Understanding the fundamental relationship between business profits and stock prices is crucial for successful investing.
Prioritizing personal finances, including paying off debts and establishing multiple sources of income, is essential before investing.
Investing in high-quality companies with attributes such as strong balance sheets and recurring revenue, while avoiding dependence on outside forces, is a strategic approach.
Deep dives
Importance of Understanding the Stock Market
Understanding the stock market is crucial for successful investing. Many people lack knowledge about why the stock market goes up over time, resulting in misconceptions. The author emphasizes the significance of comprehending the basic connection between business profits and stock prices. By understanding this fundamental relationship, investors can gain confidence and make informed decisions. The stock market's ability to recover from crashes is also highlighted, providing reassurance during downturns.
Spreading Financial Wellness and Personal Finances
The author's mission is to spread financial wellness and help individuals prioritize personal finances. Financial wellness is seen as a higher priority than investing, as it establishes a solid foundation for one's life. The author emphasizes the importance of paying off debts, having an emergency fund, and multiple sources of income. By taking care of personal finances, individuals are better equipped to handle volatility in investments and make more informed decisions.
Investing in High Quality Companies
The author's investing strategy centers around buying high quality companies and letting them compound over time. While valuation is important, it is not the primary factor in selecting stocks. The focus is on finding businesses with attributes such as strong balance sheets, high returns on capital, recurring revenue, and strong management. The author also incorporates business momentum into the investment approach, identifying companies executing well and expecting them to continue performing strongly. The importance of avoiding companies dependent on outside forces, such as luck or commodity prices, is emphasized.
Tom Angle's Concentrated Investment Strategy
Tom Angle, a successful investor, concentrates most of his assets into his top 20 companies. He looks for companies with unique growth opportunities and holds them for a long period of time. He also focuses on buying at better and better value points over time, constantly lowering his valuation basis for the companies he invests in. He believes in finding great corporations in companies and trading around them based on valuations. Overall, his strategy revolves around finding high-growth companies and holding them indefinitely while continually improving his cost basis.
Thinking Long-Term and Feeling Immediate Consequences
The importance of thinking long-term and considering the consequences of decisions is emphasized. In a world driven by short-term gratification, people need to train themselves to look at the long-term ramifications of their actions. Immediate feedback, rather than delayed consequences, would be ideal. Additionally, the idea of thinking long-term extends to all aspects of life, not just finance. It requires a shift in mindset to prioritize the future rather than reacting solely to immediate needs and desires. Another idea suggested is to adopt electric cars, promoting long-term sustainability and environmental consciousness.
Brian Feroldi is the author of the book “Why Does The Stock Market Go Up?: Everything You Should Have Been Taught About Investing In School, But Weren't”. His mission statement is “To Spread Financial Wellness”, and he does exactly that in this episode of Infinite Loops! You can connect with Brian on Twitter at https://twitter.com/BrianFeroldi and get his book from Amazon at https://www.amazon.com/Why-Does-Stock-Market-Everything/dp/1735066168/ Show Notes:
Brian’s first exposure to the stock market
The power of mission statements
Personal finances over investments
Paying off your mortgage early
Finding high-quality companies
(Business) Momentum investing
Brian’s Investment Checklist
Importance of narratives in investments strategies
99% of great investing is doing nothing
On being wrong, and learning from mistakes
DCA’ing into index funds
Capitalism is brutal
Knowing Tom Engle
Books Mentioned:
Why Does The Stock Market Go Up?; by Brian Feroldi
The Tao Jones Averages; Bennett W. Goodspeed
How To Retire Rich; by Jim O'Shaughnessy
The Intelligent Investor; by Benjamin Graham
The Psychology of Money; Morgan Housel
Just Keep Buying; Nick Maggiulli
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