We Study Billionaires - The Investor’s Podcast Network - TIP 008 : Value Investing - Questions from a Newbie (Investing Podcast)

Starting point is 00:00:00 This is episode eight of The Investors Podcast. Broadcasting from Bel Air, Maryland. This is the Investors Podcast. They'll take complex things and make them seem insanely simple. They make your boring drive-to-work feel exhilarating. They give you actionable investing strategies. Your host, Preston Pish and Stig Broderson. All right.

Starting point is 00:00:30 How's everybody doing today? This is Preston Pish, and I'm accompanied by my co-host, Stig Broderson. And today we have brought on a guest of ours that we have been interacting with for the last couple weeks. And his name is Kalin Yablonski. And so Kalin and Stig and myself have been interacting because Kalin is a search engine optimization expert. And he owns his own company called Inbound Interactive up in Calgary, Canada. And Kalin has gone through our Buffett's books course and has read a couple of our books. books. And Kalyn had started asking us a couple questions whenever we were interacting with some of our

Starting point is 00:01:07 interests, which were a search engine optimization. And Kalan's questions were so good that Stig and I were like, we need to bring this guy on the show because he has got some fantastic questions. And we think that there are questions that a lot of people in our audience would really benefit from. So I'm going to go ahead and introduce Kalen. And what he's going to do is he's going to take control of this show right now and he's going to run it. And he's going to be asking Stig and I questions. And so the roles are reversed today, and I hope everybody enjoys this. So, Kaelan, go ahead and take it, introduce yourself, and then you can start with your questions. Sure. So thanks a lot, Preston and Stig. Digital marketing certainly is a good bartering chip for getting your

Starting point is 00:01:46 investing questions answered. So like Preston said, I'm from Calgary, Alberta, Canada. I'm the founder of a small digital marketing company called Inbound Interactive, but more specific to today's show, I guess you could call me a value investor in training. And so I got started in value investing probably six months ago, something like that. And it was through just having conversations with my friends, my family, my colleagues about the stock market. And their sentiment seemed to be that the stock market was very risky, it was unpredictable, it was essentially gambling with your money. and that was a belief that I actually held for a really long time as well. And so one day I was kind of Googling something.

Starting point is 00:02:34 I think it was related to pillars of investing or rules for investing. And I stumbled across a video by two really smart guys, which was the Buffett books. I think it was number 17. The four rules for Warren Buffett investing. And from there, I just dove right in. And it's been about, yeah, like I said, six months now of reading books.

Starting point is 00:02:56 watching video series and hopefully trying to get a handle on how to do this correctly. So I have a couple of questions here. I'm really excited about. The first one is for someone who's just getting started with investing, and let's imagine that you have, say, $10,000 to $25,000, where would you suggest that a person starts? You know, there are a lot of options such as mutual funds, index funds, common stocks, bonds. Where would you suggest that a person gets started. So, Kaelan, a really good question. So I think that for a lot of people, whenever they start out, they're a little hesitant to just dive into an individual stock pick. And to be honest, there's a lot of risk in investing in an individual stock pick, because if one thing goes wrong for

Starting point is 00:03:44 that particular company, and let's say you put $10,000 into that pick, you could potentially lose a very large portion of that principle. So I'd like to tell people that are just starting out that they should go with an index fund. Okay. And the big debate then becomes, do I go with an index fund or do I go with a mutual fund? So many people, especially in the past 10 to 20 years, have all kind of used mutual funds. And the reason that people use mutual funds is because there's somebody that's actively managing the fund.

Starting point is 00:04:13 And so psychologically, you think, well, somebody who's managing it is obviously going to be doing better than somebody who isn't managing a fund and it's just going straight off of an index. But here's what's interesting, and a lot of people don't realize this. 84% of actively managed mutual funds did worse than their index. Okay. And that was from a stat from 2011 that U.S. News report did. And it's just, it's quite fascinating when you think about that. But the reason, and I think if you had to attribute the reason why mutual funds perform worse than an index fund is because people, when you're a manager and you're investing other people's money, people tend to give you the money at the exact wrong time.

Starting point is 00:04:59 Okay. So if I'm a mutual fund manager and let's say the stock market is really climbing and doing well, there's a bunch of people giving me more and more money to invest. And unfortunately, as people who understand value investing really well, know is that when I get that money at the wrong time, I'm actually having a harder time investing it and getting a better return. And then whenever the market would collapse, they're trying to pull their money out. And that's whenever I need the money as a manager in order to be buying it at a cheap price.

Starting point is 00:05:29 And so what happens is this money manager, he's moving things around. And a lot of the times, so they're paid through their transaction fees and their transaction costs on a lot of these mutual funds. And so the turnover is actually good for them because they're actually making more money. And I think that those are some of the main reasons why you actually see a mutual fund perform worse than an index. And sorry that this answer is kind of long, but this is a really important question. And this is something that I think is probably going to relate to people probably the most out of all your questions. So then the next question becomes, which index is it that I buy out of the ones out there? So in our show notes, we're going to have a link that goes to a U.S. news report that they did on the 25 best indexes.

Starting point is 00:06:14 And there will be a link. You just click on that link and it'll take you there. And the reason I really like this report that U.S. News did is because what they did is they broke down index funds specifically and ranked them from best to worst. Okay. And they used four factors in order to determine that criteria of how they selected the number one index and the number two index. How they factored this in is they broke it down into first the expense ratio. So how much are you paying in order to be in that index? So back in the day, whenever mutual funds were really popular, you might pay one to two percent or even higher in order to be a part of that fund.

Starting point is 00:06:53 Well, that's an enormous cost for people. And we have stats on that on Buffett's books that kind of shows how much that cost actually adds up to in a long term. But with index funds, that rate, that cost, that expense ratio to be in the index is extraordinarily low. So like one of the indexes that I own, the expense ratio is 0.0.0.0.000. 0.07 percent. Okay, that's not 7 percent. That's 0.07 percent. It's extremely low.

Starting point is 00:07:21 So in this, back to the point that I was trying to make. So there's four criteria that they used in this U.S. news report where they were picking basically the top 25 indexes. So the first thing that they wait is the expense ratio. The next thing that they rate is the tracking error. Okay. How close does that index come, say you're buying an index for the S&P 500? How close does it actually come to matching the performance of the S&P 500?

Starting point is 00:07:48 So that's the next criteria that they used in order to determine that. The next thing that they used was a bid ask ratio. Okay. And what the bid ask ratio is it measures the spread between the bid and ask prices of different various ETFs or indexes. Now, that might have sounded really confusing. Okay. So how is that important? And it's important in this regard.

Starting point is 00:08:09 If you have a fund that has a very large gap between its bid-to-ask ratio and it doesn't have a lot of volume, you could potentially get hurt whenever you try to sell that ETF. So this is a really important factor. A lot of people don't even realize that something like this exists, but this is something that's captured in this report that we have the link to on our show notes. And then the last criteria is the diversification factor. Let's say that you go to an index by, let's say, Fidelity. And I don't even know if Fidelity's index would be like this. but I'm just going to use that as example. Whenever you would buy that index, which is being managed or being set up by Fidelity,

Starting point is 00:08:45 they might have too much diversified money into, let's say, Apple. Maybe Apple is 10% of the portfolio and maybe, you know, the next pick might be GE, and maybe it's a large chunk of it. So whenever it's offset that diversification inside of that index, you're not going to have a return that matches the actual performance of, let's call it, the S&P 500. So that diversification factor has also played into this top four criteria that they're using for this U.S. News report. So really long answer. I'm sorry that I took so long.

Starting point is 00:09:20 I might have maybe lost some people in there. But I think the important thing is, is for a first-time investor who's maybe not comfortable with just picking one individual stock pick, it might be good for you to get your feet wet, get into the market by investing in an index. and what you're doing is you're spreading your money across many companies. It could be up to 500 or 1,000 companies across that index, and you're not having a very high expense ratio. So, Preston, I have one follow-up question. Considering that an index fund is just a collection of common stock,

Starting point is 00:09:53 can you use common value investing techniques, such as looking at a PE ratio to find out whether an index fund is overpriced or underpriced? So the answer to that is absolutely. Whenever you're trying to value an index, it's actually a little bit easier, in my opinion, than individual stocks. And the reason that it's easier is you can take the PE ratio, which is the price that you pay compared to the profit that the overall index as a whole is producing. So let's say that the PE ratio for a current pick would be a 20 or for the index would be a 20. So that means you're paying $20 right now in order to get $1 of profit out of that entire index. So when you're trying to figure out what would be my yield or my return on that, the easiest way to figure it out is just take one divided by that PE ratio, which in this case would be 20.

Starting point is 00:10:48 So one divided by 20 gives you a 5% return. So that's how I'm constantly reassessing the value of an index over time as I'm constantly reassessing where that PE ratio. is at in order to determine what kind of yield I think I'd get from it. Yeah, and if I can add something, I would definitely also say that another value investing principle is really understanding what it is you're buying. And you might think that if you're buying something like SMP 500, well, that's just a lot of companies, or if you're buying an index mirroring Dow Jones, well, that's also just a lot of companies.

Starting point is 00:11:24 But try also to think about which companies is actually that you are buying. Because to a lot of these indexes, it actually requires quite a lot to be a part of of. For instance, if you look at the S&P 500, this is the 500 biggest companies in the US. And it's actually not that easy to be a part of that. So you have 500 fantastic companies. Well, there might be some companies that are not performing as well. But you know that these companies probably have very good business models. So that will also give you some kind of security for the long run.

Starting point is 00:11:56 Great. Okay. So moving on to the next question that I had, we recently had the opportunity to discuss the concept of dollar cost averaging as an investment technique. So the philosophy behind dollar cost averaging is really practical. However, what if a person is starting with a relatively large amount of capital, say $100,000 plus do they structure their payment plan so that it's $10,000 per month? month over the course of, say, 10 months, knowing that a large portion of their capital will be out of the market during that period of time? Or would you recommend they front load their investment with, say, $25,000 or $50,000? You know, what is the best way to go about that? I think that to reiterate what Preston said before, I think is very important that you get your feet with in the beginning. So say that you have something like $100,000. I would probably just start out by spending two, three, perhaps $5,000 buying an index. And then I would see what my stomach will do the first time that the stock market took a dip.

Starting point is 00:13:09 I think that would be my first advice. Simply to see how I would react, because it wouldn't make any sense to say, well, you should front-load it or do something when it turns out that you can't handle the emotions. So I think that would definitely be my first advice. And then I would probably also be looking at the price to earnings ratio. Okay, so I'm going to just going to step back because the reason why you want to use the dollar cost average pros is because you don't want to look too much into whether or not the stock market is overpriced or if it's underpriced. You just want to have the average outcome. But in any way, even if you're beginning investor, it is still possible to look at the PE for that common index.

Starting point is 00:13:56 And if you're looking at something like a P of 20 or 25, then you probably shouldn't pour all your cash into the stock mark right away. Let's take a quick break and hear from today's sponsors. All right. I want you guys to imagine 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 actually shaping the future. That's what the Oslo Freedom Forum is. From June 1st through the 3rd, 2026, the Oslo Freedom Forum is entering its 18th year, bringing

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Starting point is 00:18:21 for a first-time investor in that you have to know how you're going to be able to stomach that psychological loss, even though it's not an actual loss until you would sell and it materializes and it actualizes. For people to see their account go down by a very large sum of money, they might not be able to handle that and they might sell in that situation. And if that's how you are and that's and you know that you might react that way, Stig's advice of maybe just investing a little bit of money to see how you can kind of handle the roller coaster ride is probably the best advice that you can receive. Now, if you are the type of person that this would not phase you in the

Starting point is 00:18:59 least bit and it wouldn't upset you or you wouldn't psychologically get attached to this, emotionally attached to this, then I would tell you a different answer. And the answer that I would tell you is that you can only make decisions with your money in time now. Okay, so investing is completely relative to the opportunities that exist right now. And the thing that I would ask myself is, do you want $100,000 today or do you want $100,000 spread over the next year? And my answer is I want $100,000 today. And the reason I want it today is because I don't want to wait and let, let's call it, $900,000 sit until the next month. Because whenever I do that and I keep a cash position, what I'm actually choosing, okay, whether I know it or not, what I'm actually choosing is to take a negative 2 or negative 3% return because that's what inflation will do to your money, okay, annually.

Starting point is 00:19:52 So for me, even though I might not be real happy, and right now in November of 2014, the market, you know, when I look at the P.E ratio, it's almost approaching a 20 for the market. So I know my return's probably around a 5% return if I would invest in an index. I'm not real happy with that return. I don't like 5%. I like more than 5%. But those are the options that I have based in relative terms because my opportunity cost of putting it into a fixed income investment is 2%, a little over 2%. And then a fixed income investment is completely impacted by inflation. So let's call that another negative 2% off of that for a 0% return if I'm in fixed income investments.

Starting point is 00:20:34 Okay. And I'm comparing that 0% return to the 5% I could get in the index. So for me, it's an easy decision. I take the $100,000, I drop it into an index or I invest it into a stock that I feel might give me a better return than the index that's low risk, which I feel that there are stocks out there that would give me that. And that's where I put the $100,000. But I am comfortable seeing the principle of my investment go down. If it went down to $50,000 tomorrow, I wouldn't blink an eye that wouldn't bother me in the least bit. And I would just buy more of the same stock that I just bought the previous day.

Starting point is 00:21:04 So it really comes down to what can you handle as an investor. What are you comfortable with? And that takes time. You have to be in the market for decades in order to get that experience and get that comfort level in order to invest like that. So kind of a different opinion or different guidance depending on where you're at and what your stomach can handle. You know, Preston, I'm going to jump to one of the questions that I had later on in this process because both you and Stig talked to, about something that I think is so critical to the investing process. And that's the emotional, psychological components.

Starting point is 00:21:43 Because personally, when I went to make my first stock purchase and you're sitting at your computer, you know, it's quiet, you see this screen and it's kind of flickering in the background, and you're about to purchase, say, two or three thousand shares of a company. And you feel, as a new investor personally, I felt like I had this huge, you know, huge rock in my stomach. And it almost got to the point where it was nauseating where I was like, I cannot believe I'm going to just throw, say, $10,000, $25,000 at a company that I have literally no control over. So I guess my question is, is what is the last thing that goes through your mind when you go to make a stock purchase? Okay. So I've got to answer this in different

Starting point is 00:22:31 phases because the Preston today thinks completely different than the way I thought whenever I was a first time investor, you know, many years ago. And so whenever I first started out and I didn't really know that much, I know exactly that feeling that you're talking about, that fear and that unknown, like, oh my God, this thing could, I could lose half the value tomorrow. And you know what that really stemmed from is I just didn't really know what I was doing. I was investing in companies and I had no idea what was behind that company itself. I had no idea what kind of debt levels the company had. I didn't know what their earnings were. None of that stuff made any sense to me. And so whenever I started developing more knowledge and I started understanding what it is

Starting point is 00:23:12 that was behind that stock, the equity of owning a business and really kind of understanding that piece of it, that's whenever things kind of started making a turn and it started being a whole lot easier for me to pull the trigger on a $5,000, $10,000 purchase. And so here's the thing that I think about now. So that's where I was years ago as a young investor and really didn't have the knowledge. But now that I feel like I really understand what I'm doing and kind of look at things in a completely different light, the question I ask myself whenever I do pull the trigger on a new purchase is, was I the smart person or the dumb person on that deal? Okay, that's what I really ask myself. And did I just do the opposite of the typical investor? That's what I'm asking myself,

Starting point is 00:23:54 because at the end of every single transaction, whenever you're buying equity, there's a buyer and there's a seller. And so there's a person who thought that the equity was a great deal or the stock purchase was a great deal. And then there's a person who thought, oh, this isn't something I want to own anymore. This was a bad purchase, so I'm going to sell it. Or I've made a lot of gains, and I don't think it's going to go much further. So I'm going to sell it. So which of those two people, Am I? And that's the question I always ask myself after I make a purchase. Am I buying the equity at a good price from a person who doesn't know the real value? Or am I the person who's selling it? And I don't know the real value because there's somebody buying each one of my cells as well, which I don't do a lot of. I don't sell a lot. What about you, Stig? I got to be honest, you can. I don't have the same advanced thought process as you met Preston.

Starting point is 00:24:42 I think that in the beginning, well, I know that in the beginning I had the same, you know, same feeling in my stomach. I don't know, it probably also helped me that I used to play poker. No, all kidding aside. I think it was a really, really insightful question. I think that as long as you're doing your research and as long as you have a long-term time horizon to be looking at, I think that you're doing quite well. But unless that's what we're talking about, I actually don't have the same,

Starting point is 00:25:19 I don't think I have to fear anymore. Perhaps I should. So basically suck it up and make some stock picks. Well, I think that if you're not comfortable, you should never buy anything. You should not make that decision. You have to be comfortable. And what's your intuition telling you?

Starting point is 00:25:37 If your intuition's like, oh, boy, oh, no, I don't know what's it. Then you shouldn't be doing it. that. I mean, why put yourself through that? But I really think the key to all of this, Kaelin, is really the knowledge piece. As soon as you become more knowledgeable and you study the art of asset selection and asset valuation, whenever you understand that and you really study it, the fear factor really kind of goes away real quickly because I know whenever I buy a certain stock pick and I'm looking at it and I was like, okay, what are all the things that could go wrong? Okay. And whenever I look at that and I feel that the,

Starting point is 00:26:11 upside drastically outweighs anything that could go wrong. I'm very comfortable going in there and making a stock pick. And you know what? If the stock market doesn't agree with my opinion and it penalizes it by 25% the very next day, like I said, hey, great, I'm buying more of it because my opinion of why I purchased it in the first place hasn't changed. Yeah. And I think one of the challenges for new investors is that in most cases we have such a short-term horizon that we're comparing our stock picks against. So, you know, it's really interesting for a person like me to look back at, say, 2008 and see what was happening to the market. Because I, in all honesty, was not aware that the stock market was reacting in that way. It just was not on my radar at that point in time.

Starting point is 00:26:57 And I completely agree. I think there's a Warren Buffett quote that sums this up perfectly, and it's that risk comes from not knowing what you're doing. And that's exactly how, I think a new investor feels is that even though you've gone through the valuation process and you found the intrinsic value of your company and they have low debt to equity, you still feel a little unsure and it seems like risk. Oh yeah, definitely. And as you're saying, history really repeats itself. So if you're a new investor, I would definitely suggest that you would check out the returns

Starting point is 00:27:35 that Bon Buffett had. The last, I think, is 49 years since you bought. Lordbrookshire-Halloway, something like that. And see that in some years she lost 30% or something like that. And in a lot of years, she did much worse than the S&P 500. So as you're saying, it probably comes from having a very short-term perspective, very, very often when you have this fear. Because if you know what you're doing, then you'll do fine over time.

Starting point is 00:28:01 And that time might be a lot of, like, 10 years or 20 years, but you will do fine more time. Yeah. And I think that that's a big factor is I know whenever I make any investment decision when I'm buying stock, it's always a very long term for, you know, for my lifetime type decision. I don't plan on ever selling it. So I think that makes a lot easier, too, is whenever you buy it and you know that you're planning on owning it forever. If it goes down tomorrow or the next month, it's no big deal. I'm trying to buy more equity at that point. So and just to kind of piggyback off of what Stig had said about Warren Buffett, yeah, he had some horrible years relative to the market. But when you look at his performance, over that 40-year period, his average return is a 20% return annually, which, you know, crushes the stock market. So his guidance and his principles obviously work because he's been doing it for a very long extended period of time and has results that prove that. Okay.

Starting point is 00:28:53 So the next question that I had for you, and this is along the same line as what we've been talking about already. But another quote that I really love from Warren Buffett is be fearful when others are greedy and greedy when others are fearful. And it seems simple enough. However, how should a new investor react to financial news? For example, the apparent global supply glut of oil and how major institutions such as Goldman Sachs have slashed its 2015 forecast.

Starting point is 00:29:23 That one's popular up in Calgary, I bet. Yeah, it's very popular. Everybody is taken in their boots downtown. Well, I'd say that you really have to be thinking about what you're hearing is that a permanent change. or is it temporary change? And if something that's permanent, you should definitely take it seriously.

Starting point is 00:29:42 But if it's temporary, well, clearly, on the other hand, you should just say, well, a price fluctuation will just happen. So this is something that I actually, this is very ironic question because this week I actually made a very large change of my portfolio with respect to oil.

Starting point is 00:30:00 And so to go to your question when you're saying, am I fearful or is it just noise? And I think that that's really kind of the thing that people got to understand. Whenever you talk about statistics, there's a lot of noise in the numbers. There's a famous statistician that I follow very closely. His name is Nate Silver. And what Nate has done, he's a statistician's genius.

Starting point is 00:30:24 And he was able to correctly forecast the presidential elections and these midterm elections for years now. And it's funny because all these news networks follow him extremely closely because his selection rate is that out of all the counties across the whole United States, he might miscall only three counties in the whole United States, which is just massive. So his model that he's using, he's able to pick out what's the essence of what gets a person, you know, the forecast of getting a person elected versus just noise. Because in the stock market, whether it's politics or it's the stock market, there's a lot of noise, most of its noise, 95% of its noise.

Starting point is 00:31:04 But sometimes there's that 5% of it. where it's actually the essence of something that's changing in the way things are moving. So with respect to oil, I've owned oil in my portfolio for a very long time. I know back in 08, I purchased Chevron, Royal Dutch Shell, quite a few picks that were paying very high dividends. I reaped the benefits of that for years now, about six years that I was reaping the benefits of that. And literally, this week, I actually sold out of my oil positions.

Starting point is 00:31:31 I hated paying the capital gains, but for me, there was a major shift, and I'm I personally think I might be wrong, but I think that there's a major shift in the direction that oil is going. And I think that there's a lot more supply. And whenever you look at charts, and we'll have something in the show notes pertaining to this article that I read by a guy named Ben Castleman, who's also a reporter for the 538 website where Silverman has his stats. But on this website, the name of the article was the law of supply and demand suddenly applies to oil too. And he has charts in this article that shows the oil production in Saudi Arabia and the oil production in the United States. And whenever you go back to like 2004, you can see kind of those levels at what they're producing

Starting point is 00:32:17 oil at. And if you look now in 2014, you're seeing a drastic shift in the amount of oil and oil equivalents that are being energy equivalents that are being produced out of the United States to the point where it's more than double where it was over a decade ago. whereas Saudi Arabia is very slowly ramping up their efforts. So my personal opinion with this specific question is that we're seeing a change in the supply and demand of oil. And for that reason, that's why I am moving out. It's not because maybe they missed their quarterly earnings by 10 cents or the noise, is what I'd like to call it.

Starting point is 00:32:56 But I feel like there's a fundamental shift in the production levels of oil. And that's why I had moved out of it. So I think whenever you're answering your question, Kalyn, you've really got to be able to delineate what is noise and what is the truth and what is the essence of maybe something that's happening right now. I personally think that there's kind of a transition where when there's more competition and there's more demand in the market, the prices are going to go down and you might not have as good of performance. So that's why I slowly transitioned out of that position. 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 proof of security just to do business. That's why VANTA is a game changer. VANTA automates your

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Starting point is 00:36:29 distribution rate as of 1231, 2025. Carefully consider the investment material before investing, including objectives, risks, charges, and expenses. This and other information can be found in the income fund fundrise.com slash income. This is a paid advertisement. All right, back to the show. Wow, that was really insightful answer, Preston. Let's do this to, let's make this a Calgary special. I really like to talk about oil. I definitely think that you are right, Preston.

Starting point is 00:37:04 I think that we see some kind of, I wouldn't call it a permanent shift, but we definitely see some kind of a shift because clearly if we have a lot of supply and we have the whole shell boom and everything, So clearly, due to the law of supply and demand that would drive down the price, I'm going to say, I'm not that word, but I also think it depends on where you invested in the oil industry, because the oil industry, oil and gas industry, is such a large sector. So you really need to understand what it is that you are investing in. But clearly, if you're investing in companies that is very dependent on oil price, like right now, I think that that you might be heard the next few years. I think that this my strategy is something that I would like to pass on is you might want

Starting point is 00:37:53 to consider investing in companies that is delivering services or delivering tools for these companies to exploit oil. Because that's never going to change. That's not going to change the next 100 years. So when you have a sector that is very profitable and the oil industry will still be profitable at the current level, and you will still be profitable

Starting point is 00:38:14 And they have a mode, they have something that can do in the industry that is very big and might be competitive, but they still have a competitive advantage. I'm pretty sure you get decent returns for many, many years to come. So I don't know if that would calm you down, Kaelin or not. Yeah, well, it snowed here very heavily last night, so I think regardless of what happens with oil, the Calgarians are going to be shaken in their boots. Kaylin, I want to add another point here. So whenever I was looking at the current performance that I kind of expected out of the picks that I had, these oil picks that I had, I found the performance to be very close, if not exactly the same as what I would get out of like an S&P 500 index. And so why would I assume risk in owning one of these individual picks that are highly exposed to that particular industry whenever I could transition that capital into something that's across the breadth of an index? or another pick that I feel would give me a better return,

Starting point is 00:39:17 that opportunity cost tradeoff that you're constantly doing. And that was one of the main reasons I had transitioned because I felt like my opportunity cost in another area was much higher than where it was in oil. And that's why I transitioned out. Okay. So my next question is just I work a full-time job. And obviously, once you come home from work,

Starting point is 00:39:37 you want to spend time with your family, maybe you're going to cook dinner. And so you don't have a lot of free time necessarily to dedicate to, say, monitoring your portfolio or investigating stock picks. So typically how much time is a value investor going to need to invest in themselves and in the process to see a return on the stock market? So this is a question that I get a lot of the time. And I think my answer kind of surprises a lot of people because they probably anticipate

Starting point is 00:40:10 me to say, oh, yeah, well, you got to look at it every day. I spend three hours a day researching and stuff like that. But really, the way I see it is a person should really focus on the quarterly results and look at the 10Q. So really, that's once every three months. That's where I would focus a lot of my time and energy is reviewing that for the companies that I specifically own. Now, from a day-to-day basis, I might not even look at the tickers on a day-to-day basis. I might look at that maybe once a week, twice a week, just to kind of see where things are at and what they're doing. But what I do a lot of is read the news.

Starting point is 00:40:47 So if it's a company, if it's an industry, I will be reading that just to kind of see, just to kind of know what's going on. Does it necessarily relate to the business that I particularly own? Maybe not. But the thing that I think a lot of people neglect is, you know, whenever they publish their quarterly results, what has changed from that to the next day, specifically for that company? Really nothing.

Starting point is 00:41:12 Okay? You don't know until the next quarter's earnings report that comes out when you see the income statement balance sheet and cash flow statement, not for another three months. So what do you know that you didn't know the day before that you really have to be looking at and doing a lot of research on? And so what I would propose is that a lot of people probably need to look at it maybe a little less than what they're anticipating. But when they do get that new report, they do need to read that. They do need to understand what's in it and what the direction of the company is going towards. I'd say that if you had to prioritize your time and we all had to do that, I would definitely spend much more time improving my general investing skills

Starting point is 00:41:51 than spending time on watching. I wouldn't say in the cell of the news, but just reading all these different reports and all these rumors about the companies that you're looking at. I definitely agree with Preston. The 10 Q's really the key because then you read the results from the last quarter. You hear what the management has to say. and then you should use the investment skills that you acquired to separate the noise from the reality.

Starting point is 00:42:17 And when you do that, I think you're good to go. So that's a stick. That's a fantastic answer. If people would spend an hour a day learning more about accounting and learning more about their investment knowledge, opposed to reading an hour's worth of news on the noise, if we will, I think you'd see people really have a lot more success than the person. who's just watching Squawk Box all day and getting worried because they're hearing some person's, some random person's opinion.

Starting point is 00:42:46 Okay. And this is the last question that I had for the two of you. And it's one that I am very interested in learning your answer to. It's if you could go back in time. So when you first started learning about value investing, what single piece of advice would you give to your former self? I'd definitely say don't swing in every pitch. I think that is probably

Starting point is 00:43:11 that's probably the best advice when I started out I was very anxious and I was definitely not a big fan of the dollar cost erasing method I really just want to get into the stock market because the sooner I got into the stock market the sooner I thought I could

Starting point is 00:43:26 you know reap the benefits so whenever I found like a good stock pick or what seems to be a good stock pick I would just go ahead and buy it and that is very very very bad advice. So I would say I think it was actually Greg Pesani, which we had on a few weeks ago. He said that the best

Starting point is 00:43:46 investment advice he ever got was patience. And that's really what this don't swing in there repeats is. You don't have to buy a stock every month or you don't have to buy a stock every year even. You should just wait until you find a really good company at really good price and then go into that stock. I think that is the advice I would like to give myself. So I'm going to cheat. I know you said only one piece of investment advice, but I would actually give myself two pieces of investment advice. I needed a lot of help. I'll allow it.

Starting point is 00:44:17 All right. So the first thing I'd tell myself is find people that are the best at what they do, people that you admire and study them until you understand the essence of their decision-making process. Okay, that's the first thing I'd tell myself. And then the second thing that I'd tell myself is that stock investing is all relative to opportunity. cost, specifically interest rates, okay? When you finally understand that piece that you're comparing at time now, you're constantly comparing what you own to or the capital that you have to what you could buy here versus over here.

Starting point is 00:44:53 When you understand that it's all about time now and the opportunity cost to switch into a different asset, that's when you finally understand that you'll be on the right side of the wealth equation as opposed to being on the wrong side of the wealth equation. So, Kalyn, it has been just a blast having you on the show. I'm sure everyone in the audience really appreciate your questions because these were just fantastic questions. And what we're going to do right now is we're going to transition into one of the questions from one of our audience members that submitted it to our website. And this question comes from Scott Korea from New York, New York. And here's Scott's question. Hello, Stig and Preston. This is Scott Korea from New York City. So this question may

Starting point is 00:45:36 invoke being kind of lazy, but what do you think about simply looking at these stocks that Berkshire Hathaway purchases and buying the same stocks for the same or a lower price? And a related question would be, what about buying the shares of Berkshire Hathaway, just buying the shares of Berkshire Hathaway? Because wouldn't be getting the results of their research and judgment without having to do a lot of work? So, like to know your opinions on this? Thank you very much. Fantastic question. I actually like to start out my answer with a quote.

Starting point is 00:46:12 It's from Mr. Warren Buffett himself. He's saying that I don't look to jump over seven foot bars. I look around for one foot bars that I can step over. I'm not necessarily saying that the strategy you are pursuing is the best strategy. But I'm definitely saying that if you can find a good strategy for yourself, there's not necessarily anything wrong with you not spending two, three or four hours every day on your stock. picks. If you can find a profitable strategy for you that works, then I definitely think you should do it even though you only need to spend like 10 minutes a year or two to carry

Starting point is 00:46:47 that out. But anyway, I was thinking about the same thing when I started investing because I was just looking up the incident, I think, with the most profitable stock investor at a time and I just found Warren Buffett. And I saw that he was disclosing all his stock purchases. So I thought I should probably do the same thing. Well, the problem with that approach is, and not saying that you shouldn't do it, but the problem is that you are not really getting the benefit from Warren Buffett, at least not the fuller benefit,

Starting point is 00:47:20 because Brown Buffett, he has the ability, or he has the option to buy until unlisted stocks, and you probably won't have that as an investor. So, for instance, when he bought Heinz, you could do that and yet it wasn't listed so you couldn't do the same thing so I don't know

Starting point is 00:47:39 Preston if you have anything you want to add so Scott I'm going to say you know Leonardo da Vinci says that simplicity is the ultimate sophistication and your question kind of reminds me of that

Starting point is 00:47:50 because you're like well why would I try to mimic Buffett if he's already getting these fantastic returns and you know there's something to be said for that do I own stock in Berkshire Hathaway absolutely

Starting point is 00:48:00 but let me say this I buy Burkshire Berkshire Hathaway at times whenever it's most opportune based off the value at that specific point in time. So a lot of people know that Buffett owns Coca-Cola. So do I just go out and buy Coca-Cola because Buffett owns it? Well, the answer is no. And the reason why I don't buy Coca-Cola right now is because Coca-Cola is at a completely different price point and a completely different valuation than whenever Warren Buffett purchased it two decades ago. Okay, whenever Buffett purchased Coca-Cola, it was at a completely different price point.

Starting point is 00:48:33 giving him a completely different yield. And right now, Buffett's held it for so long that his capital gains are in the billions for Coca-Cola. So is he going to sell that and take that enormous capital gains tax by selling Coke, or is he going to continue to hold it and get that dividend that he locked in whenever he purchased it two decades ago? Of course, he's going to take the latter. He's going to continue to hold it, and he's going to continue to get those dividends. So like I was telling you earlier in my guidance to myself, if I could go back in time, is your investing is relative to time now.

Starting point is 00:49:07 Okay, what opportunities are there right now that you can go out and capitalize on versus just mimicking or imitating somebody else's decisions that maybe they made five years ago? And that's really kind of gets to the root of, do I, can I just buy Berkshire Hathaway? Absolutely, you can, but you have to make sure that you're buying it at the right time when it's giving you a good price and a good value. I might say that one thing that I'd like to do at least when I'm a second. started out was to use Warren Buffett's stock picks as a hint to where I should start my research. I think that's another takeaway. I would take a brief look at the stock picks and then I would go

Starting point is 00:49:44 and look deeper into the best picks, picks that I really understood myself and where my all calculation would say that it's undervalued. Okay, so that wraps up our show for today. I would like to tell everybody that Kalyn Yablonsky's business that he has. He's the president of Inbound Interactive, fantastic company for search engine optimization. So if you're looking to drive traffic to your website that's optimized that you don't have to pay for advertising down the road with advertising dollars on Google AdSense or something like that, I highly recommend that you go to Kalen's website. We'll have a link to his company Inbound Interactive on our show notes if you're in. interested in doing that. And Kaelan, thank you so much for coming on the show today and asking such fantastic questions. Yes, thanks a lot, guys. I really appreciate the opportunity. It was

Starting point is 00:50:37 fantastic, and I look forward to hearing more from the Investors Podcast. All right, Kaelin. All right, folks. We'll see you next week, and thanks for joining us. 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.w.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 TIP Network and must have written approval before

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We Study Billionaires - The Investor’s Podcast Network - TIP 008 : Value Investing - Questions from a Newbie (Investing Podcast)

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