Invested: The Rule #1 Investing Podcast

When a company makes the decision to go public, shares of that company become available for purchase, allowing anyone to buy a stake in the company. Each share is a stock, and investors are able to buy and sell shares in any public company at any time. Of course, as with any form of business, the goal is to buy a company’s stock when it’s “on sale” or undervalued relative to its actual value, and to sell that stock when it’s fully valued in order to make a profit. A simplified look at a successful investment is one where an investor buys a company for a certain amount of dollars, holds on to the company for an extended period of time until its value has grown to the point that they feel comfortable selling it, and then sells it above what they purchased it for.  Buying great companies when they are on sale is what Rule #1 investing is all about, but it’s fine to wait to buy until you are sure you are getting both a wonderful business and a great price. Think of it this way: you would never buy 100% of a compa

Today's podcast episode discusses how innovation in companies do not always lead to the best investments, and we decided to feature none other than the prestigious Annalisa Gigante. Annalisa Gigante has been an award winning innovator for 30 years, with a track record of commercial success, launching and building multi-billion dollar new businesses across different industries from life sciences and chemicals to services and digital technologies. She served as CTO of LafargeHolcim, and was an Executive Committee member at Adecco Group as Chief Business Development and Marketing Officer, both as global leaders in their respective industries. Her career includes international roles in innovation, business management, strategy, and marketing. Her key focus areas are sustainability, digital technologies including AI and IoT, new business models, and building high performing teams. She has been the subject of two Masters’ theses on women top executives, and a recent monograph on Innomniacs. Innovation in companies

Investing in the stock market does not involve luck or gambling. It requires a strategy and a solid foundation of knowledge. Investing in anything, especially the stock market, when you don’t have a concrete strategy can be scary. It’s a serious journey that shapes your life and can determine whether or not you live a life free from financial burden.  For example, if you don’t have a solid amount of money to retire on in 20 or 30 years from now, the government may not have the funds available to support your lifestyle, which is scary. That is why it is becoming increasingly important to learn how to invest for yourself. In reality, the only fear of investing you should have is the fear of what you will miss out on if you don’t invest. You wouldn’t jump in the ring without knowing the basics of boxing, so you shouldn’t jump into the stock market without knowing the basics of investing. Before you begin building wealth, it’s important to understand your long-term goals of investing as well as the basic process

What's going to happen to the market in the following months? No one knows for sure. All you can do for now is stick to your process, and stay in the right mindset for rational investing.  When you get overwhelmed by stress, lack of sleep, or other factors, your rational mind loses power and your emotions take over. This is a terrible mindset for making investment decisions. You can't avoid those stressful situations as an investor, but the way you handle them can drastically change your outcome. When you notice you are feeling tense or nervous about an important investing decision, take a few slow, deep breaths to calm your nerves. Consider stepping back, and resuming when you have a clear head. In the long term, improving your problem-solving skills and looking at things from a larger perspective will help you deal with stress without feeling overwhelmed. Having a set of processes and boundaries when looking for companies to invest in is critical. Benjamin Graham, who was Warren Buffett's mentor, said that

Investing has changed drastically over the years. Many of the tools that were hardly accessible or cost money to use are now available at the click of a button. For instance, one of the best tools that investors can access online is the Securities and Exchange Commission, or SEC. The SEC is an independent federal regulatory agency tasked with protecting investors and capital, overseeing the stock market and proposing and enforcing federal securities laws. By using the SEC, you can view information about brokerage firms, investment advisor representatives, and their professional background and conduct. This could include current registrations, employment history, and disclosures about certain disciplinary events involving the individuals. However, these tools that are accessible online can only effectively be used if you have a solid understanding of basic investing principles. One in which includes only purchasing businesses that have excellent management. When you are looking to trust your money inside th

Have you ever cloned another investor? As the name implies, cloning refers to the strategy of following or copying the ideas of famous investors or fund managers. Most investors believe this is an ethical strategy, and Rule #1 investors actually take advantage of the fact that we can clone or follow expert investors.  This idea of cloning goes all the way back to when Warren Buffett first started watching Ben Graham’s investing strategies, and other investing gurus openly stating that they cloned other great investors that came before them. Mohnish Pabrai, for instance, is one of the more successful investors out there. He is a shameless cloner and follower of Warren Buffett and Charlie Munger. In fact, Pabrai once famously stated that “Thou shall be a shameless cloner.”  Although, the best investors in the world know that cloning is only an efficient strategy when you do your own research on top of that. But what tools will help you successfully clone experts? One of the most popular tools which I discus

This has been an emotionally exhausting year for everyone, and you’ve probably been affected in one way or another. Gratitude can be a powerful tool for resilience in the face of adversity, so this week we’re practicing being thankful before the upcoming Thanksgiving holiday. We are incredibly grateful for all of our listeners and hope you enjoy thinking about investing from a different perspective this week. Years ago, I spent some time in Japan with a good friend of mine named Wahei Takeda. He’s known as the Warren Buffett of Japan, who made his entire fortune from scratch in post WWII Japan.  Wahei told me that the most important thing that you can do every day, the thing that was responsible for him making billions of dollars, is “Be thankful 1,000 times a day.” This hit home, as I felt like I’ve been doing it my whole life, but I’ve never heard anyone put it into a formula for making money and using it as a guide to investing. Wahei calls it, “Maro Up.” “Maro” means being thankful. When Wahei buys a

Phil predicts a devaluation of the buying power of the US dollar. Therefore, there may be problems on the horizon for investors. Inflation is a natural result of currency fluctuations, because it will cost more to purchase goods and services. In some markets, inflation destroyed the stock market for 20 years! For instance, when there was a high rate of inflation in the United States from 1965-1983, the rate of return was nearly 0%. If Phil’s predictions are true, there will be a major problem for investors with diversified portfolios, because your buying power will be dwindled down nearly in half. Diversification is the idea of creating a portfolio that includes multiple investments in order to reduce risk. Someone who is an entrepreneur might think it is best to lower his or her risk and have 100 businesses, rather than focus on one or two. Most people over-diversify. They split their money into hundreds of stocks in hopes of making a great return. This is not the best strategy, because your rate of retur

What's going to happen in the next few months following the election? Nobody knows for sure, but there will likely be some turbulence ahead.  If you’ve been following along with my channels for some time, you know the best method to make long term gains in the market. You have to do the research and buy companies that fit the Rule #1 criteria and are “on sale.”  So how come everyone doesn't just do it? It could be because they’re busy adjusting to the pandemic, stressed out, or dealing with other external factors.  Now more than ever, you need to take care of your mind and body so you can avoid making costly investing decisions and, more importantly, stay healthy.  When you get overwhelmed by stress or fear, your rational mind loses power, and your emotions take over. Being able to control your emotions is an essential part of being a successful investor. And being able to control your emotions depends on how well you take care of yourself day-to-day. If you let anxiety, stress, or fear drive your decisio

Danielle is back for this week’s episode of InvestED. After almost seven weeks into recovery since first experiencing symptoms from COVID-19, she starts to reintroduce routine activity into her daily life and discusses both the physical and economic consequences of COVID-19 with Phil. Numbers have spiked in Europe in the past week and a half and there are theories as to why. Why have rates in some countries spiked, while others have been able to keep their number of cases down - and what does this have to do with investing? Phil and Danielle agree that the virus is very political in the United States, especially with the presidential election on the horizon. There is no doubt that if the pandemic continues the way it has, we will see some very serious currency related issues and possibly dramatic inflation. Businesses such as theatres, sporting events, and restaurants are already on life-support, and the long term effects of people continuing to stay home from work and businesses will lead to many busines

A stock split is when a company decides to exchange more shares at a lower price for stockholders' existing shares. They happen from time to time, so it's important for us as investors to understand what that means. Stock splits make stocks more accessible to individual shareholders, make selling put options cheaper, and typically tends to increase share prices in the short run. So does a stock split impact your investment if you already own the stock? It shouldn’t, because your investment should be the value of the entire business no matter how many pieces it is split into.    There's another kind of stock split which is called a reverse stock split, where you end up with less shares than you previously started with. For instance, let's say you had 100 shares and they reverse split it 10 to 1, you suddenly have 10 shares. Does it increase the value or decrease the value? Not at all.    Rule #1 investors look at the company not per share. They look at it as a whole company the way an owner does. This is why

If you think that because real estate lets you leverage your investment, the rate of return is much higher than a business/stock investment, and is, therefore a better place for beginner investors to put their money, think again. This is a commonly held idea that is completely mistaken.  Phil and other expert investors including Warren Buffett have owned real estate, everything from subdivisions to large farms, apartments, commercial property, and single-family homes. If you were to do a real estate versus business/stock ownership returns comparison, we could pit the hottest real estate markets against the hottest Rule #1 investors. But it seems better to use the average real estate market and the average Rule #1 investor. As Rule #1 investors, we incur almost no management responsibility—a significant advantage. We have to spend about 15 minutes a week reading and researching, and that’s it. We’re required to know the basics of Rule #1 investing, but it’s easier to learn than real estate investing once you

Allan Mecham is a well-known investor who runs a hedge fund called Arlington Value Capital. Allan has had a phenomenal track record, and implements the values and philosophies of Rule #1 investing. In 2012, Allan sent out a letter to his investors that covered some of his core investing philosophies. One of those philosophies included that in order to be successful in the stock market, you must look for the rare combination of business safety, an attractive price, and a clear understanding of the business that leads to a low-risk and market-meeting return. His principles also focus on the idea that you’re not trying to make money in investing, but the objective is to not lose money. This doesn’t mean the stock price never goes down from where you bought it, but rather, the value of the business never decreases from where you bought it. Determining whether or not a business’s value will decrease comes down to finding a safe company at a great price, and making sure you understand it fully. This is one of th

Warren Buffett says that the ideal investment is one that you can hold onto forever, growing your money for as long as you own it. However, Buffett and every other successful investor also knows that there are times when selling a stock is the best route. For example, Phil Town was a big fan of IBM and bought into the company in his earlier investing years. He researched IBM thoroughly, and felt that he understood the business as if it were his own. A few years later, IBM got a new CEO named Ginni Rometty. Phil believed that she was trying to change the direction of the company, and she did not have a proven track record of success in the technology field. This was a big red flag to Phil. It was clear that IBM wasn’t making the transition to a new CEO smoothly, so Phil tried to offset IBM’s drops in the market by buying in on put options and selling on call options. This did not generate returns like he hoped it would.  Interestingly enough, while all of this was happening, IBM sustained a big Moat—which

Investing is one of the most morally charged and important things we can do. If we’re privileged enough to be among the few who have more money than is necessary to survive, we must be careful about how we allocate that excess capital. Ultimately, it could determine how the world works for our family for generations to come. So as you’re building your watchlist, keep in mind that you are buying businesses, NOT stocks. For instance, although the marijuana industry is starting to grow, you would still have to ask yourself if it fits within your values if you were considering investing in a marijuana production company. Are you proud to own the business as if it were your own? These are all things you have to ask yourself while analyzing companies in any industry. You also must consider the predictability of a company in the marijuana industry, since they are typically younger and therefore carry more risk. In these cases, there is typically less public information about those companies, making it harder to pe

One of the core Rule #1 investing principles is to buy wonderful companies at attractive prices. This helps take the risk out of investing and makes it easier to get fantastic returns. However, there are other factors that you must consider before you commit to any companies on your watchlist. A great company encompasses four simple elements, and we call these elements the “Four Ms of Investing.” First, the company must have Meaning to you. This means you understand the business as if it were your own, you’re proud to own the business, and the business reflects your values. Meaning is often the factor that differentiates between truly investing in a company with confidence and simply gambling on whether or not they will grow in value. Next, the business must meet certain criteria in terms of financial strength and predictability. This is considered Moat. The business needs to have something that prevents their competition from coming in and stealing away the control they have over their market. By investin

Invest in what you understand. Sounds simple, right? Shouldn’t everyone be investing in what they understand? Warren Buffett once stated that defining your circle of competence is the most important aspect of investing.  Circle of competence is tricky to define, but is essentially built by the things you are passionate about, what you’re talented or good at, and things you spend money on. It could even be related to the industry you currently work in and are knowledgeable about. The goal is to be proud of the companies you own, and how your money is being used to support those businesses. In many ways, defining your circle of competence comes naturally. However, as you live your life, your interests will change and expand, and you can apply these new interests to your investing strategy. Take Warren Buffett for example. Much of the reason why he invested in Coca Cola is simply because he appreciates the company and enjoys the product. It aligns with his values, thus making it a great fit within his circle

In Rule #1 investing, we call “buying on sale” purchasing stocks with a Margin of Safety. All you have to do to get a big MOS is know the value of the business you are buying—as a business—and then wait to buy it until the market drops much lower than the value. Today, Phil and Danielle dive deeper into Margin of Safety valuations, and explain why understanding how to value a company is critical to stockpiling.  For show notes and more information, visit www.investedpodcast.com. Learn more about your ad choices. Visit megaphone.fm/adchoices

A powerful way to arrive at the margin of safety price is the “How long before I get my money back” method—aka Payback Time. If you buy the whole business and pocket all the earnings, Payback Time is the time it would take you to get your investment back. Once you get all of your money out of the business, you have no risk. Today, Phil and Danielle discuss this concept in depth, and explain why knowing Payback Time eliminates many fears of investing. For show notes and more information, visit www.investedpodcast.com. Learn more about your ad choices. Visit megaphone.fm/adchoices

You’ve done the initial Four Ms analysis of companies on your watchlist, but your work is not complete. The next step in the researching process is critical, and tells you whether or not the business is worth purchasing. Being at this point in your analysis means that you’re highly confident that the company is going to be larger and more productive in ten years. Today, Phil and Danielle discuss this next step in the research process, and cover how to calculate margin of safety using the ten cap valuation process.  For show notes and more information, visit www.investedpodcast.com. Learn more about your ad choices. Visit megaphone.fm/adchoices