In this week’s episode, we’ll discuss the importance of the circle of competence and that you should be careful about investing in anything that you don’t have a great understanding of. We also talk about what you should avoid as an investor. For show notes and more info, visit ruleoneinvesting.com
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190- Circle of Competence

Phil Town is a hedge fund manager and author of 3 New York Times best-selling investment books, Invested, Rule #1, and Payback Time. On the InvestED podcast, Phil and his daughter Danielle shine a light on the successful investing strategies that gurus like Warren Buffett have used for 80 years. Listen in for a great stock market education on basics, learn how to invest on your own, and follow along with real-time examples and investing tips from week to week. Subscribe and leave a review. Questions? Email questions@investedpodcast.com.

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Here’s a scenario: you’ve identified a potential investment, you’ve gone through the checklist and done your research, and you decide that you’ve found a deal that other people seem to be overlooking.  You pull the trigger to buy into this company, and then the stock price begins to decline and you begin to wonder if you’ve made a mistake.

Knowing the difference between having confidence in your investing process and being arrogant or blindly confident in a position can allow investors to act on proven strategy as opposed to being driven by fear and emotion.  Having a long-term outlook and a diligent methodology is the way for capable value investors to find the deals and realize the returns that many others in the market get wrong.

This week, Phil and Danielle tackle another constant issue for investors as they dig into when, how, and why you should (or shouldn’t) stick with a purchase that doesn’t seem to be panning out the way you’d suspected.

For help finding businesses that you feel confident investing in, click here for the “3 Circles” Exercise Guide:  https://bit.ly/3LOexg2

Topics Discussed:

Patience and discipline in value investing

The dangers of hubris and confirmation bias

Informed assumptions vs speculation


Resources Discussed:
Berkshire Hathaway shareholder letter (2013)

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463- Bad Investment

Free cash flow can be a golden ticket in the hands of a company with the right leadership. They can use it to supercharge innovation, expand their reach, or reward shareholders with dividends or buybacks, and for value investors, it’s like spotting a diamond in the rough.

After the growth and maintenance expenditures are accounted for, the way a company deploys its additional capital can signal the strength of management and the potential for future returns. As Buffett tells us in his recent letter, once you’ve got companies that check all of the boxes he’s looking for, this is the icing on the cake.

Join Phil and Danielle as they continue their analysis of this year’s shareholder letter from Berkshire Hathaway, pulling out key takeaways that might’ve been overlooked by some readers.

For help in crunching the numbers in your investment research process, click here to get your free Rule #1 Calculators for Investing Analysis: https://bit.ly/42dBHSn

Topics Discussed:

Individual values in investing

Entrepreneurship

See’s Candy

Operating cash flow

Growth/maintenance capital expenditure

Rare companies


Resources Discussed:
Berkshire Hathaway shareholder letter

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462- A Third Kind of Capital

As detailed in the most recent edition of Berkshire Hathaway’s annual shareholder letter, finding success in value investing doesn’t require fancy credentials, obsessive research, or exploitative scheming — it takes common sense and the willingness to keep yourself informed about your investments.

In a world full of people rabidly vying for your attention in every imaginable arena, knowing how to focus that attention on what’s important while weeding out the noise of the pundits and snake oil salesmen is what separates successful investors from the rest of the pack.

In this week’s show, Phil and Danielle get a bit more granular on the most recent Berkshire Hathaway shareholder letter and discuss what separates Bertie Buffett from her competition.

To get the inside scoop on more ways industry leaders mislead investors, click here for your free copy of The 3 Greatest Stock Market Myths Ever Told: https://bit.ly/45NycoE

Topics Discussed:

Flashy and half-baked or simple and flawless

Simplifying the research process

Snowboarding lessons for investing

Typical CEO letters

Punditry vs information


Resources Discussed:
Berkshire Hathaway shareholder letter

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461- Buffett's Bertie

“Character reveals itself in adversity” is a saying that can not only apply to the human race and how our true nature shines through when faced with a challenge, but also one that can apply in the business world. Although brand loyalty can be a common trope in 21st century consumer culture, how does that sentiment hold up when the rubber meets the road?

In these times of inflation, shrinkflation, and other types of -ations that we’ve yet to ascribe catchy names to, some brands are seeing once-loyal customers jump ship and look for better value as prices rise. While some brand relationships can’t stand the test of time, perhaps we can look to the long-lasting friendship and business partnership of Warren Buffett and Charlie Munger for inspiration.

In this week’s episode, Phil and Danielle are back to talking from different continents (and dealing with the inherent technological mishaps of that setupt) as they discuss what constitutes a brand moat, and how strong that supposed moat can be in moments of economic instability.

Think you know Warren Buffett as well as the people who’ve spent decades building Berkshire Hathaway with him? Take our Buffett quiz and find out for yourself: https://bit.ly/43qtOLz

Topics Discussed:

Jackson Hole, WY

Heliskiing/snowboarding

Unilever dumps Ben & Jerry’s

Brand moats

Buffett and Munger’s friendship


Resources Discussed:

Cambridge Long COVID study

Berkshire Hathaway shareholder letter


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460- Heliski, Brands, and Buffett

In a vault episode from the early days of the podcast, explore the world of value investing in this as Phil and Danielle delve into the power of dividends. Discover how making well-researched, long-term investments can potentially amplify returns and provide a steady income stream. They discuss the strategy of reducing risk by 'getting your money off the table' through dividend-producing companies.

But remember, while dividends offer stability and returns, they're not without their tradeoffs. We'll uncover the complexities of managing dividend-paying companies and navigating potential risks. Tune in to learn how to strike the balance between steady returns and prudent risk management in your value investment journey.

Keep in mind the Rule #1 that’s the namesake of Phil’s company: “don’t lose money.” Click here for a deeper examination of that rule that’s helped so many value investors over the years: https://bit.ly/43jTNEr

Topics Discussed:

Weather Matrix

Ben Graham’s Margin of Safety

RULERS

Compound return

Free cash flow (FCF)

Maintenance capex


Resources Discussed:

Berkshire Hathaway shareholder letter

Email us your questions!


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190- Circle of Competence

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