New Constructs' Training: How Wall Street Is Misleading You - And What You Can Do About It 13 Dec 23

Thanks, everybody, for joining us today. This is the special webinar on how Wall Street insiders are misleading you and what you can do about it. I'm David Trainer. I'm here with Kyle Guskey. We're here to present a very special training and tour of how to get the most out of new constructs. We're going to walk you through exactly how to understand what the truth is about investing and Wall Street and show you how to use our tools and tools in general to make the most of the opportunities you can get by knowing how Wall Street's trying to trick you and beating them at their own game. Also, if you stay till the end, I'm going to reveal our top 3 best performing stocks in the Most Attractive Stocks portfolio and our best performing in our Dangerous Stocks portfolio. And by best, I mean best as shorts. As always, we need to hit the disclosure and disclaimers. We are not advisors. We don't mean to be advisors. Don't take what we do as advice. You need to make your own decision, get your own consulting. We're here to provide research. We are a publisher, nothing else. Publisher some really extremely good information, but that's it. Let's get to the heart of the matter. You're being misled. Wall Street is not here to help you make money. Wall Street's around to make Wall Street money. Trust me, I know what I'm talking about. I spent 7 years on Wall Street, and I was at the biggest investment bank for technology IPOs during the tech bubble. I saw how the sausage was made. And it's really not pretty. It's not just Wall Street though, it's the media. You think CNBC sells more ads when the market's going up or the market's going down? The companies themselves. I would venture to guess that the companies have sold more stock than they have generated profits in the last 10 years. I'll say that again. The value of the stock sold, stock and debt, is bigger than the profits they've actually made. And who makes money when they sell stock? Executives and Wall Street, mostly Wall Street financial pundits. Look, everyone's trying to sell you something, whether it's the stock itself or whether it's a research letter for the stock market. I realize we have research letters too. Ours are better than theirs and we can prove it. And we care about the truth. That's one of the things about New Constructs that's unique versus us and many other players in the space. We're independent. And we really do care about the truth. I left Wall Street a long time ago. I left a very profitable career on Wall Street a long time ago because I wanted to do what was right by investors, honestly, and for our capital markets, and ultimately for our country. I'm not here to say everybody else is bad. That's not true. There are other good folks out there. None of them have the scale and analytical prowess and rigor that we do. But you have to admit, The media is almost always saying buy, buy, buy, because when the markets are ebullient, more people are making money, more ads are being sold. Problem was that with that is that you're running full speed, like driving at night with your headlights off toward a cliff. So example number one, WeWork. This was probably one of our better calls of all time. We first came out in August. With our, our pre-IPO report saying this is the most ridiculous IPO of 2018, I think it was. And that IPO ended up getting shelved. It came back later, as you can see in this chart, eventually through a SPAC, which was a backdoor way to get an IPO done whether you deserve it or not. I think a lot of us know what happened with SPACs— not good. But even before the SPAC, when it was trying to IPO we called out that this was something investors should not ever think about putting money in. I think that was the first time I used the term that the private equity folks were just trying to take advantage of unsuspecting public investors. So what happened with WeWork in August of that year, we put out a report saying you shouldn't buy this IPO. And as I mentioned, I coined the term unsuspecting public investors. And I think one of the most important things to think about with this, with this company in this report Is that the value that they were trying to IPO WeWork at was over $40, I think $44, $45 billion. We came out and said, this is crazy, don't do it for all these reasons. And then a couple weeks later, 4 to 6 weeks later, I believe it was, they pulled the IPO. SoftBank took it back on their own books. And guess what they marked the value of that company down to? $2 billion. So the message was, hey everybody, this is great, you should buy it for $45 billion, go. And then once people say, nah, I don't think so, they admitted that in, in terms of their own eyes, they thought it was only worth $2 billion. That tells you what's going on, um, with the marketplace. If they're willing to sell you something at that big of a premium, just imagine what else they're willing to do. Allbirds is another IPO. We nailed this one too. We said this is overpriced. Not to say necessarily it's a bad company, overpriced, don't buy it. And you can see from this chart what happened there. Oatly Group, same thing. Both of these are— they're at a dollar or under a dollar. I know they've been well under a dollar. These zombie stock picks were so good we actually took them off the zombie stock list because we said basically they're good, they're as good as gone. So what am I seeing right now? Overvalued IPOs and meme stocks are quickly falling back down to their true valuation. The easy money traps have made some investors sloppy. And I think it's important to know, as much as you want to chase this stuff, that's great, but be careful. It's likely to end really badly because the underlying economics of these businesses are bad. And it's like the water's coming out of the pool, the whole Warren Buffett saying, you know, we can tell who's wearing swim trunks when the water comes out of the pool. And higher interest rates means less water. It's harder to hide bad businesses when your cost of capital is higher. It's much harder to expect someone to lend you money if you're a money-losing zombie company, if you aren't making any money. How many lenders are going to say, hey, I want to write you another $15 million, $30, $40, $50, $100 million check when you weren't able to pay off the last loan and you don't even have enough pre-tax profit to cover the interest expense on your previous loan, which is a much lower interest rate than what I'm going to write you. So we think that the end is near for these guys and a new era of investing is about to start. So what does that mean? Who can you trust? Even if you have beliefs such as only the big guy can win, investing is rigged, there's so much conflicting information out there, whose research is actually legitimate, there is a way to see through the smoke and we're going to show you how. By the end of this training session, you will understand the key factors on why overvalued companies go into— why they can go to zero or close to it, the conflicting bias of Wall Street, how companies can legally hide bad information, how the right research can help you find gold mines and eliminate dangerous stocks. And then as a bonus, I'm going to give you 3 of our top most attractive stocks and 3 of our top most dangerous stock picks. So you guys know me, David Trainer. I'm also here with Kyle Guskey. I'm founder of New Constructs, author of Modern Tools for Valuation and The Valuation Handbook. I've been working on machine learning and AI for over 20 years. And importantly, we've reached some special milestones at New Constructs in the last couple years, and that's that the superiority of our research has been proven. Proven to be superior in papers from the Journal of Financial Economics, Ernst Young, Harvard Business School, and MIT Sloan. You can't really have more prestigious institutions vouching for you. And by the way, they don't do this for fun. They do it because their careers are advanced by discovering new, better datasets. We're the, the best new technology to hit the financial markets, the investing markets. Investing tech in the last 25 years. And another way the proof is in the pudding is in our stock ratings. These have been continually ranked number one by SumZero every month since May 2021. So we're doing really, really well. You guys have probably seen me on CNBC a bunch. You see our research published in all of the major publications on a regular basis— Yahoo Finance, Bloomberg, you name it. We've got some of the biggest and best partners in the world. This is some of the best research in the world, and we're happy to share it with more folks. So what's my mission at New Constructs? My mission is to give people the truth about profitability and valuation. I mentioned to you that when I was on Wall Street, I saw the analytical habits of investors and the Wall Street folks really go down the drain. And by that, I mean analysts that used to read filings and do real work were not incentivized to do so. There was too much money to be made in selling an IPO, so they didn't have time or want to take the time to look at a balance sheet. And I had meetings with a lot— straight up, I said, hey, what do you think about the working capital for this business? Because I knew the working capital situation was really good. They'd say, working capital, what's that? Why do I care? And what I realized is they had so much money that they were going to be making in the next day, next few hours by selling these overpriced IPOs, that they saw no reason to take the time to actually read the filings and understand what was going on, because it didn't matter to them making money. So the title of my business plan at New Constructs was to improve the integrity of the capital markets. So why are we talking now with you? Because we think it's a dangerous time. It's always buy now. You notice that? You notice that Wall Street is never saying everyone should sell now. It's always buy now. What's causing it now? Well, first of all, they've always said it. And if you look at the history of ratings from Wall Street, they are almost always disproportionately towards the buy rating. The distribution of ratings means it's super skewed towards buy ratings. You got a few neutrals and you got almost no sells. This is a great summary from our website, our examples of when a buy rating, even when there is a buy rating, it's not really a buy rating. I won't pain you through having to listen to me read the screen, but one of my favorite is the brown-nosed buy. That's keep the boss happy, or the boss being the CEO, because Wall Street's job is to sell stock. And guess who decides who gets to sell their stock, a company stock? The CEO of the company decides who sells their stock. So if you're not on good terms with the CEO, guess what happens? You You don't get to sell the stock. And so the last thing you're ever going to do is do some— is something that's going to upset the CEO unless you want to get fired. And I've got friends on Wall Street who were good analysts who did get fired because if you don't say what pleases the CEO, then guess who's going to fire you? The bankers. Why are the bankers the ones who get to fire you? Because the bankers make money. Anyone know how much money the research team makes? What are the revenues of the research departments inside Wall Street banks? Anyone want to throw a guess in here in the chat? Or in the Q&A, revenues are zero at the investment banks for the research department, or very close to zero. They don't make money. It's a cost center. So if you're not doing something to ingratiate the people who do make money with the people who spend the money, then you are a casualty of the Wall Street business. Another one of my favorites here is the neglect buy, right? I'm just too lazy to pay attention to this because Nobody likes a neutral or sell rating. Reason number 2, most analysis behind ratings is not rigorous. I already told you what I saw during the tech bubble in terms of folks really not even looking at the balance sheet, and it didn't matter. I don't think things have changed since then. It's, it's only gotten worse. The days of people reading filings are behind us. That's part of why I felt compelled to start New Constructs, because I, I knew that no one on Wall Street, the people we thought were supposed to do this work, was doing the work anymore. I shouldn't say no one, very few folks. And even me, when I was at Credit Suisse where we were really championing this approach, most folks looked at me like I was just some nerd looking into filings and I was beneath the higher-ranked analysts and stuff like that. It's not a popular activity. It's looked down upon because the people making big money, I guess, are too smart to have to read filings. Whatever the reason, it's not being done. And here's a great survey that we found on marketwatch.com of 375 CFOs. At public and private companies, CFOs believe that in any given year, a remarkable 1 in 5 firms intentionally represent their earnings using discretion within the generally accepted accounting principles. The magnitude of the typical misrepresentation is quite material— about 10 cents on every dollar. You guys should all read that, take notes on this one. This is true. The other part that they mentioned in this art— in this article is that analysts know this and don't do anything about it. And that's the other thing about accounting principles. They weren't designed for equity investors. They were designed for debt investors. That means there's a lot of room within the rules legally to misrepresent earnings. And by the way, we're the only firm that I know of, certainly the only firm that has a paper published in the Journal of Financial Economics that proves that we are fixing much of this misrepresentation. Reason number 3, conflicts, conflicts, conflicts. And here is the distribution I was talking about. A whole lot of buy ratings, a few hold ratings, almost no sell ratings. Less than 5% of ratings are sell or underweight. Why is that? Again, it's those conflicts like that brown-nosed buy and what I explained before about how research firms don't really make money. It's the bankers. And the research analysts, as I said a second ago, they're in a tough spot. They don't want to tick off The clients that have bought the IPO right through the analyst firm, that's another thing. They got a lot of big money managers as clients. You don't want to come out and say something negative about something your client owns. And then of course the bankers who run the firm, right, don't want to get in the way of them making money because by the way, they pay your salary, they pay the analyst salary. So they're in a tough spot. And again, yeah, if, if you have a sell rating or you don't like a company or the company doesn't like you, you're not going to get on that IPO deal. That's just not going to happen. So it's not in your best interest to do anything but cozy up to company executives and say good things about companies. So the key takeaway: Wall Street makes millions, and it's not in research. They make money selling stocks and bonds on behalf of clients, and they make it in M&A, and they make it in their own trading. That means they need to be in the good graces of companies. Not provide good research. I love to say you can time a Tesla equity raise to within 6 weeks of Goldman Sachs raising the target price on Tesla. Go back and look over time and measure it. That's how Wall Street makes its money— selling that stock, not giving you good research. The other thing that's important to know is that Wall Street sees all your trades. They see all your trades. They want you to make lots of trades. And they want you to trade back and forth, buy and sell, because they're making money every time you do, because they're front-running your trades, because they get to see your order flow. So how do we get beyond the conflicting information and get past all the noise? The answer is simple. You got to go back and do your homework. Simple answer, hard to execute. You got to go understand fundamentals, fundamental investing. Remember I mentioned how Wall Street analysts aren't looking at the fundamentals? It doesn't do them any good. It's true. So how do you get an advantage? You need to go do that work. Do the work that no one else is willing to do. It's how all the greats did it. Warren Buffett, Charlie Munger, Ben Graham, rest in peace. It's the difference. It's the only way you can be an investor and not a speculator. Anything other than looking at fundamentals is speculating. And it's okay to be a speculator. It's just a— it's a very risky proposition. I don't recommend it. And I want to be real clear what the difference between a speculator and an investor is. It's really straightforward. If you're a speculator, your decision to buy or sell is based on what you believe about the near-term direction of price or the psychology of the market. All right, good luck. You can predict that stuff. It's great. And by the way, you can predict it if you've got all that order flow. You're one of these big hedge funds and you can pay several tens of millions of dollars a year for for all the order flow from Schwab, from E-Trade, from all the firms, you get to see it all. You might know a lot about the near-term direction of price because you can see the ratio of buy-to-sell orders coming in as they go. And as that ratio changes, you can see that, hey, you know what, there's a whole lot more buy orders and sell orders coming in, price is probably going up, and vice versa. If you don't have that information, it's really difficult to do. If you're an investor, your decision to buy and sell is based on the underlying economics of the stock you own. Underlying economics, one of my favorite two words in the world. Underlying economics of the business. So with all the conflicting data, the real question is, how do you get past this? How do you become a true investor rather than a speculator? I'm going to show you. How do these things happen, whether it's Allbirds, Oatly, WeWork? Well, a big part of it is There's too much money out there, right? I mean, we've seen zero rate— zero rates of interest for a long time. We've seen all these zombie companies and zombie stocks— Peloton, AMC, Sweetgreen, Kava, Beyond Meat, DoorDash. This is all a function of the— of, of really the Fed keeping rates too low for too long. Let's face it, when money is that cheap, people are Less discerning. Everyone has experienced that. When you've got a lot of something, you don't hold it as dear. Things that you have precious few of, you hold more dearly. It's a fact of life. Too much money meant too much money flowing into stocks. Too much liquidity meant too much money flowing into stocks. And that's, that spends, that sends everything up and it makes the narrative to buy now easy to spin. Everything's going up because people are buying. What else are they going to do? COVID. COVID did— people didn't have anything to buy, so they just went inside their homes and started buying stock. And that's why Robinhood did so well, because they're like, oh, okay, I can't bet on sports because sports are shut down. I'm going to go bet on stocks. Not smart. And the, the other thing you have to keep in mind is that companies can legally hide information. So they're all in this game together. We got too much money. We got a buy now narrative. And guess what? We can control what investors think about our performance because we can overstate profits. Or understate profits depending on what we need to need to do when we need to do it, because understating profits is also a strategy. When times are bad, I'm throwing in the kitchen sink. That's a term you can look up on our website. We have a definition of that. The kitchen sink effect is when companies purposely torpedo their own earnings so that when the market turns around, the economy turns around, their earnings growth looks even better because they're building off an even lower base. They can knock their earnings down to two dollars. Instead of $5, well then when they get back to $4, that's 100% improvement. If they don't knock it down from $5 to $2, then when they're back to, you know, they're at $4, they're still, they're still underwater. It makes sense to torpedo earnings because once markets are ebullient and animal spirits are strong, everybody is buying and the buy now, the buy now narrative is easier to, to, uh, sell. So I got a couple case studies for you in terms of misleading GAAP net income compared to core earnings and economic earnings. First case study here, Shopify. We wrote this report in August of 2021, and during the next year and a half, this stock has outperformed as a short by 59%. It's down 54%, the S&P's up 6%. That adds up to 60%, but it's— with rounding, it's— we're at 59%. And what happened here is we saw GAAP earnings going up Even though core earnings were going up a lot less, the GAAP net income was overstated by $3 billion. $2.9 billion of that was an unrealized gain on equity and other investments. A non-operating profit gain went into the business. So takeaway, don't trust those earnings. Stock's going to get crushed anyway because it's going to follow cash flows. Oftentimes earnings and cash flows can move in tandem, but when they diverge, you You need to be focused on core earnings. Misleading GAAP net income from NIO. Remember this one? This stock's down 84% since we wrote the report in September 29th, 2022. Huge losses. Again, GAAP net income looked better than core earnings. If you know the difference, you've got an opportunity to invest differently. GameStop outperformed as a short as well. 66% by, by 80%. Here you can see GAAP net income and core earnings going in the opposite direction. What is the market going to follow eventually? Core earnings, economic earnings, cash flow, the real numbers when you do the diligence, not the numbers that can be manipulated. So clearly we can help you find the bad information that other people have missed to make sure you avoid the blowups. On the other hand, When you also have the right research, you can find great stocks, great fundamentals that go in the opposite direction. We're not here just to warn you and scare you about the bad ones. We've got some great ideas too. That's part of why we're the number 1 ranked stock picker on SumZero all time and in about 10 or 11 other categories. It's because we're finding the good stuff and the bad stuff. That's the benefit of doing your diligence in the footnotes and the fundamentals. So 3 case studies on undervalued stocks. KLA-Tencor— we've published this report. The first time we published it was in 2017. We closed it in 2020. It was a long idea that outperformed by 129% over that time frame. We know— we noted it had very strong revenue and profit growth, industry-leading return on invested capital. We called it a pick-and-shovel play for the semiconductor industry. We're looking at some more picks and shovels in the semiconductor industry in our current research, which all of you as professional members have access to. I think we had a couple, couple of great stocks in semiconductors that haven't seen the huge run-up that we've seen in all the popular names, but still add a lot of value as a pick and shovel play. How about Williams-Sonoma? I love this one. This stock outperformed by 170%. Up 287% while the market was also up 116%. We, we first came out with this idea in September of 2016. We've reiterated it multiple times. Look, this is a profitable, profitable business with really strong margins and return on invested capital. And everyone was throwing this baby out with the brick-and-mortar bathwater. Turns out they got a great e-commerce strategy. And they're actually really good at integrating the e-commerce strategy with their brick-and-mortar locations. to beat the heck out of the competition. We would take Williams-Sonoma over Wayfair every single day. And then there's AutoZone. Kyle, you want to talk about AutoZone here for a second?

AutoZone might be one of our longest-standing long ideas. We originally wrote on it back in 2014, reiterated it multiple times, outperformed by 245%, rising almost 400% compared to the S&P's 153% since that original report. And it's the story of not only profit growth, revenue growth, but also exec comp and corporate governance. They tied executive compensation to, I believe it was economic profit with an economic value added model, which is similar to our economic earnings. And so we had a great situation where you've got profitable business and then management is also incentivized to grow that business. and improve economic profit, not destroy shareholder value. You know, they're not chasing total shareholder return or other metrics like that. And so I think it was a great scenario where great business, undervalued stock, and it continues to look, um, like a super strong business, as you can see there with that chart up and to the right on all metrics, pretty much.

Great call. And it's not the only one in that space. We like some other stocks in that space as well. And I would say that there's been a lot of people who've jumped on that bandwagon, not in the not too recent past here. We were early on that, and it's because we saw the economics and the valuation, saw the fundamentals. We understood what was going on. And that's the idea. When you focus on the fundamentals, fundamentals and value investing, it gives you the ability to rise above the noise. And the beautiful thing about the fundamentals too is that you're not just rising above the noise, but you're able to invest with conviction. Because you've got hard facts, tangible understanding of the underlying economics. These are things we can measure. These are things we can prove. That's why Harvard Business School and MIT Sloan wrote a paper on us. It's provable that the fundamentals are there, whether they're good or bad. We get to see what they are and know measurably what makes the stock good and what makes a stock bad, what makes fundamentals good and bad. It's straightforward math. It's as easy as that. So how do you spot these opportunities? You're probably, probably wondering, hey David, I love you talking about this, but you're not helping me now. At some point we got to give you the scoop on how you do this on your own, and that's coming up. But the first thing is don't blindly follow Wall Street and use unproven research. Use the stuff that is proven. Find me another research firm that has proof that their data and analytics are superior. Love to know. Also, find me more research firms that, that can boast not just superior information, but also independence, lack of conflicts. It's a big deal. So we've covered a lot. Why overvalued companies can go to zero or close to it. The conflict, the conflicts and bias of Wall Street. How companies can legally hide bad information. And how the right research can help you uncover gold mines and eliminate dangerous stocks from your portfolio. Now, I have a couple questions for you. Do you see yourself being able to use proven research for an effective change? Is this interesting to you? Would you like to have access to something that can give you conviction, peace of mind, because it's focused on real numbers that you can measure? Do you see yourself doing things that you couldn't do before, like benefit from the footnotes, understand the truth about fundamentals? And when you have access to the right data, do you think you want to see through the smoke when investing? Is that something that you'd like to be able to do? I think so. So where to go from here? This is a good one. Love that, Kyle. So introducing our professional membership at New Constructs. Some of you know about this, and for those of you that are new to us, the professional membership is our most popular membership. We also have one higher than that called the institutional member. That's for hardcore, super serious folks who are managing probably $10 to $50 billion or more. But for professionals, anyone who's a professional who's serious at all about research, you need to have access to the professional membership. There's no other way to be sure that you can understand the fundamentals without a professional membership. Again, for serious investors. If all you care about is headlines, there are other places for you to get research. But if you want to understand the truth about the equity and a credit rating for a company, you can only get that with a professional membership. We also provide earnings distortion scores and all of that for over 10,000 stocks, ETFs, and mutual funds. You get unlimited detailed research and tracking on the tickers in your portfolio. So you track up to 50 different portfolios and get alerts on a daily basis whenever the rating changes or Or the status of that company changes. And you get enhanced screening. We got some really powerful screening with the professional membership. To me, the screening tools are unbelievably valuable. Every quarter we're doing over $1 million worth of work to go through several thousand Ks and Qs. Every 3 months companies report earnings, which means they publish a K or a Q, a quarterly or an annual report. We go through those with a fine-tooth comb. Update our models. We do all that work for you, typically within 24 hours of that company filing with the SEC. In the last year or so, I don't think we've ever had a single backlog. A backlog meaning we didn't get to that filing the day it was published. Within 24 hours of it being published. So think about that. You can screen the universe on a daily basis based on the latest, best possible fundamental data. So talk about a tool that gives you the ability to find the best and the worst stocks. I don't think there's anything else out there that's better than the professional membership of New Constructs. And that's before even talking about the fact that we're the only source of the truest measure of profitability and valuation in the marketplace. I got to emphasize, this is the same research that's been lauded in papers published by Harvard Business School, MIT Sloan, Ernst Young, the Kelley School of Business, and really the biggest one of all, the Journal of Financial Economics. one of the top 3 peer-reviewed journals in the world. And here are a couple of great quotes from these papers and these folks. An accurate calculation of ROIC requires more diligence than often occurs in some common off-the-shelf ROIC calculations. Only by scouring the footnotes in the MD&A, the new constructs method, can investors get an accurate calculation of ROIC. So one of the top 4 accounting firms in the world I'm telling you, you need new constructs if you want to get an accurate calculation of ROIC, which stands for return on invested capital, which to me is the most important metric in the business, most tightly correlated with shareholder value, and the one you hear Warren Buffett talk about the most in a positive way. He and Charlie Munger used to make fun of some other metrics like EBITDA, which they said was a synonym for bull blank. But ROIC, they talk about in a very favorable way. Harvard Business School says new constructs created a technology that can quickly parse complicated public firm financials to paint a clear economic picture of firms, removing accounting distortions and aid in investment analyses. Mic drop. In the Journal of Financial Economics, generally net adjustments identified from the income statement footnotes and MD&A are strongly predictive of future performance. In other words, our adjustments provide novel alpha. They're better predictors of future earnings, better predictors of stock price than any of the other fundamental metrics that the, that the journal and the, and the publishers of the report or the paper could find. That's another mic drop. In case you were wondering if our research is good, these guys vouch for it. As I mentioned before, number one ranked by SumZero every month for the past 2 years. Number one short, number one Value, number 1 all time. North America, large cap, mid-cap, number 2 in a few of these 2. Number 2 in long. I think we mostly been number 1 in long for a while, but you know, we drop down every now and then. Can't win all, can't win all of them, Kyle. I mean, this is, this is doing better than a decathlete in a track meet. We remember top, a top placer in 20 events. So as a summary, publications and institutions have shown that our data is more accurate, our analytics are more powerful, and our ratings are more predictive. than those of Wall Street or human analysts. Let me say that again. Our data is more accurate. Do you want to invest based on good data or bad data? Our analytics are more powerful. You want the best analytics or the worst analytics? Or do you want ratings that are more predictive than those of Wall Street ratings? Right? What would you rather have? Could you see yourself outperforming if you had better data, better analytics, and better ratings? I think so. On the flip side, how much risk are you willing to take without having this? So rather than tell you how amazing our research is, it's time to show you. I'm going to share our 3 most attractive stocks and 3 most dangerous stocks— 3 of our, our top most attractive stocks and 3 of our top most dangerous stocks, as promised at the beginning. Dangerous stock number 1: it's down 6% while the S&P is up 6%. Now let's take a look at why inside the professional membership. Let's go to the website and we will look at EXPR. So this is definition of a bad stock— red all the way across, right? Very unattractive, strong miss, most dangerous stocks model portfolio. So this is a professional investor. I'll make this a little bit bigger to make sure everybody can see it. That's what you get when you type in a ticker. I love to say type in a ticker, get an answer. And it's not just for stocks, it's for mutual funds and ETFs. But we're looking at Express. This is a big red flag. It's going to miss. This is a short-term earnings distortion score. We think they're most— they're very likely to miss their— on their next earnings release. We'll also let you know we got a new 10-K that we just updated within the last week, uh, 10-Q I should say. So you got really recent information. The next expected filing is not until March. If you want to see the credit rating, click over here. Oh, surprise, it's bad too. We break down all of our ratings into 5 categories. 2 of these are around quality of earnings, where we look at how the economic earnings compare to accounting earnings, and we'll even give you the details behind what's going on. Economic earnings are negative $88.63 a share. Accounting earnings are positive $48.42. That's a bad sign. We showed you before, when you invest in companies that have misleading earnings, bad things can happen. Terrible return on invested capital, negative 10%. How about a bad free cash flow yield? Negative 33%. A really bad price-to-economic book value. And by the way, below zero, negative zero, is the worst possible number you can have for price-to-economic book value. It's worse than a negative 100 price-to-economic book value ratio. And then a market-implied growth appreciation period of more than 100 years. That means our default reverse discounted cash flow model cannot get to a value with 100 years of profit growth that's equal to the current stock price. That means the, the company needs more than 100 years of future profit growth to justify $8.41 a share. And then I want to go through some more details here in terms of the breakdown. The breakdown is a really awesome capability. Let's talk about how we break down economic earnings versus reported earnings. You can see exactly what the numbers look like in the charts over time, so you can see why we're raising red flags. Economic earnings heading down, right, for longer than accounting earnings. Return on invested capital, similar trend versus cost of capital. Again, it's below zero. Not a good situation. And then here's all the data: ROIC over the past 5 years and the trailing 12 months. And we got a 2-year average, a 3-year average, a 4-year average, 5-year average, in case you want to look at things longer term. And don't forget, this is the best measure of ROIC in the marketplace, as per Harvard Business School, Ernst Young, the Journal of Financial Economics. We'll take it a step further. We'll break return on invested capital down based on the DuPont analysis. into NOPAT margin and capital turns. So you can see which one of these is, is driving the business or the return on invested capital down. In this situation, interestingly, they're moving pretty much in lockstep, but both are declining. Let's talk about free cash flow yield. Here's what that looks like over the past 5 years. Here's the free cash flow and the enterprise value and the free cash flow yield. Then we give you the 2-year free cash flow, the 3-year free cash flow, Average, as well as the, the 2 and 3-year free cash flow yields. We'll also show you free cash flow excluding acquisitions. Really, the way we look at— the way we think about things is we're happy to, to calculate the data in any way because we're methodologically— we just want to provide better calculations, better results, and we do that with better inputs. And so we'll provide every, every formula. And one of our clients asked us to add free cash flow margin, free cash flow over revenue. How— here's how that looks. The price-to-economic book value ratio. Why is that price-to-economic book value ratio so bad? Because the economic book value of the stock is negative $533 a share. The stock market value is positive $8. We're saying the economic book value is negative $533 a share. That means it's unprofitable and it has so much liabilities stacked up before the equity holders would get profits if the company ever made profits. And then we got a 3-year average here on the price-to-economic book value. And then here's the growth appreciation period summary. And here's where you can see the historical revenue CAGR, here the historical return on capital versus the cost of capital. And this is our default scenario for what the company would do in the future. So over the 100-year timeframe, we are assuming 3% on average profit revenue growth and a much higher return on capital versus cost of capital spread. You can see this is what it's done in the past. We're assuming something much better. Even with that much better assumption, you're looking at something, a stock price that's going to take more than 100 years to be justified. So you got to grow profits at this higher rate for more than 100 years, and you still can't get to $8.41. The other thing I want to show you in this dropdown menu is the GAAP reconciliation. Here's where we show all of our adjustments. Here's how you get from GAAP net income to net operating profit after tax. Oh, guess what? Net income's positive. No, Pat's negative. Oh, not a good sign. Here are all the adjustments. We want you to know how hard we work. No other firm's going to show you their adjustments. And according to Harvard Business School and MIT Sloan, these other firms can't show you the adjustments. They don't have the detail and granularity in the footnotes. That's a big part of what the paper discovered. That was the discovery that not only Is the footnotes information valuable? You can't get it anyplace else. And not surprisingly, the stock market doesn't take into account footnotes. Again, proven by Harvard Business School and MIT Sloan. Balance sheet adjustments. We're going to show them all to you. What's the big ones? Write-downs, $230 million. Those are the big adjustments. I don't know if we maybe need a lot of bad big adjustments for these guys because they've got so much just a bad business. And then on the valuation side, These are the adjustments we're making. This is part of what's driving the economic book value of the stock down so much, is that you've got a deferred tax liability and you've got a bunch of debt on top of a bad business model. And that's a bunch of, uh, nearly $900 million in negative value that has to be overcome by the profits of the business in order to justify the price. So that's a big— that's a deep dive on Express. Drillquip, DRQ, DRQ, boom. What's going on here? Not quite as bad, but still pretty bad. New forecast within the last week or so. You get all the same kind of data here. And one of the things I want to show you, even though this is an institutional service, but this is what really blows people's doors off, especially the folks at Ernst Young and Harvard who had to write papers on us. And that's the fact that you can get details on where the adjustments come from. You can audit all these adjustments. I showed you on that ratings page where the income statement and balance sheet adjustments come from. I will also show you where the footnotes adjustments come from. And you can see it here for all the filings going back over time. Balance sheet adjustments, income statement adjustments, earnings distortion items, foreign currency gain or loss, all that. We do that for you because we want you to know that we're the best in the business and we can show it. The 3rd most dangerous stock that we're highlighting is Kingsway Financial Services. It's down 1% while the S&P is up 6%. This— all these performances in the last 3 is in the, in the last month when we published the last version of this report. KFS, not as many reds, but still a bad stock. Attractive stock number 1. Titan International. It's up in the last month while the S&P is up just 6%. It's up 18%. What do we like about Titan International? Well, you're seeing greens here. That's a good thing. Quality of earnings, green, green, green. Valuation, green, green, green. We love that. Green is good, red is bad. Economic earnings are positive, which is a good thing. Not as high as accounting earnings, and we're rarely going to see economic earnings as high as accounting earnings. Because economic earnings just take into more— into account more expenses. And if you're ever interested in how to get a definition on any of the items in this, in our ratings, just click on the stock rating methodology or go to the education page where we'll give you details on every single metric. Economic earnings, boom, you want a definition, there it is. Details, best and worst. If you want Details on how to calculate return on invested capital. We'll show you that every single metric, including all of our fixed income metrics, credit rating metrics, and all of our methodologies are defined as well. But Titan International, strong quality of earnings, cheap valuation, a price-to-economic book value of 0.7. That means the stock price is implying profits will permanently decline by 30%. Not surprisingly, your market implied growth appreciation period is less than 1 year. You don't need to grow profits in the future because the stock price is implying your profits are going to decline, not grow. Next attractive stock, Bank of the Ozarks, OZK. Can't help but to smile a little bit about— isn't there some Netflix series about Ozarks or something? You know, some banker out there?

Yep, that was a good one.

So another cheap stock, strong, strong economic earnings, strong higher IRC. It's also a member of our dividend growth model portfolio, and professional investors get access to all of our model portfolios, which is a which is an awesome thing. And then a cheap stock. This stock is implying its profits will permanently decline, permanently decline by 40%. Credit rating attractive as well. It's good to know some of our some of our. Our our clients use the credit ratings. Some of our equity clients, equity investors love the credit ratings as much or more than the equity ratings. They love seeing both. And one of the benefits of the credit ratings is that you're going to be able to look at how the credit rating would look with unadjusted or unscrubbed data versus adjusted or adjusted and scrubbed data. We'll show you. Here's the free cash flow traditional. Free cash flow adjusted. Here's the free cash flow traditional— sorry, the free cash flow to debt ratio traditional and free cash flow to debt ratio adjusted. And then we'll show you the underlying elements of and how they're different. You can see the free cash flow is different. The adjusted is different from the traditional. That's where we're adding value. It's a big part of what makes New Construct special. Our credit ratings, we're calculating the same things everyone else calculates. We're just doing it all again with better data. Attractive stock number 3, PNC Financial Services. Start with a credit rating. Neutral. Not a great credit rating, but that's not always a bad thing. The stock rating is what matters here, and you're getting a solid attractive rating. It makes its most attractive stocks list, which means returns on invested capital are getting better. And we're also seeing a great cheap valuation. The price to economic book value is 0.8. which implies a permanent 20% decline in profits. So our research philosophy on economic data— we've shared these most attractive, most dangerous stocks with you. Our philosophy on the economic data is that they matter because they take into account the complete set of fundamental and financial data. Investing based on accounting earnings, that's like going to the doctor And him diagnosing you based on what you tell him, not doing diligence, but what you tell him or her. Doctors did all their diagnosis based on what their patients told them. They'd probably be wrong a lot. You want a doctor to do a full physical if you're really sick. And that's what we're doing with economic earnings. It's a full physical. Not only is it a full physical and we're getting down to the nitty-gritty to make sure things are accurate, our numbers are comparable across all companies. That's what makes our screening tool so incredibly valuable. Because you can actually screen for the— on these excellent metrics that have been calculated in a way that's apples to apples. So when you're ranking stocks according to their attractiveness or their ROIC or their price to economic book value or free cash flow, you're doing that on the best free cash flow, ROIC, and economic book value data in the world. And finally, the economics matter because it's the truth. It's the real underlying cash flows of the business. Who doesn't want that? Who doesn't want the truth? So at New Constructs, you get the research that truly matters. We provide you with unbiased and accurate ratings, research, and portfolio tracking that's proven to be superior to those of human analysts, Capital IQ, Bloomberg, or any other source that we know of. A lot of people like to think of us as an entire research department in a box, especially for advisors, family offices, that really can't afford to have their own research department. They know they can't trust Wall Street, but you still need this research. You need it on stocks, you need it on ETFs and mutual funds. You're tired of the Morningstar bake-off. We are an amazing solution and one that you can be proud to show in front of your clients. In fact, we've had many of our clients tell us that they heard about New Constructs through one of their clients and had to buy it because they couldn't look their client in the eye and say, yeah, I'm not going to use that New Constructs stuff. I don't need to know about the footnotes. So that doesn't really work. You'll have the power to see through the Wall Street propaganda and make investments based on real numbers. So how about another live demonstration? The stock screener. Let's talk about the screener. So we got 2 screeners: stocks, ETFs, and mutual funds. Stock screener. Well, let's say you want to go in, you want to find all the attractive stocks in the— you pick it— technology sector. And I want to go semiconductors and semiconductor equipment. And I want return on invested capital that's greater than 10% and a free cash flow yield that's greater than 3%. Just throwing numbers out there. Go. 2 companies. And how about this? We've just screened through 3,000 stocks to give you the best 2 in a particular sector based on the best metrics in the business. Can you tell me what that's worth? Can you put a price on that? I know what it would cost you to do it on your own. Cost you at least $4 million a year just to collect the data. Probably cost you another $5 or $10 million to build the technology. Probably another couple million to have people to manage the people to do all that stuff. So we're talking $10 million bucks a year to get a sim, and then you got to run it and do all the work. You can't trust that you can rely on, on, on a proven platform that's been vetted and vouched for by Harvard, MIT, Harvard Business School, and the Journal of Financial Economics, Ernst Young. I, I don't know, which would you rather? $10 million, build it on your own, maybe it works, maybe it doesn't, and then you got to try and get it vetted, or something that's giving you something like that at a fraction of the cost? And, and I think I really want to recommend that the pricing we're giving today is very attractive. We're calling some of these promos founder promos because the pricing is not going to be this good forever. Let's try something else. Let's say you really want dividends. You want a dividend greater than 4%. And you're looking for something a little more defensive. Let's go consumers, consumer non-cyclicals, and let's just go for the whole sector. Let's see if we can find anything with a dividend very attractive, attractive on these stats in that sector. I feel like we should be passing around a donation plate right now for this meeting to give you these many good ideas. Are you kidding me? How much, how hard would it be for you to replicate this analysis on your own? I'm guessing Impossible. I told you, this is $10 million of information at your fingertips for just an instant of work on your part. That's a pretty good deal, I would say. So with the professional membership, let's summarize all that you get here. You get to, number one, invest you or your client's money. And again, I want to emphasize, this is for professional investors, whether you're professionally managing your own money or you're doing it on behalf of others. And when you're thinking about that fiduciary duty, you think about it for your clients, but you think about it for yourself and your family. And what better way to be sure you're fulfilling your fiduciary duty than to know you're going with a firm that's been vetted by Harvard Business School, Ernst Young, MIT Sloan, the Journal of Financial Economics, that's doing the diligence in the footnotes? Because I'm telling you, you're not going to get that from Wall Street. Sure, they'll tell you that they're fulfilling this, the basic standard of care, which is the suitability— the suitability standard of care. Is it suitable for you in this moment? Wall Street's not even held to the fiduciary standard of care, only the registered investment advisors. So just keep that in mind. That's on purpose. They don't hold themselves to the fiduciary level because they don't want to. The other thing you can do in new constructs: maximize profits by making more informed decisions. Based on proven superior research. Discover a new era, a new technology that empowers you to thrive in any market conditions. And base your research on real due diligence. Real due diligence. Have the complete financial picture when making financial decisions for yourself, for your family, for your clients. Let's take a look at some case studies. This is one of our newer customers. And I love these stories, and I've got a good friend even here in town where we've seen, you know, for so long he was beholden to his money managers, as is John in this case study, who took $105 million of his funds and invested it with a big investment firm, big trust company. Within 10 months, they lost over almost 10% on 1,100 trades and investing in long-term bonds. This did not fit my guidance of protecting my principal and maintaining a low risk. His belief, like a lot of people, is that the— let the big boys manage it. Take some time off after a 45-year career. Mistake. Incompetence can be wrapped in a very pretty package. So he took over the account at the beginning of this year. So January 2023, this testimony is a month old. So in about 10 or 11 months since that time, and with your tool, I've made my money back with reduced risk. I sold off their bad stuff, kept the good stuff, and bought new stuff. The stocks I sold off had a 5% return. Had I held them, the stocks I kept had an 18% return. The stocks I purchased— and he gave us a whole list— had a 10% return annualized at 20.4%. We changed this person's life around, and we've done this for other folks. You don't have to be captive to the old-school Wall Street big blue blood firms. We can give you better research. We're better than they are because we're not just assuming we're going to get your money. We're working hard for it and we're using the best technology to do it. So how much does this cost? Well, I kind of mentioned already, here's what it would cost for you to do it on your own. This is an example. This is a— this is those of you who track our webinars, which I welcome all of you to attend on a regular basis. We love to every quarter talk about the value creation, every quarter. And this is us going through how many filings. We go through on a daily basis. You can see we did 400— we did 405 filings on November 3rd, 400 on November 10th. The value of that work cumulative over this time, $900,000. Just talking about full-time employees, assuming it takes 9 hours to go through a filing and do it right, and we're paying these folks $100 an hour. You're probably going to pay somebody way more than $100 an hour to do this right. But I like to be conservative. Because I don't want people thinking I'm being bombastic and exaggerating, because guess what? We don't need to exaggerate how good our research is. It's proven. We have a lot of accounts placed. Big firms pay us a lot of money. Some of the big quant firms paying us as much as $25,000 or $10,000 a month. And our, our marketing folks wanted me to put these pictures right from our bank account straight into the presentation here so you could see. What's happening. So that's real money, people, that are people paying. And we want you to know that because our deal is much better for you today. You don't have to pay the $25,000 or $10,000 a month, $5,000 or even $3,000. Retail price, $999 a month. An incredible deal. But Kyle and team, Christian and team have convinced me that for the next few days to do something even more special. We're going to let you have access to the professional membership for $1 for the next 7 days. Kyle, will you please put that link into the chat for everyone to see?

Done.

Awesome. If you decide to continue the membership after 7 days, we're going to give you 20% off for the entire year. That's the annual price at a 20% discount. So $9,600 for 12 months instead of basically $12,000. So not $25,000 or $10,000 a month, which is what some clients pay us. Not even $1,000 a month. Less than that. 20% off that. I think that's a really good deal. It's an incredible deal. You're not only getting access to what I showed you on the website, you're getting access to all the model portfolios, the most attractive stocks, the most dangerous stocks, the dividend growth stocks, the safest dividend stocks, and my favorite, the executive compensation aligned with return on invested capital. Model portfolio. We've gone through and identified those companies who pay executives based on return on invested capital. They improve return on invested capital; they make more money. It's an awesome deal. It's an awesome list. And bonus number two is specialized training sessions.

Right?

We'll make this. We'll make these links available to you to those of you who who sign up for. our society, and we'll make sure that everybody on this call gets access to these links. But I'm going to do 3 more specialized trainings: December 20th at 5:00 PM, January 3rd, and January 10th at 4:00 PM Eastern. These are set up for you guys so I can take Q&A, and for— and these are going to be specialized, private, for professional and institutional investors only. Keep in mind that—

That December 20th one is during the free trial too, the dollar trial.

So that's right. Good point, Kyle. Thank you for— thank you for catching that. Absolutely. Yeah, you're going to get that one for free, effectively. And I want you to know our model portfolios are trusted by advisors, RIAs, and more. Advisors from Merrill Lynch, Morgan Stanley, Raymond James. It's not just individual investors, the big names. And our model portfolios have done really well. Our large-cap long and short, most attractive, most dangerous stocks strategy beat the risk-free rate by 22% year to date. The large-cap short strategy beat the S&P 500 by 18%. Our small-cap long strategy beat the Russell 2000 by 4%. These are, these are the most attractive small-cap stocks, the most, most dangerous large-cap stocks, and then the most attractive large-cap versus most dangerous large-cap. That's what we're talking about there. And then I messed up the slides a little bit here, but bonus number 2 is members-only access to advanced training. I talked about that before. But Christian put up a much better slide. We're going to talk about investing fundamentals. We're going to go a lot more into the website. We're going to give you the deep details on how we do this work and show you how to go through filings, how to think about a long idea, walk through some of our awesome long idea and danger zone ideas. Make sure that you become a Pro member master. Live Q&A with Kyle and me and the team. And again, as I mentioned, long and short idea review, long and short idea development. We'll show you how to come up with your own ideas. not just look at our research. These are the registration links and times for those trainings. So is there any risk to this? The only risk is that you don't invest with as much information as you now know you should have. Otherwise, your risk is a dollar. Try it for 7 days, cancel anytime. Then if you stay on, you get a 20% discount plus model portfolios plus Private training. This is only available for the next few days. We also recommend you take a look at all our testimonials. Got a lot of great testimonials from folks who are professionals. Charles Wilton is a senior guy at Raymond James. John Rotanti is one of the main FinTwit financial experts out there. David Hendler is a longtime Wall Street analyst and owned his own credit research firm. These are folks that know what they're talking about when they say that new constructs. Provides the best, most rigorously calculated financial data on the metrics that matter: NOPAT, invested capital, return on invested capital, economic profit, free cash flow. I don't know, is there a stronger endorsement than that? For Charles Wilton, New Constructs is essential to investing. Can't do it without it. And David Hendler is a professional, so he makes a great point. It gives him time to focus on the things he's best at, like talking to companies, Advising them, doing research on competitive advantage, not spending time breaking down all the balance sheet stuff, footnote stuff, and to standardize it. It amplifies people's capabilities, gives you more time to do other things because you can trust that we've done that diligence that needs to be done. More and more great testimonials. So sign up now here. That link is available to you in the chat. Only available for a limited amount of time the next couple of days. Thank you for joining. We're really glad to have had you, and we look forward to seeing you going forward.