🧠 The Most Expensive Stock I Own


​View Online | Sign Up | Advertise​

Welcome to Long-Term Mindset, the Wednesday newsletter that helps you invest better.

Today's Issue Read Time: <2 minutes

  • Lesson: The importance of valuation
  • Timeless Content: Morgan Housel and Howard Marks talk debt
  • Thread: Understanding margin of safety
  • Resource: A free summary of Warren Buffett's investing lessons
  • And more!

​Learn how to value companies like the pros:

Warren Buffett. Peter Lynch. Terry Smith. Stanley Druckenmiller.

All of these legends know that learning how to value a business is an essential skill for investors to master.

But valuation is tricky. And it's filled with nuance.

Our flagship course, Valuation Explained Simply, has taught 500+ investors how to value businesses like the pros.

This quick, self-paced course will allow you to:

  • Use DCFs to calculate stocks' intrinsic value
  • Master multiple analsysis to tell if a stock is cheap or expensive
  • Avoid the biggest valuation mistakes

For the next 48 hours, we're having a flash "Rate Cut" sale. Click the button below to knock $100 off the regular price of $299.

Friends,

We love investing in wide-moat businesses. That means they have network effects or switching costs or some other force keeping customers locked in while holding the competition at bay.

Normally, that means avoiding restaurant stocks altogether. But -- learning lessons from the likes of Domino's & Chipotle over the past two decades -- we know that if a company nurtures its brand and has excellent operations, there can be lots of money to be made.

This is why Stoffel added shares of Cava Group to his portfolio in May. For those unfamiliar, think of it as the "Chipotle of Mediterranean food." Since then, it's been nothing but good news: same-store sales were up a whopping 14%, it's rapidly expanding its locations, and the stock is up over 50%.

And yet, Stoffel refuses to add any shares.

Why? Valuation.

Right now, the company's market cap clocks in at $14 billion. If it achieves a market-matching 10% return per year, it will have a $25 billion market cap by 2030.

But what else would need to happen between now and then?

Assuming Cava trades for 30 times free cash flow (fairly aggressive) and achieves a market-leading 12% free cash flow margin (fairly aggressive), then by 2030, Cava would need to:

  • Generate $830 million in free cash flow.
  • Achieve sales of $6.9 billion.

If we run these numbers through a reverse DCF, we find that Cava would have to increase revenue by 38% per year for the next 6+ years to get there.

Is that possible? Certainly.
​
Is that probable? No.

Thus, Stoffel is perfectly happy keeping it as a 2% position in his portfolio. He knows it's a business he wants to continue following, but he also knows the market will likely offer more attractive buying opportunities in the future.

The right mixture of exposure and patience is every investor's best friend -- and it's the recipe for long-term investing success.

Wishing you investing success,

Brian Feroldi, Brian Stoffel, & Brian Withers

Long Term Mindset

P.S. Want to learn how to do a reverse DCF calculation of your own? We teach the step-by-step process (Lesson 5.1) in Valuation Explained Simply.

One simple graphic

One piece of timeless content

We love hearing Morgan Housel talk-- but add Howard Marks to the mix, and you've got a podcast for the ages! Check out their joint podcast as these two geniuses discuss debt, the relationship between leverage and longevity, and the nature of risk.

One resource

Every investor should study Warren Buffett. However, he's put out a lot of content over the past 50+ years. Consuming it all would take years. That's why this free PDF is such a great resource. In just 64 pages, Compounding Quality summarizes Buffett's most important investing lessons.

If you've consumed some great investing content recently, reply to this email with the link, and we might include it in a future newsletter.

One quote

Brian Stoffel

Brian Withers

​

👋 This newsletter was...

​🧠🧠🧠🧠🧠 Awesome!​

​🧠🧠🧠 It was OK​

​🧠 Do better​

More from us:

video preview​

VIDEO: EBITDA vs Net Income vs Free Cash Flow, Explained​

video preview​

VIDEO: Who Needs NVIDIA? 3 Market-Smashing SUPER-STOCKS for 2024​

​

Your email preferences:

Was this email forwarded to you? Sign up here.

​Change your account details​

​Unsubscribe from all emails​

*This email may contain affiliate links from our sponsors. If you choose to purchase after clicking a link, we may receive a commission at no additional cost to you. Thank you for your support.

Long-Term Mindset

I teach investors how to analyze businesses. Each Wednesday, I share six pieces of timeless content that can be read in less than 2 minutes. Read by 100,000+ investors from a16z, Amazon, Google, Microsoft, and more.

Read more from Long-Term Mindset

View Online | Sign Up | Advertise Welcome to Long-Term Mindset, the Wednesday newsletter that helps you invest better. Today's Issue Read Time: <2 minutes Lesson: Concentration vs Diversification Timeless Content: Munger's mental models Thread: Buybacks explained Resource: Free Financial Independence 101 Course And more! Together with Public.com*: I (Feroldi here) keep all my uninvested cash in a high-yield cash account. Did you know that you can currently earn an impressive 4.35%* APY with a...

View Online | Sign Up | Advertise Welcome to Long-Term Mindset, the Wednesday newsletter that helps you invest better. Today's Issue Read Time: <2 minutes Lesson: A key trait for long-term growth Timeless Content: Recessions & bear markets under U.S. Presidents Thread: 20 Semi-controversial investing beliefs Resource: A treasure trove of financial calculators And more! Together with Finchat Brian Feroldi using Finchat A good chart can relay information 10x faster than text alone. That's why...

View Online | Sign Up | Advertise Welcome to Long-Term Mindset, the Wednesday newsletter that helps you invest better. Today's Issue Read Time: <2 minutes Lesson: Goldman predicts just 3% returns. Are they right? Timeless Content: Has the easy money been made? Thread: Buffett's Golden Rules Resource: How to find company earnings dates easily And more! Learn Accounting Visually Humans process visual information 60,000x faster than text. This is why visuals are amazing teaching tools. If you...