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Something I thoroughly enjoy almost every free day I have is reading Reddit. Something about it is so entertaining- to read other people’s thoughts or opinions online as it pertains to the stock market. I understand that a lot of people posting right now are new to investing or may not really be true long-term investors looking for value. And let’s be honest, a lot of people just try to get rich quick and I don’t want to knock those people. The reality is that there are many ways to build wealth and many ways to invest that wealth. But I do find it shocking how many posts I see where someone shares their take on a particular company or asks a question about it and as I do a quick research on the company, the fundamentals are 7 feet in the ground.
**“The price of Snapchat is really down now. Is this a real value play?”**
Well it’s been public for about 9 years and has yet to have a full fiscal year of profitability.
**“Robots are the future. I think Tesla is a great long-term hold. Should I get in now?”**
Well the current P/E ratio is 363 as of this writing. That means if the financials stayed the same, it would take you 363 years to make your money back. More research is needed, but right off the bat, something tells me this is going to be a little overpriced.
**“AI is here to stay and we are not in a bubble. Data centers and intelligent language models will become a utility, and that’s why I am investing in Oracle right now”.**
That all might be true, but Oracle had a 5.33 D/E ratio last year. So for every $1 in equity, they owe $5.33. They are playing with over 5x the bank's money then their own. They also had a 0.75 current ratio. If they owed $10 over the next year, they could only cover 75% of that.
*None of these stats alone should make or break an investment.* You should look at everything in a company. Most companies won’t be a perfect 10/10 all the time, that’s unrealistic. However, avoiding obvious or dumb mistakes could save you a lot more.
At the end of the day it comes down to the investor. Some are willing to take more risks, and it might very much make them a fortune. But many, unfortunately, will fail, and lose a lot of real money.
Only some- not all -basic rules I follow for myself, in no particular order:
Have a long trail of profitability: If the company has been public for 20 years, and they were negative 7 times in those years, that doesn’t make me feel great.
ROIC: If a company consistently has an ROIC % that is 6%, that tells me they aren’t usually great with their financial planning, and they tend to make unintelligent investments frequently.
Know what you own: I don't plan on investing in Nvidia anytime soon. Not because I don’t think it’s a great company; I just don’t know much about CPUs and computer chips and my interests don’t motivate me to dive into it.
Vertex Pharmacuteles sounds like an awesome, innovative company. One of their products is Casgevy. **“CASGEVY® is a one-time gene-edited therapy that treats people with beta thalassemia. It uses the patient's own edited blood stem cells and increases the production of a special hemoglobin called fetal hemoglobin or HbF.”** That sounds so helpful, and I hope it can help so many people but I have no idea what any of that means as I don’t have much knowledge or expertise or even interest in the subject. Something tells me I won’t understand their other products as well. I’ll pass.
Debt: I want little debt. It’s much harder for a company to go bankrupt with little debt compared to high debt.
Moat: Real competitive edges over others in their industry. A castle that is very tough to invade from the outside.
I hope you can take something from this. Happy investing.