I Analyzed The Entire Stock Market. It's Broken.

[00:00:00] Speaker 1: These are all 5,636 stocks you can buy in America right now. Every single one. But watch what happens when I run every one of them through a single test. The same one the investment bankers, the pros, the Wall Street guys use to grade a business. And I know it because I used to be an investment banker. Guess what? Only 3% of them pass, which shocks even Albert here. And many of them are quite outright awful. Most of them are basically forgettable. In fact, only 11 of these are truly elite, which is surprising even to us, isn't it? And I'm going to tell you exactly what those are later. But first, I need to show you what this means for your money. Now, this video is going to be fairly information dense. I'm going to show you a lot of real numbers on real companies. And I want to make sure it actually lands for you. So I'm going to give you a bonus, a full free research report. It's going to cover absolutely everything they're hitting here that I'm breaking down. Plus, even more, and you can download it for free. Albert's the one who wrote it. Didn't you, Albert? At least he snoozed on it. You can download it at FelixFriends.org slash 11. That's one one. Link is down below in the description. Okay, so let's get into it. Don't look at the gold. Look at everything that isn't. Because here is the part that should bother you. This here. All of it. This is what you already own. You did everything right. Yes. You avoided the meme stocks. You didn't gamble. You bought the boring index fund like every smart investor told you to do. And that's exactly how you ended up holding this. Hundreds of companies you've never heard of, never researched, and would never choose if you saw what was underneath. Because here's the part that nobody tells you. When you buy an index fund, the thing everyone calls the safe, diversified, sensible move, you're not buying the winners. You're buying all of these companies. And maybe that's 500 for you. Maybe it's even all companies if you have one of those broad market funds. But the 11 stocks that matter, just 11, and the thousands that don't are also in there. So you're paying to own the junk. And that isn't diversification. It is dilution. And it's why so many people never actually beat the market. They own the losers, right, alongside all the winners. And they have no idea. Now, I'm not a financial advisor. I'm not a registered investment advisor. This is research. It's not advice. Albert here, and Winston, my sleepy golden retriever who's out in the rain right now, they do the hard thinking around here. I just read the output. Now, before you think the answer is to just dump the index fund and pick your own stocks, don't do that. That's how you go from owning 97% junk to owning 100% junk. The answer is to actually learn how to find the 3%. How to tell a great business from a great story. And by the end of this video, you'll be able to do it on any stock on earth in about 90 seconds without my help or without anybody else's. So get a pen out, take notes. You're going to need them. And of course, download the free report, which will help you without note-taking too. And here's why this matters more right now than it ever has. Even among America's 500 biggest companies, the S&P 500, in a normal year, only about half of them actually beat the index. The other half deadweight. And recently, that number collapsed. The market is more top-heavy than it's been since the dot-com bubble when I started investing. Great timing. So the top 10 companies now make up 40% of the entire index. 10 companies, 40%. So if even the blue chips can't keep up, imagine what the long tail of these 5,636 stocks look like. And here's the thing. When Wall Street moves hundreds of billions of dollars, they're too big to hide. They leave footprints, right? And right now, those footprints are all crowding into a smaller and smaller number of names. The money is concentrating. So watch what happens next. Because when you run every stock for the 5 tests I'm about to give you, the handful that actually pass, they're the same tiny cluster the smart money is already piling into. The money and the numbers are pointing at the exact same place. It's not okay. So here are the 5 tests every serious business gets run through. This isn't my opinion. It's the checklist, right? Pick a corner of the market you like AI, semiconductors, EVs, fintech, whatever. And I'll show you how fast these 5 questions separate the real companies from the, let's call them, impostors. Let's look at NVIDIA versus Intel. Both of these companies are the semiconductor trade, right? The AI chip story. And if you went by what's been in the headlines, Intel is the one that's ripped and it's catching up. It's a huge run on US government investing and bullish sentiment and so on. NVIDIA actually lagged it for a stretch. So if you went by the price, you'd think Intel was the better business right now. But this test doesn't care about the price. It cares about the numbers underneath it. NVIDIA earns a 26% return on capital. Sounds boring, right? But what does it mean? Every dollar they invest in the business, it generates for them 26 cents of profit in just year one. That's actually really extraordinary because think about it. You buy a condo, these guys make all their money back in like four years, the entire investment, right? In year five, they're making a 25% profit. Does your condo do that? Probably not, right? It'd be crazy to make that kind of return. So it's a very, very good business. Now, Intel, on the other hand, they are making a negative 2% return on their capital. They spend a dollar and they're losing two cents on it every year. So it's actually just drawing value on the money it puts to work. Same sector, same narrative, very, very different realities, right? Wants a business, wants something that wants to be a business. By the way, every number I'm showing you here, every comparison there is, it comes from an app that we built called the Winston app. My golden retriever is called Winston. He has a very large nose for sniffing things out. And it runs these five tests automatically on every stock in America. It scores them out of 100. And if you want to check it out yourself, I'm going to give it to you completely for free for a whole month. If you don't get massive value from it, by the way, then just cancel it on day 29. And that way, you're never going to get charged. I'll put the link in the description. It's gogetwinston.com. So let's look at filter number two. And I call that the moat. The moat means can a competitor just come in and kill it? Let's look at PayPal and MasterCard. Both of them process billions of dollars. But there is a big difference. MasterCard owns the rails. It's a toll booth sitting on top of a huge percentage of the transactions on earth. I don't think I go throughout a day without using a MasterCard. So every time you tap your card or your phone or whatever, anywhere in the world, MasterCard gets a sliver. And nobody can build a competing network overnight, try getting credit cards into the hands of millions of people. That's what a moat looks like. We scored it as 100 because it is literally that good. And the reason for that underneath it, if you want to dig a little bit deeper, again, more on that in the app, there are explanations for all of this stuff. Scroll down to something called gross margin. And gross margins of 60% or more are insanely good. Now, theirs right now is 75%. And it basically means they keep 75% of every dollar that they get in after acquiring that dollar. Now, PayPal used to have an edge too. They used to be the giant of online payments. Why? Because they own the original digital wallet. But it's been competed away by Apple Pay from buy now, pay later companies, ShopPay. And their gross margins are now sitting at only 46%. And it keeps sort of sliding down a little bit. Same sector. Because one owns the road as a toll booth and the other is fighting to stay on the road. Now, the third thing we look at is cash. Let's look at two other stocks as a nice example here. One is Robinhood and one is Rivian. Two different businesses. But they are two of the most hype growth stories of the last few years. Everybody, well, a lot of people own some of it. I don't, but a lot of people do. Both promise to disrupt an industry. But here is where the story splits. Robinhood actually generates cash flow. We give it a 100% score for cash. Real money coming in the door. A free cash flow margin that is insanely high. So it went from a meme stock to a legitimate profitable business. What about good old Rivian? Guess what? Their cash flow margin is minus 45%. Negative cash flow literally in the billions. They're burning 500 million, even a billion. Just a quarter. So they set light to cash like crazy. So yes, they make a pretty looking car. It's a nice dream. It's a nice story. But listen to business. It's a bet on Sunday. And for the last 16 months, these guys have been destroying money. So one of these companies has grown up and one is still burning through the money. But here is something else people don't look at. Can the company survive a bad year? Let me give you two other companies, Fortinet and Snowflake. If you've heard of them, put it in the comments down below. And both of these are cloud and cybersecurity names. Fortinet is a fortress. It could pay his interest the cost of their debt. They could pay it just in one year, 140 times. They're not worried about that. So even if their revenue dropped by half, they could still pay their interest like 70 times over. Not a problem. Basically unkillable. Snowflake, on the other hand, isn't earning enough to cover its own obligation. It's taken on more debt and the losses it's still running mean they need to take on more debt to pay for the losses it's running. Same sector, same buzz. One can take a punch and survive and one really, really can't. Now, I was at a beautiful hotel last week just outside of San Francisco. And as I was going for breakfast, there was a sign on there, Snowflake, and had like a management meeting or something. I was really tempted to go in there and ask them some hard questions. But I held myself back and enjoyed my pancakes instead, which is probably the smart move. You don't usually make friends telling people their company is terrible. But here is the one that most of you worry about the most. Are you overpaying for a stock? How do you know that truly? Well, let me give you two examples. Let's go look at Tesla and something called Apploven. APP is the ticker. People get really surprised by this because hype isn't automatically the enemy here. Apploven is a genuine high growth darling. AI powered advertising, something like that. And it's the real thing. Very, very extraordinary good margin, like almost 90% gross margin, which is just incredible. Very hard, obviously, to replace and they're doing something right. They're generating cash flow like mad. I mean, they just got money gushing out of every, you know, orifice. And it's still priced sanely enough at 27 times PE. So remember, Apploven, because it's going to show up again in a minute. Tesla, obviously a huge darling, also something everybody piles into. But with Tesla, you're paying about a 400 times PE. And they are the gross margin of 20%. Actually pretty good for a car company. And I know people are going to get upset about that. But yeah, really good car companies have about a 20% margin. So for all the AI and solar and FSD and all that stuff, at the moment, it is still very much a car company. So what does gross margin really mean? Well, for every dollar Tesla gets from sales, it keeps just 21 cents before all the other expenses. But the stock is priced as if it keeps, you know, 80 cents of that. So it's not really a business you're buying at that price. It's a story. You're buying a story. Yeah, same growth, darling, sort of bucket, but one earns its hype, Apploven, and one is priced like a fantasy. Why? Because Elon Musk is the greatest salesman in the world. And I truly admire him for that. I don't mean that in a bad way. I just mean the data isn't backing it up yet. And maybe it will at some point in the future. So let's put it all together. Out of every stock you can buy in America, 5,636 of them. Only about 4,300 or so even have enough data to grade them. If you just run them through the profit filter, thousands of them fail. You run them through the mode filter, more fall away. You run them through the cash filter, more go away. You run them through stability, more go away. You run them through value, a heck of a lot run away. And you're left with about 123 companies that clear all five. So that's only just 2.9% of the entire market. But only 11, and I'll put them on the screen here for you so you can see them. 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, managed to hit a score of 80, which is kind of, for me, gold standard. So 11 out of 5,636 is not even a quarter of 1%. And most of you will own some of the 11. But you also own hundreds, if not thousands, of all the others that don't meet any of these criteria, every single time you buy that lovely index fund. Let's look at these 11 stocks, because most of these are not the names you'd guess. Yeah, you know a couple of these. NVIDIA is in there. Apple Open, we just looked up. You might know that one. But the rest, Slide Insurance Holdings, Hamilton Insurance Group, Dave, who the heck is Dave? Grindr, seriously, Grindr is one of the best companies in America. Dating companies, seriously. But you see, the test doesn't care what's famous. It doesn't care what's trending. It cares what's real. And what is real is that the business with the best fundamentals on the planet right now are mostly names you just walk right past. So now let me show you why this matters. Because the stocks everyone's crowding into, they're often the worst squares on the board. The darling, Palantir. Palantir gets a score of 72, which isn't bad, by the way. They have a really good gross margin. But valuation, yeah, it's a pretty crazily priced thing. So it's a great business at a fairly terrifying price. What about SpaceX, the real hype buy? The stock, everyone's desperate to get their hands on. It gets a score of 19 out of 100. Why? Because the numbers suck. No margins, no cash flow, no profits, nothing. You just can't grade it. It's a story. At this point, it's nothing but a story. And I hope it works out. I have a Starlink thing that I travel with. It's amazing. But is it worth what they're charging for at the present? I would say no. But a mall jeans retailer in the middle of Nebraska that no one's ever tweeted about. Guess what? It scores a 78. It's called Buckle. The Buckle. B-K-K-E. They have basically zero debt, free cash flow, trading at a PE under 10, I think. Quietly extraordinary, sanely priced, and the stock everyone's talking about is terrifyingly expensive. The stock everyone's dying to buy shows you basically no data, and a boring retailer nobody knows about is quietly one of the best businesses in America. So you've been guessing the corners your whole life. Now, here's what I want to tell you that a high score is a promise. Because Adobe passes every filter I just showed you. The score is 74, which is pretty extraordinary. As an 89% gross margin, they basically invented software as a service, subscriptions. Very good return on capital. It's trading at a really, really cheap valuation right now on the face of it. And one of my mentors said to me, ban the word cheap from your vocabulary, and he's right. Insanely cheap then on the face of it. But look at the stock price. It's just collapsed. Because they're staring down AI competitors that could genuinely shrink its business. Tools that do in seconds what people used to pay Adobe subscriptions for, and this test can't see that coming. Software is the clearest example. Numbers can look elite, right? Up to a new technology, a regulation, or some sort of world event that changes the game. So quality is a filter. It isn't a fortune teller. It gets you into the right room. The 3% worth even considering. And then you still have to think about disruption, about where the money is flowing, about what's changing. And anyone tells you a single number ends your thinking is selling you something, right? So remember what I said at the start. The danger isn't the index. The index is fine for most people. The danger is over-correcting. If you go pick stocks with no method, no framework, no checklist, you can easily end up with a portfolio that's 100% correct. All the risk of stock picking. None of the winners. So here's the method. Three questions you want to ask yourself. You don't need my app. You don't need a Bloomberg terminal. You can do this tonight. At your kitchen table with a stock screener of sorts. And use the free one I'm giving you. Does this company actually make money? Not revenue, but money. Real margins. Real cash coming in the door. And if the answer is no or not yet, it's a grey one. Question two. Could a competitor, a new technology or a policy change kill this company in two years? The answer is, yeah, easily. Well, it doesn't have a moat. Grey square. Question number three. Am I paying a sane price or a lottery ticket price? The PAE ratio is in the hundreds and the margins are in the teens. You're paying for a fantasy, not a business. Grey square. If it fails any one of these three, it's probably in the grey. Now do that across your whole portfolio. Every stock. Every index fund. Everything. And I promise you, you will find things you didn't choose and wouldn't defend if someone asked you to. That's not the job. Not finding the one perfect stock, but filtering out the 97% that just don't matter and they're not going to do anything for you. So here's how the pros actually put this together and it's the whole game. Two steps. Step one, follow the money. Find the sector where the big institutional money is flowing into. The footprints we talked about. Where are the pension funds moving, the hedge funds moving? And that tells you the right neighborhood. Step two is then inside that neighborhood, run the filters. Find the one or two names that are actually quality businesses. Not the story stocks, not the ones that just went up a lot and are in the news, but the real ones. Follow the footprints to the street. Use the filter to find the house that won't fall down. Do both and you're no longer gambling. You're doing what Wall Street does. Just without the suit and the $400 lunch. The market was never random. It's been sorting itself into winners and losers the entire time. You just never saw the whole board. Earning the whole market isn't safe. It just guarantees you own the junk. The real skill isn't picking the one winner. It's filtering out the 97% that don't matter. The full research report, every filter, every number explained for you. The complete elite list is at phelixfrens.org slash 11, phelixfrens.org slash 11. Link's in the description. And if you want to run these five filters yourself on any stock in the world and do that completely for free for a full month, go get winston.com. It's also in the description. And again, if you don't get massive value from it, just cancel on day 29. No questions asked. And if this changed how you see your index fund and your stock picking, send this video to somebody who might benefit from it too. I wish you all the best.