The DIY Investing Podcast
In this episode, I outline my top investing goals for the new year. I aim to identify 2 new companies worth buying and my goal is to attain a 20%+ annual return for 2021. I also cover process-based goals relating to how to go about investing research. Finally, I would like to pass the Series 65 exam so that I can begin managing money for outside clients.
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Many value investors lack a clear strategy on when to sell stocks in their portfolio. This decision ought to be based on opportunity cost, potential investment mistakes, intrinsic value, and return differential between old and new companies.
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An investment is any investment operation that utilizes a margin of safety, provides an adequate return of 10% or more, earns that return from fundamental cash flows, is a positive-sum game, and bounded by a range of prices and terms.
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Terminal Value is the net present value of all future cash flows discounted back to a specific year in the future. Intrinsic value is fixed, but your estimate of intrinsic value will change over time.
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The Deflation Myth has been accepted primarily because economists have used false assumptions in their analysis and because debtors, namely world governments, tend to hold massive political and cultural power. It is in their best interest to convince you that deflation is bad so that they can inflate away their debts. Yet, most investors are harmed more by inflation than they would be by deflation.
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Be conservative when valuing companies. Don't give managers credit where they don't deserve it. Enterprise value should only be used when companies hold debt. Yet, you should only buy companies with net cash.
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The best way to identify good stock ideas is to copy a watchlist of investors you trust and respect. Their best ideas can form a strong foundation for your watchlist.
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As I reflect on my first 100 episodes of The DIY Investing Podcast, I want to hear from you my audience. Share your thoughts and feedback so the next 100 episodes are even better.
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I interview two guests in today's show: Jan Svenda of SvendaManual.com and David Flood of ElementaryValue.com. We discuss their new product, an OTC Manual database for finding stock ideas.
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In my third interview with Value Stock Geek, we discuss his effort to transform his investing process in light of COVID-19 and recognition of past mistakes. His new goal is to buy wonderful companies at wonderful prices. No compromises.
info_outlineMental Models discussed in this podcast:
- Deflation
- Inflation
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Show Outline
The full show notes for this episode are available at https://www.diyinvesting.org/Episode103
The Deflation Myth
Deflation is considered bad because economists assume that consumers will hold off making purchases with the expectation that prices will decline in the future.
My rebuttal: This just doesn't happen.
The "rational consumer" doesn't exist. This is why you have a whole field called 'behavioral economics.'
For whom is deflation bad?
Deflation is bad for debtors (Those in Debt)
- Governments (because they are all debtors)
- Leveraged Companies
- Companies with pricing power
For whom is deflation good?
Creditors (Those who lend money to others)
Those without debt (Whether people or companies)
Companies without pricing power. (Simply holding prices stable will lead to increasing profits)
The Myth of "Stable Pricing"
Stable is 0% inflation, not 2% inflation as the US Federal Reserve would like you to accept.
Summary:
The Deflation Myth has been accepted primarily because economists have used false assumptions in their analysis and because debtors, namely world governments, tend to hold massive political and cultural power. It is in their best interest to convince you that deflation is bad so that they can inflate away their debts. Yet, most investors are harmed more by inflation than they would be by deflation.