When it comes to picking stocks, can you talk a little bit about your process of researching and choosing them?
When it comes to picking single stocks, for me, what I like to look at is: Is this stock operating in a secular growth trend? Are they operating in some sort of trend that’s going to continue to go forward over the next decade? For some people, this could be online sports betting and gaming, or cybersecurity, or streaming, whether it's YouTube or Roku, Amazon Prime video, stuff like that. Is this company operating in a growth trend that's expanding and will continue to expand over the coming decade? If it’s a yes, then that’s a big check for me. If it’s a no, then I ask what else really gets me excited about this.
So if it’s a yes, I’ll look back over the last three or four years and see how they’ve done from a revenue growth perspective. Because that’s the number one thing that really should matter: if a company is growing consistently, over a period of time. Hopefully their revenue is growing, hopefully their gross profit on that revenue is growing. Then I look at their expenses as a percent of total revenue. Maybe their expenses are staying the same, or even decreasing a little bit, but hopefully they’re not increasing more than the revenue is increasing. This will lead into where their income or net profits are increasing in relation to revenue. What's really important to me is free cash flow. I think free cash flow per share is a really good metric to look at as an investor. Because as we all know, cash is king.
When it comes to actually finding new companies, I think I’ve had a lot of success looking at the top 50 or so ETFs by market cap. Looking at all their holdings and just culling out random companies. That’s how I found Sea Limited, DraftKings, Roku, Upstart, Asana, a lot of these really cool companies that I’ve invested into. Just finding them organically, reading through their 10-K, their S-1, things of that nature, making sure I understand what the company does. That's also the biggest callout for me: I will not invest into a company if I do not understand what it does.
One general note: another way that I find companies is I just look around and see where I’m buying my products from, where my friends are buying their products from, and what products they’re buying. For example, over in Knoxville, which is the college town that I went to, a massive Dick’s Sporting Goods opened up and people flocked to it and loved it. So I thought, “Is that publicly traded?” You look at their stock, and it’s gone up 5x in the past 18 months, it’s crazy. So I’m just making those general observations about what's going on around us and where I can begin to think about the next thing that could take off, maybe before the market realizes it.