Tuesday's Take: Investing Smiles with Charlie Munger!
"Someone's sitting in the shade today because someone planted a tree a long time ago." - Warren Buffett
Welcome Value Vultures,
It's a caffeinated morning, and we're back again! Today, we're diving deep into value investing—a strategy as timeless as your grandma's secret pancake recipe.
You see, value investing is the financial equivalent of scouring the thrift shop for a vintage Levi's jacket: it's all about finding bargains that the market has overlooked. We're talking about shares priced less than their intrinsic value, waiting to be picked up by savvy investors like you.
Whether you're a seasoned investor or a newbie, our goal is to give you the tools you need to find those underpriced gems.
Grab your coffee and let's uncover the true value in value investing!
Todays Value
Book Review
Company Breakdown
Investor Spotlight
Investors Tips
Warren Wisdom
Book Review
"Common Stocks and Uncommon Profits" by Philip Fisher
"Common Stocks and Uncommon Profits," written by Philip Fisher, is a timeless piece for value investors who seek to delve deeper into the art of investing in stocks. First published in 1958, it remains a seminal text that provides a unique perspective on investing.
Key Takeaways
"Scuttlebutt" Method: Fisher popularized the "scuttlebutt" method, which involves collecting information about a potential investment from various sources such as customers, suppliers, competitors, and employees. This approach encourages thorough research and understanding of a company before investing.
Fifteen Points to Look for in a Common Stock: Fisher outlines 15 characteristics that a company should possess for it to be considered a worthy long-term investment. These include quality of management, the company's long-range outlook, and its commitment to research and development.
Long-Term Investment Philosophy: Fisher was a proponent of long-term investing. He believed in buying outstanding companies and holding onto them through market fluctuations.
Application
The book provides a detailed approach to stock analysis and selection, which can be invaluable for both new and seasoned investors. Fisher's 15 points can serve as a checklist when considering potential investments. The "scuttlebutt" method underscores the importance of doing one's homework and can be utilized to gather essential qualitative data about a company.
Why It's Worth Reading
"Common Stocks and Uncommon Profits" goes beyond mere number-crunching and dives into the qualitative aspects of investing, which are often overlooked. The book offers a comprehensive yet accessible guide to investing, making it an excellent addition to any investor's library. Fisher's wisdom and insights stand the test of time, and his principles remain relevant in today's dynamic investment environment.
Company Breakdown
Ticker: FTLF
Price: $17
P/E Ratio: 19.32
MKT Cap: 76.474M
Summary:
FitLife Brands, Inc. is a company that specializes in developing, marketing, and distributing a range of nutritional supplements and health products. Founded in 2004 and headquartered in Omaha, Nebraska, FitLife Brands focuses on providing products that cater to various health goals, including weight loss, muscle building, athletic performance, and overall wellness.
Revenue Model
FitLife Brands generates revenue primarily through the sale of their nutritional supplement and health products. The company offers a variety of branded products under several lines, such as:
NDS Nutrition Products: This line includes weight management, sports nutrition, and general health products targeted at fitness enthusiasts and individuals seeking a healthier lifestyle.
SirenLabs and CoreActive: These product lines focus on high-quality, innovative sports nutrition and performance-enhancing supplements for athletes and fitness enthusiasts.
PMD (Personalized MicroDose Nutrition): PMD offers premium nutritional supplements with a focus on micro-dosing to optimize performance and results.
iSatori: This line provides scientifically-engineered supplements to help customers build muscle, lose weight, and improve their overall health.
FitLife Brands distributes its products through multiple channels, such as specialty retailers, e-commerce platforms, and direct-to-consumer sales. The company's distribution network includes popular retailers like GNC, The Vitamin Shoppe, and Amazon, as well as their own online store. By offering a diverse range of products and utilizing various sales channels, FitLife Brands can cater to a wide audience, driving revenue and ensuring a steady stream of income.
The Opportunity
FitLife Brands, a nutritional supplements company, has made significant progress since being on the brink of bankruptcy in 2017.
The turnaround was led by CEO Dayton Judd, who implemented cost reductions, focused on core high-margin products, and developed a high-growth, high-margin ecommerce channel.
The recent acquisition of Mimi's Rock will increase earnings power, reduce customer concentration with GNC, and utilize FitLife's large cash balance.
The estimated annual adjusted EBITDA of the combined business will likely exceed $12M, giving FitLife shares an attractive EBITDA multiple of around 7x.
There's a possibility that FitLife will deliver better than expected EBITDA through significant cost reductions and other synergies.
The market may not have adequately priced FitLife’s post-acquisition earnings power or fully recognized the quality of management and their excellent capital allocation.
After taking over the business in 2018, the new management team began developing their ecommerce capabilities with a goal of substantial sales increases in the long term.
E-commerce sales have grown rapidly since 2018, driving the financial turnaround of the company, and they still have significant growth potential.
Although the growth in online sales has slowed due to the larger base, this channel continues to grow well into the double digits and is expected to continue to grow in 2023.
The high-margin e-commerce channel, which generates about $8-9M in annualized sales, represents less than 15% of total sales of FitLife products to end customers, indicating significant growth potential.
Read more here
Credit to EkidenDS
Investor Spotlight
Charlie Munger is an American investor, businessman, and philanthropist. He was born on January 1, 1924, in Omaha, Nebraska. Munger is best known for his association with Warren Buffett and Berkshire Hathaway, where he has served as vice-chairman since 1978.
In his early career, Munger practiced law and later transitioned to real estate development before entering the world of investing. He was a co-founder of the investment firm Blue Chip Stamps, which later merged with Berkshire Hathaway.
His investing philosophy, like Buffett's, is deeply rooted in the concept of value investing. He is recognized for his focus on intrinsic value, patience, discipline, and avoiding investments outside his circle of competence.
Munger is also known for his sharp wit and wisdom, often sharing his insights about business and investing through memorable quotes and aphorisms. His speeches and writings, particularly his famous talk on "The Psychology of Human Misjudgment," are widely followed in the investment community.
In addition to his business pursuits, Munger is a notable philanthropist, donating millions of dollars to educational institutions and other charitable causes.
Investing Tips
One of Charlie Munger's key investing tips is the principle of "Circle of Competence." He advises investors to only invest in businesses they thoroughly understand and to avoid stepping out of their areas of expertise.
Munger believes that each investor has a specific area where they can leverage their knowledge to make better investment decisions. By understanding a business's model, industry, competition, and financial health, investors can better predict its future success and make informed decisions.
In other words, Munger advises investors not to be swayed by every investment trend or hot tip, but to stick with what they know and understand best. This helps to reduce risk and increase the likelihood of investment success.
Warren Buffett Wisdom
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Value Vultures