Okay folks, we've got lots to get ready for this week. This is going to be a week that makes or breaks the market. Let's get right into it. I want to start by picking your brain about what the data says about the importance of buying stocks that are actually growing and expanding value provided to customers instead of focusing on stocks that quite frankly are stagnant in growth.

Let's face it, most of the financial media say that if you're buying an unprofitable company, even if it's scaling up rapidly and has new technology and new ways of providing value that haven't been seen before, well, you're buying a clown company. But I want you to look at this research piece from Morgan Stanley. It says that top line growth aka revenue growth is the main driver of long run stock performance. Whereas the media says constantly short run profitability is everything and the only thing you need to focus on companies that are showing profits now not later Now, who cares what they're doing tomorrow, we'll just change to a new headline.

But the real data and real statistics say the opposite. And the time horizon of this research was from 1990 and 2009, which is an incredibly relevant time period. because you had two decades of insane technological growth and advancement, two decades of monetary policy shifts back and forth, and two massive massive bear markets that killed valuations in many ways. 1990 to 2009 is eerily similar to 2010 to 2029.

So check this out. If you bought and held stocks during this time period for one year, your return. the performance on your stock was 46 almost half based on simply the multiple aka whether or not the market was willing to pay a high multiple based on the characteristics of your company which can be induced or reduced by the fed, euphoria, dysphoria, or just current rotations or cyclical events. For the last 10 to 11 months, the market has really been rewarding and paying a higher and higher multiple for things like short-term profitability, the ability to pay out dividends, Short-term margin, Not long-term margin, but short-term margin.

And so the multiple has grown. And it's been a focus on this one-year timerizing. And remember, this is one year averaged on 20 years. I'd argue that right now, the returns and performance of every stock is almost about 90 based simply on multiples, and the debate over what multiples appropriated this current market condition.

right now, revenue growth, and actually being able to scale up your value, add to customers doesn't matter at all. Despite common sense that says that businesses are about growing value for the consumers in a one-year time rise in the business part of the business doesn't matter. it's all about what the market is willing to pay for that type of business. Right now, the market is willing to pay more for businesses that are more short-term focused versus ones that are more long-term focused.

Sometimes that reverses, sometimes it doesn't But overall, in a year, half of the return on your company is based on just what the market is rewarding at that moment, the multiple on it, and we could use a combination of macro and sector macro factors to determine which ones are going to have the most multiple expansions or the biggest multiple crunches. And here's the thing. after just three years, your returns start to become based 50 percent on revenue growth and only 19 on multiple for growth companies with profitability coming in the next three years, which is a lot of them. That means that your company's returns will be based on 50 revenue growth and 20 margin.

Which means 70 of your returns are going to be based on revenue and profitability, whereas right now more than half of your returns are based on the multiple and the lack of profitability. And after five years, your return should be based 58 on revenue growth. and again, most of your growth companies should start becoming profitable at this stage. And so your returns over a five-year time horizon are 78 based on combined sales and profit, and only 15 based on whatever the multiple the market is willing to pay, and seven percent on cash flow.

And then after 10 years, your return is 89 based on revenue and profit. So right now everybody's saying, do not focus on revenue growth or long-term profitability, focus on just what's happening right now: Short-term profitability, Short-term value that's being provided. But if you look at this outside of the year, that does not pay off in the long run, in fact, it's the opposite. The multiple is the most foofy and short-term thinking.

The multiple is just simply the willingness of investors to pay for the future of a company, whereas the actual value the company has is based on how much value it's providing to consumers over the long run. So think about this right now. What is the market saying? It's saying ignore revenue growth. It's saying long-term profitability after three or five, or ten years doesn't matter one bit.

Screw these categories. These are for losers and clowns. Go to the circus instead. It's saying focus on buying stocks with only these categories current day profitability and cash flow and bid them up to multiples at all-time highs.

And what is that mindset led to? Well, it's led to selling and overselling and overselling of growth companies that have huge high revenue growth and profit margins coming in the upcoming years, which are the actual drivers of long-term performance, not short-term profitability, and whether it feels like a safe play right now because of what they're doing in the moment but not caring about what they're going to do two, three, four, five years from now. The market right now does not care about the actual drivers of real performance, which again, revenue growth is just a fancy way of saying we're able to sell more value to consumers at an accelerating pace. So my point again. right now, people are acting like this is all that matters and everything else is irrelevant.

And they may be right in the short run because more than half of returns in the short run are based simply on whatever the multiple the market wants to reward you with and your present day profitability. But very very quickly after the market starts focusing on real value added, which is why it's so important. Instead of focusing on oh, what companies are going to provide feel good numbers over the upcoming quarters to instead focus on which companies are going to provide the most insane blowout numbers of value, expansion, and customer growth over the upcoming three, four, five, ten years doesn't mean that you have to hold them five years. In fact, multiple expansions can lead to your companies getting into the money in terms of valuation of where you want them to be a lot faster than expected.

Because the markets are cyclical. Just like markets can over expand on value characteristics, they can over expand on growth characteristics. And that happens cyclically. But still, when you're actually valuing the company, don't get it mixed.

It's not based on what provides short-term profitability, but what provides long-term results. And it makes perfect logical sense. Now people started waking up and things have started cooling down across the board, but the dynamic is very, very much present right now. still so-called value stocks.

and I'm not against all of them, but a lot of value stocks right now are at their frothiest valuations that they've been in decades. Despite the fact that their growth over the upcoming years is going to be extremely subpar, people are paying more and more for those companies, whereas the companies with the highest revenue growth people are overselling more and more. And look, the market's not stupid. There's a reason it rotates like that because it prioritizes churning capital from one sector to the other, because that's how you trap people into buying stocks and selling stocks in your favor.

If you're short selling, it's in your best interest for everybody to panic, sell out of something. If you're buying, it's in your best interest to get everybody to rotate into your sector. And it's easy to do that based on whatever narrative is being pushed. But in the long run, you can see the data is very, very clear that business growth actually does matter, despite media saying that business growth doesn't matter, and it's all about short-term profitability.

But if history is any indication, companies with superior revenue and superior future profit margins will have superior future returns. By the way, I'm not saying that you have to buy small or medium cap growth companies, or that all large cap companies are bad and frothy. In fact, a lot of the big tech companies, although they are frothy, actually have a huge amount of revenue growth down the road. and while they may get multiple crunched in the short run, a lot of them are going to succeed huge in the upcoming 5 to 10 years, if not next year.

But the point is, when you're considering buying a stock, think about two things: Number one: is this stock going to succeed in the main drivers of stock performance over the upcoming five to ten years doesn't mean that you have to hold it for five to ten years, but it does mean that you have to consider that trajectory. And then number two. is this a fair price to pay for that if you're buying it at any price. Because oh, short term profitability? I implore you to double check what your intentions are.

This is a nice chart that shows the cycles of companies in terms of growing from the baby stage to dying. and you want to buy companies in this stage even though the market is going to be more or less willing to buy them based on whatever the market cycle is in. The problem is that stocks in this stage have already factored in almost all their growth. Mature companies could stay in maturity for a while before they actually go on to die.

but if you want actual returns over a long term time horizon, you want to focus on companies that are scaling up to growth, not ones that have already had all their growth. And quite frankly, I believe that the ones that are in the mature stage are going to be the ones that are next to drop dramatically. If we do end up getting a nice dip this year, the end stage of a euphoria cycle in any asset class or sector of the stock market really is higher and accelerated euphoria, which is what we saw towards the end of the year for the biggest cap companies and the sun that we saw at the end of February last year for growth companies. But likewise, the end of dysphoria is also accelerated dysphoria, which is what we're seeing right now for growth companies.

But we're just starting to see the dysphoria start for big companies and frothy high multiple value stocks. So there's a lot of room to believe that this dynamic where people are focusing on building up multiples in big value stocks is going to switch very soon to a dynamic of building valuations in growth companies that are actually making a difference in the economy in terms of growth and revenue rates. and you want to make sure that you're on the right side or at least diversified properly to be on the right side of that shift. Okay, next earnings.

So we are making the slow transition from big mega cap companies reporting two medium and small cap earnings and we're going to be seeing that over the upcoming weeks. But this week starting Monday you got food processor Tyson you have stay-at-home study stock chegg which of course has low expectations going in, but perhaps may have some guidance on retaking its growth in student study segments as people go back to school and so on and so forth. In that final quarter you have Simon Property Group which owns a ton of retail malls and commercial property. Then on Tuesday you have your Pfizer, your Bp representing Oil and Gas which have been in a huge bull run.

As you know, you have the tawn of Pelin Peloton which was up like 26 after hours on rumors of a potential takeover bid by Amazon and some other big entities. When you get stocks dropping huge, you have all these big companies are like, okay, yeah, this is a good idea to buy and take it over and usually they pay of course a premium, so people factor that in ahead of time and you get a nice bounce. You have Chipotle, which has given into rising costs and complained about higher input costs themselves. I personally support Chipotle by buying tons of breedables.

Fantastic company. I don't know about the numbers though, I think they're a little bit frothy, but we'll see what they're reporting. You have Corsair Gaming which is a big retail followed stock that has just been destroyed. A squeeze could be possible if they really surprise.

I don't know though. they might need a couple more quarters. End phase which is the next gen Energy and Software Tech companies reporting you got Lyft now. Wednesday you have Cvs which if the market keeps going down, they may see an increase in antidepressants and people filling their antidepressants at their stores which is bullish.

You have canopy growth. Cgc. The whole Mj sector has been pretty quiet. Not much political traction on that front.

Very, very quiet sector midterms. Unlikely to bring that back. I think you're looking at a longer term time horizon on that. Maybe two three years before you start seeing any sort of political headwinds.

Unfortunately, you've got Lithia representing used in new Car sales. You've got Honda, Disney, Uber. Uber's going to be an interesting one. Uber is having their first investor day event since ipo, which I believe a big focus is going to be on the grocery segment.

Not a big stretch to expand into grocery delivery, and that's a big niche, so we'll see exactly how they update on that and their goals to really expand in that category. They'll also have some info on wait times and if they've improved that problem because a lot of people were waiting very, very long for rides which was very, very bad for the overall company and how many people were using Uber. at the same time, more people at home are ordering less food in it. We also have Sas company Twilio.

Other than that, you got Zynga, Mattel, Sonos, and Mgm Resorts. Now Mgm resorts is very interesting because they came under pressure under the whole Macau China licensing problem. Lots of drama and lots of uncertainty over whether they were going to get the proper licenses to operate in that market. Recently, the Chinese government moved somewhat in their favor and I'd like to hear updated forecasts and their take on the new rules and adjustments in that segment and their new license agreements.

On lovely Thursday you got Coca-cola Pepsico Datadog, which is another good data analytics Sas company you got Astrazeneca, a firm is reporting, which is one of the big players in the buy now, pay later space. I hear this talked about a lot in the retail community. The space has underperformed pretty dramatically so far in terms of valuation, but even fundamentally wise, I am kind of lowering my expectations on the willingness of people to take out debt to keep up with their lifestyle during a period of rising prices. I think actually, people are being very, very conservative, and you can see that with the consumer sentiment and so forth.

You've also got Twitter that's going to be watched very, very closely amidst this whole Snapchat beat and Facebook lost debacle. Big money right now has shown based on how Snapchat and Facebook traded last week that they have no damn idea how these companies are going to be performing on earnings. Based on the results of those companies, people are going to be thinking wow, Twitter could go up 30 or I could go down 30 easily in the span of minutes in the after hours or whenever they're reporting. Yep, after hours.

so watch that very very closely. You also have Cloudflare Zillow Zillow can update on their disastrous offloading of overpriced properties that they bought. Aor is reporting and representing Mj. You got Expedia Upwork, Dexcom hubspot, but then on Friday and Fridays are usually slow.

but Friday the big one that you want to watch is Magna. Magna is a company that manufactures for many automakers and Ev manufacturers in the future are using to build out and help them manufacture crucial parts or entire cars that they need for their lineup. The most important part of this is an update on the supply chain, the health of their facilities, and how easy it is to get workers and parts and what they say is going to have a lot of revelations for what stage we are on the supply chain healing process. Next, I want to talk about this Jobs report.

So on Thursday's video I cited the Adp reported reduction in jobs as a factor that weakened the start to the year, but when the full Jobs report came out on Friday, it was actually pretty healthy. Omicron may have led to a lot of turnover, but net and in effect the job market numbers are strong. So far, 2021 was a very, very strong year overall for the job market and the economy, and January was still strong So far, so So far, at least the foot that we're starting this year on isn't as bad. I think the companies and guidance for future quarters is very, very bad, but at least so far in the process, we're not doing terribly.

Of course, though, that creates that other problem, which is Now the Fed's gonna look at this and say okay, well, employment's looking pretty damn strong and the market's gonna think okay. We know what the Fed's thinking. He's thinking he could tighten at a more aggressive pace. and with the next Consumer Price Index for January coming out on Thursday, this is going to be a make it or break it week.

The market knows now that if this inflation point is really, really hot, well, the Fed has the ability to raise interest rates at a faster pace, Even if when they actually make those decisions, things start dropping dramatically in terms of economic numbers. Hey, right now things look hot, so the market's going to factor in what's happening right now. And look, I think inflationary pressures are going to trend down. Not right now though.

And considering that the Cpi report considers effects of energy and world prices and those have been skyrocketing and most other categories haven't really been getting much better. If at all, Well, I'd be kind of surprised if inflationary numbers didn't look worse this week. Maybe we'll get lucky on the overall average. Maybe used cars and trucks brought things down a little bit.

Maybe they're cooling off in a little bit. But overall, I think the categories that matter are looking hot. It may take at least a couple more reports to see things trend in the right direction, at least solidly so. I don't know folks.

It's a bit of a scary week to enter into. For being honest, I would focus on being strategic and buying companies that are going to have the best, the best ability and likelihood of providing the strongest revenue growth aka customer value acceleration over the upcoming three, five, and ten years. But regardless of the cycles of multiples, and regardless of the economic cycles and fed trajectory and inflation, I would just remember that revenue growth revenue growth is the primary driver of returns. and you add that profitability over the upcoming three, five and ten years is going to come to many good growth companies.

Well, you can see that the worst thing possible to focus on is the multiple crunch and the best thing possible to focus on is that long-term time horizon. So anyways, that is my thought process. Have a good start to the week and I'll see you tomorrow.