FAST Graphs™

• The Bottom Line: FAST Graphs is a powerful visualization tool that instantly reveals whether a stock might be fairly valued, overvalued, or undervalued by plotting its price against its historical earnings and growth.
• Key Takeaways:
• What it is: A “Fundamental Analyzer Software Tool” that charts a company's stock price against key business metrics like earnings, creating an intuitive picture of its valuation history.
• Why it matters: It cuts through the market's emotional noise, allowing you to visually assess a company's potential margin of safety by comparing the price you pay to the underlying business value.
• How to use it: Primarily, you compare the stock's price line (black) to its fundamental valuation lines (orange and blue) to make a quick, data-driven judgment on its current valuation.

Imagine you're a doctor trying to assess a patient's health. You wouldn't just rely on how they say they feel today. You'd pull up their chart—a long-term record of their heart rate, blood pressure, and other vital signs. This chart gives you context, showing you what's normal for them and immediately flagging any dangerous deviations. FAST Graphs™ is the financial equivalent of that medical chart for a business. It’s a software tool designed to be a “Fundamental Analyzer.” At its core, it does one thing exceptionally well: it plots a company's stock price over time right on top of a graph of its fundamental performance, most importantly its earnings per share (EPS). The result is a simple, powerful picture that answers a critical question for any investor: “Am I paying a sensible price for this business's earnings power?” The name itself is an acronym: Fundamental Analyzer Software Tool. It was created by the veteran investor Charles (Chuck) Carnevale with the specific goal of bringing logic and reason back to stock market analysis. The tool strips away the confusing noise of daily market chatter, news headlines, and speculative frenzy. Instead of a chaotic ticker tape, you get a clear, color-coded chart that tells a story about the relationship between two things:

• The Business: Represented by the growth in its earnings (often shown as a green shaded area). This is the company's real-world performance—how much profit it's generating for its owners.
• The Stock: Represented by a simple black line tracking its price month by month. This is Mr. Market's opinion of the business, which can be rational, euphoric, or deeply pessimistic.

By seeing these two things on the same graph, you can instantly spot disconnects. You can see when the market's opinion (the price) has become wildly detached from the business's reality (its earnings). For a value investor, these disconnects are the breeding ground for opportunity and the warning sign of unacceptable risk.

“Price is what you pay; value is what you get.” - Warren Buffett

FAST Graphs is, in essence, a visual embodiment of this famous quote. It constantly reminds you to stop focusing on the price you are paying and start focusing on the value you are receiving in return.

For a value investor, FAST Graphs is more than just a neat charting tool; it's a philosophical ally. It reinforces the core tenets of the value investing discipline in a visually compelling way. 1. It Visualizes Mr. Market's Mood Swings: Benjamin Graham, the father of value investing, introduced the allegory of Mr. Market—a manic-depressive business partner who one day offers to sell you his shares for a ridiculously high price, and the next day offers to buy yours for a desperately low one. The black price line on a FAST Graph is a perfect illustration of Mr. Market's emotional state. The fundamental lines (the orange and blue lines, which we'll discuss below) represent the sober, long-term reality of the business. The tool allows you to see Mr. Market's manic episodes (overvaluation) and depressive funks (undervaluation) and act rationally, buying when he is pessimistic and being cautious when he is euphoric. 2. It Makes the Margin of Safety Tangible: The most critical concept in value investing is the margin of safety—buying a security for significantly less than its underlying intrinsic value. FAST Graphs turns this abstract concept into a visible gap on a chart. When you see the black price line trading well below the calculated fair value lines, you are literally seeing a margin of safety. This visual confirmation provides the conviction needed to buy when others are fearful and to hold on through market volatility, knowing you bought at a price that gives you a buffer against error or bad luck. 3. It Enforces a Business-Owner's Mindset: Value investors see themselves as part-owners of businesses, not renters of stocks. FAST Graphs encourages this perspective. The most prominent feature on the chart is often the green shaded area representing the company's earnings. Your eyes are naturally drawn to the performance of the business first. Is it growing? Is it consistent? Is it profitable? The stock price becomes a secondary consideration, a mechanism for buying into that stream of earnings at a fair price. This flips the script from “Is the stock going up?” to “Is the business performing well, and is the stock offering me a good deal to participate in that performance?” 4. It Promotes Patience and a Long-Term Perspective: By displaying 10, 15, or even 20 years of data on a single screen, the tool forces you to zoom out from the short-term noise. You can see how a great business's value compounds over a decade, and how short-term price drops were often magnificent buying opportunities in hindsight. It's a powerful antidote to the short-term thinking that plagues so many market participants.

A FAST Graph may look complex at first, but it's built on a few simple, powerful components. Understanding these is the key to unlocking its insights.

Let's break down a typical FAST Graph piece by piece.

• The Black Line (Market Price): This is the easiest to understand. It simply represents the month-end stock price of the company. This is Mr. Market's vote.
• The Green Shaded Area (Earnings Per Share): This is the foundation of the entire chart. It shows the company's adjusted (operating) earnings per share over time. Think of this as the engine of the business. A steeply rising green area indicates a fast-growing, successful company. A flat or declining area is a major red flag.
• The Orange Line (Fair Value Reference): This is the most important line on the graph. It represents a theoretical “fair value” based on a widely accepted valuation formula for growing companies. By default, it often represents a Price-to-Earnings (P/E) ratio of 15. ¹⁾ When the black price line touches the orange line, it suggests the stock is trading at or near this fair value benchmark.
• The Blue Line (Normal P/E Ratio): The market doesn't value every company the same. A fast-growing tech company will typically command a higher P/E ratio than a slow-growing utility. The blue line represents the company's own average historical P/E ratio over the selected time frame. It shows you how the market has actually valued this specific company in the past. This provides crucial context.
• The White Line (Dividends): If the company pays dividends, this line appears stacked on top of the green earnings area. It visually shows you how much of the company's profit is being returned directly to shareholders. For dividend-focused investors, this shows the growth and sustainability of the income stream.

Once you know the components, reading the story is simple:

1. Undervaluation: The most exciting signal for a value investor. This occurs when the black price line is significantly below both the orange and blue lines. This indicates that the market is currently valuing the company at a P/E ratio lower than its historical average and lower than the classic fair value benchmark. This is a visual representation of a potential margin_of_safety.
2. Fair Valuation: This occurs when the black price line is touching or is very close to the orange and/or blue lines. This suggests the stock is being priced rationally by the market, in line with its earnings and historical norms. There may be no significant margin of safety, but the price is not exorbitant.
3. Overvaluation: A clear warning sign. This occurs when the black price line is significantly above both the orange and blue lines. This means the market is euphoric and is paying a premium for the company's earnings, far exceeding historical norms. The risk of a price correction is high, and the margin of safety is non-existent or even negative.

The ultimate goal is to find companies with strong, rising green earnings areas where the black price line has temporarily dipped below the orange and blue valuation lines. This is the classic value investing setup: a great business on sale.

Let's compare two hypothetical companies to see FAST Graphs in action: “Steady Brew Coffee Co.” and “Flashy Tech Inc.”

The Value Investor's Interpretation:

• Steady Brew Coffee Co. is a classic value investing candidate. The business is predictable and growing. The chart clearly shows that the market usually prices it fairly. The key is to wait patiently for those rare moments when Mr. Market gets scared and offers you a price well below the orange line. Those dips are clear, low-risk buying opportunities.
• Flashy Tech Inc. is a speculator's dream and a value investor's nightmare. The business fundamentals (earnings) are unpredictable. The stock price has completely detached from reality and is being driven by hope and hype, not business performance. The FAST Graph screams OVERVALUATION. There is no margin of safety here; a purchase at these levels is a pure gamble on future sentiment.

This example shows how the tool helps you instantly differentiate between a sound investment opportunity and a dangerous speculation.

No tool is perfect. A wise investor understands both its strengths and its weaknesses.

• Speed and Clarity: It condenses decades of financial data into a single, easy-to-understand picture. You can assess the valuation of a company in 30 seconds.
• Reduces Emotional Bias: The chart anchors your decision-making in fundamental data (earnings), not in emotional stories or news headlines. It's a powerful tool for maintaining rationality.
• Excellent for Screening: It's an incredibly efficient way to screen a list of potential ideas, quickly discarding the obviously overvalued and flagging the potentially undervalued for deeper research.
• Provides Historical Context: It shows you what a “normal” valuation for a specific company has been, preventing you from overpaying during periods of market euphoria.

• Garbage In, Garbage Out: The tool relies on reported earnings. If a company uses aggressive accounting or engages in earnings_management, the chart can be misleading. It's crucial to analyze the quality of the earnings, not just the number.
• Past Performance is Not a Guarantee of Future Results: The blue “Normal P/E” line is based on the past. If a company's business model is disrupted (e.g., a dominant retailer facing online competition), its past valuation may no longer be relevant. You must understand if the future looks different from the past.
• Not Suitable for All Companies: FAST Graphs works best for companies with a consistent and predictable history of earnings. It is not very useful for:
  • Pre-profit startups with no earnings.
  • Deeply cyclical companies (e.g., miners, oil companies) whose earnings swing wildly.
  • Companies in turnaround situations where the past is irrelevant.
• It's a Starting Point, Not a Final Answer: This is the most important limitation. The chart is a powerful first step, but it is not a substitute for comprehensive due_diligence. After identifying a potentially undervalued company, you must still read the annual reports, understand its competitive advantages, and assess its management and balance sheet.

Understanding FAST Graphs is enriched by grasping these core value investing ideas:

• price_to_earnings_ratio
• intrinsic_value
• margin_of_safety
• mr_market
• earnings_per_share_eps
• fundamental_analysis
• circle_of_competence