Offshore

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⁠Dimitry Nakhla | Babylon Capital®
RT @DimitryNakhla: Attention investors ‼️ — I am SURE this post will sharpen your investing mindset and skills. Take a couple minutes to read it in full - it'll be a game-changer for your investment journey.

Yesterday I shared a poll asking if you thought $BMY was undervalued or a value trap, given its 17.32% FCF Yield.

Before I share my opinion, I believe it’s CRITICAL to emphasize the importance of being selective when building a portfolio.

Imagine you were the manager of a fútbol club (in this case Liverpool FC 😉) and you have to choose your Starting XI.

Would you add $BMY? .. More on this later.

You can see my Starting XI in the photo below.

It’s a club of exceptional businesses that have wide moats, pristine balance sheets, excellent returns on invested capital and quality revenues & earnings.

$BMY on the other hand doesn’t really fit in this club as it fails to meet these standards.

Another way to demonstrate this is if you were building a fútbol club & you could choose ANY footballer, I’m sure your club may look something like this:

Cristiano Ronaldo, Lionel Messi, Kylian Mbappe, Vinicius Jr, Jude Bellingham, Alison Becker, Virgil Van Dyke, David Alaba, Kyle Walker, Trent Alexander Arnold, & Ilkay Gundogan.

INVESTING IS NO DIFFERENT.

You have the opportunity to build a SUPERTEAM of quality businesses & nobody is forcing you to buy “subpar players” for your club.

As Warren Buffett even said:

“I could improve your ultimate financial welfare by giving you a ticket with only 20 slots in it so that you had 20 punches—representing all the investments that you got to make in a lifetime.”

The mistake MANY investors make is NOT being SELECTIVE enough.

Why add a subpar player to your squad when you could buy Ronaldo?

You’ll become a better investor and enhance your financial welfare by focusing on buying the world’s BEST & MOST QUALITY business when they trade at a fair or better valuation. This should be your focus.

Do not let the daily noise of the market sway you into buying a subpar company just because it trades for a low multiple.

So this brings us to $BMY.

Although $BMY may “appear” undervalued due to its low multiple & high FCF Yield, it could be a value trap and does not belong in my “superteam” of companies.

In short, it lacks many of the qualities I mentioned for the other businesses & has a poor history of performance.

Just have a look at the long-term growth of $BMY Revenues, EPS, & Balance Sheet and you’ll be very unimpressed.

Sure, $BMY may “have moments of excellence” (as any footballer may have in the occasional game) with nice rallies off its lows, but this doesn’t make $BMY a consistent performer for my club.

Yes, it’s important to consider the future when investing (which isn’t even bright for $BMY at the moment). However, it doesn’t mean we should forget about the poor performances $BMY has had over the last 15 years.

I wouldn’t want to count on a player who’s been performing poorly over 15 seasons and hope that this player will finally show me moments of consistent brilliance for the next 5 seasons.

Also, we should to be wise and consider the opportunity cost of owning subpar businesses over excellent businesses over the years.

I am sure there are many investors who have owned $BMY for the last ~5 years in hopes that $BMY would eventually see it supposed “value” realized.

Meanwhile, the same investors would have been better off, owning more shares of companies like $V $MA $GOOG $META $ASML $LRCX $NVDA $MSFT $CRM $VRTX $TMO $AAPL etc.

This was my Achilles Heel when I first started my investment journey in 2016. I was TOO focused on valuation & lower multiples rather than QUALITY & growth at a reasonable price.

So when you’re[...]

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