We Study Billionaires - The Investor’s Podcast Network - TIP215: Billionaire Mark Zuckerberg Lessons - Facebook (Business Podcast)

Starting point is 00:00:00 You're listening to TIP. On today's show, we're going to be talking about one of the most controversial billionaires in the world, Mr. Mark Zuckerberg. As everyone knows, Mark is the founder of Facebook and his personal net worth is estimated to be $61 billion. As Facebook continues to have its challenges with the public perception, the platform continues to generate significant cash flow. And on today's show, we cover some of the most interesting questions and answers that Mark has fielded lately. So without further delay, here's our discussion on billionaire Mark Zuckerberg. You are listening to The Investors Podcast, where we study the financial markets and read the books that influence self-made billionaires the most. We keep you informed and prepared for the unexpected.

Starting point is 00:00:54 Hey, everyone, welcome to today's show at the Investors Podcast. I'm your host, Preston Pish, and as usual, I'm accompanied by my co-host, Stig Broderson. Like we said in the introduction, we're going to be covering the thoughts and ideas of Mr. Mark Zuckerberg. today. So without further delay, we're going to cover the first question. And the first question that Mark was asked, what was the hardest part in the early years of Facebook? And this was Mark's response. One of the hardest parts for me was actually when Yahoo offered to buy the company for a lot of money. Because up until that point, that was this turning point in the company where before that, every day we'd just come in and kind of do what we thought was the right next thing to do.

Starting point is 00:01:35 We'd open to more schools. We opened beyond schools and launched more photos because that's what seemed like the next thing that we needed to do to help people express themselves and understand more what was going on around them. But then Yahoo came in with this really meaningful offer of billion dollars. We had 10 million people using the product at the time. It wasn't as if it were obvious that we were going to succeed far beyond that. And that was the first point where we really had to look at the future and say, wow, is what we're going to build going to, actually be so much more meaningful for this. And, you know, that caused a lot of interesting conversations in the company and with our investors. And, you know, at the end of that, Dustin and I

Starting point is 00:02:15 just decided, you know, no, we think that we can actually go connect more than just the 10 million people who are in schools. We can go beyond that and have this really be a successful thing. And we just had to go for it. But that was really stressful because a lot of people really thought that we should sell the company. So for a lot of the folks who joined early on, they weren't really aligned with me, right? For them, they joined and being able to sell a company for a billion dollars after a couple years was that was like a home run and it is a home run right and that's i get that i think that the fact that i didn't communicate very well about what we were trying to do caused this huge tension and the part that was painful wasn't turning down the offer it was the fact

Starting point is 00:02:50 that after that a huge amounts of the company quit because i didn't believe in what we were doing this is a really interesting exchange and while he was he was saying that i kept thinking to myself what would you have done in that situation immediately i i guess my first intuition was I would have definitely sold the company. But then I thought a little bit more about what the metrics would have looked like that he was seeing. And that's the thing about this kind of business is it's all, I mean, he can see everything in the numbers, right? It's all coming out. He can see the number of signups. He can see the dwell time on the site. He can see all of that stuff. But really interesting exchange. Stig, I'm curious to hear your thoughts.

Starting point is 00:03:28 Facebook was founded back in February 2004. And Yahoo was not the first suitors, not the first of the string of suitors, really Google, MySpace, for those of us who remember that, the Watson's Post. There have been so many huge companies that were rumored to want to take over Facebook at the time, and probably the most talked about. That was Yahoo's offer in June 2006. If you look at some of the numbers, around 10 million users, that's a lot after just a little more than two years. They had around 20 million dollars in revenue at the time. So it's not, I mean, on the metrics basis, obviously this was outrageous, and many people would say so. But it was a very interesting discussion I think he had with himself. At this part in time,

Starting point is 00:04:14 Max Talkberg was 22 years old. I mean, think about saying no to that much money when you're that age. But perhaps that's also one of the reasons why he did say, no. If you're 22 and you already had 10 million users on your platform, why wouldn't you just continue? And also think there is something to be said about being in a position when someone offers. you a billion dollars. If that happens, you probably do not need the money. For him, perhaps, one of the things he was getting at was to have a chance to change the world, have a chance to test a new things on his platform. And you can test a lot more if you're the owner of Facebook than if you have a billion dollars. At least that is, I think, what Mark Zuckerberg was thinking

Starting point is 00:04:56 at a time. I guess from that perspective, it makes sense. It is interesting to consider, though, that Peter Thiel, one of the very first investors in Facebook, he tried to convince Zuckerberg to sell. Because for him, it was all the Z money. I don't know how many X he would make on that investment. But yeah, why wouldn't you say yes? But for Zuckerberg, obviously, he was more the visionary, not the money behind Facebook. I think a lot of the venture capital investors would have been providing so much pressure on the sale. I don't know that a lot of them would have been wanting to kind of hang around and see how well 22-year-old Mark Zuckerberg would have done as he grows the business. The next question that Mark was asked,

Starting point is 00:05:38 how do you think about making big changes to Facebook's platform? And this is how he responded. So I actually think when you do stuff well, you shouldn't have to do big crazy things. When we started off, we didn't have anything like News Feed that showed you updates from what people were sharing. We just had profiles. And what we found were originally one of the big behaviors was people would just click

Starting point is 00:06:01 around. They'd click on different profiles, hundreds of them, and they'd go through all their friends to see what people had changed, right, to see what the update was in their friends' day. We learned from that that people were not just interested in looking up and learning about a person, but also understanding the day-to-day changes. So first, we made this product that just showed an order which of your friends and updated their profile, right? So that at least told you whose profile to click on. And then, you know, the first version of Newsfeed was really simple. All it did was it basically took the content that people were posting and put it in order on your homepage. When things are working well, you use data and you use the qualitative feedback that you're getting from listening

Starting point is 00:06:39 to how your community is using your product to tell you what problems to go solve. And then you basically use intuition to figure out what the solutions to those problems might be. And then you test those hypotheses by rolling them out and getting more data and feedback on that. And then that gives you a sense of where to go. We bought the Oculus team for a lot of money. I actually view that as if we'd done a better job of building up some of the expertise to do some of that stuff internally, maybe we wouldn't have had to do that. Instead, we hadn't done that. And the Oculus team is by far the most talented team working on that problem. So it just made sense to go make this big move. But you know, you can't be ahead of everything. So it's better to make big moves and be willing to do that than

Starting point is 00:07:19 have pride and not do that and never admit that you could have done something better on the past. But I think when stuff is working well, you're learning incrementally and growing that way. For this question, I would really like to talk about Mark Zuckerberg's process in terms of how he's thinking about improving his platform. So first, he would look at his data. That would be the first place for perhaps most business owners special of this size. And he saw that, say, that people clicked around on their friends' profiles to read out on the status updates. That's one thing. It does not tell you you should create a news feed or not necessarily. It's more how he's using his intuition.

Starting point is 00:07:57 And that's really the keyword here that I would like to talk about. How to use your intuition and then come up with a solution based on that. Most people come to you with problems or come with you with data. Really the challenging thing and the way to be competitive today is to provide the solution. That's really what adds value. It's also one of the most common carcouristics we see whenever we study billionaires in general. And whenever we talk about intuition, perhaps we can also look at it as a hunch, something that is really hard to quantify.

Starting point is 00:08:35 I've read this book about this concept of intuition, which itself is a very abstract thing. But apparently only 25% of adult American has intuition as the predominant trade, where 75% has the opposite, which is called sensing. If you're a sensing person, you would need to experience the Facebook newsfeed before you can provide feedback. If you have intuition as your dominant trade, you would come up with the solution. Why don't we just create a news feed and then start pulling in data? I don't know why we see that with so many of the billionaires. My own thesis is that because they read a lot and they have a good imagination, but it's just something I really wanted to mention here.

Starting point is 00:09:22 I really like the discussion around intuition and really kind of subconscious thoughts that kind of drive and help you be creative. There was a book that we covered by Alan Gannett called The Creative Curve. This book was fantastic. If you're trying to hone that skill and one other book that I would recommend that we have not covered on the show that's, in my opinion, one of the best out there for understanding your subconscious. There's a book called Deciphering How the Brain Codes Our Thoughts. Wow. This book, I had recently read that and would love to cover it on the show, but it just really doesn't kind of fit our niche. But if you're trying to understand how your subconscious works, that book is fabulous. Again, it's called Deciphering how the brain codes are. thoughts. I didn't have any other follow-up comments on that one, Stig. So we'll go on to the next question that Mark was asked. This question was, what are you most excited about over the next

Starting point is 00:10:19 coming 20 years? This is his response. So we have this 10-year roadmap. And we're focused on three things. Connectivity. So getting everyone in the world on the internet, right now more than half the world is not on the internet, which is, I think a lot of people in Silicon Valley probably take this for granted. It just is not uniformly available. And if we want to solve a lot of the big challenges of the world today. They're not problems that any one group of people or even one country can solve. They really involve coming together and giving everyone an opportunity to participate in solving them. So I think connecting everyone is really a key thing, which is going to be great for people around the world. The next one is AI. I think that that's

Starting point is 00:10:59 just going to unlock so much potential in so many different domains. And we use it at Facebook for a lot of different things for showing people content that they're going to find more meaningful for making sure that you connect with the people you actually care about on the service. But in a lot of ways, the work that we're doing on AI to push the fundamental state of the art forward is exactly the same stuff that's going into systems that diagnose diseases better or find better drugs to treat people. Other companies are using when they build self-driving cars. And, you know, these are things that are going to save lives. You know, I heard this story recently that at this conference where someone has built a machine learning application where you can take a picture

Starting point is 00:11:41 of a lesion on someone's skin and it can detect instantly whether it's skin cancer with the accuracy of the best dermatologists and doctors in the world. You're going to be able to put the power in your doctor's hand to become the best doctor in the world at that thing. Everyone will be the best doctor in the world. That's a really fundamental thing. I get a little bit frustrated, I think, when people fearmonger about AI and how it could end up hurting people because I think in many real ways around diseases or on driving more safely, that's a really big deal, I think, for the next 10 years. The next thing that I always think is going to make a big difference. You know, every 10 or 15 years, there's a new major computing

Starting point is 00:12:19 platform that comes around that allows people to do completely different things than they could do before. 20 years ago, most of us were using desktop computers. They were kind of clunky. We used them in work because it made our work more productive, but most people didn't use them for fun. Now we have phones, which, you know, help us connect. with each other and they're much more human devices. But there's going to be another platform after that. And I think that's going to be virtual reality and augmented reality. That I think is just going to help people be more creative, experience what other people are

Starting point is 00:12:48 feeling much more immersively than we even can through video and things like that today. I'm really excited about that trend as well. 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

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Starting point is 00:17:07 I don't think anything that he said really surprises anybody as far as what he sees being important moving into the future. There's something that I want to play here on the show, and now that we have an opportunity to talk AI, I recently was introduced to a video where Google has rolled out a new AI platform. that a person can basically interact with their Google Home. I don't even, I don't have one of these things, but it's basically the Google's AI service that they're trying to get people to put into their homes. And what you can do is you can contact this device.

Starting point is 00:17:41 You can say, hey, Google Home or, hey, Google, make an appointment for me tonight at 8 o'clock to have dinner at whatever restaurant. And the Google device will say, okay, no problem. And then what it actually does is it calls the, location and it has, it actually talks to the person, the human on the other end. It has a conversation with that person and then it books the appointment. So what I'm going to do, I'm going to pull up this audio and we're going to play it right now on the show so you can

Starting point is 00:18:15 hear how insane this is because this is AI that is making this call. And I just want people to hear this. This is totally nuts. As I said earlier, our vision for our assistant is to help you get things done. What happens is the Google Assistant makes the call seamlessly in the background for you. So what you're going to hear is the Google Assistant actually calling a real salon to schedule the appointment for you. Let's listen. How can I help you? Hi, I'm calling the book a woman's haircut for our client. I'm looking for something on May 3rd. So let me one second. Mm-hmm. Sure. What time are you looking for around?

Starting point is 00:19:03 At 12 p.m. We do not have a 12 p.m. available. The closest we have to that is a 115. Do you have anything between 10 a.m. and 12 p.m. Depending on what service she would like. What service is she looking for? Just a woman's haircut for now? Okay, we have a 10 o'clock. 10 a.m. is fine. Okay, what's her first name?

Starting point is 00:19:28 The first name is Lisa. Okay, perfect. So I will see Lisa at 10 o'clock on May 3rd. Okay, great. Thanks. Great. Have a great day. I don't know what's scarier. The fact that that call took place or the fact that everyone's cheering after it took place. For me, that's totally nuts. The think that, because let's think about how they arrived at this solution. They're taking a bunch of data. They're then plowing this data through a neural network that's then coming up with a prediction, right? It's saying, hey, I think that this is the way that I should respond based off the data that has been flowed through this model. And then it's providing a response.

Starting point is 00:20:13 And this is all being done through deep neural networks. This stuff is totally nuts. I'm pretty amazed. I mean, that this is even possible, especially the mirroring part. One of the things that they would say after this is we match, we make sure that through artificial intelligence, we can match, we can have someone, if it's a female, then our system with a female is around the same age. If they speak with the dialect, they will do the same thing. It is absolutely amazing what it can do. I absolutely agree with Mark Zuckerberg whenever he talks about that AI is typically a good thing. If it's safer cars, if it's about being better at diagnosing diseases, yes, it is better. Now, where I think that AI and machine learning in general is not good, that is when it comes to something like Facebook.

Starting point is 00:21:02 And that's actually why I really wanted to play this question. Because whenever Sockerberg talks about, we use artificial intelligence to give you more meaningful content. That's whenever I hear targeted ads and casino algorithms. That is what I'm hearing. That's not by doing better thing for humanity. Where I think it even comes into more of a concern stick is more just on basic news, because it's a confirmation bias algorithm is what it really is. Tony, Robbins told us during the interview that Ray Dalio and him and some others feel that confirmation bias is probably one of the strongest bias influencing people to make poor decisions in financial markets. And I think that that would probably likely carry over to almost any type of event in

Starting point is 00:21:49 your life. And when you look at these AI algorithms pumping people specific news feeds, it has an ability to polarize the public. I think that there's a real concern there. And I don't know how they necessarily address that. But I think that it's a concern that a lot of people need to be aware of. And I completely agree with you, Stig, where AI, with respect to social media, I don't know that it's a good thing. I don't know if it's a good thing at all. It's a very interesting conversation to have for sure. I think that AI will enable services like Facebook for, I'm about to say, more human misery. I think it's been documented for quite a while now that the more time you spend on Facebook, the worse you feel about yourself. And the way

Starting point is 00:22:36 that Facebook is built up around this casino algorithm where you need to, it's almost like you are pulling in a lever to win a price and that price might be more likes or that fix whenever someone has responded to your text and you get that notification. I think there will come a lot more initiatives like that. And what is good for Facebook is that you will spend more time there and you'll through Facebook also spent more money. I think for a human welfare perspective, social media and services that is really much tied to you as a person

Starting point is 00:23:09 would probably also be where AI is exploiting us as consumers the most. And interesting enough, also where it will help us the most. So that was really why I wanted to play this, especially because it was Mark Zuckerberg, the founder of Facebook who brought it up. All right, so moving on the next question that Mark was asked. He was asked about his intentions of internet.org

Starting point is 00:23:33 and the initiatives that aim to bring affordable internet access to less developed countries. And this was his response. For those of you guys who haven't heard of internet.org and what we're doing here, we have this whole effort where we're trying to help everyone in the world get on the internet. It turns out that the vast majority of people in the world have no access to internet. And living in the US, or especially here in Silicon Valley, it's pretty easy to miss that fact. But it turns out that there are about 7 billion people in the world, and only about 2.7 or 2.9 billion people have any access to the internet at all. So there are more than 4 billion people, the majority of people in the world who don't have any access.

Starting point is 00:24:16 And that's what we're trying to solve through this internet.org program, where we basically go around the world, working with mobile operators and governments and local entrepreneurs to be able to offer some basic internet services for free. The way that I kind of think about this is it's kind of like, you know, in the U.S. we have 911. So even if you can't afford to pay for, you know, your mobile phone, you can still always dial 911 and you can get help on basic things that you need. And I just think that there should be a version of this for the internet where people can access, you know, some basic education information, health information, job listings, some basic. Some basic basic things that you need. The idea is that by getting access to this content, we actually

Starting point is 00:24:56 find that more people who use these basic services then go and decide to go pay for a data plan and get full access to the internet. So out of those four billion people, it actually, a lot of them can afford to pay for the internet, but maybe they grew up and they didn't have a computer and they haven't used the internet and they're not sure why they would want the internet yet, but by trying it out and using some of these basic services, a lot of folks then end up using it. So what we found in research that other firms and companies have done is that for every 10 people that gain access to the internet, one person is lifted out of poverty. In countries like India, right, I mean, India has 1.25 billion people and actually more than a billion of them are not on the internet. So if we could snap our fingers and connect all of them, then there would actually be 100 million fewer people in India in poverty.

Starting point is 00:25:44 I mean, I actually think that this is one of the bigger things that we need to go around and do in the world. It kind of makes sense, right, if you think about it. If people need a lot of things to live good lives, but access to education information, health information, job opportunities, all that kind of stuff are a lot of the things that people need to be able to go get jobs and join the modern economy. So in a country like India where a lot of people are not connected to the Internet, giving people those tools really is pretty empowering. And it's not the only thing that needs to happen, but I think it's one of the big things

Starting point is 00:26:14 that we're working on doing. When I was getting started in my dorm room, you don't kind of, you don't kind of dream about one day we're not just going to build a service that a lot of people use, but we're also going to try to get people on the internet. But now we're a bigger company and a lot of people use Facebook. And we have the resources to go try to take on some of these bigger problems. So I feel like we have a responsibility to do that. I'm excited about this and excited to keep doing it. 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 00:30:02 To have that mission to try to spread, really, I see it as spreading knowledge around the world and giving people access to knowledge. but I don't think Mark's intent is to create more market share for his business. I think he's just truly doing this to help make people more educated and help people have access to information. Stig, I'm kind of curious to hear your thought on the question. I think you're right. As an investor, you kind of feel that he might want to grow a new market. That's kind of like the first idea that you have. I don't think that's it at all. And especially if you look at how Facebook is making money in places where people,

Starting point is 00:30:39 people do not have internet and especially very poor people, there are not a lot of money in targeted ads. I mean, if you just look at it as simple as something like that, I also think it's a philanthropic way of looking at the world. And, you know, Mark Zuckerberg, in his defense, I know I was bashing him before. In his defense, he pledged to give away 99% of his Facebooks, yes, to charity. And just like someone like Warren Buffett talks about how he's not good at giving money away, so he's outsorting that, he's better. at accumulating capital, so he should do what he's best at. I also like that Mark Zuckerberg, being a tech person, that he would use that competitive advantage to help with poverty around

Starting point is 00:31:20 the world. I have one thing here that I would really like to talk about in those regards. I would like to talk about something called M-Pesa. Something I stumbled on here and end up looking more and more into is really payments for the unbanked. M-Pesa, M-Pesa, M is for mobile, Pesa means money in Swahili. That's a service that was launched already back in 2007, but has really gained a lot of traction here recently. You can use that. Originally, it was rolled out in Kenya,

Starting point is 00:31:50 but now you can also use it in Tanzania, Afghanistan, South Africa, and India. You can think of this as square in the US. Basically, it's a service that allows you to deposit, withdraw, transfer money, and pay for goods and services easily with your mobile device. And the reason why I bring this up is that I see a lot of promise because of the progress we see in technology right now.

Starting point is 00:32:16 I mean, just like Africa skip landlines and went directly to mobile phones. What we see right now in these countries is that they skip the entire process of credit cards and they go directly to square because it's just a so much more efficient way for them to do business. And I'm saying this because I feel that because of the technology, we might. might look at poverty different in the future. This is not the way of saying that we won't have poverty in the future. I don't think we will ever avoid that, but I think that we might see a change in the way that people can interact and people can take themselves out of poverty

Starting point is 00:32:56 around the world. So that was one of the reasons why I really wanted to play this clip here today. And also to show that despite Preston, me continuously, episode after episodes, whenever we get the chance try to bash Facebook. I also think we need to give credit when credit is due. All right. So this is the point in the show where we play a question from the audience. And this question comes from Thomas. Hi, President Stig. My name is Thomas from Belgium. First off, I wanted to let you know that I'm a huge fan of your show. I've been listening to it since you guys started it. And I've learned a lot throughout the years, not only about investing, but you really introduced

Starting point is 00:33:33 us to much broader topics and thought leaders. How to live by values among others for which I cannot thank you guys enough so on top of that I would have never had the courage going to the Berkshire meeting without the great instructions and the practical tips which you've been sending out through your mailing list so thanks again for that anyhow to my question I was wondering whether you guys are convinced users of checklists I've read a few articles and books such as the checklist manifesto and I've heard you mentioning sometimes there are certain red flags you look out for when you're

Starting point is 00:34:04 analyzing businesses therefore I was wondering whether you consider them a necessary requirement to avoid certain kind of biases which might lead us to wrong conclusions when we're analyzing investments? Thank you very much. My response would be yes, I do follow a checklist, but mine's not actually written on a piece of paper that I literally go line by line, kind of like computer code, but I have a process. A lot of the process that I use can be seen. If you check out any of the articles that I write on Forbes, the methodology that I use for every time I do an intrinsic value assessment for a company is the methodology that I use and the thought process that I use as I step through. I always start off trying to understand holistically what does the business do. I go through that analysis. I see how much do they do in sales, just to kind of give myself a general idea of what the business is. If I feel like the business has been filtered based off of enterprise. price value to EBIT at a good return. I'm using that as a filtering tool. I then go in and I calculate the intrinsic value based off of a discount cash flow analysis. And Stig and I talk a lot about

Starting point is 00:35:18 that. We have videos and all that kind of stuff on how we do that. But then I figure out what I think that the return is going to be as a percentage. I'm basically calculating the IRA of the business. And then I compare that IRA to every other investment opportunity that's out there on the public markets. And then I compare that to how I would invest that money operationally into the business that I own. And if I could get a better return comparable to the risk. And so that's really where I step into the comparative analysis of the return to other returns that I could get in the market. So let me give you an example. Let's say that I just did the intrinsic value for a business and I calculated it at 8%. And then I compare that to the S&P 500, which I think is given you 3% or less

Starting point is 00:36:01 today compared to the 10-year Treasury, which is also around 3%. And so I'm comparing it to all these other different asset classes. Now, let me give you an example. Let's say that I just calculated the intrinsic value of a business and it was 3%. And I can go to the S&P 500 and get 3%. I am clearly, obviously, going to pick the S&P 500 over the individual stock pick because I'm getting the same exact return, but I'm assuming a lot more risk by owning the individual company. Now, the growth rate could potentially impact, you know, if I have an expectation that the growth rate is going to drastically increase in the future, maybe that could impact it. But for the most part, generally speaking, that's how I look at that. So after I do that, then what I'm doing is I go through an analysis of looking at the competitive

Starting point is 00:36:43 advantage of the underlying assets of the business. Business schools will tell you that your risk is the volatility of the past performance of the stock, which I think is absolutely ludicrous. And so do a lot of other billionaires that we study. Your real risk in owning a business, is the ability of the underlying assets, especially the assets that are bringing in all the revenues that are profitable, the impairment of those assets is your real risk. So let me just explain this in simple terms. So if you own a coffee shop on Main Street and there's a vacant building right across the street and there's somebody in the business of trying to open up another competitive coffee shop right across from you, the endurance of your competitive advantage of your coffee

Starting point is 00:37:29 is at stake. Your assets could be impaired. That's how you got to look at the impairment of the underlying assets, because that's where you're real risk is. So then what I do is I look across, so let's say that the first check mark of looking, or basically the second check mark of looking at the intrinsic value of the business, and I say this has a high yield. I'm very interested in this company, but then I get to the second step in my checklist, which is understanding the impairment of the underlying assets, and I find that they could be greatly impaired. I might discount the return that I'm expected to get on that company, I make adjustments to what I think that that return is based off of the ability of the company's assets to be impaired.

Starting point is 00:38:08 I then also consider at the very end, I look at the macro factors. So where are we at in the economy today? How do I expect the economy to perform moving forward from a global sense? I basically look at the momentum of the overall market. And I also look at the momentum of the individual company and what that price action looks like. And then I basically make my final decision on whether I'm going to own it or not. Those are the main variables that I'm looking at as I go through the process. I would like to tell you that I do it in a linear manner in the same order every time. And maybe that's, to be honest with you, maybe that's a disadvantage with the way that I do things that I don't do it in a sequenced ordered way. But for me, I guess I'm trying to look at

Starting point is 00:38:54 things more holistically, but I always cover all of those bases as I'm going through an individual stock pick. So yes, I have a checklist. I hit all that, but I don't necessarily do it in a sequential order. Just really a quick note to what you said, and especially for people listening to this and say, wow, that's a ton of steps and how to best illustrate this. We have a completely free resource on TAP Academy. It's our intrinsic value index. And I think we have around, what, 40 or 50 picks. and where we use this process, do you talk about Preston? We'll make sure to link to that in the show notes. Of course, people can also sign up to our email list where Preston and I would send out these pecks on a monthly basis. So yes, I also use a checklist. And if I could just highlight a few of them and provide some comments to that,

Starting point is 00:39:42 one of the first things I look at that is revenue. And I know that Preston also briefly mentioned that. If I could just add one more thing to that, I'm looking at if there's any revenue to client. in the core business. One thing is that you might be looking at revenue, you just see, well, that's going up. Yes, but what is the core business? And do you see revenue decline there? What you see a lot of companies do is that they would acquire a lot of new companies to sustain revenue growth.

Starting point is 00:40:11 That does not always make a lot of sense to all companies. Sometimes it's a short-term win for a long-term pain. Of course, unless you have a company like Berkshire-Hathaway, It is their forte to add new businesses to their existing business and thereby grow the revenue. It is different for most businesses. So that's something I'll look at. I look at declining margins and I look at debt. And specifically about that, and one thing I would like to highlight, if you use a checklist,

Starting point is 00:40:39 it's very important to control the checklist and not let it control you. And if I can just provide one example of that is that I have this general rule that I would like the coverage ratio to be above 10, meaning that you can at least pay back your debt 10 times with your operating income. But it really depends. I mean, you can have interest coverage ratios that are at a comfortable level, but then whenever you look closer at how it's financed and if it's not fixed, if it's a variable, and if you learn that they will finance new acquisitions next year with more available debt, perhaps then you can't use that checklist. to too many things. So I just wanted it to put it out there in terms of if you have a checklist,

Starting point is 00:41:26 you can't just say check and then move on to the next one. You have to really understand what it is and then make the necessary provisions. And I know this might sound counterintuitive because the part about a checklist is that these are your rules and you shouldn't deviate from your rules because that's really when you're going to paint yourself into a corner. I do think, I have the opposite you. I think it's very important that you control the checklist. rather than the other way around. So, Thomas, thanks so much for asking your awesome question. To show our appreciation, we're going to give you a free subscription to our paid

Starting point is 00:41:59 intrinsic value course on the TIP Academy website. This course goes into all the detail to show you how we calculate the intrinsic value of the business, basically what we're describing there. If anyone listening wants to check out this course, go to tipintrinsicvalue.com. That's TIP intrinsic value.com to see the course and the contents contained in the course. So Thomas, thanks for your awesome question, and we hope you enjoy the course. If anyone else out there wants to get their question played on the show, go to Asktheinvestors.com. There's a little button. You just got to click the record button. You record it. It automatically goes into our

Starting point is 00:42:34 servers and we see it pop up and then we listen to all the questions that come in. And if your question gets played on the show, you get access to a course just like Thomas. All right, guys, that was all the press down I had for this week's episode of The Investors podcast. We see each other again next week. Thanks for listening to TIP. To access the show notes, courses, or forums, go to theinvestorspodcast.com. To get your questions played on the show, go to Asktheinvestors.com and win a free subscription to any of our courses on TIP Academy.

Starting point is 00:43:07 This show is for entertainment purposes only. Before making investment decisions, consult a professional. This show is copyrighted by the TIP network. Written permission must be granted before syndication or rebroadcasting. Thank you.

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