TJ Terwilliger

How to analyze stocks:

Michael Burry's Investment Strategy One-Pager

•  Buy roadkill
• Sell when it looks less bad
• Care little about general market
• Focus on FCF & Enterprise Value
• Hold 12-18 Stocks
• Buy within 10-15% of 52-week low

That's a wrap!

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This isn't perfect, but it filters out most bad investments quickly.

If a stock fails any of these checks, move on.

Your job isn't to find reasons to buy.

Your job is to find reasons to pass.

6. Don't overpay

A wonderful company at a terrible price is a terrible investment.

Compare current valuation to its 5-year average.

If it's way above, you might be buying at the top.

5. Analyze the growth

Stocks follow their intrinsic value over time.

Look for:
• Revenue growth > 8%
• Earnings growth > 10%

Without growth, you're just hoping someone pays more for the same business later.

4. Search for winners

Winners keep winning. Losers keep losing.

Look for stocks that compounded at more than 10% annually over the past decade.

Past performance doesn't guarantee future results, but it shows what's possible.

3. Look at capital allocation

This is where long-term value gets created.

ROIC > 15% is the baseline.

If management can't generate strong returns on the capital they deploy, they'll destroy shareholder value over time.

2. Study the profitability

High margins = pricing power.

Look for:
• Gross margin > 40%
• Profit margin > 10%

Companies with strong margins can weather storms better and compound faster over time.

1. Look at the company profile

Stay within your circle of competence.

If you can't explain what the company does in one sentence, you probably don't understand it well enough to invest.

Most investors spend hours analyzing stocks and still make bad decisions.

Here's a framework to analyze any stock in under 5 minutes:

“My only plan is to keep coming to work each day. I like to steer the boat each day rather than plan ahead way into the future.”
- Henry Singleton

Bottom line:

Selling should be a business decision, not an emotional one.

Most of the time, the best move is to do nothing.

Let your winners run.

Now here are BAD reasons to sell:

• The stock went up X%
• The stock went down X%
• You're comparing to your purchase price
• One bad quarter
• Macro concerns
• Trying to make a quick gain
• Other people are selling

Don't let emotions drive the decision.

7. You need the cash

Life happens.

If you need money, sell your least attractive holdings first.

But remember: the best returns come from holding quality companies long-term.

6. Growth materially slowed

When a company's growth rate drops significantly, future returns get limited.

Slow growth isn't always a sell signal, but meaningful changes matter.

5. Management changed for the worse

Leadership matters.

Alignment with shareholders matters.

If management quality declines or incentives shift away from shareholders, it's time to reassess.

4. The stock became ridiculously expensive

If valuations reach levels where future returns are nearly impossible, even with strong business performance, consider selling.

Note: Don't sell quality companies over mild overvaluation.

3. The company lost its competitive edge

Moats can erode.

Industry disruption happens.

Consumer preferences change.

Companies fail to innovate.

If the advantages disappear, so should your investment.

2. You found a better opportunity

Investing is about opportunity cost.

If you find a significantly better risk-adjusted return elsewhere, it might make sense to sell.

But be honest about the comparison.

1. You made a mistake

Your investment thesis was wrong.

New information changed the story.

Circumstances shifted.

Admit it and move on.

That said, there ARE good reasons to sell.

Here are 7 of them:

The secret to successful investing?

Let compounding do the heavy lifting.

Peter Lynch said it best:

"Selling your winners and holding your losers is like cutting the flowers and watering the weeds."

Yet most investors do exactly that.

A stock can only lose 100% of its value.

But it can gain 10,000% or more.

Sell Monster Beverage at $0.01 in 1987? You missed a 600,000% gain.

Sell Apple at $0.30 in 1991? You missed everything.

The math isn't symmetrical.

The biggest investment mistake I ever made?

Selling my winners too soon.

Imagine selling Amazon when it was down 93% in 2001.

Here's why that's so costly (and when you actually should sell):

Most investors waste time trying to find reasons to buy.

Smart ones look for reasons to pass instead.

Here are 3 questions to help you:

Don't understand the business?
An I interested in it?
Can I predict where the business will be in 10 years?

One strike and you're out.

The best dividend stocks don't have the highest yields.

They have sustainable payout ratios with room to grow.

40-60% payout ratio leaves room for both reinvestment and raises.

Top 50 most valuable brands

h/t: @VisualCap

When we stop respecting uncertainty, we stop being investors.

We become gamblers who mistake a good run for skill.

Start: 2.5% yield
Grow: 8% annually
Time: 20 years

Yield on cost: 11.7%

That's how dividend growth builds wealth.