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Hello and welcome to this new video of the turtle on the stock market today I want to talk to you about Bill Atman in particular about his investment strategy which is divided into eight points. Vi Lachman is the founder and CEO of Pershing Square and started his business in 1992 after graduating with his Harvard classmate David Bercovich.
Together with David he founded an investment firm called Gotham Partners in 2004. Bilak but at the bottom of the hedge fund management firm Pershing Square the particular thing about Pilat Man is that he surrounds himself with collaborators who are also very far from the world of finance. In fact among his collaborators there are a former fishing instructor and a golf player and also a man he met in a taxi in October 2014.
B Lachman also founded a closed-end fund called Pershing Square Orleans which is listed on the London Stock Exchange. Among his most famous operations are above all the short on Herbalife and going long on Variant. These two operations were colossal flops. Dovevi Lachman lost a lot of money and These operations have given rise to two documentaries on Netflix, one is called Betting on 0 and the other is an episode of Dr.
Timone that I recommend you watch. They are very interesting, as he himself told you in an interview. Every time he deviated from following these eight points, he incurred heavy losses, so much so that he created a sort of stone tablet and the style of the Ten Commandments that he gave to each of his collaborators.
The first point is that the business must be simple and predictable. It must therefore be very clear how and why the company earns money. Furthermore, its future must be fairly predictable. It must therefore not be a fluctuating business. The second point is that the company must have a dominant position on the market, so this company has something that protects it from its rivals.
Think for example of Coca-Cola and Pepsi, which have a dominant share in the carbonated drinks market. In fact, if you decide to open a bar, a pub, or a pizzeria one day, you will almost be forced to have at least one of Coca-Cola or Pepsi, otherwise what kind of bar are you? The third point concerns exposure, which is limited to the risk of external factors that They are difficult to predict.
For example, in this period, the lack of shipping is also having a strong impact on the automotive sector, and this is an effect that does not depend on the car itself but on an external factor, therefore difficult to predict. Another example could concern commodities, the price of which could, for example, increase due to a natural phenomenon.
Another example of a street factor could be, for example, that of raw materials. Think for example of a ruined sugar harvest, perhaps it could push the price of sugar skyrocket, so a company that operates will therefore be forced to buy two sugars, will pay a much higher price for it and will therefore see its profit margins reduced.
This could be another example of an extrinsic factor. Perhaps the sugar example is no longer appropriate, but I hope I have made my point. The fourth point is that the company is able to generate a huge free cash flow using little or no debt. In fact, if a company is able to generate a very large free cash flow and could be synonymous with a strong economic moat, it now has a competitive advantage.
Free cash flow represents the cash flow from operating activities net of expenses. necessary for its sustenance such as debt repayment, maintenance costs for its machinery or even, for example, the preferred dividend. Point number 5: the company has high barriers to entry which means making it difficult for a competitor to take its market share.
This could be, for example, from the ownership of a brand, from high economies of scale, the ability to produce a product at a lower price than competitors and so on. Even companies that operate under a CIM and monopoly regime have high barriers to entry. An Italian example could be, for example, that of Terna, where Terna manages the Italian high-voltage electricity grid and operates under a monopoly regime.
Point number 6: the company has excellent management, especially with strong integrity and who also acts as if it were the sole owner of the company. Point number 7: the company has a high return on invested capital or ROI balance sheet but prefers ROI to ERO. This is because a high ROI could be simply obtained by resorting to debt.
Instead, ROI, taking into account the debt, according to Lachman, represents a more correct measure for evaluating the profitability of the company. I remember that ROI is It is obtained by simply calculating the ratio between earnings and equity while ROY is given by the ratio between net income and equity plus long-term debt.
The eighth and final point is that the company has a very strong balance sheet which ensures that the company does not have to resort to debt or capital increases to maintain the operation of the business and to encourage its growth. Furthermore, high financial leverage could be very dangerous in periods of recession for that company, so it is necessary to find companies that have sufficient cash flow to allow the company to grow and expand its business.
Well, these are the eight points of Villach's philosophy, but what do you think? Let me know in the comments and if you liked this video, don't forget to leave a nice light and subscribe to the channel to stay updated for when my next video comes out. Bye.
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