Summary: With Dr. Bud Labitan, Physician, Investor, Author of <a href="https://amzn.to/2ZA7ZHo">Illustrated Valuations</a><br> To get some insights for investors, Steve talked with <a href="https://www.linkedin.com/in/budlab/">Dr. Bud Labitan</a>, who is both a physician and a value-investing devotee. Bud is the author of several books on value investing, including <a href="https://www.amazon.com/Fistful-Valuations-Bud-Labitan-ebook/dp/B007YUP1HG">A Fistful of Valuations</a>, that explain his investing strategies crafted on the principles put forward by Ben Graham, Warren Buffett, and Charlie Munger.<br> Note: Steve made it clear to listeners that none of the stocks he and Bud discussed should be taken as recommendations. Listeners should do their own research in consultation with their financial advisor.<br> The Current Market Situation<br> To start things off, Steve asked Bud for his opinion on the current market situation, specifically, whether he believes stock prices accurately reflect the current economic situation or if stocks may be a bargain at the moment. In reply, Bud said that he sees stock prices as still slightly overvalued. His thinking on the future of the overall market is that it all depends on the rate of return to normalcy, which he sees as dependent on how quickly a coronavirus vaccine or effective treatments are developed. While he sees the overall market as overvalued, he noted that there are still individual stocks that may be a bargain. “I saw Boeing at $100 or below a hundred as a bargain at that point because, prior to the coronavirus, Boeing had been selling above $400.”<br> Intelligent Speculation<br> Steve next asked Bud to talk about the factors that go into his Intelligent Speculation Model. He noted to listeners, ”Remember, investing is investing in businesses, not just in numbers that move up and down in the market.”<br> Bud explained that he developed the model based on the 1946 lectures Ben Graham gave to his students, combined with the four filters that Warren Buffett and Charlie Munger use: Products, Enduring Customers, Managers, and Margin-of-Safety, along with the fifth filter of Catalyst. He noted that Graham said, “There is a real difference between intelligent and unintelligent speculation and the methods of security analysis may often be of value in distinguishing between the two kinds of speculation.”<br> The first factor in Bud’s Intelligent Speculation Model is understanding the basic economics of supply and demand for a company’s products. Another factor to consider is the individual investor’s time frame for investment—short-term, medium-term, or long-term. A third factor is a company’s advantages and disadvantages, which should be considered both in the long-term, as well as specifically within an investor’s investment time frame. As an example, he mentioned the fact that demand for Netflix is up right now because everyone’s home, but that investors have to consider if that demand level will drop significantly when everyone returns to work.<br> Steve made the point that many investors make the mistake of extrapolating to infinity based on recent stock market action. When stock prices fall dramatically, as they have recently, investors think like they’re going to keep falling all the way to zero. Conversely, when the market is strong, investors act as if prices will just continue rising infinitely higher.<br> A Wife, A Girlfriend, Or A One-Night Stand<br> Steve next asked Bud to talk about his Stock Tracking Template, which uses a stock screener to identify potential investments. Bud screens potential stocks for investments into one of three categories that he refers to as a wife, a girlfriend, or a one-night stand. He explained, “A wife is someone you want to be with forever. Thus, you’re looking for a company that has characteristics of endurance and profitability and good superior qualities.
