Start Time: 09:37
End Time: 14:18
The IFB explains how stocks are like trees and the difference between value investing and growth investing. The IFB gives tips on what to look for in stocks for investing beginners and why a long-term mindset is helpful when investing.
Upload Date: Mar 12, 2021
The IFB explains how stocks are like trees and the difference between value investing and growth investing. The IFB gives tips on what to look for in stocks for investing beginners and why a long-term mindset is helpful when investing. Getting into investing may seem scary, but with the right mindset and these tips, anyone is sure to benefit financially.
Charlie Munger said this recently. He was on the, uh, he was speaking at the Daily Journal meeting a couple of days ago and one of the things that he said, which I thought was an interesting take. Who said that all investing is value investing, and by that he meant that you're always looking for a great company, but you're looking for the opportunity to buy it for less than it's really worth, because the idea is that if you can buy it for less than it's actually worth, then at some point it will return, it will revert to the mean, and it will grow back to where it's actually what it's a value for. Think about it. I mentioned this in the past, but think about buying an iPhone. If you go and buy an iPhone and the phone is is valued at six or $700 for example, and you are able to find it on sale for 500 bucks for the exact same phone. Everybody and their brother was going to jump all over that. Unless you're a Samsung user, then of course, there's the flip side of that. If the same very same phone is selling for 28 to $3000 then very few people would realistically want to buy that. And I think of the stocks is kind of the same way. I want to find that $700 phone that really could grow to be worth $3000. But I want to pay 500 bucks for it. And that's kind of how I look at investing. And Charlie has said this in the past and I agree with this. Warren is not really Warren Buffett's really not a value investor in the classic sense. He's more of a quality investor. He's trying to find these fantastic companies that he can buy at a fair or reasonable price, and then it's going to either grow into that valuation or it's going to grow beyond that valuation. And that's really, really kind of what I'm trying to do. And I think maybe that's what Andrew is trying to do is trying to find these great companies that have a margin of safety but are maybe selling for less than what they're worth and will grow into those values at some point in the future and that's I think really what I think about when I think about investing and this whole divide between growth and value, I think sometimes it gets it gets played up a little more than it really should, And it really, really should look at trying to find an approach that works for you and try to find quality companies at a good price. That's really what it comes down to. You really have to incorporate growth into how you're valuing the company. And so to take your metaphor one step further. If we have three different models of iPhones, you have a iPhone 12, 9 and seven or something. Each of those are going to be valued differently because each has different features and one is going to be better than the other right. And so stocks have better growth prospects, and they do grow faster than others. They're going to demand that premium price. And so as an investor, it's not looking across the board and saying Wow, you know, whatever metric I'm using says this stock is cheap, but rather it's looking at each stock individually and then comparing them all kind of in the aggregate and saying how much is this company probably going to grow? And so if I'm looking at the stock in a more matured industry, you better believe I'm going to pay a lot cheaper of our price. As far as you know, for looking at price to earnings or any price to free cash flow, any price based metric, I'm gonna demand a much lower price for that compared to something that maybe it has all the tail winds in the world going for it. Growth with this market stealing market, share all of those things that's going to be allowed to command a premium price. And maybe my margin of safety on that high growing stock is still within expectations that are that are reasonable enough where it's not so detached from reality. You know, I'm not banking on the stock tripling and tripping, tripling its profits in the next two years or something. It's it's still within the realm of tangible reality. If you look at the tree is a good example, some branches might grow faster than others, but generally you can kind of quantify how long it's gonna take a tree to grow. And so look at stocks the same way you're not going to have a magic bean stock. But you know, there could be something in the middle where some grow faster than others, and that's where you make adjustments and you kind of work from there. That is very well said. And I love that. I love that analogy of the tree and the different iPhones. That's, uh, that's fantastic analogy so that