The Investing for Beginners Podcast - Your Path to Financial Freedom

There are so many investing strategies out there it is hard to know which one is best for you. In today’s session, we will discuss some of the major investing strategies such as value investing, trend following, and momentum investing. All investing strategies have pros and cons to them and it is important to understand how these investing strategies work. Investing can be complicated enough, it is probably best to find a style that suits you and your personality so you can be successful. * A breakdown of trend following and momentum investing * Why buy dividends and why we aren’t missing out on non-dividend paying stocks * How valuations make a difference * The ins and outs of shorting a stock * The best use for value investing strategies   Welcome to session 15. Today we are going to be talking to Allan, who is from upstate New York and he has only been investing for a couple of weeks but he asks us some great questions. I can’t believe the quality of the questions being asked by the listeners of this show. It gives me hope that we are providing some value to everyone out there. In today’s session we will learn:   How does value investing compare to the other investing strategies, what are the pros and cons of each? Andrew: Yeah, that’s a great question. I don’t know if I mentioned this or not before, but when I got started in the world of investing. I had been exposed to a certain type of value investing, Peter Lynch was the first book I read, and it is more of a general value investing, and he doesn’t get into the nitty gritty of it. Just the basic of the vibe of selling high and buy low general advice you would get from a lot of books. Peter Lynch has some approaches that take it a step further. But that was the kind of the general thing that I got into it. I got into the Intelligent Investor written by Benjamin Graham, and that was what exposed me to value investing. Even though firstly I feel like a strategy should make sense intuitively, either the logic is there or it isn’t’. I apply that to a lot of different things. I feel like if you are an intuitive, intelligent person you can base your experiences, you can kind of use some of the out of the box thinking, and make a little bit of a thought experiment and what is being presented to you is legitimate. I felt value investing right away was for me, but I also am the type of person that wants to collect data on whatever options are available, see if I am going to label myself as a value investor what are my competitors doing so I can understand where I can get an edge. And on top of that maybe pull things that other guys are successful with and implement that into my strategy. One of those big things that both Dave and I love to preach is the trailing stop, and it’s not something that is talked about a lot of value investing, and it’s a technique we borrow from technical analysis, more specifically trend following. Trend following is a strategy that is based on instead of company financials it looks at a companies stock price. And it’s movement of the stock price and from there develops a system to try to maximize a profit gain on that stock price as it rises as there’s optimism and as the bulls are cheering up the stock as may be a craze happens and everybody just jumps in. What can happen with a strategy like that is naturally they can get in a lot of positions where a company is doing well. And that’s why the stock price is going up and that’s why a strategy like a trend following can attribute a lot of success to the same reasons like a strategy like value investing is attributing its success,

  Welcome to the Investing for Beginners podcast. In today’s session we talk to Steve from England! Our little podcast is international, and we discuss some great topics. Our main focus is on investing metrics and how they are a guideline and not a blueprint for your investing success. * How much to allocate to different investments and what size investments to make * Setting up watchlists for different types of investments * The best metrics to use to find the best stock ideas * How to balance dollar cost averaging and trading fees * What are the best stock screeners out there and should you invest in those services * Are small caps a good investment or are they too risky Andrew, was wondering when you split from your regular investing to adding the Dividend Aristocrats? Also how much do you invest in them, and when do you do it, and what size decisions do you make? Andrew: I love that question, the basis of my approach is trying to let’s take somebody the average basically, a hard working citizen in any country. This show is now a global thing and let’s not exclude lower income, people who aren’t making seven figures and have umbrellas of wealth, these parachutes they can fly off if they make a mistake as a CEO. Let’s look at the average person, people who don’t have much but can scrimp and save a little bit, do that each month. And let’s see if those people can make a fortune, the working class of the world. Obviously, I am talking about more developed countries, aside from that, how that relates to my whole investing approach is the ultimate goal is for the investments to have compounding interest in the most efficient compounding machine we can get. So we’ve talked about in previous episodes about dividend reinvestment, the drip and how that can roll down this hill of compounding and multiply the type of returns that we can see. The problem is when you’re investing smaller amounts of capital, you can’t always assume that you’re going to find a dividend aristocrat every single pick. If you have a portfolio that’s twenty positions, I like to keep it around 15 to 20. To think that I can pick a stock every single month and expect it to raise it’s dividend every year. So every year they raise their dividend, and you know the way that Dave and I approach investing is that we are trying to buy at a discount to intrinsic value. That already limits our pool of available investments because not every stock going to be a great buy at its current price. There are plenty of stocks that are great cash machines, they have fantastic businesses, they are growing their dividend like crazy, and they have a high dividend yield, but if the stock is priced too highly and too expensive then suddenly that’s not the most optimal place to put our capital. Knowing that in the end, it doesn’t matter whether you’re talking about low amounts of capital or high amounts of capital. That 15 to 20 reality of having that kind of a diversified portfolio is going to answer this kind of question already, especially when you have lower amounts of capital. I like to; you mention in the eLetter how I split it up between the Dividend fortress and the regular positions. I like to accumulate several positions worth of capital and then plow that into a dividend, it doesn’t have to be a dividend aristocrat, but it should have potential to be a dividend aristocrat. If you look at any of the fund managers, they will do this too. If you are just starting out with a portfolio, and you don’t have any diversification, and you are just going to dollar cost average like we recommend that you do. It is going to take you some time to build up positi...

  Welcome to the Investing for Beginners podcast. In today’s session we talk to Steve from England! Our little podcast is international, and we discuss some great topics. Our main focus is on investing metrics and how they are a guideline and not a blueprint for your investing success. * How much to allocate to different investments and what size investments to make * Setting up watchlists for different types of investments * The best metrics to use to find the best stock ideas * How to balance dollar cost averaging and trading fees * What are the best stock screeners out there and should you invest in those services * Are small caps a good investment or are they too risky Andrew, was wondering when you split from your regular investing to adding the Dividend Aristocrats? Also how much do you invest in them, and when do you do it, and what size decisions do you make? Andrew: I love that question, the basis of my approach is trying to let’s take somebody the average basically, a hard working citizen in any country. This show is now a global thing and let’s not exclude lower income, people who aren’t making seven figures and have umbrellas of wealth, these parachutes they can fly off if they make a mistake as a CEO. Let’s look at the average person, people who don’t have much but can scrimp and save a little bit, do that each month. And let’s see if those people can make a fortune, the working class of the world. Obviously, I am talking about more developed countries, aside from that, how that relates to my whole investing approach is the ultimate goal is for the investments to have compounding interest in the most efficient compounding machine we can get. So we’ve talked about in previous episodes about dividend reinvestment, the drip and how that can roll down this hill of compounding and multiply the type of returns that we can see. The problem is when you’re investing smaller amounts of capital, you can’t always assume that you’re going to find a dividend aristocrat every single pick. If you have a portfolio that’s twenty positions, I like to keep it around 15 to 20. To think that I can pick a stock every single month and expect it to raise it’s dividend every year. So every year they raise their dividend, and you know the way that Dave and I approach investing is that we are trying to buy at a discount to intrinsic value. That already limits our pool of available investments because not every stock going to be a great buy at its current price. There are plenty of stocks that are great cash machines, they have fantastic businesses, they are growing their dividend like crazy, and they have a high dividend yield, but if the stock is priced too highly and too expensive then suddenly that’s not the most optimal place to put our capital. Knowing that in the end, it doesn’t matter whether you’re talking about low amounts of capital or high amounts of capital. That 15 to 20 reality of having that kind of a diversified portfolio is going to answer this kind of question already, especially when you have lower amounts of capital. I like to; you mention in the eLetter how I split it up between the Dividend fortress and the regular positions. I like to accumulate several positions worth of capital and then plow that into a dividend, it doesn’t have to be a dividend aristocrat, but it should have potential to be a dividend aristocrat. If you look at any of the fund managers, they will do this too. If you are just starting out with a portfolio, and you don’t have any diversification, and you are just going to dollar cost average like we recommend that you do.

Welcome to session 13 of the Investing for Beginners podcast. In today’s session, we have a Q&A with Steven about many different topics, but the two main items for discussion are the forward P/E and 10% dividend paying stocks. Calculating a forward P/E can be tricky and relying on the financial websites to do it for you can be risky, they are not always using the most relevant data and sometimes rely on analysts reports. This is risky because the analyst’s data can be skewed by their biases, which can lead you astray. We discuss this and much more. * How to find great investments using the Value Trap Indicator, even when the investments are months old * The best financial websites to find the most up to date data to calculate a P/E * The fallacy of using a forward P/E and how the analyst’s data could be biased * Are companies paying a 10% dividend risky? * How to find safe, reliable dividend paying stocks How would I know if any of the choices in Andrew’s eletter would be good investments now? Andrew: Well, I have a good, nice and easy answer for you. That’s the good news, first off a hot tip for a fellow Californian, I bet it’s beautiful out there right now. Basically, if you look at the eletter portfolio and you will see all the positions like you said it shows what date I recommended it and then I also show what the price was when I recommended it and what the current price is now. On that second to the last column, you will see a return percentage and that shows you much the stock has returned since recommendation. And all the stocks that are on there are going to be a hold unless a stock triggers a trailing stop or if I’m trying to take some profits then we’ll go ahead and activate a sell. But a majority of the time all the positions are going to be a hold. And what I would do if it was me starting over trying to build a new portfolio I would try to build these positions slowly over time and if I was trying to buy maybe buy more than one position at a time I would just look at the stocks that haven’t appreciated yet, as in haven’t made any significant gains. I am looking at the portfolio right now, many of the stocks that have really high gains you are going to want to stay away from because those, not to say they won’t be great investments in the future. But the main premise of the kind of investing that Dave and I like to teach is buying stocks when they’re trading at a discount to what they are really worth. Although a lot of these stocks still might be at a discount, if they’ve already seen an uptick in the price you likely aren’t getting as much of a discount. With every single stock on here, we are trying to get a discount. Any stock that hasn’t really risen that much is likely still within that discount range. I’ve got stocks on here, there’s one up 31%, 86%, 13%, those you probably, generally want to stay away from, see if they dip lower. There’s stock on here that’s down 0.8%, and there’s another one that down 9%, stocks like those are still going to be good buys today because they are trading at around the same as when I recommended them. I’m constantly reevaluating these stocks as new data comes out. I tend to do that at least once a year, for many of these positions. If I haven’t triggered a sell and notified a sell on the eletter issued then you’ll know that these stocks are still, they have a good premise of why they should be bought or held. There’s a couple in there, a good group of maybe three or four where the shares haven’t really gone up too in price,

Welcome to session 13 of the Investing for Beginners podcast. In today’s session, we have a Q&A with Steven about many different topics, but the two main items for discussion are the forward P/E and 10% dividend paying stocks. Calculating a forward P/E can be tricky and relying on the financial websites to do it for you can be risky, they are not always using the most relevant data and sometimes rely on analysts reports. This is risky because the analyst’s data can be skewed by their biases, which can lead you astray. We discuss this and much more. * How to find great investments using the Value Trap Indicator, even when the investments are months old * The best financial websites to find the most up to date data to calculate a P/E * The fallacy of using a forward P/E and how the analyst’s data could be biased * Are companies paying a 10% dividend risky? * How to find safe, reliable dividend paying stocks How would I know if any of the choices in Andrew’s eletter would be good investments now? Andrew: Well, I have a good, nice and easy answer for you. That’s the good news, first off a hot tip for a fellow Californian, I bet it’s beautiful out there right now. Basically, if you look at the eletter portfolio and you will see all the positions like you said it shows what date I recommended it and then I also show what the price was when I recommended it and what the current price is now. On that second to the last column, you will see a return percentage and that shows you much the stock has returned since recommendation. And all the stocks that are on there are going to be a hold unless a stock triggers a trailing stop or if I’m trying to take some profits then we’ll go ahead and activate a sell. But a majority of the time all the positions are going to be a hold. And what I would do if it was me starting over trying to build a new portfolio I would try to build these positions slowly over time and if I was trying to buy maybe buy more than one position at a time I would just look at the stocks that haven’t appreciated yet, as in haven’t made any significant gains. I am looking at the portfolio right now, many of the stocks that have really high gains you are going to want to stay away from because those, not to say they won’t be great investments in the future. But the main premise of the kind of investing that Dave and I like to teach is buying stocks when they’re trading at a discount to what they are really worth. Although a lot of these stocks still might be at a discount, if they’ve already seen an uptick in the price you likely aren’t getting as much of a discount. With every single stock on here, we are trying to get a discount. Any stock that hasn’t really risen that much is likely still within that discount range. I’ve got stocks on here, there’s one up 31%, 86%, 13%, those you probably, generally want to stay away from, see if they dip lower. There’s stock on here that’s down 0.8%, and there’s another one that down 9%, stocks like those are still going to be good buys today because they are trading at around the same as when I recommended them. I’m constantly reevaluating these stocks as new data comes out. I tend to do that at least once a year, for many of these positions. If I haven’t triggered a sell and notified a sell on the eletter issued then you’ll know that these stocks are still, they have a good premise of why they should be bought or held. There’s a couple in there, a good group of maybe three or four where the shares haven’t really gone up too in price,

In today’s session, we are going to talk about quantitative versus qualitative analysis of stocks, this should be an interesting go around. I know how I feel about this, but I am not sure how Andrew feels about this, but I have an idea, but I think this could be interesting. Phil Fisher was the creator of the term scuttlebutt investing, it was a method he used to gather qualitative information to help him in his investment process. He used it to great effect and it was integral to his success. This process is a little more difficult for the individual investor but some of the aspects of scuttlebutt investing can be added to anyone’s arsenal. * Definition of quantitative versus qualitative * What it means to be strongly quantitative * The pros of quantitative analysis * The advantage of utilizing both quantitative and qualitative analysis * How biases can affect your thinking and investing Andrew: Yeah, the guy who formulated the Value Trap Indicator, a quant-based system, obviously I might lean one way or the other. The way that I kind of look at and I think it is a little bit contrarian to what a lot of value investor that there is a lot of belief that you have to have a balance of quantitative and qualitative. If we define that real quickly, for the beginners. Qualitative is talking about the aspects of the business that are more intuitive things like how skilled is management, where you perceive a trend as far as supply and demand. It is things that you can’t put a hard number on, but it still can have an effect on the business. So that’s qualitative and quantitative is everything that is strictly about the numbers, tangible data like assets, earnings, cash flow stuff like that. So, I kind of want to hear your take on it, Dave, because I am all about the quant, I know there are guys like Phil Fisher, who wrote “Common Stocks and Uncommon Profits”, which was one of the first books I read about the stock market. He talks about a thing called “scuttlebutt” which is his way of using and doing qualitative analysis. He would go and talk to different executives at different companies that he was interested in, and try to get some information based on those kinds of conversations. I think that Buffett tries to do the same as well. And I know guys like Jae Jun at Old School Value, I’ve interviewed him before and he talks about how there’s an art to value investing and you need to balance qualitative and quantitative. I don’t think there is a right or wrong answer and that is why we are having this discussion and having this episode, it is going to be interesting to see what the positives and negatives are of both methods and which one is better. Or should you try to merge the two? Dave: That is a very good point. My thoughts on the battle of quantitative versus qualitative. I am going to say that I am a little more like Jae Jun, where I think I don’t know that I could necessarily put hard and fast rule number wise, 75 to 25 or 50/50 anything in nature. I know that Ben Graham, who we both admire quite a bit was definitely a quant, he was definitely all about the numbers. Warren Buffett who is one of our idols, he started off as a quant and he has merged through his life into a little bit more of both. And I think I probably fall a little bit more into that as well. You know the quantitative analysis is like Andrew said, is all about the numbers, the balance sheets, cash flow statements, income statements, and all the numbers. Looking at valuations,

In today’s session, we are going to talk about quantitative versus qualitative analysis of stocks, this should be an interesting go around. I know how I feel about this, but I am not sure how Andrew feels about this, but I have an idea, but I think this could be interesting. Phil Fisher was the creator of the term scuttlebutt investing, it was a method he used to gather qualitative information to help him in his investment process. He used it to great effect and it was integral to his success. This process is a little more difficult for the individual investor but some of the aspects of scuttlebutt investing can be added to anyone’s arsenal. * Definition of quantitative versus qualitative * What it means to be strongly quantitative * The pros of quantitative analysis * The advantage of utilizing both quantitative and qualitative analysis * How biases can affect your thinking and investing Andrew: Yeah, the guy who formulated the Value Trap Indicator, a quant-based system, obviously I might lean one way or the other. The way that I kind of look at and I think it is a little bit contrarian to what a lot of value investor that there is a lot of belief that you have to have a balance of quantitative and qualitative. If we define that real quickly, for the beginners. Qualitative is talking about the aspects of the business that are more intuitive things like how skilled is management, where you perceive a trend as far as supply and demand. It is things that you can’t put a hard number on, but it still can have an effect on the business. So that’s qualitative and quantitative is everything that is strictly about the numbers, tangible data like assets, earnings, cash flow stuff like that. So, I kind of want to hear your take on it, Dave, because I am all about the quant, I know there are guys like Phil Fisher, who wrote “Common Stocks and Uncommon Profits”, which was one of the first books I read about the stock market. He talks about a thing called “scuttlebutt” which is his way of using and doing qualitative analysis. He would go and talk to different executives at different companies that he was interested in, and try to get some information based on those kinds of conversations. I think that Buffett tries to do the same as well. And I know guys like Jae Jun at Old School Value, I’ve interviewed him before and he talks about how there’s an art to value investing and you need to balance qualitative and quantitative. I don’t think there is a right or wrong answer and that is why we are having this discussion and having this episode, it is going to be interesting to see what the positives and negatives are of both methods and which one is better. Or should you try to merge the two? Dave: That is a very good point. My thoughts on the battle of quantitative versus qualitative. I am going to say that I am a little more like Jae Jun, where I think I don’t know that I could necessarily put hard and fast rule number wise, 75 to 25 or 50/50 anything in nature. I know that Ben Graham, who we both admire quite a bit was definitely a quant, he was definitely all about the numbers. Warren Buffett who is one of our idols, he started off as a quant and he has merged through his life into a little bit more of both. And I think I probably fall a little bit more into that as well. You know the quantitative analysis is like Andrew said, is all about the numbers, the balance sheets, cash flow statements, income statements, and all the numbers. Looking at valuations,

Today we are going to talk about stock valuation methods. Andrew has a great ebook that he wrote a while back that talks a lot about how to value a stock. These are methods that I use personally every day . * A breakdown of the 7 valuation metrics that we use * P/E ratio and its importance * P/B ratio and the relevance to value investing * Debt to Equity is probably the most important ratio   Andrew: There are a lot of different ways you can evaluate a stock, there are a lot of different models. I want to talk about some of the simplest ones that you’ll approach, you can always take the subject a bit further. You can talk to experts, they like to talk about things like EV or EV/EBITDA, that is enterprise value to earnings before interest, taxes, depreciation and amortization. You could do a discounted cash flow valuation you can do free cash flow valuations. There are all these different metrics that someone can use to really value a stock. some of the most basic ones I actually use. We are going to talk about 7 of them and they’re all part of the seven steps that I wrote about in my ebook. IT is also the same 7 metrics I use for my value trap indicator system. All of these combined are what I use to formulate my approach and it’s the exact same method I use to buy every single stock that I buy. Now, keep in mind you certainly can use one of these. Some people do, you have the Peter Lynch approach where people just strictly look at a PEG ratio, which can be a combination of two of them that we are going to talk about today. You certainly could use just one, there is the Ben Graham approach, which early one was one that Warren Buffett used which he calls the “net, net” approach. Kind of like, the metaphor they use is picking “cigar butts.” And they really use a price-to-book, more focused on net tangible assets. This is another variation of a valuation method that we are going to talk about today. My whole point is that you could center on any one of these valuations, I argue that when you value a stock, you don’t want a laser focus on making one ratio that much more important than the others. I think you want to take a complete picture approach, understand that there are three financial statements that every single stock needs to post to the SEC. The SEC puts it on their website and it’s freely available information to us. A lot of investors will look at one little tiny sliver of the financial statements, completely ignore the other ones and get blindsided when they don’t account for things they aren’t looking for. We are going to look at the whole picture, all seven of these and not so much that they are all excellent but they are all good enough to where you can feel comfortable that number one we are getting a stock at a good price. And number two, that were are getting a stock that has a great business model, and is likely to continue and gives us gains in the future. The first method valuation method I want to talk about is probably the most common and every single novice investor knows of this ratio. And that is the Price to Earnings ratio or P/E. What this is going to tell us is, if you think about what a business does, the business will basically spend money and they are going to try to make more than they spend, and that difference is a profit. And profit really becomes the number one goal of the business, which is something that gets lost in the wash.  A lot of people focus on other things, but really at the end of the day, the goal of a business is to turn a profit. Price to earnings ratio helps ensures us that as investors we are getting a fair share of the profits.

Today we are going to talk about stock valuation methods. Andrew has a great ebook that he wrote a while back that talks a lot about how to value a stock. These are methods that I use personally every day . * A breakdown of the 7 valuation metrics that we use * P/E ratio and its importance * P/B ratio and the relevance to value investing * Debt to Equity is probably the most important ratio   Andrew: There are a lot of different ways you can evaluate a stock, there are a lot of different models. I want to talk about some of the simplest ones that you’ll approach, you can always take the subject a bit further. You can talk to experts, they like to talk about things like EV or EV/EBITDA, that is enterprise value to earnings before interest, taxes, depreciation and amortization. You could do a discounted cash flow valuation you can do free cash flow valuations. There are all these different metrics that someone can use to really value a stock. some of the most basic ones I actually use. We are going to talk about 7 of them and they’re all part of the seven steps that I wrote about in my ebook. IT is also the same 7 metrics I use for my value trap indicator system. All of these combined are what I use to formulate my approach and it’s the exact same method I use to buy every single stock that I buy. Now, keep in mind you certainly can use one of these. Some people do, you have the Peter Lynch approach where people just strictly look at a PEG ratio, which can be a combination of two of them that we are going to talk about today. You certainly could use just one, there is the Ben Graham approach, which early one was one that Warren Buffett used which he calls the “net, net” approach. Kind of like, the metaphor they use is picking “cigar butts.” And they really use a price-to-book, more focused on net tangible assets. This is another variation of a valuation method that we are going to talk about today. My whole point is that you could center on any one of these valuations, I argue that when you value a stock, you don’t want a laser focus on making one ratio that much more important than the others. I think you want to take a complete picture approach, understand that there are three financial statements that every single stock needs to post to the SEC. The SEC puts it on their website and it’s freely available information to us. A lot of investors will look at one little tiny sliver of the financial statements, completely ignore the other ones and get blindsided when they don’t account for things they aren’t looking for. We are going to look at the whole picture, all seven of these and not so much that they are all excellent but they are all good enough to where you can feel comfortable that number one we are getting a stock at a good price. And number two, that were are getting a stock that has a great business model, and is likely to continue and gives us gains in the future. The first method valuation method I want to talk about is probably the most common and every single novice investor knows of this ratio. And that is the Price to Earnings ratio or P/E. What this is going to tell us is, if you think about what a business does, the business will basically spend money and they are going to try to make more than they spend, and that difference is a profit. And profit really becomes the number one goal of the business, which is something that gets lost in the wash.  A lot of people focus on other things, but really at the end of the day, the goal of a business is to turn a profit. Price to earnings ratio helps ensures us that as investors we are getting a fair share of the profits.

Baseball and value investing have much more in common than one would think at first. The discipline and analyzation that you find in baseball can correlate to value investing quite easily. Great hitters like Ted Williams, Tony Gwynn, and Barry Bonds were extremely disciplined in their approaches and did an extensive study of the pitchers that they faced. All of this lead directly to their success, as well as their incredible talents. Great value investors like Warren Buffett have taken these ideas and adapted them to their value investing style. Using quantitative investing is the investing version of sabermetrics. Numbers can tell a story and value investors use quant investing to help tell that story. * Value Investing and baseball have more in common than you would think. * Ted Williams was the first player to take a scientific approach to hitting a baseball * Warren Buffett adopted these ideas to his investment philosophy. * Patience is key to being a great investor * Intrinsic value is found everywhere * Keeping your mind open to any possibilities can lead you to unexpected investment ideas. * The study of numbers or quant investing is the investing version of sabermetrics used in baseball.    Dave: Welcome to session number 10. In honor of the baseball season starting this coming Sunday we are  going to talk a bit about baseball and investing and how they go together. That may be a strange topic for some people, I am sure we are getting some funny looks from people as they are listening to this. But you would be surprised there are some very strong correlations and a lot of big value investors are very big baseball fans and they use a lot of analogies about baseball and how they look at their investing. They get a lot of great ideas from baseball and some of the strategies as well as the discipline that baseball players adhere too.   I will start and talk a bit about an article that I wrote just recently about Ted Williams and value investing. And for those of you not familiar with Ted Williams. First, of all, he is probably considered, in a lot of baseball circles the finest hitter in the history of baseball. Better than Babe Ruth, Willie Mays, Hank Aaron and he has the numbers to prove it. He played from the late ’40s thru the mid-’60s and he was the last man to hit over .400, and he hit .406 in 1941 and it has not been done since. So that is over 66 years since it was last done. He was really the first guy to study hitting as a science and he was a huge influence on scores of players who followed him, most notably Tony Gwynn. But Williams was the first guy to take baseball and apply science to it and analyzation. Andrew: I think that is key when you think about people that are excellent at their craft. There is this theory called the Prado Principle where 20% of the top performers make up 80% of the results. We see that in economics, and in the Olympics, where you see someone who is a half a second faster gets a far greater proportion of the results than the rest of their competitors. If you can study the greats you can see that a lot of the principles are shared, whether that’s baseball, chess, or investing. It’s something that you can study “peak performers” you can really glean a lot of things that you can apply to your own situation.   Dave: Great points. Before Ted Williams, most players hitting philosophy was “see the ball, hit the ball”. They didn’t study, they didn’t pay any attention to patterns, they just went up and swung the bat, hoping for a hit. One of the things that Williams did was to break the strike zone down into 252 small little baseball sized zones. And he figured out that in certain zones he was much more successfu...

Baseball and value investing have much more in common than one would think at first. The discipline and analyzation that you find in baseball can correlate to value investing quite easily. Great hitters like Ted Williams, Tony Gwynn, and Barry Bonds were extremely disciplined in their approaches and did an extensive study of the pitchers that they faced. All of this lead directly to their success, as well as their incredible talents. Great value investors like Warren Buffett have taken these ideas and adapted them to their value investing style. Using quantitative investing is the investing version of sabermetrics. Numbers can tell a story and value investors use quant investing to help tell that story. * Value Investing and baseball have more in common than you would think. * Ted Williams was the first player to take a scientific approach to hitting a baseball * Warren Buffett adopted these ideas to his investment philosophy. * Patience is key to being a great investor * Intrinsic value is found everywhere * Keeping your mind open to any possibilities can lead you to unexpected investment ideas. * The study of numbers or quant investing is the investing version of sabermetrics used in baseball.    Dave: Welcome to session number 10. In honor of the baseball season starting this coming Sunday we are  going to talk a bit about baseball and investing and how they go together. That may be a strange topic for some people, I am sure we are getting some funny looks from people as they are listening to this. But you would be surprised there are some very strong correlations and a lot of big value investors are very big baseball fans and they use a lot of analogies about baseball and how they look at their investing. They get a lot of great ideas from baseball and some of the strategies as well as the discipline that baseball players adhere too.   I will start and talk a bit about an article that I wrote just recently about Ted Williams and value investing. And for those of you not familiar with Ted Williams. First, of all, he is probably considered, in a lot of baseball circles the finest hitter in the history of baseball. Better than Babe Ruth, Willie Mays, Hank Aaron and he has the numbers to prove it. He played from the late ’40s thru the mid-’60s and he was the last man to hit over .400, and he hit .406 in 1941 and it has not been done since. So that is over 66 years since it was last done. He was really the first guy to study hitting as a science and he was a huge influence on scores of players who followed him, most notably Tony Gwynn. But Williams was the first guy to take baseball and apply science to it and analyzation. Andrew: I think that is key when you think about people that are excellent at their craft. There is this theory called the Prado Principle where 20% of the top performers make up 80% of the results. We see that in economics, and in the Olympics, where you see someone who is a half a second faster gets a far greater proportion of the results than the rest of their competitors. If you can study the greats you can see that a lot of the principles are shared, whether that’s baseball, chess, or investing. It’s something that you can study “peak performers” you can really glean a lot of things that you can apply to your own situation.   Dave: Great points. Before Ted Williams, most players hitting philosophy was “see the ball, hit the ball”. They didn’t study, they didn’t pay any attention to patterns, they just went up and swung the bat, hoping for a hit. One of the things that Williams did was to break the strike zone down into 252 small little baseball sized zones. And he figured out that in certain zones he was much more successfu...

  Finding blue chip paying dividend stocks is one of the best ways to grow your wealth over time. These companies that pay a dividend consistently over the years over a great double compounding effect that is hard to beat. We will discuss some of the myths of dividend paying blue chip stocks and why they are in some cases avoided by the investor for flashier, more exciting opportunities. * The definition of blue chip dividend paying stocks * Accumulating dividends is better than selling shares for income * A hot topic is a reinvestment versus dividend payouts * Some of the best dividend payers are “boring” companies * Blue chip dividend paying stocks are great wealth building machines Andrew: Yeah, so I want to talk about blue chip stocks tonight. And specifically, dividend paying stocks. Because on the one hand they are very popular and people like to look to them. you have indexes like the Dow that are made up of blue chip stocks and turn on the tv people always talk about the blue chips stocks. You have these stereotypes about stocks that pay dividends, specifically blue chip stocks that pay dividends. As a big dividend investor trying to buy stocks at a discount to their intrinsic value these myths that I want to address are something that I think is something that I think can turn people off from dividend investing. And maybe we can figure out if these ideas are really valid. Then we can understand them and feel more confident. And additionally, know what to look for when it comes to picking the right blue chip dividend paying stocks. Dave: That sounds like a great topic, it would be interesting for me and to learn a little bit about this subject. I think it would also be interesting for our listeners too. Dividends are obviously a very big, important part of investing. And it’s a great way to earn income and that is what we are all here for. As you have mentioned in the past, investing for income is what we are all about. I know that we have some different topics that we want to talk about. In particular, the myths surrounding dividend paying blue chip stocks. So why don’t we talk about the first one.   Selling shares is better for income than dividends?   Andrew: so there’s this idea that number one you can buy a stock and if it grows let’s say 20% in one year, this idea is even though this stock didn’t pay a dividend it grew 20% compared to it a typical blue chip that pays a dividend and is yielding 3% or less. So the investor says “look here, I have my non-dividend paying stock that has gained 20% and now I am going to sell for the 20% gain and now I have income. This is something that people who justified not buying a dividend-paying company. They will use this argument as one of the first arguments that I don’t need dividends because I can sell shares for income. And I really think it is super basic the whole point of growing dividends we talked in the previous episode of creating that DRIP machine the drip coffee machine that accumulates shares over time. When your selling shares early in order to receive some sort of income. What you are doing is cutting away at your real ownership is. So, yes even though you did earn 20% the first year, if you now have 9 shares of stock instead of 10, you’re losing that ownership. So, where it can really hurt if the market goes down instead of up. If I compare that to a dividend blue chip paying stock like IBM with a yield 1 to 3% you might think as an investor even though I got a 20% gain even without getting paid a dividend. If I sell the 20% I gained. Compared that to a smaller yield of the blue chip stock. You might originally think that you got a better deal.

  Finding blue chip paying dividend stocks is one of the best ways to grow your wealth over time. These companies that pay a dividend consistently over the years over a great double compounding effect that is hard to beat. We will discuss some of the myths of dividend paying blue chip stocks and why they are in some cases avoided by the investor for flashier, more exciting opportunities. * The definition of blue chip dividend paying stocks * Accumulating dividends is better than selling shares for income * A hot topic is a reinvestment versus dividend payouts * Some of the best dividend payers are “boring” companies * Blue chip dividend paying stocks are great wealth building machines Andrew: Yeah, so I want to talk about blue chip stocks tonight. And specifically, dividend paying stocks. Because on the one hand they are very popular and people like to look to them. you have indexes like the Dow that are made up of blue chip stocks and turn on the tv people always talk about the blue chips stocks. You have these stereotypes about stocks that pay dividends, specifically blue chip stocks that pay dividends. As a big dividend investor trying to buy stocks at a discount to their intrinsic value these myths that I want to address are something that I think is something that I think can turn people off from dividend investing. And maybe we can figure out if these ideas are really valid. Then we can understand them and feel more confident. And additionally, know what to look for when it comes to picking the right blue chip dividend paying stocks. Dave: That sounds like a great topic, it would be interesting for me and to learn a little bit about this subject. I think it would also be interesting for our listeners too. Dividends are obviously a very big, important part of investing. And it’s a great way to earn income and that is what we are all here for. As you have mentioned in the past, investing for income is what we are all about. I know that we have some different topics that we want to talk about. In particular, the myths surrounding dividend paying blue chip stocks. So why don’t we talk about the first one.   Selling shares is better for income than dividends?   Andrew: so there’s this idea that number one you can buy a stock and if it grows let’s say 20% in one year, this idea is even though this stock didn’t pay a dividend it grew 20% compared to it a typical blue chip that pays a dividend and is yielding 3% or less. So the investor says “look here, I have my non-dividend paying stock that has gained 20% and now I am going to sell for the 20% gain and now I have income. This is something that people who justified not buying a dividend-paying company. They will use this argument as one of the first arguments that I don’t need dividends because I can sell shares for income. And I really think it is super basic the whole point of growing dividends we talked in the previous episode of creating that DRIP machine the drip coffee machine that accumulates shares over time. When your selling shares early in order to receive some sort of income. What you are doing is cutting away at your real ownership is. So, yes even though you did earn 20% the first year, if you now have 9 shares of stock instead of 10, you’re losing that ownership. So, where it can really hurt if the market goes down instead of up. If I compare that to a dividend blue chip paying stock like IBM with a yield 1 to 3% you might think as an investor even though I got a 20% gain even without getting paid a dividend. If I sell the 20% I gained. Compared that to a smaller yield of the blue chip stock. You might originally think that you got a better deal.

.  The efficient market hypothesis is one of the hottest debated topics in the investing world. In today’s session, we are going to discuss some of the many ways this theory is flawed. We will talk about many of the efficient market hypothesis assumptions and how they may or many not have gotten it wrong. Pricing is one of the main hot buttons in this theory and we will show why the efficient market hypothesis assumptions are incorrect.   * The efficient market hypothesis states the market can’t be beat * All stock prices have all relevant information included in them * Only way to beat the market is with passive investing * Warren Buffet debunks this with his famous speech * Value investing has beaten the market over the last thirty years * The efficient market hypothesis is based on people being rational, which we all know we are not. * The market can be beaten and there are lots of tools to help. * If you don’t want to be an individual investor than index funds are the way to go.   Andrew: Well, two weeks ago we took out our weapons and fired them into the financial services industry and probably pissed off a few people. Today we are going direct it against some other group. Probably make some people mad. Basically talking about the academic types in their ivory tower. There is a theory called the efficient market hypothesis, really based off a lot of the professors at the University of Chicago. If you pursue an education in relation to investing or the stock market, economics you will get exposed to the efficient market hypothesis. It is something that there has been a lot of studies on. Ph.D. thesis was done on it. It is also a very hotly debated theory among investors, particularly value investors. You have the value investor side. Guys who have made billions like Warren Buffett, Seth Klarman, Peter Lynch, Joel Greenblatt, Monish Pabrai, and on, and on. It’s kind of like them through their performance that has proved the efficient market hypothesis hasn’t held true for them. So, there’s that camp. And there’s the other camp that says the other investors should not try to beat the market because the markets are efficient. So that’s something we kind of want to address and give our own takes on it to see. Our audience is a lot of beginners and if there are academic studies saying we shouldn’t try to beat the market. Or is it something we should try to follow, or is it something we should look further into and see if there is a way to mitigate that. That’s what I hope to do with this episode. Dave: Why don’t you tell us a little bit about the efficient market hypothesis. Where it originated and who started it, and what your thoughts are on it. Andrew: It’s been around for a while. Most recently is has been popularized by Jack Bogle and author Burton Malkiel, who wrote a Random Walk Down Wall Street. Where he brought his own inputs into it and gave some conclusions about why the markets are really efficient. So the whole premise behind it is that there is this idea that every stock available in the stock market is fairly priced based on the information that is available currently. There is all this financial data, these stocks trade on how they release earnings, what balance sheets look like. So, the whole premise of the efficient market hypothesis is that all this information is freely available. You’ve got millions, perhaps billions who are sifting through this. Industry professionals, fund managers, individual investors like you and I are all dissecting this data as it comes out and investors react. For examples,

.  The efficient market hypothesis is one of the hottest debated topics in the investing world. In today’s session, we are going to discuss some of the many ways this theory is flawed. We will talk about many of the efficient market hypothesis assumptions and how they may or many not have gotten it wrong. Pricing is one of the main hot buttons in this theory and we will show why the efficient market hypothesis assumptions are incorrect.   * The efficient market hypothesis states the market can’t be beat * All stock prices have all relevant information included in them * Only way to beat the market is with passive investing * Warren Buffet debunks this with his famous speech * Value investing has beaten the market over the last thirty years * The efficient market hypothesis is based on people being rational, which we all know we are not. * The market can be beaten and there are lots of tools to help. * If you don’t want to be an individual investor than index funds are the way to go.   Andrew: Well, two weeks ago we took out our weapons and fired them into the financial services industry and probably pissed off a few people. Today we are going direct it against some other group. Probably make some people mad. Basically talking about the academic types in their ivory tower. There is a theory called the efficient market hypothesis, really based off a lot of the professors at the University of Chicago. If you pursue an education in relation to investing or the stock market, economics you will get exposed to the efficient market hypothesis. It is something that there has been a lot of studies on. Ph.D. thesis was done on it. It is also a very hotly debated theory among investors, particularly value investors. You have the value investor side. Guys who have made billions like Warren Buffett, Seth Klarman, Peter Lynch, Joel Greenblatt, Monish Pabrai, and on, and on. It’s kind of like them through their performance that has proved the efficient market hypothesis hasn’t held true for them. So, there’s that camp. And there’s the other camp that says the other investors should not try to beat the market because the markets are efficient. So that’s something we kind of want to address and give our own takes on it to see. Our audience is a lot of beginners and if there are academic studies saying we shouldn’t try to beat the market. Or is it something we should try to follow, or is it something we should look further into and see if there is a way to mitigate that. That’s what I hope to do with this episode. Dave: Why don’t you tell us a little bit about the efficient market hypothesis. Where it originated and who started it, and what your thoughts are on it. Andrew: It’s been around for a while. Most recently is has been popularized by Jack Bogle and author Burton Malkiel, who wrote a Random Walk Down Wall Street. Where he brought his own inputs into it and gave some conclusions about why the markets are really efficient. So the whole premise behind it is that there is this idea that every stock available in the stock market is fairly priced based on the information that is available currently. There is all this financial data, these stocks trade on how they release earnings, what balance sheets look like. So, the whole premise of the efficient market hypothesis is that all this information is freely available. You’ve got millions, perhaps billions who are sifting through this. Industry professionals, fund managers, individual investors like you and I are all dissecting this data as it comes out and investors react. For examples,