Investor Quote of the Week

Meaning

Don’t be afraid to buy stocks when there’s blood on the streets. When there's fear in the market, you have the biggest reward for risk.

Look to buy shares in healthy companies, and keep buying shares over time to average your position.

Nugget of Wisdom

Invest in “boring” businesses.

Look at Coca-Cola (ticker: KO).

This company has been producing the same product for decades.

Its business model is simple to understand.

There’s no “new technology” or unproven business model.

This means predicting future revenues and cash flows becomes way easier.

These "boring" businesses also tend to generate a lot of cash flow, allowing them to:

1. Buy-back shares

2. Return cash in the form of dividends

This not only gives you more income in the form of cash dividends, but the share-buybacks also support the price and provide capital appreciation.

Mistakes to Avoid

Spot irrational behavior.

Take a look at Zoom (ticker: ZM) in October 2020.

This stock went to the moon.

Shortly thereafter, there was a crash landing.

Humans are responsible for this irrational behavior.

Investors were pricing in growth “forever” and got burned as a result.

Every single valuation metric went sky high.

In October 2020, Zoom was trading at 116x sales.

That would be equivalent to stating that a company is worth $116,000,000 simply because it generates $1,000,000 in annual revenue.

Zoom only had around $400,000,000 in EBITDA (earnings before interest, taxes, depreciation, and amortization) and was valued at $151,000,000,000.

That’s crazy, if you ask me.

Stock of the Week

MarketAxess Holdings Inc.

Company Description

MarketAxess Holdings Inc., together with its subsidiaries, operates an electronic trading platform for institutional investor and broker-dealer companies worldwide.

Profitability Metrics

5-year average EBIT margin: 48%

5-year average net-income margin: 38%

5-year average return on equity: 28%

Growth Metrics

Revenue growth 5-year average (year-on-year): 13%

EBIT growth 5-year average (year-on-year): 11%

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