Invested: The Rule #1 Investing Podcast

 “It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.” — Charlie Munger Munger is the Vice Chairman of the world’s greatest compound interest machine: Berkshire Hathaway, Inc. In the time of his and Warren Buffett’s reign as the leaders of Berkshire, the company has returned roughly 2,000,000% on its initial value. We can learn a lot from Charlie Munger! Charlie Munger once said that “Coca-Cola is the perfect business because it has this gigantic durable competitive advantage, or moat, which gives it predictable cash flow.” This allows us to figure out what the future cash flow will be and value the company today, so we know whether we can buy it on sale or not. Charlie Munger also once stated that “You don’t make money when you buy and you don’t make money when you sell. You make money when you wait.” That assertion is so powerful that it is easy to overlook how critical it is. The whole idea of Rule #1

The Berkshire Hathaway Annual Shareholder Meeting took place on Saturday, May 1, featuring Warren Buffett and Charlie Munger. In this episode, Phil and Danielle discuss more of the major highlights from the meeting. In the meeting, Buffett discussed his significant investment in Chevron. "I think Chevron has benefited society in all kinds of ways, and I think it continues to do so," said Buffett. "We're going to need a lot of hydrocarbons for a long time, and we'll be very glad we've got them." While Buffett also stated, "Chevron is not an evil company in the least and I have no compunction about owning Chevron. If we owned the entire business, I would not feel uncomfortable about being in that business." This poses the question regarding investing with your values. Our personal values are incredibly important to successful investing. Almost no one talks about how to connect your values or your heart to where your money is going. Remember that wherever you’re putting your money is what is going to grow i

The Berkshire Hathaway Annual Shareholder Meeting took place on Saturday, May 1, featuring Warren Buffett and Charlie Munger. In this episode, Phil and Danielle discuss some of the major highlights from the meeting. Munger took an aim at bitcoin and cryptocurrencies during the conglomerate’s annual meeting on Saturday, stating “I think the whole damn development is disgusting and contrary to the interests of civilization.” Buffett and Munger also discussed potential tax hikes from the Biden administration, and expressed not being concerned about them. Buffett mentioned that some companies try to fear-monger by saying the tax rates will be passed through to customers. “It's corporate fiction when they put out statements about the fact that it will be terrible for all of you people,” Buffett said. Buffett also stated that there is a lot more to investing than picking a budding or trending industry. Buffett warned newbie investors, and Phil and Danielle have always agreed with this take on smart investing. 

The stock market crash of 2020 began on Monday, March 9, with history’s largest point plunge for the Dow Jones Industrial Average (DJIA) up to that date. Some investors were scared or nervous but Rule #1 investors, like Danielle, were actually excited about the drop. She is confident in her investing decisions and realized it was an excellent opportunity to load up on more great companies. The market runs in cycles. It goes up, it goes down. But we have to look beyond the charts.  While the cycles give us warning signs of potential crashes, predicting the market is not an exact science. The economy reacts to more than just the market cycles. You need to have the perfect storm — many events and economic conditions coming together — for a drop to happen.  The important thing is to be prepared for whatever may happen in the market. Keep on saving for retirement and keep on making good investment decisions. Rule #1 investors know how to take advantage of all kinds of economic conditions, including market drops

If you haven’t heard the news already, Bernard Madoff has just passed away at the age of 82 in a federal prison hospital in Butner, North Carolina. For more than 50 years, Bernie Madoff was renowned on Wall Street as a big money manager who founded his own firm at age 22 and became non-executive chairman of the Nasdaq in 1990. Madoff was famously known for running the largest and possibly most devastating Ponzi scheme in financial history. He defrauded thousands of investors out of tens of billions of dollars over the course of about 17 years. Madoff was busted on December 11, 2008 after his two sons turned him in.  Victims included director Steven Spielberg, actor Kevin Bacon, former New York Mets owner Fred Wilpon, Hall of Fame pitcher Sandy Koufax and Nobel Peace Prize winner Elie Weisel, as well as ordinary investors like Burt Ross who lost $5 million in the scheme.  In a 2013 email to CNBC from prison, Madoff mentioned that the break in the market that started the Great Recession led to his scam. “I

According to Phil and other value investors, investing should always essentially involve the same principles — even for non-stock investments like bonds. Putting your money where your values are, buying investments at a discount, and being able to move through different types of assets fluidly.    For example, bonds and securities are other types of low-risk investments that investors purchase. However, their potential for returns is much lower as well. A bond might only make you a 3% return on your money over multiple years. This means that when you take your money out of the bond, you’ll have less buying power than when you put it in, because the rate of growth didn’t keep up with the price of inflation.    Bonds can be purchased from the US government, state and city governments, or from individual companies. Mortgage-backed securities are a type of bond typically issued by an agency of the U.S. government, but can also be issued by private firms.    When you purchase a bond, you are essentially loaning mo

Warren Buffett is currently sitting on about $150 billion in cash. Could this mean that doomsday — or a major market correction — is coming? Most of the time, successful investing is a waiting game. Just as there are poor times to sell your stocks, there are poor times to buy them as well. And sitting on cash while you wait for a better opportunity is often one of the best investing decisions that you can make. As Rule #1 investors, we try to invest in companies that have at least a 50% margin of safety, meaning that there is at least a 50% upside between the company’s stock price and its true value. When valuations are as high as they currently are, though, it becomes difficult to find any quality companies that exhibit this margin of safety. Looking at the Shiller PE ratio, prices have only been this high twice in the past 140 years. The first time they got this high was in 1929. The second time was in 1999. But we might not be here for much longer.  Following the smart money — defined as money from bi

In thinking about the process of finding wonderful companies at attractive prices, it helps to think of what I call the Four Ms: meaning, management, margin of safety, and moat.  This podcast is focusing on moat.   Most people know a moat to be the water around a castle but in investing terms, a moat is the durable competitive advantage that a company has that protects it from being attacked by competitors.   A moat is what makes a company predictable and allows us to put a value on the business. Charlie Munger said that “Coca-Cola is the perfect business because it has this gigantic durable competitive advantage, or moat, which gives it predictable cash flow.”    This allows us to figure out what the future cash flow will be and value the company today, so we know whether we can buy it on sale or not.   Finding a business with a wide moat is key to finding a successful business to own, because a business with a wide moat is much more predictable for the next 20 years than a business with no moat.   The idea

Stock splits happen from time to time, so it's important for us as investors to understand what they mean and how they might impact our investing decisions. A stock split is when a company decides to exchange more shares of its stock at a lower price for stockholders' existing shares. So, what happens to a stock’s price when it splits?   Nothing actually, although, it’s going to look like something big happened. Stock splits don’t change the market cap, which is the market price of the stock on a given day multiplied by all of the shares, or the sticker price of a stock one single cent. Not a penny. All a stock split does is change the number of shares and the price per share. I repeat: this does not change the total value of all those shares by even one cent. A lower stock price makes it easier to trade because the stock becomes more attainable for interested investors who may have been priced out of buying it in the past. Lower prices make it easier to find buyers than higher prices. When a stock price

It’s never a great idea to sit on too much cash. Why? One word: inflation.   Inflation is the devaluing of a currency’s buying power. It occurs over time as the government pumps money into the economy and there’s a larger money supply buying a relatively fixed amount of items.   As the money supply grows, people feel like they have more money, so they’re willing to pay more for things. When there’s a lot of inflation, wages tend to increase and people then feel like they’ve got even more money, so they’re willing to pay a little bit more for a Coca-Cola.   Inflation is something that many people completely forget to factor in when calculating how much money they’re going to need for retirement.   Most people tend to assume that if you want to live on, say, $50,000 a year for the rest of your life you need to multiply that number by 30 years and that’s how much you need.    What they don’t take into account is inflation. This means that to retire, you may need much more than you think. The small percentage may

After you have found a worthy company you would like to invest in and it’s on sale, the final step is to actually purchase the stock through a brokerage account so you can start reaping the rewards. This is an important step in the investing process, but it can seem confusing because there are several brokerage options out there. Buying shares in any company will require you to go through a broker. Brokers enable you to easily buy and sell shares in any public company, but they do charge a fee for their services. Once you are working with a broker, though, buying shares of a company is as simple as ordering something out of a catalog or making a purchase on Amazon. Simply choose the stock you want to buy, the number of shares you want to buy, and complete your purchase. A great option that has come available in recent years is the use of online brokers. Online brokers are a little more “self-serve” than traditional brokers, however, their fees are also much lower. For beginner investors with small amount

Warren Buffett’s highly anticipated shareholder letter was released this past weekend.   In this annual letter, Berkshire Hathaway's quarterly reports have offered investors a glimpse into the company's inner workings.   Buffett also highlighted the fact that among the biggest winners in Berkshire’s investment portfolio was its 5.4% stake in Apple. Buffett noted that the iPhone maker was now one of his company’s three biggest assets, with its stake worth $120 billion as of December 31, 2020.   Berkshire ended last year with $138 billion in cash. This is likely due to the market still being extremely overvalued.    Being one of the best value investors in the world — if not the best in the world — Buffett understands the importance of only purchasing wonderful companies at discount prices.    In the annual letter to shareholders, Buffett reminded investors that miracles do occur in middle America despite much of the attention on the east and west coast.    “Success stories abound throughout America,” the inves

“There’s nothing evil, per se, about selling things short. Short sellers—the situations in which there have been huge short interests very often—very often have been later revealed to be frauds or semi-frauds.” — Warren Buffett Short selling, or shorting, plays an important role in public markets as it improves prices, rational capital allocation, prevents bubbles, and shines a light on fraud.   If investors think a stock's price is dropping, they can short the stock. They borrow shares and sell them with hopes of buying them back at lower prices. However, stocks can theoretically keep rising, which could cause losses. So the investors that short the stock will either have to put more money up to secure their position or close their positions.   Essentially, short selling exposes which companies' stock prices are too high. In their search for overvalued firms, short-sellers can discover inconsistencies or other questionable practices before the entire market does. Short sellers can almost be regarded as the

Every type of investment has its upside and downside, and some are riskier than others. Cryptocurrencies, for example, are the newest type of investment. They are unregulated digital currencies bought and sold on cryptocurrency websites.  Cryptocurrencies such as Bitcoin have gained a lot of interest in recent years as an investment vehicle—some people even think it may replace gold in the future. However, cryptocurrencies remain an incredibly risky investment due to the fact that there are many unknown factors. For example, there is the possibility of government regulation and the possibility that the cryptocurrency will never see widespread acceptance as a form of payment. At this point, no one knows for sure what the future holds for cryptocurrencies, so investing in cryptocurrencies is little more than speculation. Rule #1 investors don’t invest in things they don’t know. That’s not investing, that’s gambling. On the other hand, cash and commodities are typically considered low-risk investments. So if

Square is a financial service, merchant services aggregator, and mobile payment company based in San Francisco, California. Danielle has openly expressed her excitement for this company—but what makes it so special? In 2009, Square initially started as a solution to mobile businesses without mobile payments. It took Founders Jim McKelvey and Jack Dorsey about 3 years to understand the market at the time, and how they could make an impact in this space.  They entered the market and were able to provide a small device that could be easily inserted into the audio jack of smartphones. With this convenient hardware and only a 2.75% transaction fee, they quickly divorced the merchant from the shackles of digital wires.  The successes of these innovations were multi-faceted. The infrastructure for payment processing was no longer costly for a specialized machine, but a small add-on to devices we already own. This also meant that as long as someone had the Square app, they could be a transaction node as well. Squa

This is an exciting time to be an investor in the stock market. As you know by now, Reddit investors just launched an "attack on Wall Street" by purchasing shares in GameStop. This pushed the stock price up over 480% in a week.  The investor who helped direct the world’s attention to GameStop is 34-year-old Keith Gill. Gill used Reddit’s WallStreetBets message board to promote GameStop, and used the identity of Roaring Kitty on his YouTube channel and Twitter page to help engineer a short squeeze against the hedge funds that were betting the price of GameStop would drop. But what is a short squeeze? If investors think a stock's price is dropping, they can short the stock. They borrow shares and sell them with hopes of buying them back at lower prices. However, stocks can theoretically keep rising, which could cause losses. So the investors that short the stock will either have to put more money up to secure their position or close their positions. If they choose to close their position, they are buying th

Are you one of the winners of the InvestED 300th podcast episode giveaway? Listen to this podcast to find out!  Investing in stocks is one of the best things you can do to set yourself up financially, but you have to first understand the company valuation process in order to actually make money. When a company decides to go public, an investment bank helps determine what the price of the company’s stock should be at their Initial Public Offering (IPO), when they become available to purchase on the stock exchange. They determine the initial price based on the value of the company and early interest from investors before the stock is available to the public.  After the company goes public, the stock price is based on supply and demand. When the demand for a stock goes up, its price goes up. The demand can increase if the company is doing extremely well and its value is increasing, or it can increase simply because of excitement from other investors.  It’s important to remember to not get the “value of the c

This week, we are celebrating the 300th episode of InvestED by doing a prize giveaway! Here’s how to enter: Go to investedpodcast.com Click the button “Click here for details!” Follow the steps for a chance to win: A FREE ticket to a 3-day Virtual Investing Workshop (a $300 value!) A signed copy of Invested* A $100 Amazon e-gift card Your question featured on the 301st episode of InvestED Danielle’s Bundle: A yearly subscription to the Invested Practice Newsletter and access to the Mostly Invested Online Course In this episode, Phil and Danielle bring great insights to their analyses of Li Lu’s speech from 2015, “The Prospect of Value Investing in China”.  Li Lu opens this speech by describing the ethics he believes all investors should follow: Make it your ethical obligation to seek truth and wisdom Be a really good fiduciary for your investors as if it’s your own money or your parent’s money He further implies that as a value investor in China, you will reap the benefits of finding wonderfu

One of the best things about investing is that it is possible for everyone to succeed—no matter your age, income, gender or IQ.  As a beginner investor, it’s easier to avoid mistakes and decrease risk by investing in companies you are already familiar with, and that have meaning to you.  For example, if you work in the tech industry, it’s going to be much easier for you to understand the goals of a tech company as well as their potential to reach those goals than it is going to be for you to evaluate a company in the pharmaceutical industry. Consider your personal passions, talents, and spending habits. Better yet, map them out using a venn diagram, placing passions in one circle, talents in another, and spending habits in another. Where these three areas overlap is your “Circle of Competence”, reflecting the industries and sectors you have the most knowledge of and where you should start your search for companies to invest in. Over time, you can begin to research companies across various sectors and expand y

It’s so important not to invest or sell stocks too soon. While the desire to get in on the ground floor of a brand new company or industry is certainly understandable, it is most often better to let the dust settle a little so that more information is available and you can do proper research before making an investment. Although, even with proper research and due diligence, even the most successful investors’ journeys are still fraught with errors and investing mistakes. Nevertheless, as painful as these investing mistakes are at the time, you can learn a lot from them and can use them to become a better investor. After all, no one wants to lose money on their hard-earned investments down the road.  The best way to avoid losing money on investments is to follow a proven investing strategy and never stray from it. Making irrational decisions based on emotions can be costly.  By avoiding greed or fear-based decisions, you can pursue a successful investing career and hopefully avoid the business and investment p