Building a Framework - Week 11: Crane-Kicking a 10-Q in the Face
Happy Sunday! It's a great day to build your investing framework!
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Pardon me this week while I go on a bit of a tangent.
Last week I had a breakthrough in my framework process. It seems silly when I say it out loud, but frameworks are only helpful if you put them into practice.
After a few years of collecting frameworks from my favorite investors, I ran RILY 0.00%↑ through David Gardner's 25-point risk system. Not only did it teach me what I wanted my framework to look like, but it also helped me build confidence in my process.
This week, I decided to dig deeper and investigate the balance sheet for GXO 0.00%↑ (Full disclosure: I own shares). I began examining the financials using John Rotonti's investing checklist, and it was an eye-opening experience.
Before I explain, let me go down memory lane for a bit.
Channeling my Inner Daniel LaRusso
In 1984 Ralph Macchio and Pat Morita combined their talents to produce cinematic genius. I can't recall how old I was when I first saw the movie, but I remember attempting to crane-kick multiple objects in my neighborhood. Karate Kid is the ultimate underdog story, and this week I felt myself channeling my inner Daniel LaRusso as I tackled complicated company documents on my way to building an investing framework.
I have opened my fair share of 10-Q's, 10-K's, and L, M, N, O, P's, but it doesn't take long for my eyes to glaze over.
With my newfound confidence in applying the frameworks I am studying, I opened up the GXO 10-Q in hopes of discovering critical financial details. Tempted to quit as my eyelids grew heavy and a familiar feeling of confusion began to sink in, I pressed on. This time, a community of other investors held me accountable and went through similar exercises with me (Thanks, Natalie and Ken).
Crane-Kicking a 10-Q in the Face!
Like Daniel getting humiliated at the school dance, I have been embarrassed by a 10-K once or twice. Luckily, Daniel had Mr. Miyagi to help him gain confidence and eventually (spoiler alert) defeat school bully Johnny Lawerance in the All-Valley Tournament.
Please don't tell them I said this, but I consider the investors I admire to be the investing versions of Mr. Miyagi. Warren Buffett, David Gardner, John Rotonti, and others have become my investing senseis. As I work through their frameworks, I can hear them encouraging me, saying,
"Paint the fence."
"Scrub the deck."
"Wax on, wax off."
While I am still in the "wax on, wax off" phase of my investing journey, I feel like I crane-kicked the GXO 10-Q in the face this week. It wasn't a fatal blow, and I didn't win the All Valley Investing Championship, but I am slowly gaining confidence in my ability to sift through financial documents and make better investing decisions.
My Progress
I answered the 1st 6 balance sheet questions in John's framework this week and will knock out the rest next week. You can check my work below. While I don't think I'll be passing the CFA exam anytime soon, I'm proud of my progress.
10 Q's aren't that Scary
These documents contain a lot of information. When you begin sifting through them, finding what you are looking for might take a while. Trust me; it's likely there, but you have to keep scrolling.
The more time you spend looking at these documents, the easier they are to understand and the more comfortable you become. And if you have any questions, send them my way. Chances are, I don't know the answer, but I'll ask Mr. Miyagi for you.
Sharing Their Work
As I mentioned, I had two friends join me on this journey, which was a huge encouragement. I am sharing their work below for you to check out.
Here is Ken's analysis of WIRE 0.00%↑ 👇
And here is some of Natalie’s work on GNRC 0.00%↑ 👇
The Week Ahead
I'll finish up the balance sheet questions for GXO 0.00%↑ next week. When I complete John’s questions, I will share what I’ve learned about GXO and a few helpful tips for navigating the 10-Q.
If you want to join me, pick a framework and jump in. You can share your findings in the comments below or on Twitter.
If I can help in any way, please reach out. Have an awesome week!
Disclaimer: This is not investment advice. It is for entertainment and educational purposes only. Please speak to a professional advisor before making any financial decisions. None of the information about the companies mentioned above should be considered a recommendation.
Before I go, here are a few things I enjoyed this week:
Jeremy is a new friend on Twitter. He is a CFA and a wise value investor. He put together a thread on some lessons from Charlie Munger that I think is extremely valuable.
Ensemble Capital’s article on moats is great. Check it out!
This week’s RBI Podcast was a walk down memory lane. David shares essays from the past and valuable lessons learned as he looks back.