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The Little Book That Beats the Market Book Review (Episode006)

The DIY Investing Podcast

Release Date: 04/20/2018

98 - Value Stock Geek Interview: Wonderful Companies at Wonderful Prices show art 98 - Value Stock Geek Interview: Wonderful Companies at Wonderful Prices

The DIY Investing Podcast

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.

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97 - Engineering Mental Models: Why Engineers make good investors show art 97 - Engineering Mental Models: Why Engineers make good investors

The DIY Investing Podcast

As an investor with an engineering background, I believe I bring a unique perspective to investing in businesses. The mental models: margin of safety, backup systems, scale, failure points, and leverage originate in engineering are useful for investors.

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96 - The difference between 96 - The difference between "Right" and "Useful" for investors

The DIY Investing Podcast

Your goal as an investor is not to be the most accurate in your calculations or to do everything the 'right' way. Your goal is to make money. Sometimes the right way technically leads you to make worse decisions.

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95 - How to build conviction in a stock idea (FAQ) show art 95 - How to build conviction in a stock idea (FAQ)

The DIY Investing Podcast

Conviction is a function of opportunity cost, the margin of safety, position-sizing, and upside. Your required conviction is determined by opportunity cost and position sizing. You increase conviction by improving the margin of safety and upside potential.

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94 - Japanese companies are worth less than American companies, All Else Equal show art 94 - Japanese companies are worth less than American companies, All Else Equal

The DIY Investing Podcast

This podcast episode outlines some key differences between Japanese culture and American culture which influence how investors should value Japan based stocks versus United States based stocks. Shareholder primacy and culture are important.

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93 - OTC Markets Business Analysis with Ralph Molina of Midstory Ventures show art 93 - OTC Markets Business Analysis with Ralph Molina of Midstory Ventures

The DIY Investing Podcast

I interviewed Ralph Molina of Midstory Ventures where we discuss a stock pick: OTC Markets. Stock Ticker: $OTCM

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92 - Discount Rates: Past, Present, and Future show art 92 - Discount Rates: Past, Present, and Future

The DIY Investing Podcast

Discount rates form the foundation for the process of stock valuation. Value investors, therefore, rationally adjust their discount rates based on their expectations for their future. Changing expectations will reduce discount rates over time.

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91 - GAAP vs non-GAAP Earnings (Amazon Deep Dive) show art 91 - GAAP vs non-GAAP Earnings (Amazon Deep Dive)

The DIY Investing Podcast

GAAP stands for "Generally Accepted Accounting Principles" and GAAP earnings represent net income available to shareholders using these accepted accounting principles. GAAP is foundational for investors trying to calculate the owner's earnings.

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90 - What is Intrinsic Value? show art 90 - What is Intrinsic Value?

The DIY Investing Podcast

Be very careful when describing an asset's "value." You need to define your terms because they matter. Intrinsic value is the Net Present Value of all future distributions of cash. (Not the NPV of Free Cash Flow) Extrinsic value is the market value as defined by others. 

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89 - All Securities are owned at all times (Investing First Principle) show art 89 - All Securities are owned at all times (Investing First Principle)

The DIY Investing Podcast

Every security or financial asset MUST be owned by someone at all times until that security is retired. This holds true for stocks, bonds, cash in the bank, QE, and any other similar financial asset. This is an investing first principle. First-principles are useful for investors seeking to develop investing strategies from the ground up. 

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Synopsis

This is a book review of The Little Book that Beats the Market by Joel Greenblatt. The basic concept of the book is that it's quite simple to beat the market. So simple in fact, that a specific magic formula can be used to beat the market.

If that sounds too good to be true, that’s understandable.

The author Joel Greenblatt understands your skepticism. His goal is twofold:

1. Share his magic formula with you

2. Explain the concepts that make the magic formula work.

Purchase the book through one of my affiliate links

Buy the Book on Amazon

Buy the Kindle version on Amazon

Buy the Audiobook on Amazon

*If you make a purchase through one of my affiliate links, I receive a small commission at NO additional cost to you.  This small commission helps to support the show and keep the episodes available for free. 

Would you like to invest using the Magic Formula?

I have developed what I believe to be the easiest and cheapest solution.  I created an index version based on the formula.  You can buy a 30 stock index of companies chosen using the Magic Formula which I plan to update on an annual basis.  All for a single low commission of $9.95. (In contrast to an estimated $150 if you bought each stock individually, at $5 per stock commission)

Just go to https://www.diyinvesting.org/magicformula

Show Notes available at DIYInvesting.org

The full show notes for this episode, including my outline for today's podcast, are available at https://www.diyinvesting.org/Episode6

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