You probably have heard enough, be it from your friends to "experts" who go on TV, stocks recommendations that may sound attractive yet very generic, and the eventual returns are minimal if not resulting in big losses. What do we mean by attractive yet generic? These recommendations always include the phrases "future", "long-term", "potential" .... While you do want your investments to have those characteristics, wouldn't everyone say those things about their own companies? Who would advertise their own company as having no future, short-term only, and no potential? 

What we are trying to say is, these recommendations eventually turn meaningless because they lack key details for an informed investment. What we want to have is a thorough investment thesis, such as what we have for each and every individual stocks that we own, and such as we've detailed the criteria of what we look for when buying a stock. However, this is a lot of work and certainly a lot of information, not suitable for quick and timely discussions (such as a conversation with friends, or a short interview on TV). That is why today we'd like to discuss the concept of an elevator pitch, derive a formula for the pitch, and apply the formula to each of the stocks that we own. 

We're probably over-using the term elevator pitch, the definition and correct use of which you can read more about here, but for the purpose of this post, let's discuss elevator pitch for its characteristics of being brief yet effective, concise and impressive. Think of elevator pitch, as the term suggests, as what you need to do when you meet someone in the elevator for a short duration, but you want to discuss something that will leave them with a good impression.

Formula for stock pitch

For a stock recommendation, we will have 3 components, each with 1-2 sentences.

1. How Does The Company Make Money? What products do they sell?  

2. Top-Down Overview: consistent with our approach to stock-picking, we believe it's important to provide an overview of which economic sector the company operates in. Questions to think about include: What sector does the company operate in? How is the sector positioned in the economy (are opportunities in the sector expanding or shrinking)? How does the sector fit in economic cycles (does the sector perform well during expansion phase of the economy, or is the sector of defensive nature)?

3. Bottom-Up Analysis: this is where you need to provide specific, key details about the company you are pitching. Choose key details that make it stand out as an investment. Rather than saying "future company", be able to provide how fast the company is growing (i.e. growing revenue at 60% year over year). Rather than "potential," know what is the total addressable market that the company is claiming it can grab. We'd prefer the following: i) What is the forward P/E of the company compared to the broad market and/or the sector? 2) How fast is the company growing? 3) What is a near-term catalyst for the stock price to appreciate?

Example: Advanced Micro Devices (AMD)

We'd like to give you one example here, and for all other companies that we own, you can check it out in the individual stock tab. 

Advanced Micro Devices (AMD) designs processing centers (chips/ semiconductors) for high performance tasks such as personal computing, gaming and data center. The sector is a secular grower with strong pricing power because of underlying strong demands in digitization countered with supply shortages. AMD has a $300 billion total addressable market, and the management suite has been executing incredibly well with 56% compound annual growth rate. The company recently completed multiple acquisitions, and we believe analysts have yet to fully factor in the additive earnings power from these acquisitions.