they’d signal their bankers or PR people to escort me out to the street. And close the door in my face! MOLLY: You’re kidding me… JOE: Companies wanted to woo institutional investors like me… because we had a lot of money to invest. But I asked a lot of uncomfortable questions. You see – in our Family Office, I developed a clever way to tell which of the high-flying stocks in a boom or a breakthrough sector had the potential to return hundreds of percent, survive the busts and all the subsequent bear markets… and become household names… And which were doomed to crash and disappear. And it’s all based on one core concept. “CASH IS KING.” Joe’s Secret MARC: Molly, this is why I said corporate earnings can be misleading… When you look at a company’s quarterly report – the 10K, it’s called – it can be 100 pages long, and full of gibberish accounting. But it turns out, you only need to know one thing: How much REAL CASH does the company produce? MOLLY: What do you mean by “real cash”? JOE: For every dollar the company takes in… how much pure cash do they generate after paying off all their expenses? Companies often “hide” the real number… MOLLY: You mean they’re lying? JOE: Let’s just say they use “financial engineering” to mislead the public. Sometimes a big infusion of cash can come from a one-off event – like if Apple suddenly sold their entire iPad business, for instance… But that kind of cash flow isn’t “repeatable.” It gets included in earnings, but it’s not going to happen again. What you want is consistency. You want a company converting almost 100% of their earnings into cash – what I call “cash conversion” – quarter after quarter.
JOE
Take a closer look at Autodesk… Run this stock through the Power Gauge, and here’s the result for November 7, 2002. MOLLY: A Bullish rating… JOE: But here’s the thing, Molly… This was a very chaotic time for the market. The dot-com bubble had burst… And officially speaking, it was a bear market. But a lot of folks were in denial. They were still gambling on dot- com stocks. And the best breakthrough companies were still creating massive new efficiencies with incredible long-term potential. Like Autodesk – which enables companies to manage digital assets in everything from engineering to entertainment. MOLLY: That’s exactly the kind of tug-of-war between bulls and bears we’ve seen a lot of lately, isn’t it… JOE: Sure is. And frankly, dozens of other stocks were also rated Bullish on the Power Gauge back then, Molly. But watch this… One more click – and we see the EQ rating pop up. “EQ High.” As Marc explained, that means the company had high- quality earnings. A Bullish rating. And when you see DOUBLE BULLISH ratings on the Power Gauge… it means the stock is a strong buy. But hold on… I want to show you what that means… So peek behind the rating, Molly, and here’s what we find… MOLLY: 103% cash conversion.
No matter what they’re selling – whether it’s AI, gold, oil, medicine, clothing and so on. In the case of Autodesk, take a look…
I assume that’s a good number?
JOE: Yes. And by the way, using this kind of metric made me very unpopular among certain company managements. If I attended the lavish dinners they threw for wealthy investors,
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