DLS Glossary

A company's value is ultimately determined by its ability to reinvest capital at high rates of return over time. Just as a tree's growth is recorded in its rings, a company's true worth is built through years of compounding returns on invested capital.

A metaphor for unsustainable growth projections or business models that defy economic gravity. When someone promises you a flying elephant, be skeptical—elephants don't fly, and neither do most 'revolutionary' business models that ignore fundamental economics.

The greatest risk in investing isn't the market—it's your own mind. The 'magician' is your ego, creating narratives that justify poor decisions. The magician doesn't trick you; you trick yourself by believing what you want to believe rather than what the evidence shows.

The owner's true profit—what's left after all necessary reinvestment to maintain the business. FCF yield (FCF/Market Cap) represents what an owner actually receives, making it the most honest measure of value. A 7%+ FCF yield on a quality business is typically attractive.

True investment conviction doesn't come from spreadsheets or price targets—it comes from deeply understanding the business. When you truly understand why a business succeeds and what could make it fail, you can hold through volatility with confidence.

Ask yourself: 'If this product or service disappeared tomorrow, what would happen?' Would customers notice? Would it cause 'terrific problems'? Or would they simply switch to an alternative? The answer reveals the true strength of a business's competitive position.

The optimal investment horizon for seeing a thesis play out. Within four to five years, you should expect to see the full earnings power of a business emerge. If a company is constantly 'investing for the future' with no clear path to profitability within this window, it becomes speculative.

Market volatility is a psychological phenomenon, not a fundamental one. A 20% price drop doesn't change the underlying business—it only changes the market's current opinion. Managing volatility means managing your own psychology, not predicting market movements.

When a stock you own drops significantly, the first response shouldn't be panic or denial. Instead, ask: 'Is there a message here?' Has the business changed? Has the competitive landscape shifted? Use volatility as information, not as something to resist.

Non-GAAP adjustments and 'one-time' charges are like rat poison—a little might be acceptable, but too much will kill you. When management makes excessive adjustments to reported earnings, they're often hiding uncomfortable truths about the business.

The market is like an ocean—vast, powerful, and indifferent to individual investors. You cannot control the ocean, but you can learn to navigate it. Success comes from understanding its patterns, respecting its power, and maintaining your vessel (portfolio) properly.

The most important skill of a CEO is not operations—it's capital allocation. Where does the cash go? Reinvestment, acquisitions, dividends, buybacks? Great capital allocators compound wealth; poor ones destroy it. Always evaluate management by their capital allocation track record.

Perpetual bearishness is a costly strategy. The market, over time, reflects the growth of human enterprise. While skepticism about individual companies is healthy, chronic distrust of the market itself leads to missed opportunities and poor long-term returns.

Diversification protects against ignorance. If you truly understand a business, concentration makes sense. A portfolio of 10-20 positions allows for meaningful conviction while managing risk. Over-diversification dilutes returns and signals lack of conviction.

The hardest thing to sell is a great investment that has appreciated significantly. The temptation to 'lock in gains' is powerful, but selling a compounder too early is one of the most costly mistakes an investor can make. Let winners run if the thesis remains intact.