About the author

Country: Spain
Contact details: european.valueinvestor@gmail.com

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european.valueinvestor@gmail.com

Currently in my mid 30s, I’m a Spanish investor with more than a decade of experience in capital markets.

I’m a CFA charterholder, and a passionate about finance. During these decade, I’ve learned a lot about investing, and now want to give back what I learn to all my readers.

I have strong experience in M&A and Corporate Development, which helps me understand:

• The inside strategic thinking: I’ve worked for CFOs, CEOs and Chairmans, which helps me understand from the outside how they are acting

• How M&A process work: I participated in multiple mergers and acquisitions for a volume of several billions, mainly in Europe and also in South America

• All technical aspects required to be a good investors

I’m a passionate about reading, especially about finance and other topics like biographies or essays.

My goal with this blog is to record my journey and help others making better decisions.

My investment Philosophy

I consider myself a value investor. This means that I invest in companies which I think they are undervalued, for many reasons.

Although value investing is seen as Benjamin Graham’s old lessons and Warren Buffet’s cigar butts, the reality is that value investing is everywhere.

Everyone valuing a business should be considered a value investor. After that, they might categorize as deep value, quality, etc.

In my case, I’m style-agnostic. This means that I will invest in multiple types of companies and situations over time.

Value investing is about putting the odds in your favour. I might be wrong sometimes, but my focus is on the downside.

This means that I want to invest in real companies, with a real product or service. I don’t want to gamble in any events or potential events that might make a company’s

Here its a summary of my philosophy and how I work:

1. Bottom-up Approach

I don’t follow a top down approach, meaning I don’t look for macroeconomic data like which countries or sectors are performing well.

I don’t believe in macroeconomic forecasts as in my humble opinion, predicting GDP or whatever economic data is not possible as it depends on billions of interaction between humans, which many times are not predictable.

For that reason, I follow a bottom-up approach. This means I look first at the company, and once I understand it, I continue up to the sector, country, etc.

But the most important thing is understanding the company.

2. Forecasts

As explained before, I believe that forecasting will normally be wrong. Sometimes, we might forecast the revenues of next year and nail it, but how much of that can be attributed to luck?

For that reason, the type of forecast I’m focused on is:

• Make realistic and conservative assumptions, based on multiple variables, but avoiding complexity

• Always focus my view on the most conservative scenario

As Howard Marks includes in his memos:

“We have two classes of forecasters: Those who don’t know—and those who don’t know they don’t know” 
John Kenneth Galbraith

That’s why I only use conservative assumptions, because I can’t predict the future.

However, if valuation is still attractive with conservative assumptions, it means that there is probably a high margin of safety.

3. I focus on both quantitative and qualitative analysis

It is wrongly believed that value investors only focus on reading the accounts of a business.

Reading the accounts without understanding the business, its competition, etc. is just worthless. Doing the opposite, too.

These are the main things I analyze:

1. Business model analysis: Do I understand how the company is making money?

2. Supply and demand:

   1. Supply: Who are the competitors? What are they doing? Are they a big threat for the company?

   2. Demand: What is the TAM of the company? Are there substitute products? Any risk of disruption?

3. Financial analysis:

   1. Understand how the company makes money

   2. Perform valuation:

      1. DCF as the guide

      2. Multiples as a support

   3. I don’t follow any particular ratio. I just don’t look at them individually

4. I’m a firm believer that spreadsheets are necessary

Investing requires to have a view on the valuation of a company. To do so, some calculations are needed.

Because I have strong technical skills, I build models that are not extremely sophisticated, but require time to build.

These are some of the things I do, and share in my analysis:

• Revenue generation: I try to breakdown revenue generation as much as possible (P*Q)

• Expenses and margin: Identify the level of operating leverage. I avoid shortcuts on applying margins in the valuation. I try first to understand the expenses, before putting any number on a margin

• ROIC: This metric is very important for long-term quality companies. However, ROIC by itself is not enough. Increasing ROIC over time is a good sign. The ability to protect that ROIC in the future should be the main focus of the analysis

5. Long-term

I have long-term thinking, and my investments are initially thought for the long-term. This can obviously change if the company’s competitive position or future prospects deteriorate, but my initial view is 5-7 years for every investment.

The top quality companies have longer horizon: perpetual.

To be able to focus on the long-term:

• I avoid looking at the chart of the stock every day

• This means, I invest like a private equity: I buy the company, not the company’s shares

• Focus on the results, not in the share price

Long-term is necessary because in the short-to-mid term, narratives dominate the situation. However, in the long-term, the financials and competitive positioning is what matters.

Last Word

There are multiple other things in which I focus. However, these are the principal ones.

Everyone is welcomed to the blog. It will remain for free.

Fell free to join the community and share your investments ideas, thoughts, etc. I will be happy to stay in touch!

Thank you for reading the EVI blog.

Best