We Study Billionaires - The Investor’s Podcast Network - TIP 005 : Working on the Floor of the NY Stock Exchange (Investing Podcast)

Starting point is 00:00:00 This is episode five of the Investors Podcast. Broadcasting from Bel Air Maryland. This is the Investors Podcast. They'll teach you online business better than your multiplication tables. They'll give you step-by-step guides for every kind of business you desire. They'll give you actionable investing strategies. Your host, Preston Pish and Stig Bordersson. Hey, hey, hey, how's everybody doing?

Starting point is 00:00:31 This is Preston Pish, and I'm accompanied by my coach. host, Stig Broderson. And today we have another special guest with us. Today it is Greg Pissani. And Greg has some time working on the New York Stock Exchange. And today's interview with Greg, we're going to be talking about what it's like to be on the floor of the New York Stock Exchange and kind of all the things that happened to a trader. So let's go ahead and just start this off. Greg, go ahead and tell us something about yourself and just kind of give us a little bit of background. Sure. Good morning, everybody. So my work on New York Stock Exchange and for the specialist firms that trade the stock was actually my second full-time career after college.

Starting point is 00:01:14 I worked in the film business for a while in New York City, worked on some TV shows, worked on movies with Kiefer Sutherland, Michael J. Fox, some older actors, Jason Robards, Suzy Kurtz. I did that for about five years. And then the work in New York kind of dried up. There was a little bit of a conflict between the New York and Los Angeles. unions that basically work on all the different films. So it was a little tough to get work. And a friend of mine said, hey, maybe you want to work on Wall Street. And I was like, all right, well, sounds interesting.

Starting point is 00:01:45 Right? I came from one interesting, diverse career where you saw a lot of different things on a day-to-day basis. And so I gave it a shot. So you didn't go there initially to do that. You went there to do the movie business and just kind of fell into the stuff. Yeah, I was always into making movies. My minor in college was film and still photography. So always had a love of movies, right?

Starting point is 00:02:11 And so I did that for about five years. My friend and my brother kept on with that for a while. And I just, so I didn't see a lot of future for myself. So it wasn't like dedicated to camera work or something else. So when the Wall Street opportunity came up, I kind of took it. So my first job was working as a, basically an assistant to $2 brokers, right? And the $2 brokers are the brokers that are kind of independent from the big firms like Merrill Lynch.

Starting point is 00:02:42 And they would basically take work from those bigger brokerage houses and they would go work to pay. Because there's never enough brokers on the floor to represent Merrill Lynch or Goldman Sachs or what have you. So they would farm out the work. It was almost like contractors in our current career. So you would use them to go do the work. and they would work the different specialist booths. And literally they were booths where the firms, the different firms would hold the stocks and trade them, right?

Starting point is 00:03:12 So I was a clerk for this firm. What does the $2 broker thing mean? I don't follow. Well, I think it's more of a euphemism than it is anything, right? So I think at one time it meant that they got $2 per trade that they did when the firm first started, right? Somebody told me that. I don't know if it's urban myth or whatnot.

Starting point is 00:03:33 But for the most part, you know, they were, they were contracted out officially, unofficially to do additional trading for the bigger firms above and beyond what their capacity was to do it, right? Did they do that model so that they could flex their size? So like if they needed, you know, like in high volume times, maybe for a certain year, the volume would be very high so that they could kind of flex and get rid of that extra fat. I'd like to say yes, but I don't think it was a strategic, to be very honest with you. You think of Wall Street as being this well-oiled machine. And as we see, as we go on in the discussion here, it was pretty chaotic for the most part.

Starting point is 00:04:13 Yeah. You know, I think some of that was yes and some of that they were not as rigorous in how they did things. So, you know, it was probably a little give and take, you know. All right. Keep going because I don't want to, I don't want my questions to hold you up. No, it's fine. So it did that for a short amount of time. And then I don't really know how, but the biggest specialist firm on the floor,

Starting point is 00:04:36 the firms that actually controlled the trading of the stocks was Spear Leeds and Kellogg. And they were hiring. And so I really wasn't digging the $2 broker job. There wasn't a lot going on. You were just basically answering phones, taking orders, and handing it, passing them off to the brokers. So I went into Spear Leeds for an interview. Basically, it was, you know, what have you done?

Starting point is 00:05:00 I hadn't done much. And a math test. So, you know, I really didn't do well in math and school academically. But when it came to monetizing math, right, the way we probably should be taught, I really got it. So the test that they gave us was dollars and cents and everything trades in fractions, at least on the New York, right? It's more decimal points on the NASDAQ. I did well and they you know I could I could communicate and so I started off as a specialist clerk

Starting point is 00:05:33 and then moved my way up to rank so that's how I got into the specialist firm and Spear Leeds was big they had they had a big operation um things changed over the years you know up until today and I believe Goldman bought them at this point um but you know there's a lot of opportunities a lot of stocks right everything from small companies you never heard of to IBM and so you know spent eight years there, four years on New York, and then their American operation, and the American mostly traded options at the time, but there were stocks being traded there as well. It wasn't as automated as the New York, so they were looking to expand their operation there. And so I went over there. There was a small specialist operation there. Like I said, it was probably, you know, 60, 75 percent options and some

Starting point is 00:06:22 stocks, you know, lesser value stocks that didn't make it to the New York. So, it was more opportunity for growth there. So that's why I find that really interesting about the options. I mean 75% of the, wow. Yeah, yeah. Okay, so Greg, let me actually ask you because, you know, I've been really, I'm really delighted at you on this show. I used to be a commodities trader myself.

Starting point is 00:06:42 So it's really interesting to talk to a guy like you. And as you probably know, this is really a world that a lot of people get to experience firsthand. Sure. But there's a lot of myth about working on Wall Street. I don't know if that's because there are so many money involved. But Greg, would you like to tell us about a typical day? I mean, how is it a typical day on Wall Street? So I think the day is, it's kind of interesting.

Starting point is 00:07:10 You make your way down to downtown, right? Whether it was in New York or the American, doesn't really matter. Everybody gets their little breakfast, right? Mine was coffee and a muffin. You get to the booth, right? You're standing all day, right? You're not sitting at a desk. And these were literally booths.

Starting point is 00:07:28 The ones on the New York were circular or oval, and you're behind the counter. The ones on the American were like a long counter style, almost like a delicatessen. How big is the room? Is the room like about the size of a football field or something? So, you know, it looks bigger than it is, but I believe the New York's main room is pretty large. It's probably half the size of a football field. Okay. But it actually.

Starting point is 00:07:54 is multiple rooms. And I'm presuming because over the years, it expanded because more stocks came in, right? So they basically had to build more rooms out. And the American is not like that. The American was one huge space with some smaller areas that were non-trading areas. And a big building, you know, above that's all offices, right? And a lot of them are the SEC offices. Firm's have offices. So, you know, but it's, each place is a little different. You know, so you'd get, you'd come in and the day before you basically reconciled the, the accounting for the stocks that the firm bought, right? Because you also buy and sell for your firm because you have to make money, right?

Starting point is 00:08:41 And the only way you do that is buying and selling the stock for which you trade. And most of the, let's call it. Regardless of the price, it's just the transaction. Exactly. Yeah. So, you know, there's stations, right? And each station has, in my day, they had very simple, almost look like the old Apple Macintosh computer screens, black background with green text for the price range for the

Starting point is 00:09:08 stocks. Dinosaurs outside and all that kind of stuff. Yeah. And then we had regular computers behind us. And they basically were anything we want to look at, like Bloomberg's or whatever was going on as far as news, news feeds. Uh-huh. Right.

Starting point is 00:09:25 At the time, when I changed over from New York to American, American was still on paper. So you got both electronic orders and paper orders spitting out of this. I don't even remember what the name of the machine was that spit out the orders, but had a name. And the New York was fully automated, right? Okay. With more modern technology because money was really there, right? Yeah. So you'd get in, you had paper books.

Starting point is 00:09:51 that had carbon copies below them and two sheets, the main sheet and the carbon copy, because that was your record. And basically the top sheet you tore each day or during the day, you sent up to the basically the trading floor for the specialist firm where they would reconcile the trades that you made on behalf of the company. And so you'd get ready. You'd start looking at the screens, see where the stock closed. Orders were able to come in, right?

Starting point is 00:10:18 So if it closed that, let's say, round number, $10, you'd get orders coming in at nine and seven, eights, you know, nine and five, eights, nine and a half, because it's all traded in eighth. And then you'd get in orders coming in at 10 and an eighth, ten and a quarter, you know, a quarter, you know, up and down the range. And then you'd have stuff meet in the middle, and that's where you most likely open the stock when the bell rang, right, at 9.30. So it's all preparation. So you kind of see what's going on. And if there's news, it will impact what's going on. what's going on as well. But each of the stations, you know, had a broker and some had a clerk as well. And, um, you could have anywhere from one stock, which would mean that it's something busy. Like IBM on the New York was one stock traded with one broker and one clerk. So it was so busy when I was there. Oh, they, they didn't handle. Yeah, they weren't handling multiples. They were just

Starting point is 00:11:12 handling that one pick. Impossible. Wow. And then, but then you'd have, you know, someone who had three stocks. Maybe they had an AIG and a couple of smaller firms. Then or someone else had Boeing because it was one of the stocks they had as well, Spear Leeds. Or on the American, I think at one point we had up to 10 stocks at a station. So, you know, you're not talking about high volume, high dollar. It could be, you know, something that's trading at a dollar, $2, $3. So, Greg, let's take a quick break and hear from today's sponsors. All right. I want you guys to imagine Spanors. spending three days in Oslo at the height of the summer. You've got long days of daylight, incredible food, floating saunas on the Oslo Fjord, and every conversation you have is with people who are

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Starting point is 00:15:46 That's Shopify.com slash WSB. All right. Back to the show. You said early on that the, so you're looking at the buy and sell orders and then you as the manager of that was kind of picking at where that was going to open up based on where things were. Yeah. Yeah. So you could, so, and it's all based on your position too, right? So that's where some of the stuff we'll get into as you move along in the question is that while we think that everything is fluid and it's based on the economy and news and stuff, the specialist broker has a lot of control. It's almost like, you know, wrangling cattle. You know, you can let them run free in Rome or you could actually pen them up in certain areas and control them. So, and it's based on your position, especially if you bought a ton of stock. the day before or the few days before and all of a sudden you see there's bad news a lot of sell orders coming in whatever yeah it's going to push it down then you're going to be like oh man you know i

Starting point is 00:16:46 really i'm i'm holding the 50 000 shares of this or whatever what do i what am i going to do here so you could open the stock up you know you can't uh you couldn't buy stock on a straight uptick or plus right because, you know, you had to let other folks generate the initial uptick. Then you could buy, right? And the same thing on a down tick, right? On a minus, you can't sell on the first minus tick down because they're just policies and guidelines that control it for the specialist firm. You have to have someone else.

Starting point is 00:17:21 Now, you could be part of a buyer's sell, but you can not initiate it. Like if I know the stock's going to go up, you know, I can't buy everything at the next, you You guys understand. Yeah, that makes sense. Yeah, yeah. So how long were you typically holding on to the stocks? I mean, it sounds like it was hardcore trading. So it was clearly not one of those, Warren Buffett, hold for 10 years, kind of thing you were doing.

Starting point is 00:17:44 Not at all. So this is probably the most, you know, it's like investors on ADHD or whatever. The floor is not like personal investing. That's why I say it is a microcosm and you don't really understand it until your work there that that markets are changed and shifted especially in small firms you know there was a lot more flexibility because the level of scrutiny on an ibn you could not do that right yeah because of the volume of trade probably yeah um i forgot what they used to call the uh the guys on the floor that used to work for the firm but work for this uh the exchange that would monitor that right um there's a whole

Starting point is 00:18:25 bunch of it. And the bigger the stock, the more volatile the stock, the more important to stock, the more scrutiny you got in terms of what you can and can't do. Yeah. So, Greg, I mean, just listen to this. I mean, there was a lot of stress going around. So how do you, how would you deal with that stress on a day-to-day basis? I mean, is it as stressful as it sounds or is it not as bad as it sounds or what? Basically, I would say for the most part, It's not the stocks, the trading. It's not the, you know, any of that sort of thing, the mechanics of it. It's the people, right?

Starting point is 00:19:00 So it's the other brokers. It's the, you know, the job you have to do for the firm you work for. When things get busy, people act stupid, you know. So for the most part, I handled it well. I can say the one time that the stress level got pretty high had nothing to really do. There was a busy stock, I think, was Cheyenne, which was a software company. It could do a couple million dollars of shares in a day. That was on the American.

Starting point is 00:19:33 You know, one time I remember everyone getting kind of crazy. And another broker who worked for the firm coming over trying to, an older guy was trying to get in my stuff, right? And then there was a huge crowd out in front of me. And I basically stopped trading and told everyone to shut the F up. Did it? Yeah, I just, I mean, do that today in an office environment and ours, probably not. But yet for there, no one really thought anything of it other than they shut up. And because they were basically impacting my ability to trade, right?

Starting point is 00:20:06 Yeah. So not only for the firm, but for their orders. Orders are coming in. They're throwing them down. The paper orders were the worst thing to have to deal with because they were handwritten and you had to figure out, you know, I have 100,000 shares at a certain, price. That was probably the most successful day.

Starting point is 00:20:25 I still recall. Other than that, I don't really recall anything. If it was bad enough, we'd probably go out for a drink afterwards and that kind of forget about it. Because trading day and trading to end, trading to ends. There's no homework, right? Yeah, yeah, yeah. Oh, yeah.

Starting point is 00:20:38 Well, let me ask, Greg, well, I think you lasted longer in the game than I did. I was 28 when I quit. And to be honest, I was not one of the, clearly I wasn't one of the old guys, But I wasn't one of the young guns either, even though I was only 28. Because trading is really a young man's game. But what was your experience? I mean, how many years did you experience your coworkers to hang in there? Well, you know, people have different reasons for staying there.

Starting point is 00:21:08 You've got guys who would want to work their way up the chain and either were favorites. They weren't favorites. There's a lot of that going on. I mean, it's about as old boy network as you get, right? So, but on the other side, you know, so I had friends on the New York Stock Exchange before I ever got there. So when I came in, there was a bunch of young folks came in as clerks and then moved up through the ranks. And the older guys were still there for the firm. And they stayed there for the firm.

Starting point is 00:21:36 They were there. They were long timers, right? So, and I don't know how long. But I do know personally a family friend that I grew up with from, gosh, what age I don't know, Jim Henderson, who owned Henderson Brothers, which was, probably the biggest small firm on the New York. Him, his sons were all there. And he was a very well-respected man. That guy spent, I'm guessing, his entire life there.

Starting point is 00:22:02 And still there and still has friends that work for, they were absorbed by another company. But yeah, so you'd get people that came in and couldn't handle it and left. Then you'd have people who would, for the most part, you know, stick it out for a career. So it was kind of a split. You know, you'd see. It was. It was.

Starting point is 00:22:21 It was a wide range, right? Yeah. It was tough to sink your teeth into for the most part. So you really had to be in it. And I guess you had to have a certain demeanor to not let it get to you. Because for the most part, people did get kind of hot and bothered about certain aspects of the trading. But for the most part, I'd say you had a range of longevity in that business. Okay.

Starting point is 00:22:43 Greg, so I got a question for you. For a lot of people, they might not understand the reason why people even exist. on the floor of the exchange anymore. Like, why not just have everything like the NASDAQ where it's all electronically traded at this point? You know, so it's interesting. I guess NASDAQ, I'm not sure when NASDAQ came into existence, but it was, it might have been either shortly before I got on the floor

Starting point is 00:23:07 or while I was on the floor. And a lot of people questioned, you know, how they're going to do that electronically and so on and so forth. I guess, I think there's two answers, right? One is having a human down there to monitor the situation outside of the trading gives it a little bit more connection to people who invest, you know, retail, right? You send in an order Merrill Lynch, Goldman Sachs, however you use, filters through their retail desk down to the floor. A Merrill Lynch broker gets the order. You're part of another thousands of orders, shares of say you're going to go buy an IBM, right?

Starting point is 00:23:47 you know, someone comes in with a, you come in with a hundred shares, someone comes in with a thousand, it gets all put together, a person goes to the booth with 100,000 shares, they know they're not going to buy it over $100 or what have you, and they sit and they work it. So the machines can't really work the trade. The orders come in, they get paired up, and they're done, right? So you would literally have to break up orders into increments of different dollars where, you know, a broker would come in and see what's going on and determine that they should jump in now, buy it all, maybe break it up over the course of the next half hour or hour or step back.

Starting point is 00:24:28 The stock's going, you know, too high. Not worth buying at this point, right? So they have the ability to kind of personalize it more. Exactly. They can look over at the booth and they see a big line of all sell orders and they're like, okay, well, this isn't, you know what I mean? Yeah. But the tonic order is, that's all it is, right?

Starting point is 00:24:44 There's no control over that. It's very automated, right? There's no artificial intelligence system that controls those orders that come in and monitor. It's very mechanical. So, and I don't know exactly all the inner workings of NASDAQ, but essentially that's what it is. Yeah. And so, plus, you know. So would it be safe to say that if you were an investor that had a very large sum of money

Starting point is 00:25:11 that was putting down on a particular stock, you would want that human interaction to be the interface to make sure that you're getting it at the price point and maybe even take advantage of an opportunity if you saw an opportune time to even get it at a better price than what they had initially set. Exactly. Exactly. So you're kind of getting that custom touch by going through. Yeah. So it works, it works for the specialist firms and it also works for, you know, big investors who have, you know, folks on the floor that can say, you know, I'm buying a thousand shares of IBM or more, but hey, look, AIG is going wild. Maybe I need my guy to go over there and buy something else, right?

Starting point is 00:25:52 Okay, Greg, you know, I've been really looking forward to asking this question because clearly working on Wall Street is a subculture. But hopefully you can give us a rare insight. Could you share the funniest story that you have experienced on Wall Street? Yeah, sure. So the one that comes to mind, other than the one of me screaming at all the other brokers, because it wasn't funny at the time, was I don't even know what was going on. You know, it was a busy day. We had a couple of old timers on the American working with us. This was their whole life. And they were very, I don't know, very rigid, jaded, structured, set in motion. And we brought in some younger guys, younger than me at the time. I was in my, I might have been 30, 31 when I was on the floor, I think somewhere around that age when I started. So we had a couple of younger guys, which who were not as disaffected as today's generation, but didn't quite get the older guys, right? And I did, and I had a good rapport with them.

Starting point is 00:26:56 So something was happened one day. And this young guy, I don't even remember his name. I remember his face, was the clerk for one of the older guys. who stood to the two older guys stood next to each other, right? And something happened. He got Mouty with them and something to do with trading. Should have done this, should have done that. I don't know what.

Starting point is 00:27:21 So he called one of them. He didn't curse at him, but he called him something. I think the last guy's name was Matricelli, and he was a big heavy guy, and he called him Mattress Belly. And so the dude. Right? So the mattress belly, he basically tried to grab the kid. He took off and our post was like I said, like a deli count.

Starting point is 00:27:46 Well, the two of them are running around the counter on the middle of the trading floor yelling at each other. Somebody had to intervene and to stop it. And there you were. Yeah, it was. And there you were. Like, I mean, where does that happen right in an office? It doesn't.

Starting point is 00:28:03 No way. Nobody thought too much of it. It sounds like a cartoon. It was. It was pretty comical. And obviously he never caught him. The guy was the older, heavy guy. You got to get laid down on a mattress afterwards.

Starting point is 00:28:16 Yeah. Oh, yeah. Yeah, that was probably one of the funnier things that happened. There was probably many, but, you know, you were talking, I left the floor in the 90s. So I have distinct memories of certain things, but other stuff I've moved on kind of. That was pretty humorous. Let's take a quick break and hear from today's sponsors. No, it's not your imagination. Risk and regulation are ramping up, and customers now expect

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Starting point is 00:32:20 But so I'm going to go to the next one here. This is the one that Stig and I like to ask all the different people that come on the show. But what's the best investing advice that you have ever received, Greg? So I would have to say, and I wish I could remember, this guy's name. He was on the New York Stock Exchange. He was one of our senior specialist brokers. Maybe it'll come to me, Italian guy. But this guy was a cool cucumber man. He was like, he reminded me of who Chaz Palmetry a little bit, but an older version of him. And he was always calm. And his thing was be patient, just be patient, whether it was trading for, the firm for Spear Leeds, whether it was trading for himself. He just, his demeanor was calm and

Starting point is 00:33:12 cool and collected. And basically, that was just who he was. And that was, so be patient. I love that. Yeah. I'm serious. I love that advice. Just in your normal day life, too, like not even talking about investing. Like, yeah. And that's how he was. I mean, You saw this. He was suave. Yeah. Well dressed. I mean...

Starting point is 00:33:37 I need to be more like that. Like tinted sunglasses on. Right? Just like gradient sunglasses. So I think his name was Joe and it was something Italian. I can't remember. But the guy was... Wow.

Starting point is 00:33:49 Remember him. I love that. Be patient. Wow. That's a really good advice. Yeah. For anything, right? I mean, no matter where you can.

Starting point is 00:33:57 Before you make a decision, when you buy and hold something and watch it, you know, so... Yeah. Well, yeah. Greg, let me ask this of you. We really like to discuss great books and especially investment books. Do you have any books that have influenced you, perhaps in particular, that you think our audience would appreciate? Sure, and I'm going back to this guy again, Joe, right? So he used to carry this one large book around, right? Large hardcover book, a little torn and tattered. And he didn't talk a lot, but, you know, I worked for him for a little bit. little while or right next to him for a little while. And I asked him, you know, what is that? No one ever

Starting point is 00:34:38 even asked them, you know, what that book is. I guess the other senior investors knew what it was, but it was, and I looked it up, because I haven't thought about it for a while, except for a couple times in my current job. So it was called Japanese candlestick charting techniques, and the author is Steve Nissan, N-I-S-O-N, right? So I didn't know what it was at the time. and Joe shared it with me. And basically what it was is it's a technical approach to pattern analysis for, and I look this up pretty much for any type of security, derivative, currency, what have you, right? Any type of traded thing.

Starting point is 00:35:27 And so basically, they think it was first used in, the 1800s in Japan by rice traders, right? They developed this technique. And I don't know all the history of it, but basically it was a pattern occurs over time, the more dated that you pull together. So one of the little excerpts from the book, and I went back and looked at this,

Starting point is 00:35:54 was that if you had 10 candles in a row and you lit them all at the same time, they would burn differently. But then if you put another 10 next to that, and another 10, another tent, a pattern would come out, right? So it's interesting because I didn't quite understand it back then. It was kind of philosophical, right? It was a little highbrow. And that's why this dude was, right? He was very, like you said, very cool, very interesting approach to things.

Starting point is 00:36:21 And this was his kind of way he did stuff. But you can't use it alone in a vacuum. I think you have to combine it with other analytical tools. Yeah. Because it's not in itself, you need something to feed that to determine the pattern. It's just so everyone in the audience knows. So everyone knows Stig and I are extremely hardcore Warren Buffett, long-term value investors. It would buy a pick and hold it as long as we possibly can. And I think what Greg is talking about here is something that could be beneficial to a person who, you know, if you're listening to us and you're more of a short-term investor or something

Starting point is 00:36:57 like that, the book might be a fantastic tool. And even if you're not, I think the book might be something that. it's interesting to consider just so you kind of understand that aspect of it. I'm of the opinion that the more vantage points that you understand about a particular area of interest, the more informed you are and the more intelligent you become and you can make better and more informed decisions. So, you know, reading something like that and understanding the pattern analysis, and even if you were applying it to boom, bus cycles, you know, if you were looking at, okay, what is the critical variable or some of the critical variables that causes the

Starting point is 00:37:30 market to collapse. I'm of the opinion that interest rates is probably one of the biggest critical variable for that to happen. So, you know, you could apply that some of the maybe the things that you'd learn in that book that Greg's highlighting to the pattern analysis of how interest rates work and how they interact with the market, you know? Very interesting. Right. So you can marry up three things or interest rates, earnings, you know, and then something particular to the industry. And then you'll probably see a pattern within the patterns, right? and you layer them together. So I just found that really interesting.

Starting point is 00:38:04 And, you know, it's a level of detail you could apply to short term, long term, and almost in anything where there's a consistent occurrence of something. Okay. So, Greg, really appreciate everything that you've taught us and talked about. I mean, it's really interesting to be able to talk to somebody who's been there and done that on the floor of the New York Stock Exchange. So I really appreciate that. Pleasure. At this point, Stig and I are going to go ahead and answer one of the questions that we had that came in on the website. And if anyone out there wants to send us a question and get it potentially answered on the show, go to Asktheinvestors.com.

Starting point is 00:38:45 And you can submit your question either by recording it and sending it to us or you can type it up and send it to us. This one was typed up and sent. If you are going to record your question, try to make it as concise as possible and quick and to the point because if it's too long, it's going to be hard for us to play it on the air. So with that said, I'm going to go ahead and read this question. It comes from Brandon Klein. And Brandon's question is, if we were planning to hold a stock forever, as Warren Buffett likes to say, and we've decided we can predict that the business will do well, say like 10 to 15% growth per year into the future, is it really that important to buy the stock at a discount to its intrinsic value? Because the stock price and IV will grow or the intrinsic value will grow year by year. So Stig is going to go ahead and answer the question. Well, first of all, Brandon, let me just say that it's a really great question you're asking here. And it also gives me the opportunity to reiterate that the most important attribute for a stock is really the quality of a business. I also think that was your point, Brandon. You probably know the famous quote by Warren Buffett who was saying that he would much rather buy a wonderful business for a fair price than a fair company for a wonderful price.

Starting point is 00:39:53 and I think that really much pretty much captured this. But one thing I had to add here is that Warren Buffett, while he advocates that you should hold the stock forever, he actually rarely does that himself. And I'm not really saying that Warren Buffett is a hypocrite, not at all,

Starting point is 00:40:12 but what he's actually saying is that you should have the mindset that you want to hold the stock forever. And the major reason for that is that you'll have to pay capital gains tax whenever you're selling the stock. So that's definitely an important aspect to think about. But let me give you an example of what it is the Morgan Buffett is talking about when he's speaking about buying a stock at a discount to the intrinsic value.

Starting point is 00:40:40 For instance, let's say that you buy a stock at a fair price and you expect it to get an 10% annual return. By a fair price, again, that is related to the quote, that is equivalent to the intrinsic value. So you're saying the price of the stock is $10 and that is also the value of the stock. And say you want to hold that stock for 10 years. But if you bought that stock at a 50% discount to the intrinsic value, you would get close to 18% annual return instead of the 10% over that time period.

Starting point is 00:41:13 And really 18% compared to 10% over the long run. That really means the world. Hey, I've got something I want to piggyback on to what Stig said because he's exactly right. If you can buy it, let's say you think it's worth $10 and you can get a 10% return using a discount rate that would give you that $10 price point, if you can go ahead and buy it at five, okay, you're able to increase that return significantly, okay? And what you're doing when you do that, it's almost like you're able to warp yourself back in time. It's almost like you could say, if I would buy Berkshire Hathaway right now, I know that

Starting point is 00:41:45 it's trading for like $130, $140 right now. But if I can buy that at $100, that's almost like I went back three, four years ago. and was able to buy the stock at that point in time. And so then you're able to basically get more compound interest out of it. So that's just a different way to look at it. I mean, if you can buy something for a 10% yield, that's fantastic or expected 10% yield. But if you can buy it at even cheaper price, you'll even get a higher yield. So that's, I guess, the best way we can answer your question, Brandon.

Starting point is 00:42:13 And we really appreciate you typing that up and sending it to us. So we're going to send you a free signed copy of the Warren Buffett Accounting book. and we just really hope to have more questions like that in the future and to be able to interact with the audience. So that concludes our show for today. Again, we want to say thanks to Greg Pissani for joining us. And we hope to see you next week with our next episode. So thanks for joining us.

Starting point is 00:42:36 Thanks for listening to The Investors Podcast. To listen to more shows or access to the tools discussed on the show, be sure to visit www. www.com. Submit your questions or request a guest appearance to the Investors podcast by going to www. www.

Starting point is 00:42:52 Ask theinvestors.com. If your question is answered during the show, you will receive a free autographed copy of the Warren Buffett Accounting book. This podcast is for entertainment purposes only. This material is copyrighted by the

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