We Study Billionaires - The Investor’s Podcast Network - TIP254: Value Investing w/ Bill Nygren (Business Podcast)

Starting point is 00:00:00 You're listening to TIP. Boy, it's exciting when we get access to high-powered investors like Bill Nygren. For people not familiar with Bill, he's the manager of Oakmark funds where he manages $17 billion. Not only that, but his performance since the 1990s has outperformed the S&P 500. On today's show, we talk to Bill about individual companies and also where he values the overall market. It's a great episode for learning how to think about valuation and steps for identifying substantial winners. So without further delay, here's our discussion with Bill Nygren. You are listening to The Investors Podcast, where we study the financial markets and read the books that influence self-made billionaires the most.

Starting point is 00:00:45 We keep you informed and prepared for the unexpected. Welcome to today's show. My name is Stig Broterson, and I'm here today with my co-host, Preston Pesh, and we are super excited to welcome Bill Nigran from Oak Mac Funds. Bill, welcome on our show. Thank you for having me. I'm excited to be here. Well, it's great having you here, Bill. So let me kick off with the first question. So you've been in the investing business for decades.

Starting point is 00:01:18 You have an Oakmont Select Fund that has been around since 1996. And during that time, the S&P 500 is performed at about 8.25% and your fund is performed at 11.16% annually. Talk to us about how you construct a portfolio of 100% stocks that has outperformed the market. There are three things that we're looking for that I would say all run counter to what efficient market theorists would say anything you do to increase return also has to increase your risk. We think these three things simultaneously increase return and reduce risk. One is only buying when some things at a significant discount to long-term business value. Two is only buying companies where the combination of dividend growth and expected per share value

Starting point is 00:02:07 growth matches or exceeds what we expect from the S&P. That keeps us out of a lot of the value trap kind of investing that you hear value managers get involved with where they're buying structurally disadvantaged businesses that you need to hope something happens too quickly because the longer time goes, the more disadvantaged the company becomes. And third, we want to invest only with managements that think and act like owners. We want them to have incentives based on maximizing long-term per-share business value. We're long-term holders, typically a name once we buy it. We own for at least five years, unless the market comes to our view of value faster than that. But if you think about investing with somebody over five years, how they invest excess cash flow, how they

Starting point is 00:02:54 react to opportunities to make acquisitions, to sell off divisions, or even sell the entire company, that matters just as much as the initial value gap that we're trying to capture. So we want to make sure we're aligned with these managers that take incremental steps to maximize long-term per share value. Could you talk to us about how you think about correlations and concentrations for a portfolio for U.S. an investor? We're not super quantitative when it comes to that, but I think common sense is probably one of the most undervalued assets for portfolio managers.

Starting point is 00:03:33 We try to set a progressively higher hurdle with each stock that we add to the portfolio that would respond similarly to the same macro risks. For example, in our funds today, we're heavily invested in financial companies, especially companies that I would call levered lenders. Banks like Capital One, Bank America, Citigroup, Ally Financial, they move kind of monolithically to news about the economy, somewhat to news on interest rates. We want to make sure that if we're adding to that portfolio risk, that the advantage that name brings to the portfolio in terms of expected return warrants increasing the portfolio risk. For example, today, we own nothing in

Starting point is 00:04:17 utilities. If we thought there was a utility that had the same kind of risk-adjusted return as a bank stock, we'd be anxious to add that to the portfolio because it would help diversify our risk, and there wouldn't be a cost to doing it. So, Bill, let's talk about some specific stock picks. For example, you own Google or Alphabet. So talk to us about how you think about owning this particular investment. Well, we're looking at a piece-by-piece valuation. I think what a lot of investors miss when they look at Alphabet is it's got a stated P.E. of something in the upper 20s, you say, hey, I know Google's a great business, but the market obviously recognizes it because it's almost twice the market multiple. We look at it and say there are a lot of businesses inside of Alphabet

Starting point is 00:05:01 that aren't currently generating profit. In fact, they're generating losses. And you have to kind of subtract those out to figure out what multiple you're really paying for the search business. So for example, Waymo is the leading technology and autonomous driving. Estimates of the value their range from a little more than they've invested into it, maybe a big percentage of what Alphabet is selling for today. We don't need to be precise about what Waymo is worth, but at a minimum, you have to add back the losses that Waymo and the other bets are creating to start looking at the PE you're paying for just Google. Cash, $140, $150 a sharing cash, probably generating 1% after tax. You'd have to pay 100 times earnings for cash to value a dollar of cash at a dollar. We separate that out.

Starting point is 00:05:55 YouTube, the value that's being placed in the stock market on hours viewed of cable networks or broadcast networks, if you thought about YouTube in the same way, you could get something like $400 a share, just for YouTube's value. And the company's making a decision today to not monetize as much as cable TV is being monetized. And instead, they're trying to maximize their growth. We think eventually viewers aren't really going to care, whether they're streaming, watching cable, watching broadcast TV. And there's no reason to think in our viewing should be a different value, depending on how the technology is that you're getting it. One of the other assets you get for basically free is the cloud computing asset at Alphabet. And they've recently hired Thomas Currian from Oracle to help maximize that value. But we don't

Starting point is 00:06:44 even put a number in yet for cloud computing when we start identifying the specific assets and say that probably more than half of what you're paying when you pay $1,100 for Alphabet today comes before you even get to the search business. And we think you can effectively argue that you're paying well under a market multiple for search and you've still got great tailwinds as more advertising. moves from traditional media to internet-based media. We think Alphabet's a very cheap stock, a lot of free call options in the other bets area, and eventual monetization of YouTube. When we think about winners from cloud computing, I think one of the areas where investors maybe aren't paying enough attention is who's going to use cloud computing to gain a competitive

Starting point is 00:07:32 advantage. And that leads you to some very different areas than the usual names that people think of Capital One is one of our large holdings in the Oakmark Fund. They're the large credit card and auto lending company. They are moving almost all of their infrastructure to the cloud, and they believe that's going to allow them to develop a tremendous cost advantage versus the other retail banks. And at eight times earnings, you're clearly not paying anything in Capital One for the potential that they become a competitively advantaged peer. So I think there are a lot of different directions you can go with cloud computing to think about who the eventual winners are. Very interesting, Bill, and fantastic the way that you look at the valuation on a piece-by-piece

Starting point is 00:08:16 basis. Another stock would be curious to hear the investment thesis behind is MasterCard. That's another significant position in your portfolio. And I'm curious to hear about the competitive situation for that company. Certainly Visa and MasterCard are competitors, but I think they've come to grips with the fact that each other is a very strong competitor. and there's more to be gained by getting plastic to take share from cash or checks than there is from trying to beat up on each other. The growth that we've seen in credit cards for the past 30 years

Starting point is 00:08:50 has largely been the substitute of credit cards for cash. You're going to see a continuation of that. You're going to see international catch up with the U.S. And I think within the U.S., you're going to see less of a war on cash and more of a war on checks. If you think of the areas you still write checks today, could be for rent, it could be for your electric bill, lots of recurring payments that are expensive for companies to process, and it would be more convenient for the consumer to use credit cards, and it would be less expensive for the companies to accept credit cards. That's the eventual growth area for these companies, and because of that growth, we think the companies can continue to exhibit double-digit, top-line growth, with some margin

Starting point is 00:09:37 improvement, and despite that growth, still generate excess cash that can be put to work, either making acquisitions or reducing the share base. PayPal, Square, some other competitors, I think it's important to recognize that most of the competitors today have decided the most profitable way for them to grow is to partner with MasterCard and Visa rather than try and eliminate them. Most payments through PayPal are paid for with MasterCard or Visa. Most payments through Square are paid for with them. Apple Pay requires you to put your MasterCard or Visa on file with Apple. The expenses that Visa and MasterCard have already spent on fraud protection, other areas like that would just be too expensive to replicate for smaller firms in the electronic payments area. So I don't

Starting point is 00:10:30 really view those other names as competitors with MasterCard Visa. 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 together activists, technologists, journalists, investors, and builders from all over the world, many of them operating on the front lines of history. This is where you hear firsthand stories from people using Bitcoin to survive

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Starting point is 00:14:57 Well, I think you're right to point out that once a strong secular trend becomes common knowledge, it gets reflected pretty quickly in PE multiples. And, of course, that's when it becomes dangerous to invest. because when expectations are high, it's easy to disappoint. A couple trends that are important that you can see represented in our portfolios, you don't see expressed via high PE multiples. One would be the competitive advantage that large retail banks have developed. You look in our portfolio, you see Bank America Capital One, Ally Financial. They all sell either below book or small premiums to book,

Starting point is 00:15:34 somewhere between eight and 11 times earnings, so big discounts to the market. But the advantage is that large banks are developing versus small banks. When you think about how much cheaper it is to process something as simple as a check deposit via a phone app or an ATM versus someone who goes in and wants to talk to the teller and deposit, it can cost a company $5 when you come in and deposit a check with a teller. It costs them about a nickel when you do it on your iPhone app. The smaller banks don't have the capital to develop those apps. Fraud protection has become a very important determinant of a bank's success. And again, the big banks

Starting point is 00:16:15 have a tremendous advantage there because of economies at scale. You're seeing this reflected in market share of the big banks, despite all of the efforts that were taken post-crisis to limit the size of large banks. They continue to gain share of checking accounts. They continue to gain share of deposits. And again, at eight times earnings, I just don't think the market is at all paying for these kind of competitive advantages. Another area would be auto parts. You think of the auto parts industry 20 years ago, they were primarily metal benders. The OEMs would come to them with a spec sheet of exactly what product they wanted designed. They'd bid it out to a handful of competitors and whoever had the lowest price wins. Today, they'll go to the auto parts companies and say, we need a part that

Starting point is 00:17:03 will do this that can't be bigger than a certain size, can't weigh more than X, and we need you to design it. So intellectual property is now residing at the auto part company rather than at the OEM. The gap between where auto parts companies are priced and other cyclical industrials is still as large as it was 20 or 30 years ago, and the gaps between them in terms of business quality have been dramatically shrinking. So in continuation of this, how do you know, how do you know, do I, as an investor, distinguish between what is a secular trend and what is a cyclical trend? Well, that can be tough to do. I think one thing is you need to watch through more than one cycle to know if something was cyclical or secular. Because the payoff can be high for identifying

Starting point is 00:17:49 secular trends, it's a big risk, big reward tradeoff to guess that something is secular. I think one of the tendencies we have as value investors is we're not really anxious to be involved in high risk, high return tradeoffs. We're more focused on lessening the risk. And because of that, we're willing to wait through a couple cycles to see more evidence as what is cyclical and what is secular. And how do you personally stay ahead of the curve? How do you continue to adapt and gain new knowledge? One of the characteristics you need to be successful in the investment business is tremendous innate curiosity. You have to enjoy a wide array of reading, of listening to podcasts, to learn more. One of the things to me that's most exciting about this career, you continue to be

Starting point is 00:18:39 rewarded for advancing your own level of learning. You have to enjoy doing that or otherwise you aren't going to succeed in this career. Reading multiple newspapers every morning, going to multiple websites to see what's new on them, having a network of people in the industry that we share what we think is interesting information. It's just constant learning. So it's really interesting that you're talking about that because I'm curious what your day is actually like. How do you acquire knowledge throughout the day that keeps you ahead of the pack? I'm up at 530. I've read the Wall Street Journal, the Chicago Tribune, the business section of the New York Times, listen to CNBC to hear what's new and what news there is in corporate and economic news. That's all before I get into work.

Starting point is 00:19:27 Once I'm at work, the day is mostly working with our analysts and also reading. And it doesn't stop when I go home before dinner. There's usually more stuff to read at night. That's one of the fascinating, fun, and challenging things about the investment business is really everything you do and are exposed to as a consumer has potential investment implication. For the person who wants a job that starts when they clock in at eight o'clock and ends when they clock out at five, the investment business is not the right place for them. It really never shuts off. definitely true. So, Bill, if we look at how you are exposed across various industries, you're primarily exposed to financial services. We already briefly talk about that, but also technology and

Starting point is 00:20:12 consumer cyclical. Of course, that exposure that you have right now in your portfolio is also derived from the price you made your position in in the first place. Could you generally talk to us about with sectors you find interesting in today's market and why? Our job every day is to move the portfolio more and more toward exactly what we think are. today's best risk reward opportunities. We talked about financials. I think the overhang of fear from the crisis 10 years ago has prevented investors from really coming to grips with how much better these businesses are today than they were a decade ago. They've got much better balance sheets. The lending has been much better. There's tremendous cash flow coming back to the shareholders.

Starting point is 00:20:55 So I would say financials is the number one area that we find attractive. Technology you mentioned, and traditional industry analysis would say we're heavy in technology. I don't really think about it that way. Alphabet's an advertising company. Netflix is a media company. I think of the technology companies is the equipment manufacturers. The tech area, what we're calling tech, are the names like Alphabet and Netflix. Those are the names where you really see the differences among value investors between those who continue to look primarily at gap accounting, low PE, low price to book, versus those of us that have moved to a different understanding of intangible assets and pay a lot of attention to what we would call the shortcomings of gap accounting.

Starting point is 00:21:45 You know, a name like Netflix that doesn't make much money, doesn't have much book value, to us looks very similar to the way the cable TV industry looked 30 years ago when they were spending a lot of money to acquire new customers, and it was preventing them from showing profits, and yet there was tremendous value in a per subscriber type valuation. Those would be the areas I would highlight that we think there's the most opportunity in today. So, Bill, let's keep talking about Netflix, because you've owned the company for a very long period of time. Talk to us about the thought process and the methodology that you used when you originally were assessing the value in and buying the company?

Starting point is 00:22:26 Sure. The first time Netflix was pitched at our company was back when it was basically a streaming version of the old Blockbuster store, taking really old movies, really old TV content and making it available streaming through your computer, your iPad. That business we weren't really enamored with. We thought the company had gotten advantaged pricing on a lot of that because the content owners had sold it to Netflix, really underestimating how rapidly the Netflix subscriber base would grow. And we thought there was tremendous risk when that content got repriced that Netflix was not going to have a competitive advantage. HBO had more subscribers.

Starting point is 00:23:09 Had HBO made moves similar to what Netflix has subsequently done, they could have been in the position that Netflix is in today. day. Netflix had one original program, House of Cards. It came out in February. People would subscribe to Netflix for one month. They'd binge House of Cards and then they'd end their subscription and wait till the next year. So we didn't think they had a really sustainable business model. It was cheap, but we thought it was tremendously high risk. A couple of years ago, a different analyst presented Netflix at a much higher price. He basically started his presentation by saying, think about the important media subscription services, SiriusXM, HBO Now, Spotify. They cost $15 to $17 a month. Yet consumers say their Netflix subscription is worth more to them than these other services. He said if Netflix charged $15 a month instead of 10, it would sell it 13 times earnings. And that's when the light bulb really went off for me that Netflix was investing through price a tremendous amount to grow its customer base as rapidly as it could to develop a huge

Starting point is 00:24:21 moat versus the other video providers. Value investors have kind of mocked Netflix by saying that PE is like 300 times earnings. But let's think about Netflix a little bit differently. When AT&T bought Time Warner, you have to believe they paid about $1,000 per HBO subscriber or else the prices they paid for the other parts of Time Warner don't really make much sense. If a Netflix subscriber is eventually worth the same as an HBO subscriber is, think about the value that was added last year of $1,000 of subscribers times about 25 million new subscribers. That's $25 billion. The company added, I think it was $3 billion of debt to their balance sheet to do that. So let's call it a net value of $22 billion. The market cap of Netflix today is something like $175 billion.

Starting point is 00:25:15 If you think about it that way, you could argue that Netflix really sells at about eight times earnings. If you think of the earnings as being the value of the subscribers that were added. Now, clearly over time, as Netflix matures and as they raise prices more toward industry standards, the cash flow is going to go from negative to significantly positive. And eventually, the amount that's added from new subscribers is going to decline. But we think at that point, the gap earnings of Netflix are going to make it eventually look cheap to the people today who aren't really willing to give them the value for the intangible of customer acquisition costs that's all running through the current income statement.

Starting point is 00:25:57 It's so interesting you would bring that up. You know, Netflix trading at called it $306 today, EPS less than $3. And you outlined so many good points why it might be a reasonable valuation. Where do you see margins go the next five or ten years for Netflix? I think eventually you see a margin at Netflix that reflects what the other subscription services get. Think about it today. They charge something like $11 a month. Maybe a dollar or so of that is going to the EBIT line.

Starting point is 00:26:28 Probably the right price for their content today would be $16 or $17 a month, so another $5 or $6. And that would all be profit. You'd have an EBIT line that was six or $7. $7 on a $16 or $17 monthly cost, which is something like a 40% EBIT margin. That would be more typical of what we've seen in cable TV networks or other forms of video programming. Let's take a quick break and hear from today's sponsors. No, it's not your imagination.

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Starting point is 00:30:22 higher corporate earnings, had reduced the multiple on the 2019 consensus S&P estimates to less than 14 times. That multiple is about 15% below its historic average. Talk to us about how you use the current market conditions today and where in the cycle you see corporate earnings? The fourth quarter certainly wasn't any fun when we were seeing the market go down a double digit percentage and not seeing anything in the earnings outlook that looked like it deserved that kind of reaction in the market. And now so far in 2019, we've seen that basically reversed. So for all practical purposes, we're kind of back to where we were at the end of the third quarter. Market multiple today is something like 16 or 17 times earnings. If you look at a long

Starting point is 00:31:08 history of the stock market, that's a pretty normal place to be. What's unusual is interest rates being so low. When rates have been really high, it's been more like 10 times earnings. And when rates have been really low, it's been more like 20 times earnings. So the 15 is an average, but it hasn't really been where the market has spent most of the time. Today's environment is a very low interest rate time. and I think it makes sense that the PE multiple would be up toward that higher end of the 10 to 20 range. We look at stocks as being very cheap relative to bonds in line with their own history and the dispersion between names now. Just saw a stat a couple days ago that if you divide the S&P into PE quartiles, the lowest quartiles under 10 times earnings, the highest quartiles almost 30 times earnings. So I think we're in an environment where a stock picker who's focused on value ought to be able to add a significant amount to S&P returns.

Starting point is 00:32:10 And because of that, we think the market is very attractive today. And the competition just isn't strong. 2% on a 10-year bond, 2% on a treasury bill relative to 17 times earnings, a dividend yield that matches bonds, earnings that you expect to grow. I think the market's the place to be. Very interesting that you don't think that the stock market is overvalued. So let's transition and talk about one of your other stock picks, Fiat Chrysler. If you look at what Fiat is training at today, say it's trading $13, $14, just five years ago, it's less than $6 and even cheaper before then.

Starting point is 00:32:46 Specifically for Fiat Chrysler, it has long had a very shareholder-friendly management team, perhaps best-known Sergio Maggiano, the old CEO, who is spinning off Ferrari. And you also have the current CEO, Michael Manly, who just paid out a special dividend from the sale of Magnetti Morelli. So, if anything, the $13, 14 you see today is an understatement of how lucrative that investment has really been. On the earnings call, today we also hear about the willingness to put shareholders first. We can also talk about the potential merger here for this company. My first question would be, how do you define a shareholder-friendly management and how do you factor that into an investment decisions? When we look at a name like Fiat Chrysler, the attraction to us, the stock sells at about four times earnings despite having been a good performer over the past five years. And the name of the company really misdirects potential investors. You think of Fiat and Chrysler and both have been stagnant as probably a kind word to say for what's going on with those brands. But Fiat Chrysler today makes more than all their income from Jeep and ram trucks. Market share.

Starting point is 00:33:54 of pickup trucks and SUVs have been growing in North America, and Fiat and Rams market share have also been growing. We view those as two very strong brands, and effectively the ability to buy those at three or four times earnings to us seems like a tremendous value. I think the potential acquisition is interesting. It's sort of an open announcement to the auto industry that they are looking at all different ways to maximize shareholder value. And the idea that combining with, Renault, maybe with Nissan as well, could produce tremendous synergies is an exciting alternative. But I think this also says to anybody else in the industry, this could be a tremendous opportunity to buy the Jeep and Ram brand names and not have to pay too high a multiple.

Starting point is 00:34:40 Additionally, to liking it because of how cheap it was, we've been intrigued by the shareholder-friendly management. And to us, that means that management faces the future with an open mind, willing to do whatever they believe maximizes long-term per-share value. I think sometimes value investors kind of get pegged as they only want dividends or they only want share repurchase. We were thrilled to see Fiat Chrysler invest the money to build a Jeep pickup truck. We would be thrilled to see them repurchase shares. But we want them to approach every decision they make with the idea of what's the maximum return that we can get with this dollar of capital? Is it making an acquisition? is it investing in our own business? Is it repurchasing stock? Or is it giving it back to the shareholders? We want them to come out best economically when we as shareholders come out best economically. To us, a shareholder-friendly management team is one that every decision they make is focused on maximizing long-term per share value, whereas a more bureaucratic type traditional management team might be focused on simply how to make the company bigger, how to maximize their role as CEO of a growing company.

Starting point is 00:36:00 I think that type of manager doesn't recognize that sometimes you can make an acquisition that can grow your kingdom, but you can pay so much for it that the shareholders are actually worse off. We want the management team that's willing to sell a division when the price is right, willing to sell the whole company if the price is right. We want to make sure their incentives align with that so that they're maximizing their personal economics by maximizing our economics. Bill, thank you so much for your time. Where can the audience learn more about you and Oakmark funds? Again, thank you for having me. The place I would direct anyone who's interested in the Oakmark funds, and that would be whether

Starting point is 00:36:38 it's one of our international funds, our equity and income fund, or the domestic stock funds, would be our website, which is oakmark.com, O-A-M-R-K, on that website, you can find the shareholder communication that we've had going back a long number of years. And I think the best way to understand how we at Oakmark think would be to read a few years worth of the commentary that I've written each quarter talking about how we approach investing, what we think of the current investment climate, and what we're trying to accomplish in our portfolios. Again, thank you. Bill, thanks so much for making time for us today. It was such a pleasure having you here, and we just really appreciated it. All right, guys. So this part and time in the show,

Starting point is 00:37:21 We'll play a question from the audience, and this question comes from Seth. Hey, Preston and Stig have just learned so much from listening to the show. So great work. I am a teacher, and I'm teaching a class this year for our seniors called Entrepreneurial Economics. And I would love to hear you guys this perspective on if you could teach seniors in high school. A few things about investing. Maybe let's say you had one lesson on investing. what would be the thing that you would teach them. Thanks guys. Love the show.

Starting point is 00:37:54 Thanks, Seth, for your question and thank you for what you do. Years back, I taught a group of freshmen in college and I've been asking myself the very same question as you were asking here. If I only had one lesson to talk about investing, I would talk about valuation. And I wouldn't confuse them with a long formula or Bill Nigrin's thoughts on stock picks, but more how to think about the value of an asset. So I might ask the students to argue whether they would rather own stock in Starbucks or Walmart and let them work in groups for 5 to 10 minutes to discuss it. And you might hear that someone would say that Starbucks is better because it's coffee, they just like the product better, their location is better, or they might say that Walmart is

Starting point is 00:38:36 much better than Starbucks because that is where they do all the grocery shopping. But the important thing for you is to ask the light bulb question, what do you get if you own one share of Starbucks or one share of Walmart? and from their transition into a discussion about what to pay and what you get having ownership in one of these securities. It's so important for not only students, but for all of us, to understand how to think about what something is worth. And you can also discuss bonds.

Starting point is 00:39:07 Ask them if they let money to the person right next to them, which interest rate would the charge and why? And ask them if they're lending money to the government, how much would they ask for an interest and why. So if you only have one lesson and not a course, I would really focus on how to think about valuation and teach the students to ask the right questions to themselves when making financial decisions about ownership, insecurities. So Seth, I absolutely love this question and I'm kind of excited to piggyback on some of the stuff that Stig was saying there. what I would tell you is find a company that everybody knows, whether it's Apple, Google,

Starting point is 00:39:49 whatever. Go to the financial statements and you can see the numbers and the numbers are huge. They're billions of dollars. And what I would tell you to do is just take all the zeros and just move the decimal point way to the left and come up with a really small number. Let's say that the enterprise value for one of these companies is $100 billion. What you do is you basically turn that company into a $100 market cap. So when you look at the financial statements, it'll be things like $50 and $75 and whatnot. Mark that down on the chalkboard and then tell the students that it's just this tiny little lemonade stand or some little business that somebody their age would be they're selling seashells at the beach, I don't know, something that would make

Starting point is 00:40:39 sense to them and have them figure out what they think the value is of that little $100 business. And then after you teach them that methodology in terms and conditions that they understand, I would tell you then to show them that the numbers that they were actually using were the same exact numbers for a company like Apple or Google, but you only move the decimal points. And so then you teach them how shares are broken out into. things that makes sense. And whenever you look up a stock ticker and it says it's $70,

Starting point is 00:41:15 well, it's $70 at a proportional level for the entire business. And I think that if you would maybe use an example like that, it would just be so obvious to them how it works. I also agree with Stig about the importance of understanding how bonds work. In my experience with talking with various people, people know bonds are debt, but they just don't understand how they function. They don't understand that if interest rates go down, the value of a long duration bond goes through the roof. They don't understand that. And it's really, really simple if you just kind of lay it out and demonstrate to the students how it works. So what I would tell you to do is make a little coupon book. Because back in the day, when you'd buy a bond, you'd get a booklet of coupons that then you would

Starting point is 00:42:01 rip off the coupon and you'd mail it in in order to get your coupon. And so when people go through the physical event of sending in a coupon and seeing how it's paid. And then you could change the interest rates in the environment of the room and see how the kids would react to somebody who's holding a coupon book with 10% bond. And now the newest bond that's on the market is a 6% bond. And just see how in the aftermarket, whether they can adjust the price on their own. and then it'll all make sense to them because they're physically doing it in the classroom.

Starting point is 00:42:41 I would be so excited. In fact, if you would video this and send it to us, we will post it. We will put it out there for people because I think there would be so much learning that could take place on so many different levels with this scenario. So, outstanding question.

Starting point is 00:42:57 Absolutely love. This might be my favorite question that we've ever played on the show. And I'm very curious to see how this works out if you would attempt some of those scenarios. So, Seth, for asking such a great question, we have an online course called our intrinsic value course that we're going to give you completely for free. Additionally, we have a filtering and momentum tool, which we call TIP Finance. We're going to give you a year-long subscription to TIP Finance completely for free.

Starting point is 00:43:27 Leave us a question at asktheinvestors.com. That's asktheinvesters.com. If you're interested in these tools, simply go to our website, theinvestorspodcast.com, and you can see right there in our top level navigation, there's links to TIP finance and also the TIP Academy where you'd find the intrinsic value course. All right, guys, that was all that Prest and I had for this week's episode of The Investors Podcast. We'll 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 Ask the Investors.com. and win a free subscription to any of our courses on TIP Academy.

Starting point is 00:44:07 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.

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