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

The DIY Investing Podcast

Release Date: 11/03/2019

86 - The Tyranny of Backtesting: Why Backtests are harmful and counter-productive show art 86 - The Tyranny of Backtesting: Why Backtests are harmful and counter-productive

The DIY Investing Podcast

Investors use backtests in order to test whether a portfolio's asset allocation would have performed well in the past. The use of backtesting is harmful to a portfolio because it ignores uncertainty and overstates the value of empirical evidence.

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85 - Precisely Wrong, Roughly Right (DCFs) show art 85 - Precisely Wrong, Roughly Right (DCFs)

The DIY Investing Podcast

Discounted Cash Flow calculations and models provide precise estimates of intrinsic value but tend to be flawed. It is much better to improve accuracy by ignoring DCF and using a simple intrinsic value calculation like the Gordon Growth Model.

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84 - Would you buy your employer's stock? show art 84 - Would you buy your employer's stock?

The DIY Investing Podcast

The company you work for should be the first place you look to begin understanding how to perform scuttlebutt. Investors should analyze their employer's stock as a potential investment candidate. Culture, Quality, and Management are key areas.

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83 - Key Drawbacks of the Banking Industry show art 83 - Key Drawbacks of the Banking Industry

The DIY Investing Podcast

Banking is an industry with many key drawbacks including dependence on management for risk reduction, high leverage, low returns on equity, bankruptcy risk, and lack of pricing power because money is a commodity.

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82 - Why Banking is an Attractive Industry show art 82 - Why Banking is an Attractive Industry

The DIY Investing Podcast

Banking is an industry with characteristics that are quite attractive to long-term investors. Properly evaluated, a bank can make a great investment. High retention rates, lower competition over time, and the durability of the industry are what attract me to bank investing.

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81 - Always Ask Why: Bond Returns, Greater Fool Theory, and the 5 Why Framework show art 81 - Always Ask Why: Bond Returns, Greater Fool Theory, and the 5 Why Framework

The DIY Investing Podcast

Investors should always ask why when evaluating investments. This includes understanding the underlying reasons for their investing strategy, why they earn an excess return, and the edge of their circle of competence.

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80 - Zero Interest Rates should not reduce your Discount Rate show art 80 - Zero Interest Rates should not reduce your Discount Rate

The DIY Investing Podcast

When the Fed reduces interest rates to zero the first-order effect is a disincentive to save. Yet, zero interest rates should not reduce your discount rate because the second-order effect is because lower returns would increase your need to save money.

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79 - How Banks Make Money show art 79 - How Banks Make Money

The DIY Investing Podcast

Banking is a perfect example of a capital intensive business. A bank cannot grow unless it receives capital in the form of deposits. Deposits are the lifeblood of a bank and only through healthy deposit growth can a bank sustainably grow loans and therefore profits.

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78 - Earnings Yield on Cost: A valuation rule of thumb show art 78 - Earnings Yield on Cost: A valuation rule of thumb

The DIY Investing Podcast

Stocks must eventually trade at an earnings yield on cost equal to or greater than your discount rate in order to earn your required return on capital as an investor.

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77 - What is the source of your investment return? show art 77 - What is the source of your investment return?

The DIY Investing Podcast

Investing, as opposed to speculation or gambling, is a method of seeking returns while protecting our principal. You are not entitled to investment returns. So what is the source of your returns?

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Show Outline: Interview with Value Stock Geek

The full show notes for this episode are available at https://www.diyinvesting.org/Episode49

Part 1: ValueStockGeek's Investing Process

  • Basket of Stocks (20-30 positions)
  • Value: Cheap Stocks with Good Balance Sheets
  • Uses multiple valuation ratio's but prefers "Acquirer's Multiple"
  • High portfolio turnover 50-100% churn every year
  • Why the Quality factor reduces your returns
  • How to improve your stock-picking success rate by focusing on the balance sheet

Part 2: Example Stocks

  • Micron Technology ($MU) - Cheapest stock in the S&P 500
  • Flanigan's Enterprises, Inc. ($BDL) - A microcap company that owns bars, restaurants, and liquor stores in Florida
  • Dick's Sporting Goods ($DKS) - A retail company focused on the niche of outdoor sporting goods equipment