All Else Equal: Making Better Decisions
Ep37 Five Common Finance Mistakes
Jan 17, 2024
The hosts discuss five common mistakes in finance, including focusing on return measures instead of dollar value, the impact of financing on company value, and common mistakes in finance such as assuming a competitive advantage or a good money manager guarantees high returns. They also discuss the mistake of believing having investable money makes individuals special and the need to do something more to stand out in today's capital markets.
29:47
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Quick takeaways
- Focusing on percentage returns without considering actual value created can lead to poor financial decision-making.
- Changes in the world can impact the relationship between expected and realized returns, necessitating a need for adaptability and understanding the factors at play.
Deep dives
Mistake: Mixing up return measures and value measures
A common mistake in finance is focusing too much on return measures and not enough on value measures. Many people evaluate investments based on percentage returns, but fail to consider the actual dollar value created. This can lead to overemphasis on proportionate returns without considering the impact on overall value. It is important to recognize that generating high returns on small investments may not be as impactful as generating lower returns on larger investments. The focus should always be on the actual value created, not just the percentage returns.
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