Samir Jezzini
by Samir Jezzini
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An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return. Operations not meeting these requirements are speculative. ”

-Benjamin Graham

In other words, look for high quality businesses with models which consistently generate predictable free cash flow over the years. The value of any financial investment is determined by the present value of the cash you can take out of it during its on going business life. Think of free cash flow in simple terms as the cash generated by a company that if you own the whole company you are free to allocate wherever you want or the company is free to allocate wherever it wants. An example of that, is Warren Buffet's Berkshire Hathaway which is a free cash flow giant that bought into private and publicly traded free cash flow generating companies. These companies produce dividends that allow Berkshire Hathaway to reinvest it and grow it. Since we don't own these companies, we look at how the companies are reinvesting the free cash flow whether by paying us dividends, reinvesting and growing the business or in other cash flow generating businesses, or buying back their own stocks ONLY when the price of the stock is undervalued or at a fair price that is expected to grow in the foreseeable future. Similarly, if we find such a business that we can understand, and is trading at a price cheaper than the sticker price for an economically justifiable reason, then it is a BUY. Another company that I would like us to have a look at is Facebook. If we zoom in to Facebook's balance sheet, we could see that their total cash position is experiencing a consistent upward trend. Since 2018, it has increased its total free cash from $41.711 billion to $54.85 billion in 2019, that is only in ONE YEAR. Such companies are of solid fundamentals and intrinsic value, and should not be missed when offered at a discount.


I learned that cash is king and companies with poor liquidity, regardless of it’s age and strong business model, can suffer severe consequences during unpredictable economic shocks like the Covid-19 pandemic/epidemic. Many of the companies were reinvesting their cash, not expecting an external threat such as the coronavirus, which caused them to fall short on their operational expenses and short term debt obligations and caused companies such as Hertz, Papyrus, and Earth Fare to file bankruptcy or liquidation. Moreover, what worked for me was the Top-bottom investment strategy. When I saw the coronavirus infection rate accelerating and how its affecting the global financial markets and the ways to counter it and restrict its spread (such as quarantine), I assumed its direct effect on demand for products of different sectors which drew my attention to the operational gearing ratio. I immediately reallocated my capital from high capital intensive businesses, due to their relatively high fixed costs caused by the depreciation of their non current assets and servicing costs, to less capital intensive businesses whose profits are less sensitive to changes to its output.


While investing principles in terms of generally evaluating and analyzing the business something will not necessarily change, a lot of the consumer habits will, something which would surely affect the nature of businesses and its operations. During quarantine, we had seen ZOOM officially become bigger than the top 7 American airlines combined due to businesses using the app to conduct their meetings and run services such as educational webinars that would have rather been physical. This can also affect the real estate industry where business might adopt the idea of home offices and reduce office spaces which can impact the commercial property leasing business. Other habits such as exercising have increased due to the available free time of many forcefully unemployed people and this can increase demand on sports garments and equipment and possibly increase gym memberships. In addition, people are further growing an already growing habit of ordering food delivery. As a result, Mc Donalds partnered up with Grubhub, as the fast-food giant looks to make delivery a $4 billion business for the company this year. 

The stock market is filled with individuals who know the price of everything, but the value of nothing.

-Phillip Fisher

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