Okay, what would you say if I told you that you could triple the value of a portfolio in six months only investing in big cap blue chip stocks, You would say I'm crazy. Well, not so crazy when you look at the numbers. look Tesla and Nvidia if you combine their market cap just in the beginning of this year, they were at 700 billion dollars currently at 1.9 trillion almost three times more and you can't argue that Nvidia and Tesla are not Blue Chip stocks, right? So what's going on here? Well look. what happened with this in Nvidia is a good example of how certain people make life-changing money and certain people are on the sidelines crying about it not getting in on time.

and the reaction to being a part of the second group can be very, very dangerous. And I'll explain in a second. So right now we have investors who have DC Aid into Nvidia and Tesla like people in my community. Because Nvidia Tesla was part of that group of companies.

we were dollar cost averaging into for the past two years when it was hated on and now they enjoy that upside. But there's a big group of people who haven't done so. so what do you do now if you're not part of that first group? Well, there's really three options here. Option number one: you can start chasing these stocks now when they're at 400 to pop for NVIDIA Tesla is nearing 300 so you can try and Chase these stocks.

But here's the problem at some point. the correction for the S P 500 and the overall: Market Following this crazy hype run, it's going to come. And when it's going to come, it's going to be violent and it's going to take down a lot of people who have followed fear of missing out phone mode into the stock market chasing these hot stocks. You can also say well, Tom if that's the case, I'm just going to be sitting on the sidelines waiting until the stock drops and then I'm going to repurchase again I'm gonna wait for that pullback.

Sure you can do that, but statistically speaking, it's a really problematic attitude Because here's what's going to happen. The stock market is Hot right now. We're in a mad bullish cycle. There's no doubt about it.

Now, when the market is in a bullish cycle like this, there's no telling how long it could continue. It can run up insanely. I mean Nvidia can get to 600 dollars, maybe even 700. Who knows when something is that hot.

You never know where the top is, there's no ceiling where I can tell you. hey. So if you're going to be sitting on the sidelines, that's okay. But just know you're going to be missing out on a lot of this bullish run, which is bound to continue for a while.

So if you don't know when it stops and you don't know where it starts and you don't know anything, you essentially you're flying vertigo. Do you really want to gamble with your life and pulling on the stick when you're upside down? That's a very good reference right? I Don't think it's a good idea I Think group number three is the way to go and I post about this on my community post then on YouTube and they said look guys, Group number three is gonna do neither of this stupid gains because when you play stupid games, you win stupid prizes, Group number three is going to do something really smart. Group number three is going to invest in good companies and dollar cost averaging to these code companies and make money and get a cost basis very close to the bottom of these prices. Group number Three is not gonna be chasing the hype.

Group number three is not going to be sitting on the sidelines, but it also is not going to be chasing the hype, the Fomo and putting emotions into it. It's going to do something entirely different, which is systematically go through process for a system in a disciplined, patient way and dollar cost average into good companies over time so that the cost basis of these investors will eventually be as close to the bottom as possible. I Gave you an example in my last video a member of my community Captain Chuck He invested in the year when it was 22 dollars. that was his entry point and as the stock plummeted he kept investing and it kept doubling down and eventually he was finished with an 8.7 8.75 dollar cost average And that 8.75 cost basis that he has in Palantir is very close to that six and a half the bottom, so he wasn't being, you know, trader-ish He wasn't trying to gamble, he wasn't trying to time the bottom.

But after two years of dollar cost averaging into Palantir, his stock is now at a cost basis, which is very, very close to the bottom of the stock without trading without guessing without gambling. Now the way to do it is by following: Two Steps Step number One is the system of mathematically dollar cost averaging. and I showed you that for free in my previous video. It's there.

It's in the open. It's not complicated. All you do is you buy a fixed amount dollar fixed amount of shares every month and you keep buying it until eternity. And when the stock price drops below a certain point, you buy more and it goes back up and it crosses that point upwards.

You stay back and you start buying again in the original amount. That's it. You do that. you created the weighted average.

Now weighted average will be closer to the bottom. that will develop. It's just simple mathematics. It's not complicated.

I Don't need to pay well for that. Everybody can have it for free. That's the easy part of the system. The hard part is finding the good companies because that's where the challenge is Because look, we can all DCA up the Wazoo into companies and what we're going to end up in two years is a very low cost basis and a trash stock that is worthless.

So dollar cost averaging in itself isn't the thing. The thing is identifying these good companies. That's the challenge and that's what I teach in my closed community which you can join by going to Payday.com forward slash Tom Nash 4 500 members have already started. If you start now, the next six months for you can be very different than what you saw so far Because if you left the market and you left this out and you didn't participate in the last hype run, that's fine.

It's never too late to start being disciplined. It's never too late to find the process and the system and be patient. Now the thing that comprises that selection process. Finding that good company.

That's the important part. Two things: Number one. Research Number Two Financial Skill set. Now in today's video, we're not going to be focusing on the research side.

We're going to be focusing on the financial planning side, on the financial analysis side, on the valuation side, on the modeling side. Specifically on one important thing: the weighted average cost of capital. Now look, there's about a hundred lessons 120 lessons which will comprise of this process for me. And this is lesson number one.

Now lessons two to 120 will be on my patreon for a special group. I Just started right now it's called Palms Academy It's brand new, it's currently empty. There's no content there right now at all. Just started it two days ago, opened up 50 spots they're gonna go and then I'm gonna close it out I Don't have spots right now to do any more of this.

This is really hard now. There's about 16 spots left, 17 spots left. I'm not sure maybe 18 but a very few spots left. You can grab your spot and you can sign up and you can try it.

and if you don't like it, refund within a month. No problem. So this is a taste for all of you to show you what the hotter, hotter, what the other 119 you know lessons is going to be looking like today is going to be lesson number one and we're going to be focusing on the first building block of actually financially, planning and modeling. a DCF Now look at DCF is your number one tool as a stock evaluator.

Obviously you have the research side, but at the end of the day you have to figure out what is the price you willing to pay for that stock. And the DCF a discounted cash flow evaluation model is how you decide what is the price that you're willing to pay for the stock. Now a DCF may sound very, very simple. In fact: I have a product.

it's called stock MVP Stock Dash Mvp.com on that website which I've built with my partner. Pete We have a DCA model which you can do in literally 30 seconds and if you want to use it, try it out. You can try it out for a week for free or you can get it for a whole year at 50 off with the code last 50. we're about to close that code soon because of iOS issues.

A whole different story, but if that's the case, if you can do that in 30 seconds, why are we doing this? Why are we talking about whack? What's whack? So whack is weighted average cost of capital. That's the building block of any DCF Now if you think about it, what is a DCF and I'm assuming 90 of you already left by the point of this video. This is the video for the ones who are really interested in financial modeling because without Financial modeling, you cannot be a good company evaluator. and without that, you can't be a long-term investor.

You can be a gambler, but not a long-term investor. So what is a discounted cash Evolution model? All it is is simply taking the cash flows the company generates every single year, and translating those cash flows from the future into present values, adding them all up into one pile, one sum, and basically realizing. Well, that's the value this company will generate over the course of its lifetime. That's what it's worth.

Simple. and if you divide it by the amount of shares it has, you have your price per share. Very, very simple. But it's not that simple.

now. First of all, before we go into the depths of the complexities and the intricacies of the DCF, the one thing we have to understand is how a DCF works. We use a thing that's called the discount rate and Bitcoin is essentially all it is is one simple thing. Let's say that you owe me a million dollars.

but you owe me a million dollars in 2030. by 2030, you have to pay me a million. Until then nothing And let's say you come up to me and say, hey, Tom How about I give you 600 000 today. Will you sign a waiver for the million? If I Give you 600 today, Not in 2030.

Seven years is a long time. You might go bankrupt, You might run away. you might you know, get hit by a bus. Whatever, right? A lot of risk there.

600 today versus a million in seven years I Think a lot of you will take the 600 today. That's what Whack is. Discount rate. Whack.

whatever you call it. Whatever you choice of capital, That's all it is. All it is is basically a tool for you to Discount future cash flow into present values. and the higher this number is, this percentage is the less future money is worth today.

Because if you're discounting at twenty percent, a hundred dollars in the year is worth 80 today. And if you're discounting at ten percent, a hundred dollars a year is worth ninety dollars today. Why is that like that? Well look at it this way. If I give you a hundred dollars today and you put this money in the stock market and you make 10 in the stock market.

next year you have 110 dollars. So what I can tell you is Loop Look I owe you a hundred dollars, right? No worries. let me give you 90 Today You put in the stock market today, you make ten percent and in a year you have a hundred. So me giving you early money should be discounted.

All it is. Now how do you find this weighted average cost of capital? Because you know that's what discount rate is really all about. Well, this is how you do it. You start with the foundations of what a weighted average cost of capital is.

It's a blend between the cost of debt and the cost of equity. That's it all it is Now in the concept of a context of a company. sorry, it's easily accessible numbers, especially with you know, with publicly traded companies, is it accessible? So let's use Nvidia as an example, right? Good. Nvidia A company everybody knows they have 11.9 billion of debt, right? What's the percentage of debt for NVIDIA out of the entire one trillion dollar market cap? Well, about one percent, give or take.

What's the cost of their debt? Look in their financials, you'll find that they paid about 200 million dollars of Interest last year. Which means that the cost of that is about two and a half percent. The equity value of Nvidia is one trillion dollars. What's the percentage of equity of debt plus Equity It's about 99, Sorry 99.

What's the cost of equity? Very very simple. For that, we need the bottom three. Okay, Market Risk premium? What is it? I'm gonna say it's five percent. The reason I'm using five percent because all it is essentially how much you expect to make in the market.

which is about nine percent a year with the index fund like S P 500 minus the risk-free rate which is currently at 3 3.7 So let's say five percent beta for NVIDIA You can find the beta on any website. it's 1.75 but it is basically how much. uh, it's correlating to the S P 500.. risk-free rate is basically how much you get on the 10-year treasury which is 3.7 today.

So your cost of equity. All it is is a calculation of risk-free rate plus beta multiplied by the risk premium. And for the calculation itself, let's jump quickly to the Excel spreadsheet so you can see for yourself how it's done. Okay on this screen.

Right now, you're seeing the weighted average cost of capital of Nvidia. That's the discount rate for an Nvidia DCF which we'll do in the second class. Now, this is a basic calculation of a weighted average between the cost of debt for NVIDIA and the cost of equity. That's all it is.

and we're going to be using stock. MVP here for the data, but you can take the data wherever you want. It's just easier for me because it's my platform. So Nvidia has 12 billion dollars of debt.

The weight of the debt out of the entire value of equity plus debt is one percent. The debt cost of Nvidia is two and a half percent, which essentially how much interest they've paid versus how much debt they have. The total tax paid by Nvidia was 190 million dollars. That gives us an effective tax rate of 1.7 percent, which is in itself an issue of discussion.

Why U.S Companies don't really pay taxes anymore. I Mean this is absolutely insane. And now we're going to go to the real important stuff, which is the equity value in a company like Nvidia which has so much more Equity than debt 99 to one ratio. The determination of whack whether average cost of capital is gonna be 99 driven by the equity cost, not the debt cost.

So this whole section right here is pretty much irrelevant. We just did it for the exercise, but the equity value here is going to drive the entire calculation because it just waited. It's a weighted average, so with Equity being 99 and you can see the explanations on the side, I'm not going to repeat them. I'm going to show you how it's calculated.

So the equity cost, which is line 16 is calculated on the very, very simple basis. All we do here is figure out Okay, how much we're getting for a 10-year treasury that's going to be a risk-free risk-free rate is 3.7 Right now. what's the beta of Nvidia How much Nvidia is correlated or not correlated to the S P 500? So it's 1.75 so it's pretty much fairly good correlation to the S P 500. It's strongly correlated to the S P 500.

risk premium is essentially how much you get in this market minus the risk-free rate. So if you can get about, you know, let's say 9.5 to 10. Right now in this market, risk free is 3.7 So you're looking about five percent of risk premium and all you do is you come up with this Equity cost right here which is risk-free rate plus beta times the risk premium. So you take that risk-free rate which is your 3.7 percent and you add another element which is the beta multiplied by your risk premium and that is that 12 of equity cost we have right now.

Now what you're doing next is very, very important. Now you have to calculate your weighted average cost of capital which is line 24 right about here. I'm going to mark it in green so you guys can see it very, very nicely. Now, the calculation of back is not as complicated as it may sound.

What you do here is you take your percentage of debt which is one percent, you multiply it by your cost of that which is two and a half percent, and you multiply that by one minus your tax rate and that is the debt portion of the calculation. To that, all you do is you add your equity percentage which is 99 multiplied by your cost of equity which is 12 and that is your weighted average and that's how you get to 12 point 36 percent. Simple as that. What you do next is very, very simple.

You either go to your Excel spreadsheet or any other tools you use or you can use stock MVP right here on the screen and you plug in 12 discount rate. You click, calculate because the other stuff I'm going to explain in a different video and then you get your DCF valuation which is 200 compared to current price of 422 dollars. Which means that the stock is massively massively overvalued. But here's the problem.

if you calculated your weighted average cost of capital wrong and you made a mistake here, let me show you. for example, the numbers you have here is set of 12 is 9.. look at the valuation. it went from 200 to 341 dollars per share.

A slight mistake in calculating your discount rate can dramatically change your DC evaluation of a stock even if you did all the work, all your modeling all the projection. The only thing I did here: I screwed up a discount rate. That's it. Look at the share price right here.

Simple as that. Simple as that. So that is why I'm starting with whack. That's the most important part.

That's the building block of any good evaluation. Hey, if you lasted this long, you probably want to hear what I got to say right now. Look, this was lesson number one out of at least 120 lessons maybe more probably more which I will do on my new tier on page being called Tom's Academy I'm going to teach you finance I'm going to teach you Financial modeling I'm going to teach you how to become a good company evaluator not a Trader not a gambler. a good company evaluator because that's an important skill of a long-term investor.

If you want to join that tier, we have about 18 spots left. I Just checked. that's future time, not the time from before. So 18 spots left and it will start this week and you can try it out for a month for free.

Reserve your spot. Try it out if you don't like it. back out. I Don't have any issues with that now before you go.

if you actually want to dabble around with a DCF model, there's two options. Number one, we have a DCF spreadsheet on our Patreon community which you can download or you can use stock MVP where we have a DCF calculator as you can see on the screen right now stock Dash Mvp.com Last 50 is the call to get it. it's 50 off. Try it out! I Think that's the best way to do it.

but the important thing here is I Don't want you to do any sort of modeling with the DCF without understanding the basics. First, Whack was just one building block out of many, many more. We're starting from the basis here. If you really want to learn how to do this properly, sign up for Toms Academy Patreon.com forward slash Tom Nash Trust me, that's investment you want to make in yourself because it's going to teach you how to be a better long-term investor.

Thank you so much! I'll see you next Video.