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33 - Low stock prices are better than high stock prices (Investing First Principle)

The DIY Investing Podcast: Value Investing | Fundamental Analysis | Mental Models | Business Management

Release Date: 06/30/2019

53 - How to buy illiquid stocks show art 53 - How to buy illiquid stocks

The DIY Investing Podcast: Value Investing | Fundamental Analysis | Mental Models | Business Management

Purchasing illiquid stocks presents unique challenges. Your buying process should focus on overcoming those challenges. Use limit orders and study price changes to buy sufficient shares.

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52 - The Acquirer's Multiple with author Tobias Carlisle (Interactive Book Review) show art 52 - The Acquirer's Multiple with author Tobias Carlisle (Interactive Book Review)

The DIY Investing Podcast: Value Investing | Fundamental Analysis | Mental Models | Business Management

In this episode, I interview Tobias Carlisle, author of The Acquirer's Multiple and fund manager of the ETF ZIG. Listen to an interactive review of this Deep Value Investing book.

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51 - Psychology of Selling Losers show art 51 - Psychology of Selling Losers

The DIY Investing Podcast: Value Investing | Fundamental Analysis | Mental Models | Business Management

In this episode, I discuss the psychology involved in selling losing stock positions. A core aspect of behavioral finance is overcoming our weaknesses. Ignoring opportunity cost is a key investing weakness.

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50 - Tim Eriksen Interview: MicroCap Investing $BVERS $WCRS $PIOE $BWEL show art 50 - Tim Eriksen Interview: MicroCap Investing $BVERS $WCRS $PIOE $BWEL

The DIY Investing Podcast: Value Investing | Fundamental Analysis | Mental Models | Business Management

In this episode, I interview Tim Eriksen and we discuss his investing strategy which involves buying microcap companies. Smaller companies offer higher returns historically. Tim Eriksen also provides insight into Beaver Land Company and its business model. We dive into additional companies including Western Capital Resources, P10 Holdings, and JG Boswell.

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49 - Value Stock Geek Interview: Cheap and Good Balance Sheet ($MU, $BDL, $DKS) show art 49 - Value Stock Geek Interview: Cheap and Good Balance Sheet ($MU, $BDL, $DKS)

The DIY Investing Podcast: Value Investing | Fundamental Analysis | Mental Models | Business Management

In this episode, I interview Value Stock Geek and we discuss his investing strategy which involves buying cheap companies with good balance sheets. For ValueStockGeek value is found in a low EV/EBIT multiple. This is the Acquirer's Multiple as named by Tobias Carlisle.

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48 - David Flood Interview: Dark Stock Investing ($PLWN, $BVERS, $NTIP, $MIRI, $HMGN) show art 48 - David Flood Interview: Dark Stock Investing ($PLWN, $BVERS, $NTIP, $MIRI, $HMGN)

The DIY Investing Podcast: Value Investing | Fundamental Analysis | Mental Models | Business Management

My interview with David Flood of Elementary Value focuses on investing in dark stocks. Dark stocks do not report public financial statements to the SEC. Many of these companies are deep value plays that offer attractive rates of return to investors willing to do a little bit of extra research. Scuttlebutt and fundamental analysis are key topics.

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47 - Forced Diversification and Illiquid Stocks show art 47 - Forced Diversification and Illiquid Stocks

The DIY Investing Podcast: Value Investing | Fundamental Analysis | Mental Models | Business Management

Illiquid stocks offer substantial opportunity, but can also lead to an inability to purchase as many shares as you would like. This situation, along with a lack of good ideas, can lead you to rationally diversifying your portfolio more than intended. Cash has a high opportunity cost, so it is okay to build small positions in companies that are still high quality, but may not currently trade at wonderful prices. Avoid "Diworsification"

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46 - Broker Price Wars: End Game ($0 Commissions) show art 46 - Broker Price Wars: End Game ($0 Commissions)

The DIY Investing Podcast: Value Investing | Fundamental Analysis | Mental Models | Business Management

The end game has begun in the brokerage price wars. We have reached the zero bound in terms of commissions now at $0 for US and Canadian exchanges. This will have a major impact on the accessibility of investing and will certainly change the recommendations I have made in the past to new investors.

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45 - Geoff Gannon Interview: Concentrated Investing in Overlooked Stocks ($NC, $KARE.AT, $NKR, $TRUX, $VLGEA) show art 45 - Geoff Gannon Interview: Concentrated Investing in Overlooked Stocks ($NC, $KARE.AT, $NKR, $TRUX, $VLGEA)

The DIY Investing Podcast: Value Investing | Fundamental Analysis | Mental Models | Business Management

In this episode, I interview Geoff Gannon of Focused Compounding Capital Management. Learn about his investing process and the benefit of concentrated investing in overlooked stocks.

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44 - Investing in Bank Stocks (WFC, CFR, ALLY, DFS) show art 44 - Investing in Bank Stocks (WFC, CFR, ALLY, DFS)

The DIY Investing Podcast: Value Investing | Fundamental Analysis | Mental Models | Business Management

Banks are able to operate at a 10-to-1 leverage ratio which can return a return on assets of 1.5% into a 15% return on equity.

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More Episodes

Mental Models discussed in this podcast:

  • Margin of Safety
  • Price vs Value
  • Time Value of Money
  • All Else Equal
  • First Principles

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Low stock prices are better than high stock prices (Investing First Principle) - Show Outline

The full show notes for this episode are available at https://www.diyinvesting.org/Episode33

It is preferable to purchase stocks at low stock prices for 2 key reasons

  1. The margin of safety is higher (What happens if you are wrong)
  2. Potential Return is higher (What happens if you are right)

Relationship between Price and Value

  • Value investing, at its core, is all about purchasing assets for less than they are worth. 
  • Price represents what you pay
  • Value is what you receive
  • Obviously, the lower the price you pay, the better the outcome. (Regardless of the value you actually receive)

"All Else Equal" considerations

  • Time Value of Money - You can’t directly compare the stock prices across time. (ie. today versus the stock price one year ago.) It’s quite possible that it makes sense to pay a higher price today than it did a year ago if the value has increased. 
  • Variable Business Quality - Some businesses are of higher quality than others. You can’t directly compare one company’s P/E ratio to that of another. A high-quality business might be worth 20x P/E while another business is only worth 10x P/E. It would be a mistake to assume the 10x P/E company is a better deal. 
  • Variable Growth Rates - Some businesses have the capability of profitably growing their earnings, and others do not. Those with profitable and sustainable growth in the future are going to be worth more. You can’t directly compare P/E ratio’s in that circumstance. 
  • Industry Differences - some industries are more attractive than others

Summary

The scope of this first principle is limited to simply understanding that your goal is to purchase the highest amount of present and future earnings possible. The way you do this is by paying a low price for those earnings.