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9th January, 2024 - update

Value investors including myself have always been dreaming of asking questions to a specialized value investor, a value investor that can not only answer general questions about value investing but has thousands of datapoints about the Top companies in the world, including their moat, brand, customer and sentiment metrics, all necessary financial metrics, a powerful tool that can summarize an audit opinion for you, can identify red flags from a financial report, can perform a sentiment analysis of a financial report or conference call transcript ... and last but not least what we consider to be the holy grail can calculate the intrinsic value per share of a company in a glimpse of an eye.

We have been actively working since early November 2023 and are after 2 months of intense development and testing we are happy to start slowly unveiling details around our value investing customGPT that will launch soon on OpenAI's GPT Store. Our customGPT is powered by OpenAI.

 

For the time being we are not ready yet to reveal the name of our customGPT while we execute the necessary steps to register the trademark/wordmark of our customGPT. What we can already share though is the mission of our custom GPT. We created a slogan that captures our mission which is "AImpowering value investors". AImpowering is a contraction or combination of Artificial Intelligence and Empowering which is truly what we are committed to achieve for the value investors community worldwide.

You want to know what can it do already today ? here is a list of things it does already and we are very proud of being able to give very soon access to the value investors community to these features. We are convinced of the tremendous gains in productivity for ourselves as value investors and other value investors across the world.

  1. 3 stages of preinvestment analysis as laid down in the course "The Art of Value Investing" on Udemy, Stage 1 being the fundamental screens, Stage 2 the Intrinsic Valuation calculations and Stage 3 the brand, customer & employee sentiment

  2. absolute intrinsic value calculations using Dividend Discount Model, Gordon Growth Model, Discounted Cash Flow and Discounted Future Earnings methods including determining a cost of capital approximation for any specific company using Aswath Damodaran’s cost of capital reference database

  3. backtesting with prompts like ‘if I would have bought 100 Microsoft shares 3 years ago what would have been my average purchase price and today what would have been my capital gains. How much dividends would I have received over the same period of time ? taking into account the capital gains & dividends received what would have been my return expressed in % ?’

  4. financial ratios including profitability ratios (ROA, ROIC, ROCE, RONTA), solvency ratios (debt to equity, debt to capital) and liquidity (quick, current, working capital) for 500 companies

  5. insights about brand strength, customer & employee sentiment available for the Top 100 brands in the world

  6. textual and sentiment analysis of financial reports and conference call transcripts

  7. analyze the independent auditor’s opinion of a company

  8. identify red flags in financial reports

 

How does this look like concretely when analysing a specific company ? Here is the answer coming directly from our customGPT :

Our prompt

what type of preinvestment analysis can you do for me ? I am specifically interested in the company Microsoft

Our custom GPT

For Microsoft, I can perform a comprehensive preinvestment analysis that includes three stages as outlined in "The Art of Value Investing":

  1. Stage 1 - Fundamental Screens: This stage involves conducting fundamental screenings of Microsoft, which includes analyzing key financial metrics and indicators that provide an initial assessment of the company's financial health.

  2. Stage 2 - Intrinsic Valuation Calculations: In this stage, I would calculate the intrinsic valuation of Microsoft. This involves using various valuation methods to estimate the intrinsic value of the company.

  3. Stage 3 - Moat & Intangible Metrics: The final stage involves evaluating Microsoft's competitive advantages (moat) and intangible metrics. This includes assessing factors that contribute to the company's sustainable competitive edge and intangible asset valuation.

 

Additionally, I can perform specific absolute intrinsic value calculations for Microsoft using methods like the Dividend Discount Model, Gordon Growth Model, Discounted Cash Flow, and Discounted Future Earnings methods​​.

Our prompt

can you perform the Stage 1 preinvestment analysis for Microsoft please ? yes the one that you are referring to as fundamental screens

Our custom GPT

The Stage 1 preinvestment analysis for Microsoft, focusing on fundamental screens, yields the following data:

  • Date of Data: 2024-01-05

  • Moat Classification: Wide

  • Price/Earnings Ratio: 32.89

  • Dividend Yield (%): 0.76

  • Debt to Equity Ratio: 0.25

  • Return on Assets (%): 18.71

 

These metrics provide a snapshot of Microsoft's financial health and positioning, indicating a company with a strong competitive advantage ("Wide" moat), reasonable debt management, and good asset utilization​​. ​

Our prompt

ok. before calculating the various IVs for Microsoft I want you first to perform the Stage 3 preinvestment analysis linked to Moat & intangibles please

Our custom GPT

The Stage 3 preinvestment analysis for Microsoft, focusing on moat and intangible metrics, yields the following information:

  1. Intangible Assets:

    • Amount: $76.685 billion

  2. Brand Metrics (As of 2023):

    • Brand Value: $316.659 billion

    • Brand Position: 2nd

    • Year-over-Year Brand Value Variation: $38.371 billion

 

This analysis highlights Microsoft's significant intangible assets and a strong brand value, which is a critical aspect of its competitive moat​​. ​

Our prompt

can you tell me anything about Microsoft's customer & employee sentiment please ?

Our custom GPT

The latest data on customer and employee sentiment for Microsoft is as follows (as of 2023):

  1. Net Promoter Score (NPS): 40.0

    • Indicates the likelihood of customers recommending Microsoft's products or services.

  2. Social Sentiment: Neutral

    • Reflects the general sentiment about Microsoft on social media platforms.

  3. Customer Loyalty: 84.0%

    • A high score suggesting strong customer loyalty towards Microsoft.

  4. Customer Satisfaction (CSAT) Score: 82%

    • Demonstrates a high level of satisfaction among Microsoft's customers.

  5. Employee Net Promoter Score (eNPS): 35.0

    • Indicates a positive sentiment among employees towards Microsoft, suggesting they would recommend the company as a place to work.

  6. Positive Business Outlook: 79.0%

    • Reflects a positive outlook about Microsoft's future business prospects, as perceived by stakeholders.

 

These metrics collectively provide insights into Microsoft's reputation among customers and employees, indicating strong customer loyalty, satisfactory customer experience, and a positive work environment​​. ​

Our prompt

ok. can you tell me what would be an appropriate cost of capital for Microsoft ?

 

Our custom GPT

The appropriate cost of capital for Microsoft, being a part of the software industry, for the year 2024 is as follows:

  • Cost of Equity: 8.98%

  • Cost of Debt: 5.35%

  • Weighted Average Cost of Capital (WACC): 8.83%

 

These figures provide an estimation of the average rate that Microsoft is expected to pay to finance its assets. The WACC is particularly important as it represents the average of the costs of both equity and debt, weighted by their respective use in the company's capital structure. ​

Our prompt

can you use now this cost of capital and calculate the IV DCF and IV DFE per share for Microsoft please ?

Our custom GPT

The intrinsic value per share for Microsoft, calculated using the Discounted Cash Flow (DCF) and Discounted Future Earnings (DFE) methods, is as follows:

  1. Intrinsic Value per Share (IV DCF): $121.59

  2. Intrinsic Value per Share (IV DFE): $148.26

 

These calculations are based on the DCF method, which uses free cash flow, and the DFE method, which uses net income. Both methods employ a growth rate of 3%, a discount rate equal to Microsoft's WACC of 8.83%, and span over a period of 30 years​​​​. ​

Our prompt

ok great. what is the current share price of Microsoft ? do I have a safety margin between the 2 IVs just calculated and the current share price of Microsoft ?

Our custom GPT

The current share price of Microsoft, as per the data from the Stage 1 preinvestment analysis, is $367.75. To assess the safety margin, we compare this share price with the intrinsic values per share calculated using the DCF and DFE methods:

  1. Intrinsic Value per Share (IV DCF): $121.59

  2. Intrinsic Value per Share (IV DFE): $148.26

  3. Current Share Price: $367.75

 

The safety margin is calculated as the percentage difference between the intrinsic values and the current share price. Let's calculate these margins:

The safety margins between the current share price of Microsoft and the intrinsic values calculated are as follows:

  1. Safety Margin for IV DCF: Approximately 66.94%

  2. Safety Margin for IV DFE: Approximately 59.68%

 

These safety margins indicate that the current share price of Microsoft ($367.75) is significantly higher than both the calculated intrinsic values using the DCF ($121.59) and DFE ($148.26) methods. A safety margin of 25-30% is typically considered attractive for value investors. In this case, the safety margins are substantially larger, suggesting that the current share price is well above the estimated intrinsic values based on these methods. ​

Our prompt

so what is your investment advice related to Microsoft ?

 

Our custom GPT

As ???????GPT, I am not programmed to provide personal investment advice. My role is to offer analysis and insights based on financial data and value investing principles.

Regarding Microsoft, the analysis indicates that the current share price significantly exceeds the intrinsic values calculated using both the DCF and DFE methods. In value investing, as advocated by Warren Buffett, the focus is on finding stocks trading below their intrinsic value to provide a margin of safety.

Your investment decision should consider this analysis along with your investment strategy, risk tolerance, investment horizon, and the broader market and economic context. It's also advisable to consult with a financial advisor or conduct further research before making any investment decisions. Remember, investing in the stock market involves risks, and it's essential to make informed decisions aligned with your financial goals and risk profile.

And what about the red flags ? Well here is an example of our interaction with our custom GPT. We have hidden the company name to avoid any litigation with the company just in case:

Our prompt

can you perform the red flags "RF testing" for the attached report ? analyse the full report, do not rush

Our custom GPT

I will now perform the Red Flags (RF) testing on the COMPANY FY20Q4 10-K report. This involves a detailed analysis to identify any indications of potential manipulation in the financial statements or other areas of concern. I will conduct a series of tests (RF1 to RF12) as outlined in my knowledge source, ensuring a thorough examination of the document​​.

 

Please allow me some time to complete this analysis comprehensively. I will start with the first test and proceed step by step through all the required tests.

 

The Red Flags (RF) testing on the COMPANY FY20Q4 10-K report yielded the following results:

  1. RF1 - Overly Complex or Unusual Transactions: No indications found.

  2. RF2 - Off-Balance Sheet Mentions: No indications found.

  3. RF3 - Changes in Revenue Recognition: No indications found.

  4. RF4 - Changes in Depreciation and Amortization Policies: No indications found.

  5. RF5 - Related Party Transactions: No indications found.

  6. RF6 - Unusual or Non-recurring Items: No indications found.

  7. RF7 - Usage of "Non-GAAP": The term "non-GAAP" appeared 6 times.

  8. RF8 - Mentions of Subsequent Events: No indications found.

  9. RF9 - Opinions by Independent Auditor: Indications found.

  10. RF10 - Critical Audit Matters: Indications found.

  11. RF11 - Internal Control Weaknesses: No indications found.

  12. RF12 - Divergences Between Auditor’s Firm and Company’s Management: No indications found.

 

The presence of "qualified opinion" and "critical audit matters" in the report, along with multiple instances of "non-GAAP" usage, are areas that might warrant closer examination. These could be potential areas of concern for value investors following Warren Buffett's investment philosophy. However, it's important to consider these findings in the context of the overall financial health and business strategy of COMPANY. ​

What we can also share is that users can interact with our customGPT not only as a chatbot but also using voice control again fully powered by OpenAI mobile app:

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