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The Investing for Beginners Podcast - Your Path to Financial FreedomThe Timeless Cornerstones of Investing in the Stock Market
The Investing for Beginners Podcast - Your Path to Financial FreedomThe Timeless Cornerstones of Investing in the Stock Market
The Timeless Cornerstones of Investing in the Stock Market
Update: 2025-01-27
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Description
Dive into the foundational principles of value investing as taught by legendary investors Warren Buffett and Benjamin Graham. This episode explores their revolutionary approach to viewing stocks as businesses, utilizing market volatility to your advantage, and implementing margin of safety - concepts that remain crucial for investment success even today.
• 00:00:34 - Introduction to Warren Buffett and Ben Graham's principles
• 00:01:23 - How these investors revolutionized stock market approach
• 00:02:23 - Real-world examples of successful investment strategies
• 00:03:25 - Understanding the importance of viewing stocks as businesses
• 00:16:15 - Leveraging market volatility for investment opportunities
• 00:27:02 - Exploring the concept of margin of safety
• 00:32:43 - Practical tips for implementing value investing strategies
• 00:37:29 - Final thoughts on applying Buffett's investment principles
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Transcript
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00:02:20
All right, folks. Welcome to Investing for Beginners podcast. Today we have episode
00:02:31
three hundred and eighty. Today we're going to talk about some things that you can learn from
00:02:35
our friends Warren Buffett and Ben Graham. So I came across this great quote and I thought
00:02:40
this would be kind of the great foundation for us to chat today. So here is the quote.
00:02:45
So the basic ideas of investing are to look at stocks as businesses use market fluctuations
00:02:51
to your advantage and seek a margin of safety. That's what Ben Graham taught us. A hundred years
00:02:56
from now they will still be the cornerstones of investing. And again, this is a great Warren Buffett
00:03:01
quote. So maybe let's talk a little bit about Uncle Warren and Uncle Ben and maybe explain their
00:03:09
significance in the world of investing and why anybody should really care. Yeah. Many rest in peace.
00:03:18
Right. Both of these two gentlemen have paved the path when it comes to looking at the stock market
00:03:26
and looking at your role as an investor in a completely different way. Definitely a way that
00:03:32
had never been looked at before. They came around and really popularized it. For example,
00:03:38
the idea like in the quote of looking at stocks as businesses instead of just tickers that you trade
00:03:46
or the other ideas they had about the stock market itself and how it behaves. Those were radical ideas
00:03:54
and who better to show that those ideas worked than the buff dog himself or Buffett took I don't know
00:04:04
was it like a hundred thousand dollars or something than now he's worth 20 billion 30 billion whatever
00:04:10
the number is it's a lot. And so he he took Graham's teachings and showed that this this is what's
00:04:18
possible. And he did it through companies that we all know and recognize today Coca-Cola,
00:04:24
American Express, Apple. These are all companies Geico was was a big one for both Graham and Buffett
00:04:32
huge winner for both of them. So not only did they teach these really groundbreaking ideas which
00:04:40
they're really rooted in fundamental principles that I would argue you can apply not just to
00:04:47
investing but they align with a lot of just older principles fundamentals but use that to generate
00:04:56
lots of wealth for themselves and so it's very inspiring and something to learn from. Indeed it is and
00:05:04
I think the thing to me that is kind of amazing is that Graham wrote his book Intelligent Investor
00:05:10
what in the 30s and 40s somewhere in that time frame and it's still relevant today those ideas
00:05:17
that you were talking about that were they were revolutionary at the time and they have become
00:05:23
a they become synonymous with how people invest in particular in value investing which has really
00:05:30
taken hold Buffett popularized it and has really become one of the probably maybe not the largest
00:05:37
way that people invest but certainly in the top five in in the way that people invest in the idea
00:05:44
of fundamental analysis and understanding that you own a piece of a business was groundbreaking.
00:05:51
We have to think about back during Benjamin Graham's time they had ticker machines that would
00:05:56
print out these little pieces of paper that had the stock symbols in the price and that's how a lot
00:06:02
of people could track how their stock market was doing until the next day when they could maybe look
00:06:08
in the newspaper if the information was provided in that particular episode in that issue
00:06:15
dating myself there and so it was the idea of company like what is the what was the steel company
00:06:22
that was super popular it's like huge back in the day. I'm sorry I'm blanking on the name of the
00:06:28
company. I Carnegie's thing yeah yeah right yeah yeah it's you know the name will come to me around
00:06:34
3 30 this morning so you know all the way to everybody know then but the the idea that you were
00:06:43
buying a piece of the company was definitely revolutionary and a lot of people don't know this but
00:06:49
Warren Buffett actually studied with Ben Graham at Columbia University when Ben Graham was teaching
00:06:55
a fundamental analysis investment class at Columbia and then after his after he graduated he actually
00:07:01
worked for Benjamin Graham for a period of time before he went off on his own and so he had a huge
00:07:08
impact uh Graham did on Warren Buffett but you could also say that I think Warren Buffett had an
00:07:14
impact on him as well and it's just really interesting to see and these guys both kind of set the
00:07:20
groundwork and and Buffett really and along with Charlie have really moved the movement forward
00:07:26
I don't think that we would probably all be investing the way that we are now if those two had not
00:07:32
really been the trailblazers and the groundbreakers during that period of time so even if you don't
00:07:38
invest like a Warren Buffett or Charlie Munger or Benjamin Graham or any of the value investing
00:07:45
legends it doesn't mean that they haven't had an influence on your style of investing I've talked
00:07:52
to a lot of growth growth investors or quality investors and a lot of the same principles that
00:07:58
Andrew and I follow and espouse are very similar to the the kinds that they do so they've really had
00:08:05
a huge impact and that's why it's probably why we talk about them so much is because they've had a
00:08:10
huge influence they're very they're very smart and they really kind of set the groundwork plus
00:08:15
their fantastic investors so I mean all that combination really kind of sets us up 100%
00:08:22
so let's maybe talk about why like when we think about viewing stock as a business like what does that
00:08:29
mean to you well the basics obviously are you go to the stock market to buy shares which represent
00:08:38
partial ownership of the huge corporations around us and that's inspiring to know that as
00:08:45
a everyday Joe I can go out and participate in some of that and another way I think it's also makes
00:08:54
this idea of building wealth more accessible and possible because like the the average investors
00:09:02
probably not going to compete against a hedge fund in trying to split the pennies of like a high
00:09:10
frequency trade or you know figure out the commodity derivative to the tenth degree and and be able
00:09:18
to spot the weather changes and how that applies to five cents in a price of oil we're not we're just
00:09:25
not going to compete in that in that realm but being able to be a part owner of a business over a
00:09:31
very long time where all the owners together get rich slowly but steadily over time is is is achievable
00:09:40
and that's what can happen if you look at finance stock market investing from that lens rather
00:09:47
from the other finance wall street investing lens which can be cut throw ultra competitive
00:09:55
very difficult to find an advantage all of those things and so to me as I look back and reflect
00:10:04
of what makes investing so exciting why is the opportunity to buy a piece of a business so appealing
00:10:13
I think that's certainly a big one for me how about you yeah for sure you know I think when I think
00:10:20
about the ability to buy a piece of a business I think about the best way to generate wealth is
00:10:29
through the ownership of businesses and if you look at if you look at the top 10 richest people in
00:10:37
the world they all own a business in one way shape or form if you look back on history they all
00:10:43
have owned a business in one way shape or form even even a guy named there was a Roman name was
00:10:50
Krassus and he was alive during the time of Julius Caesar and at the time he was considered the
00:10:55
richest man in the world and he owned businesses and that's how he became wealthy and so the idea of
00:11:03
owning a piece of a Tesla a Microsoft a Google a meta Nvidia any of these companies that I can't
00:11:13
I'm not smart enough to go out and do what Jensen long did or what Mark Zuckerberg did I don't have
00:11:19
that in me but I can partake in what they have done and get wealthy on my own off of their backs
00:11:28
and that's to me what having stock ownership in a real business really indicates and so to me it's
00:11:36
kind of a no-brainer to just I own a I own a part of Google and you know I'm gonna let Sundar Peshai do
00:11:44
all the heavy lifting and I can just sit back and worry about whether the stock is gonna go
00:11:48
up or down or not I don't know worry about all the other stuff and so to me that's the that's the
00:11:53
exciting part of the stock market is I love learning about businesses and then being able to partake
00:11:59
in the success of those businesses is very appealing to me what are some of the advantages
00:12:07
that come with that kind of mindset of okay I'm going to be a owner to me it's it sets up this
00:12:15
idea of long-term value versus the short-term ism that you can certainly see in social media and
00:12:23
and it's sometimes very evident in the stock market and the way that these people have all gotten
00:12:28
wealthy is by owning their businesses for a very long period of time you know Jensen long has
00:12:33
been doing his thing for 20 some years meta now has been around since you know what 15 years
00:12:41
something like that and that's even before they went IPO Microsoft has been around for 50 or 60 years
00:12:47
and so all these companies that we think about that the way that you get wealthy is by owning
00:12:54
them for a long period of time it's I mean yes you can get lucky and buy whatever company that
00:13:01
except it ascends very quickly and you are quote time the top and sell out quickly but that's
00:13:08
a lot harder to do and it's we only see we only we see their survivorship bias we only see the
00:13:15
successes on social media we don't see the hundreds of millions of people that don't time the top
00:13:22
right in that kind of short-term idea and so to me it's really the advantage comes to having a
00:13:29
long-term mindset and having an idea that I'm going to own this company for a long time and that's
00:13:34
how I'm going to build my wealth what are your thoughts on that yeah totally agree and if I could
00:13:40
only pile on a few other things is just you can really get you can really get burnt by getting
00:13:49
that short-term mindset and trying to figure that out as as you're buying stocks and we all we
00:13:54
all still face that we all want to feel smart and feel like we bought a dip right or even when you're
00:14:01
selling something you know I want to be the one who sold what right before it crashes we all we
00:14:07
all are going to fight that but to your point having that mindset helps you like it's it's an
00:14:14
advantage that you don't even realize that is helping you every single day like it's just you're
00:14:19
giving yourself an inherent advantage and it helps your behavior it can help help what you focus
00:14:27
on and yeah it has lots of lots of advantages yeah it certainly does do you do you know any investors
00:14:35
like off the top of your head that have kind of been successful by adopting this kind of mindset
00:14:40
all of them yeah like I can maybe count on my right hand how many investors didn't do it that way
00:14:50
and they traded their way to success you know the big the big famous investors right a lot of those
00:14:59
you know almost overwhelmingly all of them look at stocks as businesses and they kind of all have
00:15:05
their own style of what they look for and and where what types of businesses they tend to find success in
00:15:15
but yeah that's a universal great that's shared is this idea that yeah I'm buying a partial
00:15:23
ownership in the business and I'm holding that for the long term and I'm okay if if there's
00:15:28
volatility if the price goes up and down in the in the meantime I'm fine with that yep yep for sure
00:15:35
I mean sometimes I think about William Green's book Richard Weiser Happier he talks about a wide range
00:15:41
of different kinds of investors and to your point a lot of the characteristics and mindset
00:15:49
and the way that they invest is it's kind of similar there's like a theme across the board they are
00:15:55
buying shares of businesses the idea is to try to hold them for as long as they can they all have
00:16:01
different flavors of how they like to do that you know Tom Markelle does it differently than maybe
00:16:07
Nick Sleep does who does it differently than Moniche Parade does versus Joel Greenblatt and Charlie
00:16:13
Munger so but they all had very common characteristics and that kind of having that ownership long-term
00:16:21
mindset was really one of the feet major themes that kind of seemed to run through the run through
00:16:26
the river if you will of the book and that really that really jumped out to me yeah what else did you
00:16:33
like about that book as it pertains to this whole idea with the Buffett and the Ben Graham thing
00:16:40
anything else jump out I think one of the major things that I really liked about it was they all
00:16:46
set their wives up to be successful not based on money but based on fulfillment like how they
00:16:56
they enjoyed the game you know one of the things I took away was you know guys like
00:17:01
Joel Greenblatt he wasn't about just money you know a massive more money it was about the game
00:17:08
it was about and setting his life up so that he could enjoy the game without the stress of the other
00:17:13
other parts of investing and it really felt like that's what Nick Sleep did as well I think he was
00:17:17
probably the best at that was he really set up his life to I'm going to do what I do and then
00:17:23
everything else is you know not going to relate to this and he wasn't in it for money he was
00:17:29
it I mean these guys all were wealthy so it's maybe a different different playing field but I really
00:17:36
liked how they set up their lives to benefit from what they enjoyed doing what about you yeah that's
00:17:43
awesome I I liked a lot of the part of the book and if you haven't read it go read it yeah but that's
00:17:51
definitely I love that insight like how are you going to stay into the game if you don't enjoy it
00:17:59
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slash beginners moving on to I guess the next air quote part of Buffett's quote he talked about
00:20:38
market fluctuation so like maybe let's talk about what mark about utility is and how we can
00:20:44
how we can look at it as an opportunity as opposed to a threat so what do you have that's it's very hard
00:20:51
I mentioned the way that Buffett and Ben Graham look at the stock market itself and Ben Graham
00:20:59
outlined it in his book the Intelligent Investor he called it Mr. Market so you imagine a guy who's a
00:21:05
bipolar maniac who every day brings you a piece of a business and depending on what mood he's in
00:21:13
he's like here you want to buy this business for 80 dollars you want to buy it for 150 dollars
00:21:17
so if you look at the stock market in that way it it's actually you can start to look at it in a
00:21:24
different light because sometimes the volatility can make you feel and it's very much a feeling like
00:21:31
what am I not what am I not getting here what's happening behind the scenes at this company that's
00:21:38
down 30% that I'm just not privy to sometimes it's valid but most of the time it's just Mr. Market
00:21:45
being Mr. Market and so we can find opportunity in that because if Mr. Market offers you a price
00:21:51
that doesn't make sense but he's just in the bad mood that as an investor we can take advantage of
00:21:57
that and that can just her boat charge the compounding that we get from being owners in these businesses
00:22:03
yeah exactly I always like to think of it as market volatility as a feature not a bug
00:22:10
and it's really the way because it's a complex system all these crazy humans all buying and selling
00:22:19
companies that it can it can offer up opportunities like you said Mr. Market I think is the
00:22:25
perfect analogy for the craziness of the market you know some days you know he can show up at your
00:22:31
door and offer you great deals and other days he can offer you trash and we have a choice of which to
00:22:37
choose and but I think if you view it as an opportunity as as opposed to a threat your mindset will be
00:22:45
different and you have to understand the game and you have to understand that it is it's normal for stock
00:22:53
prices to drop they don't always go up to the right that's unusual and it's okay for things to see drops
00:22:59
I don't know how many of you everybody raised their hand maybe not whenever I buy a company it
00:23:05
automatically goes down so I've just gotten used to it and it's just like okay you know heads up guys
00:23:10
I'm buying some you know I'm buying some video it's going down so to me that's normal but it doesn't
00:23:18
mean that I can't take advantage of it so how do you think about trying to buy undervalued stocks during
00:23:26
amount downturn like you know air quality buying the dip like what does that mean to you
00:23:30
well I've observed for myself and I hope this changes about me because I don't think it's
00:23:39
beneficial to think this way when I see a dip in a stock and I don't own it yet it's very easy
00:23:46
for me to be like this is the time let's load up yes I don't I don't know all of its warrants
00:23:53
up close after owning something for a while but when something I've owned for a while dips
00:23:58
it's much harder it's much harder to double down on that and there's been times for sure
00:24:05
popping in my head like exploring goods I I even think one of the members and guys while like
00:24:10
made a comment about that like there you were right right I should have doubled down so that's
00:24:17
something that's it's makes it very hard like when you when you start to mix emotional emotional
00:24:23
attachments this idea that a stock usually looks better or business looks better from the outside
00:24:30
and then once you actually start to own it you'd be like oh this is kind of like all my other stocks
00:24:34
right so it's it's very very hard but that can be a way if you can get over that which is not natural
00:24:42
but I believe it's a muscle you can work on and you can get better at if you can start to do that
00:24:48
then the number of opportunities that you'll be able to pounce on will be even greater so I don't
00:24:54
have the silver bullet for that I would love to hear if you do but it's something I'm actively
00:24:59
working on unfortunately I do not have the silver bullet uh I am still struggling to find this
00:25:06
said silver bullet I love that Buffett quote where he says when you can always tell who's swimming
00:25:12
naked when the tide goes out kind of thing and I think about that in relation to trying to buy
00:25:19
companies that have fallen for whatever reason and my biggest struggle is more not necessarily
00:25:28
related to whether it's a newer company or in my portfolio it's more of anchoring like if I bought it
00:25:35
let's say I bought you know a company at a hundred dollars a share and I see a drop to seventy-five
00:25:42
dollars a share I'm more likely to pounce on that than if it drops from let's say I bought it a hundred
00:25:49
then I bought another another tranche at 150 and then it drops to 125 you know because you know I'm
00:25:59
anchoring on the hundred and fifty not the hundred that I bought and so that is you know that's a thing
00:26:05
that I struggle with and it is a muscle I agree and it is something that I'm actively thinking
00:26:12
about and try to push past sometimes you know because one of my biggest challenges along with that
00:26:18
anchoring is also is averaging up so as a great company continues to improve obviously the value of
00:26:26
the company changes to but I'm still anchoring on what I bought it at originally and so that's you
00:26:33
know but that's something that I'm actively trying to to work on to move past and it's it's not easy
00:26:39
but I think the the way any of the ways that you can think about trying to improve on those biases
00:26:48
I think is going to make you a better investor in the long long run 100 percent I love that you know
00:26:53
when you mention this idea of like it's very hard to average up I was in the car with my wife
00:27:01
and talking to her about something and she said something that like just made made the wheels
00:27:06
start turning right and it's like it's one of those ideas I probably never pursue but I'll share it
00:27:12
maybe some will find that hopeful we always look at a stock and especially if you're new you will I
00:27:19
almost guarantee you will do this if you're brand new you look at a stock it's up 50 100 and 150
00:27:24
percent and you ask yourself do I need to lock that in like do I need to lock those gains in before
00:27:30
they disappear we all do it okay it's fine like we want we want that game we want to lock it in
00:27:38
what if what if you looked at it differently in that oh I bought let's say it's Costco
00:27:46
instead of saying oh Costco's up 70 percent since I bought it what if you said Costco has added
00:27:53
50 50 warehouses since I bought it you know what I mean to to put it in that owner mindset
00:27:59
I'm sure Finch I probably hasn't featured the do that already but probably you know just just
00:28:04
uh whatever that KPI is to put yourself in that framework to say I'm a part owner of this business
00:28:11
if the business has gotten bigger I don't need to lock that in it's already happened it's already
00:28:17
still going on so it's very unlikely that those 70 warehouses that Costco just expanded to
00:28:24
are going to all of a sudden shrink down to zero and now you have you have no gains it's very unlikely
00:28:28
so if we can start to think that way then you look at those gains in your portfolio differently
00:28:34
I'm not saying it will help you with averaging up but maybe with the like wanting to sell to lock in a profit
00:28:40
yeah I I love that and I think that's kind of brilliant because it goes back to what we're talking
00:28:48
about the beginning I think part of what I'm doing is I'm anchoring on the price or the ticker
00:28:54
not the business and so what you're talking about anchors more on that business and if you think
00:29:01
of like you said like an owner of the business then that's a different way of approaching the
00:29:07
company and of course you know if a great company is improving you want more of it and so I mean
00:29:13
that's that's the way it should be um so I like that I like that idea I'm actually going to lock
00:29:19
that in the memory bank well you better because I don't have any left mine's getting a little
00:29:27
full too I might need to do a debt and data dump here at some point um do you can you think of like any
00:29:34
examples uh from history where like volatility is maybe benefited a savvy investor
00:29:41
yeah I mean the buff dog obviously locking in he's like what is he I don't know he's not
00:29:48
undefeated but he's like the Tom Brady of doing that yes no offense if you hate him yeah
00:29:55
you're allowed to be wrong he's a good um he did it with American Express he did it with Coca-Cola
00:30:02
and if you look and it's amazing you zoom out of those charts and it's like there's a dip oh there's
00:30:07
Buffett okay and then it goes back up that's crazy but yeah he he was really good at doing it
00:30:13
and I'd be curious to know why I feel like he doesn't talk about that particular thing very much
00:30:19
I don't know if it's like it would be humble bragging but if he hasn't answered it
00:30:24
at an annual meeting that'd be a great question for him last like yeah how are you so good at doing
00:30:30
that consistently right right yeah like it's not and the other thing about it is it's not like he's
00:30:37
taking a lot of swings right you know so it's not like his batting averages you know 275
00:30:44
for something like this it's yeah it's 800 and so he just chooses his spots really really well
00:30:52
and how he does that knows yeah that's that's probably a secret he's probably going to
00:30:58
take with him to the grave um but yeah I'd well I'd if I if I get ever ask him a question that would
00:31:05
probably be high on the list it shows it's possible yeah that's very true it's very true
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ebook and email series at stockmarketpdf.com all right let's move on to the last part of the question
00:32:25
or the quote and this is talking about the seeking of margin of safety so you and I've talked
00:32:30
about this in the past let's like define to you what is the margin of safety and why is it important
00:32:36
I think there's several ways to interpret margin of safety and I don't think I don't think
00:32:43
any way to interpret that is wrong finding finding safety in your investments or finding a margin
00:32:49
a buffer just in case things go wrong is always a good thing if if you can find it if it's available
00:32:57
so margin of safety usually when I use that term I'm talking about the valuation of a stock
00:33:05
so if if and when you find stocks that have a nice valuation margin of safety
00:33:12
then it becomes the money should provide heads I win tails I don't lose much you can think of it
00:33:18
if a stock trades between the floor and the ceiling and you're buying with a margin of safety
00:33:24
you're probably buying that stock close to the floor and so it's so depressed Mr. Market's so
00:33:31
down on it it probably won't go any lower because at some point people are going to look at
00:33:37
and be like this thing's so cheap like you're you're almost getting cash for free if a stock drops low
00:33:43
enough I'm starting to become I'm starting to get into dangerous territory with that statement
00:33:49
profitable companies that are growing that see their stock drop okay now we're good yeah
00:33:56
so that's that's that's one way to look at margin of safety do you have thoughts on the valuation
00:34:02
margin of safety or a different way a completely different way to think about margin of safety
00:34:07
no I I I certainly agree with the valuation part of it and that's what I normally associate a margin
00:34:17
of safety is by determining the intrinsic value of a company that you want to buy and finding a
00:34:24
dislocation between what you think it's worth and what the market thinks it's worth and the obviously
00:34:30
the greater the margin the more margin of safety you have in case you are wrong on your estimates of
00:34:39
what the margin of safety could be you know other maybe a little bit more esoteric or ethereal
00:34:46
ideas of margin of safety could involve things like portfolio construction like how much of it
00:34:55
you actually buy um whether it's part of a diversification strategy uh the company that you're adding
00:35:02
to your portfolio if it's if it's unrelated to all the other things in your portfolio that's a part
00:35:08
of a margin of safety I think it's always a great idea to look for the value in a company and see
00:35:17
if the price is different I always try to associate it with things that can understand like buying a
00:35:23
car or buying shoes buying a house you know all those things we all want to we all want them on sale
00:35:29
and that's what I always think of the margin of safety is when you're buying a company
00:35:33
with a margin of safety that means it's on sale uh meadow is probably one of the more recent
00:35:40
great examples of that when the company's price dropped at 80 some bucks a share and I'll it's
00:35:45
I don't know 455 500 bucks for there something nuts like that but it was out of favor and there
00:35:52
was a lot of negativity around Zuckerberg in the company and that provided an opportunity for
00:35:59
a margin of safety if you bought it at those prices and now you look like a genius because it's you
00:36:05
know 400 percent up or whatever crazy number that is to me that's uh you know to me I always
00:36:12
associate it with like valuation that's like the primary way of looking at it and that's that's
00:36:17
the way it's all that's the way I've always used it has been that that method yeah yeah for sure um
00:36:24
definitely not as popular of an idea uh no it definitely you know back in back in the early
00:36:33
buff dog days it was you know very much a big thing and today's investing world it can be looked
00:36:40
upon as old school or out of touch out of date kind of thing um especially when you see markets like
00:36:49
they we have now which you could argue how frothy bubbly whatever term you want to throw on them
00:36:55
the idea of I posted a few things about valuation the other day on twitter and I had a few choice
00:37:02
comments about like you know this doesn't matter you know don't really yeah don't listen to this it's
00:37:08
you know you don't need this kind of thing and though I mean like you said a minute ago
00:37:15
free to be wrong um but you know it's it's whatever whatever works for you I mean that's really what
00:37:21
it comes down to and to me calculating the value of a company I think is part of fundamental analysis
00:37:28
than it should remain so regardless of whether the market thinks that it's overdue and or past due
00:37:36
that reminds me of the crypto bros and oh yeah anyone who said like a fun staying poor right yeah
00:37:42
yeah you're right yeah people people come in and you know buff it like what it was some 22-year-old
00:37:51
is it been investing for six you know six months and you know the buff it is you know past
00:37:57
is prime kind of thing sure are there any practical tips or ways you would recommend people start to
00:38:11
go down that path if they don't know like well how do I find a margin of safety how do I determine
00:38:16
that for a stock I'm interested in well how does somebody go down that path the the first thing is
00:38:21
you got to identify and figure out what is a company you want to buy worth and there's two
00:38:28
main ways to do it one is you can use what's called relative evaluation which basically means you
00:38:34
take familiar metrics like price to earnings price to free cash flow price to sales things of that
00:38:40
nature and compare the company you want to buy to other companies in the same industry and find
00:38:46
out of their air quote relative expensive or cheap based on others in the same industry that's
00:38:53
that's the most common way that especially analysts use to value companies and it's a it's a it's
00:38:59
a good shortcut if you don't have a lot of time and don't really understand the other one which
00:39:05
is moral it's along the lines of a discounted cash flow model and note those are the ones that
00:39:10
Andrew and I kind of are big fans of and use the vast majority of the time and they can be it sounds
00:39:18
complicated but professor Oswald the motor and who is the goat of of teaching this stuff said that
00:39:25
any any investor regardless of what level they are can do a DCF just a matter of figuring out what
00:39:32
the inputs are and learning how to find that information and then you can utilize them so
00:39:37
it looks and sounds like higher math it's really not and generally you only need five to six maybe
00:39:43
seven inputs to figure out a value of a company keep in mind it's not perfect no valuation method
00:39:49
is perfect I we have created a ton of resources on our website e investing for beginners it's also
00:39:57
part of value spotlight which is our subscription service and then I also have a free DCF
00:40:04
email series that I created that can help you learn how to use a DCF and seven emails and so if
00:40:11
you're interested in that you can follow the links in the show notes and you can sign up for that
00:40:15
and so those are easy ways that I have done myself to try to learn how to value companies I guess
00:40:22
what are your thoughts on this important idea I 100% double down triple down like those are the
00:40:31
ways to go if you are stuck like literally let's not overthink it like that's the path pick which one
00:40:37
you want to go and go this is interesting it's interesting to me you said you and Brad were chatting
00:40:46
about the inputs for a DCF are the same every month so once you once you the more more you practice
00:40:56
the less you have to learn and then the the more master you get because it's not like you're learning
00:41:01
a new language every month or something no not at all I was just watching you you kind of could be
00:41:08
into this I've always been interested in physics it's always kind of intrigued me I don't really
00:41:14
understand it but I was watching this video from a baristaism yeah I think that's it sorry if I
00:41:22
butchered that but anyway this this guy on youtube was was going into the theory of relativity and
00:41:28
explaining how space time works and everything and it's just like blown away but after watching it for
00:41:34
a while I started to kind of get it and I'll go back and watch a video again and I'm sure after the
00:41:40
second or third time I will probably at least understand how it works and how the theory works and
00:41:45
how black holes work and everything and to me that's that's kind of the same idea when you're trying
00:41:49
to learn something like this the the theory doesn't change and the inputs don't change but you don't
00:41:56
you do have to you know use your judgment over time and and the more reps you put in the better
00:42:02
you'll get at it for sure so if I'm falling in the black hole are you able to pull me out?
00:42:08
no I am not light does not light does not escape of black holes because it doesn't move
00:42:15
fast enough has to move faster than speed of light and it does not move faster than the speed of light
00:42:20
so okay he lost me derailed derailed so I guess the kind of like wrap up our conversation for today
00:42:36
how would you how would you suggest like newer investors maybe even experienced investors kind
00:42:43
of embrace this idea the Buffett was trying to teach in in his quote and how could people I guess
00:42:50
get better at this yeah answer a question about a quote with another quote and this is from his
00:42:57
late partner Charlie Munger he said something to the effect of try to get smarter every day and
00:43:05
something I've said before that has really resonated for me personally I think I've said several times
00:43:12
on the show but this isn't quite right it on the wall I put a sticker on it moment so I'm happy to
00:43:18
share it again if you really think about it investing is a lifelong journey you're probably gonna be
00:43:24
investor until you pass so with that in mind obviously life is short but at the same time a lot of
00:43:31
us will live a while and so there's not a huge rush this isn't like a hobby that you need to master
00:43:39
over a weekend because you want to impress your friends on the golf course I have no idea what
00:43:45
that would feel like but it's not like that it's it's something that you can take your time you can
00:43:50
grow a little bit every day and as your knowledge compounds your skills can compound and your
00:43:59
results can compound and like we mentioned in the beginning I mean these businesses if you're doing
00:44:05
it in this way where you're looking at stocks as businesses it takes them a long time to grow
00:44:10
again they don't just grow overnight be patient and understand that it's just going to be a longer
00:44:16
process and I think there's a good chance you'll get to where you want to go so that's going to
00:44:23
wrap us up for today we hope you enjoyed the show if you have questions comments feedback concerns
00:44:28
we always love to hear them newslether@einvestingforbeginners.com connect learn and grow with value spotlight peace
00:44:37
we hope you enjoyed this content seven steps to understanding the stock market
00:44:44
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00:45:01
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00:45:09
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00:45:14
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00:45:38
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00:45:49
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00:45:59
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00:46:03
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