend to ignore balance sheet items. So just like a lot of cash, investment, the P/E number, totally ignore balance sheet. What do you think? How do you think about that issue? WHITNEY TILSON: Well, I use a four-step-- I actually have it taped to the wall next to my desk. My four-step process is first, when I look at any new stock is circle of competence. Do I know something about this industry? Is it knowable? Is the future predictable here? It's almost like a yes or no thing. There is some gray area where maybe I don't know it very well, but I think I can do some research and get some. So circle of competence. Then it's do I like the company. And I look at financial characteristics, cash flows, return on equity, et cetera. So I evaluate the company. And by the way, I'll invest in sort of crummy companies if it's cheap enough. But ideally I'm looking for higher quality businesses that I can compound over time. Then I look at the industry, because a good company in a crummy industry, eh, is going to struggle. So it's a company and industry analysis, then management. And that's really important. Both, do they run the business well? Do they allocate capital well? And do they treat shareholders well? And here's the thing. I can find-- right now I can find hundreds of companies that I understand really well, great industry and company dynamics, wonderful management, treats shareholders great. So what's the problem? The stock's not cheap. Everybody else on earth can understand it and likes the company and the industry and the management, and therefore, the stock price reflects it.
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A 20 multiple or so, if you can continue to grow at 20% is a reasonable thing to assume. Might go up, might go down, but that's actually probably not unreasonable. And therefore, the stock just follows that same trajectory. And making 20% compounded over the next four years isn't spectacular, but it's pretty darn good. If I thought this stock was very likely, with low risk of downside, very likely to be a double in four years, I don't know all day, on a real high quality company where I think I can double my money in for years. So that's sort of what I'll be digging into because there are very few companies this size that can grow at that rate.
Already at $66 billion, already at a $300+ billion market cap that can double again from there in four years. That's pretty rare, but you guys have been doing it. So I certainly wouldn't bet against it. The question is is for a guy who only owns 15 stocks, is this one of the best 15 stocks in the universe I can find? That's the real question. So with that, do you want to come up, John. We're happy to take questions. AUDIENCE: I'd like to ask you how to learn from mistakes. So you said that Google was one of your mistakes, but you also said that it's like buying a lottery ticket. Like even if you win the lottery, it doesn't mean that it was a right decision to make. So I just want to ask if you make a wrong decision, do you learn from it, or do you say, OK, this is just how it happens? WHITNEY TILSON: Yeah. It's hard. In the investing world-- the analogy I would give you is is if you walk through a dynamite factory with an open torch, and you get through to the other side safely, was it a good idea? And the answer's of course not. It was an idiotic thing to do, and the fact that you didn't die was just good luck. But you should never do that again. So the investing world has-- you can learn a lot of false lessons in the investing world. You can totally screw up the analysis and make money, and by the way, can do good analysis and lose money, right? So learning from mistakes isn't as simple as simply saying, well, did I make money or lose money, because the goal of investing is to make high probability bets. But even the highest probability bets sometimes work against you. So the lessons-- but here, I do think one of things I've learned, like I was trained as a traditional value investor in the Warren Buffett kind of school. You don't look at tech stocks, et cetera, et cetera. And I was trained to think about the competitive moats of companies-- Coke's brand or Costco's low cost service or whatever. And what's happened in the last 10 years, the kind of companies that have been created that are almost like virtual companies, that can grow very rapidly to become global companies with enormously high profit margins without the need to invest incremental capital. So you guys can grow to countries all over the world and you don't have to manufacture stuff, you don't have to ship it, you have no inventory. These are light business models that create returns on capital at a rate and a scale and a scope, a global scope, and a speed that has never existed in history. And it really requires you to-- you can either just say-- you can be like Warren Buffett and just say I don't understand any of this and I'm just going to stay away. I'm not going to short it, not going to long it, go long it. I want to understand it because I plan to be investing for another 50 years. And so the real learning here, from getting my head handed to me, being short Netflix before finally appreciating it and making nine times my money. I flipped around. So in other words, my learning from getting killed on the short side is I went and did a lot more work. And losing millions of dollars focuses the mind. So losing millions of dollars forced me to rethink what I was missing here. Now sometimes you're not missing something. Sometimes a short runs against you and you're absolutely right and you've just got to be patient and your thesis will eventually play out, because being early and being wrong look the same, either long or short, right? I think, by the way, Google has made a number of very savvy acquisitions over the years. Somebody should be kicking themselves at Google. You didn't buy Netflix when it had a $3.2 billion market cap. It was a great business. It is a great business. So I'm actually sort of intrigued with Google.
The other thing, by the way, is it's such a big company with such a large market cap it's hard to make a lot of money buying things with multi-hundred billion market caps. I mean just size is sort of an anchor. I run a pretty small fund. I tend to look for smaller companies. But it's pretty interesting. I'm intrigued by Google. I'm going to do some more work on it. So let's just talk about last quarter's earnings. You guys have probably already seen this, but revenues grew 20%. Margins got squeezed. Expenses rose a little faster than revenues, which squeezed margins. Depending on whether you want to look at non-GAAP or GAAP earnings, earnings either went up or down a little bit. But the real questions to think about is can the company continue to grow at least sort of high teens, 20% rate, and will those margins at least stabilize? And when you think about Google, by the way, if Google were to separate itself out and spin off Google Fiber and the self-driving car stuff, like Google is-- a lot of those expenses are investing in things that are currently not generating any revenue. It's just straight out losses. Like actually, I think a reasonable way to think about Google would be to sort of take out all the money losing stuff where-- these pie in the sky things-- where Google actually has a pretty darn good track record of developing really valuable things down the road. And I might give Google credit for that and say, how much is their core business really earning, x-ing out all these expenses. And it might be quite a bit of expenses, and you might actually say Google's core business trading for 15 times earnings or something like a market multiple, and then you're getting a free call option on stuff that-- self-driving cars. If you guys nail that, that could change the world. That's a worldwide game changer, and you guys will own it. I'm not sure I'd give Microsoft much credit for that. They have a horrible track record of just pissing money away over the years, and projects and acquisitions that just create no value. And Microsoft shareholders are sort of rebelling. But you guys seem to be a lot better at that. So again, that would be the argument for owning Google stock is is that it's really not as expensive as it appears because they're expensing-- a lot of their expenses, their core business is actually even much more profitable than it appears. One of the world's greatest businesses. And then they're investing in a lot of new stuff where there's likelihood to pay off. So this gives you a sense-- by the way, again, what I sort of missed is is companies that have a lot of optionality to get into new businesses, make acquisitions, et cetera. So this was the three billion revenues when I was disparaging the company. And the core business grew 10x. But then stuff that didn't even exist back then doubled to 20x revenue growth. So this is cool, right? And if you think this kind of thing can continue, things that don't exist, don't generate a dollar of revenue today, like Google Fiber, self-driving cars or whatever, and that this kind of thing continues again, this stock may look really cheap today if you can develop some amazing stuff and start to monetize it. So I think this is the last slide and then we can do Q&A, which is if you make a case for the stock today is look at the pieces overall. You continue to grow your revenues 20% for the next four years, if your margins just stay flat, that means the earnings go up 20% a year. That's a double in four years. How to Improve Focus
We’ve all faced the times when we have to be focused on the task at hand, but can’t seem to muster the concentration needed to complete the task to the degree of quality necessary. While you can never fully eliminate this annoying speed bump to success, you can do things to curb its influence over your day. Eat For Your Brain Everyone knows that when you eat better, you feel better. If you make sure to put the best things into your body, you can be sure your body can perform at it’s best level, and the brain is no exception. Foods like blueberries, salmon, flaxseed and coffee in moderation are a great start. You should consider following natural foods blog to help you come up with delicious ways to feed your brain the nutrients it needs to be at 100%. The Five-More Rule This is a great one once you get used to it. Anytime you find yourself in the middle of a particularly draining task and you feel that you’d rather stick hot bamboo shoots under your fingernails than end one more moment working on it, force yourself to do five more. Weather you’re reading a boring book, or working on math problems. If you can force yourself to do just five more before you decide to take a break, you’ll be even closer to accomplishing the task when you come back to it later. Also you should know that some foods are said to have positive impacts on a college student‘s ability to study, but there are just as many foods out there that can have a negative impact. If you want to get the most out of your study sessions, you need to know which snacks to avoid. Here are five foods you don’t want to eat come study time. Spicy Foods Spicy foods will mess with your stomach and cause you to make instant bathroom runs. (Yes, that would be runs because of runs) you may love the chili sauce, but you need to reserve that for another time. The last thing you want is an upset stomach while studying. Turkey Turkey is very heavy, and it is guaranteed to make you sleepy. Try a different meat instead or eat a nice salad. This may not sound as delicious, but it will definitely help you study. Bread Bread is highly absorbent, so it will soak up anything you drink after eating it. This will make your stomach feel incredibly full, which will either cause a tummy ache or make you very sleepy. Try to eat crackers instead of bread. They’re not quite as absorbent, and they still taste great with most sandwich toppings. Potato Chips This is more of a mess standpoint than anything else. Potato chips are inherently greasy, and they’re bound to make a mess all over your books. Stick with crackers or at the very least baked chips if you want to maintain some shred of cleanliness. Candy The sugar high from candy may be great, but it comes with a crash you won’t want. Try to each fruit instead because it contains natural sugars. Apples, oranges, pomegranates and more are all great for staying alert, and they will keep you awake or a longer period of time. Avoid eating gummy bears until after your test. Then you can pig out all you want. Today’s university students are lucky. They have, at their disposal, a huge library of books, the Internet, online discussion groups that let you brainstorm with classmates in the middle of the night. However, there is no substitute for good old-fashioned hard work. There is no gadget that is more effective than simple human discipline and determination. Unfortunately, many students fail in this regard. They have no study habits, and the independence of the college environment make it even more difficult to “obey” a rule when there is nothing except their own willpower to enforce it. The secret is concentration. Without this valuable still, it becomes near-impossible to master any subject matter despite reading the textbook over and over again. Thoughts wander, your attention distracted by phones, TV, your nails. Get to business. You have to clear your head of any other non-related thoughts and get into “the zone” where only you and what you are reading matter. Yes, sometimes it helps to be “narrow-minded” if it means narrowing your focus to what you are studying! You will also need to set up your own study area, preferably in an area where won’t be any people moving around and talking in the vicinity. Sometimes a small thing like moving where your desk faces—so your back is to the noise, and you’ll face a blank wall—can make a difference. You can also get an answering machine so that you won’t hear the phone ringer, or if you’ve got a chatterbox roommate. playing instrumental music on your iPod to drown out her conversations on the phone. Also, work around your body clock. Look at your natural patterns of activity. When are you more energetic and alert? What time of the day are you able to get things done really quickly? If you can work for long bursts during the early morning, then take a nap after dinner and wake up at one. You’ll get more done than if you forced yourself to study during the evenings. It’s best to take breaks instead of forcing yourself to study for long chunks of time, where your concentration dips. Schedule 10-minute breaks. Writing papers is one of the most important skills anyone should master in their life, but students especially benefit from it. Good essay editing skills are not important only in high school or college, but can also lead to good presentation skills throughout one’s professional career. It’s well known that a student has to write at least a few hundred essays in his life, so the sooner he can master the skill, the better. While there are lots of features that separate good papers from bad ones, there’s one skill that’s critical to successful paper writing: learning to find and use evidence. How to Cram before a TestCramming is far from a good studying technique, but sometimes you don’t have another choice. Perhaps you misread the test date or you had a family emergency come up that prevented you from studying effectively. Maybe a Justin Bieber concert came to town and you had to fight a stampede of 12 year old girls just to get home. Whatever the case may be, there will probably come a time when you will have to cram for an exam. When that time comes, I hope you can put some of the tips below to good use. Here are a few ways you could go about cramming for a test you have to take in the near future.
Study and Snooze The study and snooze method is best way to maintain the information you cram in before a test. Research suggests that taking a 90 minute nap after a study session can significantly improve a person’s chance of retaining information for a test or quiz. If you study a small chunk of information and then take a nap, you will wake up with that information still fresh in your mind. You may consider doing this all night to get in as much info as possible, but watch out for sleep deprivation. That could actually cause you to do worse on your test because you aren’t awake enough to think clearly. Try to balance the sleep and the studying enough to do well on your upcoming exam. Prioritize the Information You aren’t going to be able to cram a semester’s worth of information into one night. It just isn’t going to happen. Rather than focusing on the big picture, focus on the most important points in the class. Your professor probably harped on a few topics more than others, so try to start with those topics first. They are the ones that are most likely to be on the test. You can learn the little information if you have time, but you need to make sure you learn as much as you can in the little time that you have. That way you have the best chance of at least passing the test, and possibly even doing well on it. Try to figure out the most important things in the class and work on those first. Then you can worry about the other stuff if you have time. Review in the Morning Eventually you need to get some sleep so you can be well rested for your test in the morning. Before you go to the test though, review your study materials so the information is fresh in your mind. If you slept well right after you studied, you should still have a lot of the facts in your mind. Flip through your flashcards or glance over your textbook, just to get your mind as familiar with the information as possible. Then you will hopefully have a memory of it for your test. Re-Study after the Test When you get done with your exam, take the time to go back and review the information you missed. You can wait to do this when the grades are out, or you could do it right at the beginning. The fact is that your college courses are supposed to prepare you for your career. If you don’t pay attention now, you will never be able to succeed later on. Sacrifice a little time re-studying so that the information goes into your mind for good. Then you will be able to recall it when it comes up in the future. |
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