Today’s guest is Brian Feroldi who has 281,000+ followers on Twitter and is a financial educator that has been intensely interested in money, personal finance and investing ever since he graduated from college.
He shares his knowledge with the world on Twitter, YouTube, Instagram, and Fool.com.
In this conversation, we discuss:
1. Why do stocks go up?
2. Brian’s personal investment philosophy
3. Recognizing that a significant portion of your stocks will underperform
4. Brian’s checklist for analyzing stocks for his own portfolio
You can learn more about Brian here:
YouTube: Brian Feroldi
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ABOUT ME 👇
My mission is to provide my listeners with actionable content that enables them to create financial wealth. My episodes are a reflection of my real-world experience as a real estate investor, stock market investor, student of finance, and entrepreneur.
This podcast allows me to share my passion for personal finance, stock market investing, real estate investing, and entrepreneurship. I produce content that I would want to watch, and because of that, I give 100% effort in every episode that I make. I also believe in complete transparency and open communication with my audience.
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Hey everybody welcome back to the Whiteboard finance show today’s guest is Brian ferald the author of why does the Stock market go up i actually know brian Through twitter where he has roughly 280 000 followers uh welcome to the show Brian Marco thanks so much for having me yeah My pleasure um so you actually are now An author i guess if that’s if that’s What i want to consider you has this Always been a part of your life or is Writing always been part of your Repertoire Yeah i am not somebody that is naturally Inclined to be a a writer i am actually A below average speller my handwriting Is terrible so the idea that i would Eventually become an author would be Like completely laughable to me about About uh 10 years ago however for the Last seven years i have been be um I’ve been a writer for uh the motley Fool um so that has been the way that I’ve made my my income for the last Seven years and then about two years ago I had the idea in my head to uh for for A book and it was a book that i’ve been Thinking about for a long time and it Was more of a why hasn’t anybody ever Tackled this subject before not like not Like me saying oh i should go out and Write a book i was always like why Doesn’t a book like this uh exist and
Then about two years ago after speaking With um a couple of friends morgan Housel and brian stofel they kind of Nudged me to think about actually Writing a book and when i considered it I was like all right i guess i guess i’m Going to write a book um and then the Book actually launched uh earlier this Month nice very good so i actually that Was kind of a loaded question because i Had a feeling that you weren’t you know Technically an author yet but i knew of Your background with motley fool um so How did you actually get started Investing or have you always been uh Interested in finance or is this just Something more recent I think that i was like born to be an Investor because i in many ways i was Born to be a saver i think some people Just come out of the womb and they Naturally have a pension for Saving some people are just naturally Born to spend everything they make and I’ve always been the type of person that Enjoys uh saving a portion of my uh my Money and uh for for whatever reason uh However i really didn’t know anything About investing uh when i was younger When i was growing up my exposure to the Stock market Was very sporadic and it was here and There and my dad actually invested in Some penny stocks in like the late 1990s
So i do remember logging into like aol Remember those days yeah and like Checking the stock tickers for a couple Of the ones that he bought because if This stock was above like some dollar Amount he was gonna buy us dirt bikes so I was like please go up please go up Please go up it uh it never got to the Dirt bike uh price uh but when i when i Graduated from college in 2004 um i Would i knew very very little about Stocks or how the stock market worked or Investing or compounding and the sad Thing is i say that as someone that Graduated with a degree in business um So we studied plenty about business law And accounting and marketing and all Those kind of things but i never took a Class in investing or how the stock Market worked or anything uh like that However upon graduation my dad handed me A book called rich dad poor dad which i Just devoured as soon as i got it i was Just immediately drawn uh to the Concepts discussed in the book and that Just really kicked off a love affair That continues to this day where me i Just want to learn everything i can About money the stock market investing Everything yeah rich dad poor dad is an Absolute classic that’s one of the first I don’t want to say investing books Because it’s not necessarily an Investing book it’s mostly just assets
Versus liabilities kind of a book but Once you understand that and shift that Paradigm in your head you know that’s When it really starts the gears going of You know real estate stocks you know uh Different types of asset classes um so With you know your book what prompted You to start that you said that there’s Nothing really out in the market that Really talks about why the stock market Goes up what is the overall premise of The book i guess is what i’m asking Yeah so like many people like this i Started with rich dad poor dad and like You said that book is almost about like Accounting and money philosophy as Opposed to to anything else and to me That’s the that’s the biggest takeaway That i got from the book if you actually Dive into a specific strategies about Borrowing money and buying penny stocks And all that kind of stuff uh if you Just overlook that part and just focus On the core principles uh that are Discussed i think that they are Timeless and from there i i started Reading every book that i can get my Hands on about money that included like The motley fool investment guide Peter lynch’s one up on wall street the Intelligent investor biographies of Warren buffett um peter lynch seth Clarman Et cetera all wonderful books jack jack
Bogle’s uh wonderful books And if you read it all about investing In the stock market the books that i did They all largely say the same thing the Stock market is a great place to put Long-term wealth you should expect lots Of volatility along the way but if you Dollar cost average into either great Individual businesses or just index Funds in general the odds of you doing Very well and compounding your money at A high rate are exceedingly high they All they all say that and i i kind of Believed that but the the question that I had despite reading all those books Was i i understand that historically the Market has gone up right you look at any Chart of the s p 500 and it’s as clear As day what the long term trend is the Thing that i never understood for myself Was well why does that happen Why is there this thing called the s p 500 and why does it continually go up Even though Occasionally it crashes right i think Intuitively people understand why the Stock market goes down because when that Happens there’s usually something Horrific going on in the world right 2020 the market uh crashed covid was Like a brand a brand new thing and life Just changed dramatically over a period Of weeks 2008 the financial crisis was Kicking up banks were failing people
Couldn’t pay their mortgages the Unemployment rate was skyrocketing it Made complete sense to me why the market Was tanking uh 2 000 there was the the Terrorist attacks and um and bad things Were happening war the wars were Starting and it was bad bad times it Made sense why the market was going down I just didn’t understand why the market Went up in the first place and more Importantly What was the thing that caused that that Would allow the market to recover from Crashes so i just always wondered why Isn’t there a book out there that Explains the very basics about about the Stock market why it goes up why it Recovers from crashes what the heck the Stock market even is so after wondering That for a long period of time I finally set out to be like well maybe I should just write the book that Explains it so that’s exactly what the Goal of my book was it’s not like In-depth analysis on anything it just Explains what the stock market is how it Works why it goes up over time and why Why it recovers from crashes so if you Had to summarize your book in like an Elevator pitch you know uh maybe 20 30 Seconds how would you describe it Sure well i think it’s first is Important to say Start with what the heck a stock is so
Many people just take that word for for Granted that we know what a stock is and What and then uh from there i i scale it Up to okay if you understand what a Stock is let’s scale it up and say what The stock market is and then once you Understand what the stock market is Let’s talk about what the s p 500 is and The dow is and once you get that basic Uh competency uh understood i then talk About why a stock an individual stock Goes up over time why is apple worth i Don’t even know a thousand times more Today than it was 20 years ago why is Microsoft worth why is microsoft been Such a good investment why is starbucks Been such a good investment once you Understand that then we just scale that Very concept up to the entire market and It’s really that explanation that helped Me to understand why the stock market Goes up over time absolutely so um when Did you actually start investing so you Mentioned that you graduated in 2004 um Did you start investing shortly after or Was this when you started working at Motley fool Yeah i i’ll put investing in air quotes Because yes i started investing in 2004 But i did start my 401k at the time so i Guess from that perspective i did become An investor in 2004. uh beyond that Though i had no idea what i was doing When i first started and like many
People that had no idea what i was doing I won the highest returns prof possible Immediately like i didn’t want to wait Uh for them i just wanted a 50 game that Week if i was just starting today i can Guarantee you i would be on tick tock i Would be on robin hood i would be on the Reddit boards discussing what stock is Going to go up a thousand percent Tomorrow right that’s what i was after So at the time uh the the modern day Version of that was penny stocks on Yahoo discussion uh forum so i was out There looking for stocks that traded Below five dollars per share because i Was only investing a few hundred dollars Uh so of course i have to buy stocks That are trading below five dollars Because then i can buy a lot of them Right uh this is bad logic of mine at The at the time uh so i was buying Terrible stocks my only due diligence Was share price end of due diligence Right and my goal was to sell them later That month that week that whatever for a Higher price than i paid period that’s Not really investing uh but i did i was Putting money into the market at the Time how’s that yeah the reason i’m Laughing and smiling is because i’m About six years younger than you but i Even remember those you know the penny Stock gurus that come on you know with The the terrible ads these ads versus
The borderline hilarious at this point Now But if you remember some dudes i’m not Going to mention names but i know Exactly what you’re describing when you Mention the yahoo chat groups and all That stuff and it’s it’s almost like Getting your you know stock or investing Information like in the locker room of a Rec center you know what i mean it’s Like so yeah this that’s the next best Thing trust me um so once you kind of i Don’t want to say graduated but once you Evolved from you know penny stocks into More um i don’t want to say Sophisticated or maybe more long-term Outlook when did that happen and what Were that what was that transition from Penny stocks to what Yeah so i started with penny stocks that Was a complete disaster thankfully i’m Really thankful for that by the way i’m Also really thankful that i wasn’t Starting today because today it’s never Been easier to buy and sell to get Prices on your phone and it’s also never Been easier to get options and leverage Products and if i had access to those Boy would those be dangerous absolutely At the time with that that mindset um so I lost hundreds of dollars at the start And while that’s not a lot of money um To today boy it felt it felt horrible Right so i have the mental scars from
Doing the wrong thing so i started out With penny stocks uh from there i Graduated to safe stocks which were Dividend stocks with yields of 10 15 20 uh percent because i figured oh just Buy these i’ll just buy these and i’ll I’ll earn a guaranteed return of 20 like That’s okay right i’ll wait a year for 20 Uh that also went horrifically bad Because then my only due diligence was Dividend yield right it’s like Making one mistake uh to the other From there i slowly started to learn That the share price of a stock doesn’t Actually matter that the quality of the Business uh is what matters and in about 2008 i’ve been a regular reader of Fool.com which puts out you know dozens Of articles uh each day about um Investing and i got a i got my hands on A first a premium a paid research report That they did on a company and i Remember reading that top to bottom and Being like these guys are so much more Advanced investors than i did like i was Just blown away at the quality of the Research they did on the business the Business model the financials the the The long-term uh projections the risks Like it was just so immediately clear to Me that they were so far advanced Better investors than i was From there i became a paying member of
The motley fool and one of my favorite Things about the motley fool is that They have these thriving discussion Boards that are available to members and These discussion boards are Contributed by thousands of investors All over the world who have who are very Willing to share their lessons that They’ve learned about investing and very Willing to share information with each Other and challenge each other’s ideas And it’s really from spending hours upon Hours on those discussion boards with People that were actively trying to help Each other that i learned a tremendous Amount about um about investing So that was really what kickstarted me To be the investor that i am uh today um And it’s just been a slow gradual Process of learning that the way to Invest successfully is what i do today Is buy high quality companies own them For really long periods of time and just Accept that you’re going to be wrong a Whole lot along the way absolutely so it Sounds like to me are you mostly in Individual stocks are you kind of like a Bogle heads guy or you’re investing in You know broad-based index or etfs Kind of what’s your breakdown if you Don’t have to give specifics you know With numbers and stuff but you know what Does your allocation look like between Like individual stocks and maybe etfs or
Index funds or whatever else you may be Investing in So i am a huge fan of index funds it’s The number one thing i recommend to to People that are get just started out Investing or know very very little uh so All my retirement funds all my wives all My wife’s retirement Funds multiple lives index funds yeah Multiple wives yeah what the wise Retirement funds are are in uh are in Index funds right it’s just like plain Vanilla dollar cost averaging into to Index funds Beyond that all of my capital that is Just in my regular uh brokerage account That is essentially 100 In individual stocks i am a big fan of Researching companies uh buying Companies i just love everything about The investing process uh so with my my My non-tax advantaged capital i am Essentially 100 in individual stocks and I own somewhere between 70 And 80 which sounds like a lot however If you look at my top 20 holdings that’s Somewhere about 80 percent of the value Of my uh my portfolio got it yes i’m Actually in the process of recording um I have a video that went viral last year It’s called stock market for beginners And it has about six million views in About i’d say 13 or 14 months and what i Do is i just put out like a free
Hour-long course where i talk about Exactly what you talked about earlier in This podcast talking about what is a Stock even like what even does that mean Then we talk about equity dividends Things like that so on and so forth but The one thing that i wanted to mention Was you know it’s you can allocate a Certain portion of your portfolio in Index funds and etfs but it also makes Sense to understand all the different Calculations that go into valuating or Valuing a publicly traded company um so What are some of your metrics or what Are some of your um detective work that Goes into knowing what to put into that Individual uh brokerage account that you Mentioned You’re talking from an allocation Perspective from a valuation perspective How do you analyze individual businesses And know brian’s going to buy this stock Sure So This is the exact same thing this is the Exact process that i go through on uh on Our youtube channel uh so if i was Starting from uh from absolute no Knowledge on a company uh the very first Thing that i would do is i would type in That company’s name and investor Relations i would head over to that Company’s investor relations page and i Would just start reading and the things
That i want to answer for myself is what Is this company uh do what is their Business what are their products what Are their how how are their products Different from their competitors What’s their business model how do they Make money is it a recurring revenue Business model my favorite or is it a One-time sales model i ignore uh those Companies uh what are the margin Profiles what stage of development is it Is it in the fast Money losing stage is it in the mature Stage is it in the declining stage who’s In charge how much stock do they own how Long have they been there do i think That this company can raise prices has The stock beaten the market does the Company exceed wall street’s um Estimates does are there any new Products or services on the horizon that Could hold long-term potential what’s it Like to to work there I try and get a complete picture of Everything that i can that’s important To me about analyzing um a business From there let’s say it uh it checks the Majority of things that i look for in an Investment and i say checks because i Have a checklist that i take every Single company that i research through Continuously to make sure i don’t Overlook any important uh steps let’s Say it scores very well on my
Investing checklist the next thing i’ll Do is i’ll check the market Capitalization and just wonder how big How big is this company uh let’s say i Take a company through and it’s a five Billion dollar business currently one Key question i ask myself is okay If this company Succeeds if it’s successful if it Captures this market opportunity how big Do i think this company could be in Let’s just say 10 10 years and i want to See i want to believe that a company Could be 10 times bigger in 10 years Than it is today so if a company’s worth 5 billion dollars today say If this is successful could this be a 50 Billion dollar company uh in time There’s no like That’s just more of a gut check than Anything else to determine okay if i’m Right if i’m going to take a risk on This company and i’m right can i can i Earn a 10x Return if the answer is yes and i like The business i’ll just open up a Position essentially essentially as soon As i can as soon as i have capital uh to Put into that and i try my best to Ignore the valuation of the company on My first purchase uh the reason is uh if If it is truly the next great growth Stock Getting that stock into my portfolio is
More important to me than getting it Into my portfolio at the perfect price And that’s because the the the companies That are the true um in that true rare Um small percent of companies that go on To just dominate and grow like crazy um They tend to be called overvalued the Entire way up and it’s it’s a really big Mental hurdle that i used to have where I focused very hard on the valuation i Was like i only want to buy this company If it’s trading at x times sales x times Earnings x times free cash flow uh Whatever and that caused me to pass to Not buy great businesses um just because They were trading at bad uh valuations I’ve since learned to kind of overcome That so with my first purchase i’m just Going to buy i’m if if it checks all the Boxes and everything and like that I do record at the time of my first Purchase the valuation that i paid so I’ll write down the price to sales ratio The price to gross profit the price to Free cash flow the price to earnings Whatever metrics are available to me at The time Then i’ll track that company’s progress If it’s indeed exceeding expectations or If it’s doing really well the business Is doing well i’m gonna try and rebuy That company again but this time i’m Gonna try and pay a lower valuation than I paid with my first purchase so if i
First bought it at 15 times sales i’m Gonna try and buy my second purchase at 12 times sales and with each subsequent Purchase i’m trying to better buy at a Better and better valuation to lower the Valuation paid with each future uh Purchase that’s broadly my strategy it Doesn’t always work out perfectly but That’s what i aim for yeah i love that Because i love the saying that you know Price is what you pay value is what you Get so i come from you know traditional Financial background i have a finance Degree and i’m like the old school Warren buffett value investor you’re Looking at p e ratios and stuff like That throw all that out into the garbage In 2022 Just because you know a lot of this Stuff which i wish i wanted to talk About as well i’m going to play kind of Like devil’s advocate here is you Obviously have the book that talks about You know why stocks go up over time but What are your thoughts on just monetary Policy since basically 2007. you know it’s we’ve seen qe1234 Infiniti which is just essentially money Printing you know what are your thoughts On stuff like that cheap debt big tech Took advantage of that you have all These tech companies that just Absolutely exploded the past you know 10 15 years
What are your thoughts on someone that’s Kind of like a Gold bug doom and gloom hey the mark is Just doing what it’s doing because of Essentially perverse monetary policy What are your thoughts on that Yeah Essentially as long as i’ve been paying Attention to the market money has been Free i mean interest rates have been so Extremely low since uh since the 2008 uh Financial crisis and there’s no doubt That that has an it has an impact on Thing uh like market valuations like Stock like individual stock purchases so It’s it’s follow you to say that the Macro and what the federal reserve is Doing doesn’t matter of course of course It matters um to investor psychology and To what’s happened in the market however I don’t really consider the macro much When i’m making an uh investment or i Try i’m always aware of the macro but That doesn’t really change that anything That i do The reason it doesn’t change anything That i do is because of the way that I’ve structured my financial life so my Personal financial life is extremely Conservative extremely conservative i Have zero debt to my name i have a Six-month uh cash balance um we have Multiple sources of income in our house We have a high savings rate uh for that
Reason if the the macro ever got really Bad or stocks got absolutely uh hammered Which they have been over the last Couple of um months if you invest the Way that i do That literally has no impact on my Day-to-day my day-to-day life right it Hurts my mentally to see the stocks that I own and love go down but in no way Does it impact anything about my life Because my personal finances are so Hyper uh hyper conservative because of That that allows me that gives me the Flexibility to essentially keep 100 of My investment capitals in equities in Stocks and i can do that with taking on Zero uh bonds because any money that i Put in there i have i can i can leave in There for as long as i need need be in No way is it going to infect My personal life So if the federal reserve does whatever If geopolitically whatever happens if Inflation is high i know that i want the Bulk of my capital in the stock market Because that’s the thing that beats Inflation that grows your wealth over Long long periods of time and if stocks Go down i can use i can take advantage Of that by buying my favorite businesses At better and better and better prices Uh over time but more importantly Forecasting the macro is unbelievably uh Challenging and i know for myself i’ve
Looked back on i’ve tried to make macro Calls at least in my head over the last 10 years and it’s astounding how often I’m wrong if you would ask me what’s the Stock market going to do starting in February of 2020 uh i would have said go Down but uh covered was horrible right i Would have been like we are going to be Heading for minus 50 minus 60 another Round of um Of the 2008 financial crisis and what Happened stocks went parabolic they just Went straight up uh and and in 2017 i’ve Ever really remembered this in 2017 my Portfolio hit an all-time high and i was Like This valuations are crazy like Valuations are very high in 2017. i Can’t i can’t believe they’re going to Get any higher if i made a macro call in My portfolio and sold out went to cash Went to whatever i would have missed Like a hundred percent upside maybe even 100 200 uh upside uh from them so i am No good at making macroeconomic calls or Forecasting what’s going to happen in The stock market next so rather than try And do that successfully i would rather Structure my finances so i don’t have to Make macro calls i yeah i absolutely Love that philosophy and my wife and i We share a similar philosophy i always Make the comparison of you know when You’re building a skyscraper you got to
Dig deep and create a strong foundation And then you can start building up So you know similar position as you my Wife and i we have zero debt like Literally zero debt no mortgage no Anything and it allows you to be a Little bit more risky in your investment Profile as opposed to where you know Heaven forbid if we had a bunch of debt Or a bunch of student loans or a bunch Of consumer debt you know and then you Want to start gambling on you know yolo Options calls and nfts and butt floss Coin and all this stuff you know that’s That’s kind of the road to ruin right so Um i think once you have your financial House in order you know then you can Start you know kind of rolling the dice A little bit so to speak but I love it i love that philosophy because You know i do follow macro trends you Know i don’t have a crystal ball no one Does anyone that says they do is Basically lying in my opinion But i think that I also had brian majuli who you may know Um or nick maggie excuse me yeah nick Sorry For some reason i saw your name and i Said brian um nick majuli and he also Had a book that just came up that is a Similar philosophy of just keep buying Right um so now you know i feel like now Is appropriate time to talk about some
Geopolitical concerns with everything That’s going on you know around the World of russia and ukraine and Commodities prices going through the Roof um with things like this do events Like this phase you at all or is it kind Of just that just keep buying stock Market goes up you know mentality if you Will so it’s much more of the latter Than it is uh the the former um and so Again i i pay attention to geopolitical Uh stuff i i pay attention to the Inflation rate i look at what the Federal reserve’s uh going to do i see What’s happening in ukraine right now And i’m horrified just like everybody Else i see what’s happening with home Prices with gas prices with food prices I’m experiencing all those same things And paying attention to them uh just Like everybody else’s but i also know What can what can i do as an individual Investor uh to to deal with with those Things I really try and focus my time and Energy on what actions i can take not Necessarily what’s happening uh to me so When i still back up and think to myself All right giving all the chaos that’s Happening in the world right now with The with inflation uh what are what are What are my options as an investor well I’m still going to keep my personal Finances extremely conservative i’m
Still going to keep a three to six month Cash reserve just for buffering against My life yes i know that the value of my Cash reserve is is the the purchasing Power is rapidly dwindling but that’s Not the point the whole point of that is Protect me in case something drastic Happens in in my real life so i know That the value of that cash is going Down that’s just the cost of having that Kind of buffer uh in my life But moreover long term what what do i Think is the best way to grow my wealth Over time and to protect myself from Inflation for me the answer is the the Stock market right it’s investing in High quality businesses that can raise Prices that can go after a market and Are producing compounding amounts of Free uh free cash flow that’s where i Want the bulk of my my capital in and i Just accept that over short periods of Time sometimes the best investment is Gold or commodities or oil or real Estate or whatever um and and Occasionally stocks are going to be the Worst place worst place to uh to be but I still think that over long periods of Time the stock market is where i want The vast majority of my capital so i i Don’t plan on making any changes to that Yeah i love that i i feel like i talk a Lot about this a lot on this channel is You know the average person should care
About the stock market because i have a Ton of videos going back years now Talking about how savers are losers so When when we’re sitting at zurp zero Interest rate policy and people are Getting 0.4 interest in their savings Accounts and inflation is now i believe 8.5 percent year-over-year at least cpi Is true inflation is probably closer to 12-15 for average middle-class people um You know savers truly are losing their Purchasing power which is why i tell Everyone to be invested in something Right whether it’s stocks commodities Real estate oil whatever um why should The average person care about the stock Market or did i kind of steal your Thunder by saying all that already No that’s that’s perfectly fine i think This is a i think this is a very Important question because before i Studied the the investment uh the the Stock market um before before i might it Was even part of my like sphere of Knowledge the only thing i knew about The stock market is it did this right it Went up and down all i knew it was it Was it was a number that was Spoken on the news reported in the paper And it just randomly went up sometimes And it just randomly went down uh Sometimes and it’s it’s really hard to Get people that don’t care about Investing or don’t care about the stock
Market to care about it and it’s a Perfectly valid question to say why Should i even care about it why should i Pay attention to it For me the answer there is that the Stock market is the greatest wealth Creation machine that’s ever been Created the stock market literally Enables ordinary people with ordinary Incomes to build multi to make Themselves into multi-millionaires with Essentially I’m going to say i’m not going to say no Work but very little work and very Little thought And thinking if you just dollar cost Average a portion of your paycheck into The u.s stock market and then do that Continually for a few decades i’m Extremely confident that two decades now Three decades from now four decades from Now you’re gonna you’re gonna end up a Multi a multi-millionaire and that is Something that is within everybody’s Ability and grasp today almost Regardless of your income trading costs Have come down so much and there’s so Many tools available uh to this you can Do that very easily So if you care about building your Wealth if you care about growing wealthy Which you should because like it or not Money affects so many aspects of our Life it affects where you live what kind
Of foods you can eat what kind of life Experiences you can have where your kids Go to school the healthcare you can Access all of that stuff costs money so If you care about improving your and Your family’s life circumstances you Should care about money and if you care About money you should care about the Stock market absolutely yeah i agree Wholeheartedly and also how much you can Give back as well whether it’s legacy Building whether it’s you know creating A park in your community just small Examples like that You know you do that through money i Mean yes you can work hard your entire Life but You know let’s be honest money is almost Like you know their freedom units first Of all that’s the way i look at money They’re just freedom units for myself And then secondly it’s you know power It’s not not power from like an evil Dictator sense but it’s power from a Ability to affect other people’s lives You know positively if you want to start A scholarship fund at your church or Whatever you know you’re able to do that If you have money but if you don’t have You know Any uh freedom units or a pot to pee in You know you can’t really be that Influential let’s be honest so um here’s A perfect example i had this question
Ready for you because i know the premise Of your book Before i get into this story the Question i’m going to ask you is how do Investors determine what a business is Worth Because what i’m seeing a lot here you Mentioned it earlier in the call or in The podcast is you know i’m not on you Know i wasn’t on tick tock 20 years ago I wasn’t uh you know robin hood or Trading options or any stuff simply Because it didn’t Exist but i was at the cavs game against The hawks on sat or friday and my buddy Comes up to me uh we’re in this lounge And he’s like oh dude i haven’t seen you In a long time you know i’m down x Amount of dollars in my robin hood Account i’m not going to say what it is But it’s a very big number and he’s like Dude i sell cars for a living i have no Idea what i’m doing like i’m just Clicking buttons right so how do people Go from hey i read about this uh Investment on a you know Subreddit you know wall street bets or i Heard it in the locker room of my rec Center to actually understanding and Determining what a business is worth Does that go back to your valuations and Your multiples or how are you evaluating These businesses now Yeah so first off uh for for your friend
There right my favorite thing about Investing in stock market and index Funds is you don’t need to know uh what A business is worth in order to do well With the marketplace right all you need To do is dollar cost average into index Funds period end of end of story Literally yes sorry to do yeah sorry Interrupt brian i literally told him Like dude just buy vti and like 20 years Like stop doing this he’s literally Clicking buttons i’m just like oh my god However how on the flip side if robin Hood uh took your friend and made him From i don’t care about the markets to Now i’m paying attention now i’m Interested in learning that is a service In and of itself right robin hood for All of its flaws and uh wall street bets For all of its flaws has taken millions Of people that had no clue about the Market and has taught them to pay Attention right so that in and of itself Uh is is a win now they’re not investing Quote unquote the right way the way that We would suggest uh they do so uh but at Least it is getting them uh in the game And paying attention uh to it but to Answer your your question there So many people have no idea what stocks Are so many people just think of them as Something on their iphone that just goes Up and down and the whole goal is buy Low and sell high that’s what everyone’s
Trying to do right buy low and sell high But i i don’t think many people Especially new people know even what a Stock is they don’t know why it has Value and if you don’t know why it has Value you certainly don’t know how Investors are valuing it it just looks Like something that’s being traded uh Back and forth and again the whole goal Is to buy low and sell high that day That week that year uh whatever your Time for horizon Is So for people like that i i would Literally ask them to start with just Like the very basics like what is a Stock why do stocks uh exist what does a Stock represent and to and how do you Value them uh that’s one of the Trickiest questions about about Investing i mean the classic textbook Answer to that question is a stock is Current is the value of the present Value of all the companies uh cash flows In perpetuity right this is why Discounted cash flow models Are popular uh with many many investors Especially uh value uh investors that’s One way that you can invest in in value Businesses and that’s the correct way uh To do so personally i don’t use Discounted cash flow models at all uh Simply because i think it’s just using Fancy math uh to make a guess right and
You can make a guess with unfancy uh Math and i think with this kind of cash Flows it’s really it’s really easy to Fool yourself into getting an exact Answer that is guaranteed to be wrong Like You’re predicting the future Um with with high degrees of accuracy And i think dcf models actually increase Your confidence in yourself more so than You increase the actual accuracy of a Prediction that you’re you’re making However i do they do have value and some People do use them when i’m thinking About the valuation of a business i Always go to the very simple valuation Metrics that are available to us my Favorite my absolute favorite is price To earnings ratio uh when it works the Problem is is a whole bunch of Businesses out there with a price to Inner earnings ratio is useless it’s Completely useless on many many many Businesses especially tech companies Start interrupting mostly tech companies As well Yep on both sides of it it’s it’s it can Be very misleading on the way up because The pe ratio is dramatically uh Understates the company’s earnings and Also on the flip side a p e ratio on Companies like hewitt packard ibm Companies that are in the declining Phase of their lifetime it can be very
Misleading on that end uh too because oh These companies are so cheap well if Earnings are heading towards zero it Doesn’t matter how what multiple you pay Today you’re going to lose money uh uh On them so the p e ratio is my favorite But you have to know when it works and When it doesn’t uh work uh beyond there I just go up the income statement uh so After uh a price to earnings ratio i’ll Look at um priced uh uh to operating Income if that doesn’t work i look at Price to gross profit if that doesn’t Work i’ll look at price to sales if that Doesn’t work i’ll look at price to free Cash flow so every business is kind of Unique in what what metric uh to look at Or we at least what metric hints at a Company’s valuation but valuation is one Of the hardest things to figure out About um uh investing to say nothing of How hard it is to value dynamic Fast-growing businesses yeah i love how You said uh how hard How hard it is to invest or something Along those lines it sounds to me that You’re managing you know multiple Multiple multiple stocks you have you Know money invested with your you know Wives you know iras or 401ks Do people even need and sorry if this Wasn’t the most smoothest transition do People even need a financial advisor in This day and age
So i would say it it’s like anything it Depends uh my first question to people About should they use a financial Advisor is would you do this on your own Would you do this on your own would Would you uh would you or your wife or Your significant other pay attention to The market be willing to learn be Willing to get set up set up a 401k to Set up an ira be willing to put capital Into the markets if all that stuff if You are willing to do that on your own You don’t need a financial advisor However if you’re unwilling to do to do Any of that or you just want a second Opinion or you just want somebody to Talk to i think there is value with Having a uh a financial advisor the way I equate it to myself is um i do yoga Okay i go to a studio to do yoga i don’t Go there to do the moves like all the Moves you can look up on youtube in two Seconds i go there to be a part of a Community to have somebody else managing It and i know that by going there and Being part of them i’ll actually do it If it’s just me doing it on my own i can Say to myself i’ll put this off For essentially perpetuity and i need a Third party holding me accountable to Make sure i actually uh actually do it i View a financial advisor in many ways The same way if you have the discipline To uh to invest and handle your money on
Your own great you don’t need a Financial advisor if you don’t they can Add a lot of value i love it i love that Analogy because the analogy that i Always use is a financial advisor is Like a personal trainer if you already Have the discipline and you know what Workouts to do you don’t need a personal Trainer if you need someone to kind of Hand hold you or to go to the quote Unquote yoga studio I completely agree i think they’re Necessary but if you have the discipline And the knowledge you can do it yourself And it really is easy in this day and Age and in 2022 i feel like most anyone All they need to read is the bogle has Guide to investing open up you know a Roth ira of 401k and you’re good right For the most part I think financial advisors are very Useful once you start getting into Multi-generational planning and you know Very wealthy individuals and estate Planning and things like that I think they can definitely have their Core components there but i think for Most middle class people you know if you Have the discipline and know-how i don’t Really think they’re necessary but That’s just my opinion like so many Things about money and investing uh the The the quote-unquote right decision is Always personal right some investments
Are right for some people they’re not Right for others working with a Financial advisor is right for some People it’s not worth it forever Everything about money and investing is Personal love it so it sounds like to me A lot of your net worth right now is Sitting you know most most likely in Equities i’m just guessing i don’t know Your net worth or your you know what You’re invested in exactly but what are Your thoughts on some alternative Investments such as maybe real estate uh Maybe precious metals maybe uh crypto or Bitcoin specifically Yep so um i i know for myself that i Have no interest in commodities uh Commodities can be great investments Over short periods of time like we’re Going through now the commodities might Be a great place to be over the next Five uh five years i i don’t know but Commodities don’t produce cash flow if They don’t produce cash flow i have no Interest in um in in owning them as far As real estate uh real estate i think um Makes sense if you’re going to be Investing in in reits uh i own my Personal residence that’s my real estate Exposure personally and i know people That don’t very well with real estate Buying properties leasing them uh Renting them fix them out real estate’s A great asset class it’s just not one
That interests me uh personally beyond Um reits um So that’s uh that’s real estate crypto i Was very skeptical of for a really long Period of time i will say over the last Year or two my my thoughts on crypto Have evolved i’ve educated myself uh More about it i used to be like nope This is something that’s just completely Speculative avoid it all together However in the last year i asked myself Actually a really interesting question Which was Should there be A global currency of the internet Should there be I think the answer is yes the more i Think about it the more i think the Answer is yes uh if the answer is yes What is the leading contender to be that Thing right now the answer is bitcoin so Because of that i i see nothing wrong With putting a small portion of your Portfolio into bitcoin and ethereum i’ve Done that with my portfolio very small i Do plan on increasing that uh over time But i’m also positioning so if it goes To zero if it’s completely wrong if this Is just a ponzi scheme that that flames Out i’m gonna be perfectly fine um uh Financially um so those are the assets That I am i’m highly focused on basically two Things one uh
Stocks uh and then two uh cash just just Between the two and then i have a little Bit of real estate but that’s my entire Investing portfolio yeah i love how you Said that because i feel like every Investor should allocate a certain Portion to let’s just say speculative Investments and they should allocate up To how much they are comfortable losing So if that’s five percent of their net Worth and it goes to zero no big deal Right if it’s 90 of your net worth then You have a problem so i think that as Long as you allocate accordingly and i Think you and i um just you know from This conversation or probably more on The conservative side of things um i Still think that personal finance is Number one and then once that is taken Care of your house is in financial order Then you can kind of go gung-ho and you Know other types of investments so So uh what is what are some of your high Conviction i don’t i don’t know if you Want this to go on the record or Whatever i can edit this out but um what Are some of your high conviction bets or High conviction um stocks that you’re Investing at this point Sure so um i i like i said i own about 70 stocks or so my broad strategy is to Make lots and lots and lots of bets i i Put my money into high conviction uh High quality businesses i buy them i own
Them with the mindset that i’m going to Be wrong a whole lot like i know if i Buy 10 stocks that i’m gonna lose money On four of them i’m going to make a Little bit of money but less than i Would on the index on another three i’m Going to outperform the index on two of Them by a little bit and then one of Them is going to be a mega winner and That one mega winner is essentially all That matters all that matters um so my Portfolio today Because that’s about my adopted mindset Uh is it’s very concentrated into my Biggest winners of all time simply which Were companies that i bought and have Held for a long long long period so my Number one position today is tesla That’s not how i designed it right i Just happen to buy tesla literally 10 Years ago and haven’t uh haven’t sold it And it’s up so much that it gradually Earned its spot as the number one Position in my portfolio another one is My number two position is called mercado Libre which is like the amazon slash Ebay paypal of latin america another one I never would have predicted that it was Going to become my number two holding But the stock is up so much uh since uh Since i bought it that it’s grown to be My number two um holding and then my my Number three through ten are kind of Many of the fang uh stocks uh facebook
Has been a mega winner for me netflix Has been a mega winner for me google has Been uh a mega winner for me so those Are those are my my conviction is simply Because that’s where my portfolio uh has Gone into uh beyond that what i’m always Trying to do is kind of find my the next Crop of of high growth uh companies and I’m constantly feeding small amounts of Capital into companies that i think have 10x plus uh potential Where do you think that is now is that The metaverse or where do you think that Is now uh the metaverse is one spot uh To look my my favorite areas are small Fast-growing tech Companies and small fast-growing medical Device companies those are companies That if you if you find them um early uh They tend to have high growth high Margins and and customer lock-in in some Way competitive uh advantages but again I buy them knowing that i’m gonna be Wrong um a whole a whole whole lot on Them so uh if you want to check out the Ones that i own my portfolio is um Freely available to to look at on the Motley fool one of my favorite things About the motley fool is everybody that Works there has to disclose all of their Holdings at all times so my portfolio All the stocks that i own uh can be Viewed on my um on my portfolio On my profile page so hopefully some of
Tomorrow’s mega winners are in there Love it love it okay so we’re coming Kind of towards the tail end of this Podcast if you can leave you know a Nugget of information to anyone you know Whether it’s the average investor Whether it’s you know just the average Viewer of this channel it’s basically People that are anywhere from in their 20s to maybe 40s or 50s trying to learn About how to invest you know properly or Invest better or build their wealth What are some nuggets of information it Could be a book it could be a movie it Could be a documentary anything what Would you recommend Sure uh so So my general philosophy to to those People is that the number one thing when It comes to investing successfully is to Adopt a long-term mindset to get your Mindset True truly correct i could tell you Today what the next great stock is like Let’s say i knew what the next great Stock is if you bought it today with the Wrong mindset you’re going to lose money On literally the great the greatest Stock over the next 10 or 20 years Because if you’re buying uh if you’re if You’re investing and you adopt it with The wrong mindset you’re going to buy That stock high when it falls which Every stock does the good ones and the
Bad ones you’re going to sell it when You’re at the bottom so this is why the The critical piece to start with is to Adopt a long-term mindset all of the Gains that come from investing in the Stock market are due to the nature of Long-term compounding and then the way That compounding works is the big Payoffs happen 10 years from now 20 Years from now and 30 uh years from now So if you don’t start with that base of That base premise that i’m going to Adopt with a long-term mindset i don’t Think you’re going to do very well i Love that i absolutely love that i feel Like i had so many consulting calls in March of 2020 when the market you know Took a crap and people are like should i Sell everything what should i do i’m Down 30 40 50 i’m like absolutely not Like whatever you do do not sell that Off and i always ask them the question You know why did you start investing in The first place you know are you just Gambling are you clicking buttons are You actually understanding what you’re Buying and then once they start asking Themselves that question you know you Saw what happened after march of 2020 it Was just you know almost a hockey stick In growth but i absolutely love that um I absolutely love that i think your Mentality i don’t want to say is like The right one but i feel like if you’re
Looking at a number of different stocks Let’s say you know you pick 10 right and You already go into with the expectation That hey you know four to five of these May be duds a couple of these may be you Know average below average You know one of these may be a unicorn Couple maybe a good winner I think that that’s a good way to cast a Broad net and allow people to invest in Individual stocks And then also obviously index funds and Etfs are kind of what i’m a proponent of For the average investor But i think that what i kind of wanted To leave i want to ask this earlier in The podcast if you don’t mind disclosing What have been your biggest winners and Your biggest losers and we’ll kind of End the podcast on that note if you want To disclose that you don’t have to sure I mentioned that i mentioned them Previously my biggest winners Of all time have been tesla mercado Libre netflix amazon mastercard google Facebook uh those are the ones that i Bought and i held and they have just Gone up uh tremendously when it comes to My biggest losers we’re gonna need to Hold on the podcast for that because i Have bought a lot of stocks or a lot of Businesses that i was very high Conviction on and i was dead wrong for One reason or the other and they and
They went down i guess I get i started interrupting i guess a Better question would be because going In with that philosophy that you know Half your trades are probably going to Be losers i shouldn’t have asked it that Way i guess What were some of your What were some of your highest Conviction this one is going to be a Unicorn for sure it’s going to be 10x 10 Bagger and it just was a dud um if you Have an example of that that would be Great oh yeah so back in 27 2013 um 3d Printing stocks were all the rage there Was companies like 3d systems like Stratastics like uh x1 uh proto labs These companies were the next generation Their brand new technology called 3d uh Printing and they’re each of them their Revenue was growing it was like these Things are gonna replace amazon we don’t Need amazon anymore right we just gotta Have a 3d printer at our house and we Can 3d print uh whatever we want and i Totally got caught up in the hype cycle Around those businesses and if you look At what happened to their stocks in 2012 2013 uh they were just went straight up Each of them was a multi-bagger at some Point uh however you probably noticed That people still use amazon still shop At walmart we don’t all have 3d printers On a house printing out everything that
We need So i lost uh 50 60 70 on many of the Investments that i made in those Companies simply because i got caught up In the hype however what i was gonna um Say previously is The best thing about investing is that If you take every single loser that i’ve Ever had every single one and you add up All the losses uh that i’ve had boy Would that make me feel sick uh to do so But all of my losers combined are Dwarfed by by the gains that i’ve had on Just my one biggest winner of all time This is how investing works this is how Investing in the stock market uh works You can buy 10 stocks do terribly on Nine of them but if that tenth one is The next mega winner your nine your nine Losers don’t matter it’s that mega Winner that drives your entire portfolio Return and the funny thing about that is That’s how the entire stock market works The enti the s p 500 the the vti the Entire stock market the entire returns Of that are driven by a small minority Of companies that small minority of Companies literally provide 100 Of the returns of the market over Periods of time however if you’re buying An index fund that’s invisible to you All you see is one thing going up you Don’t see the fact that 70 of the stocks That you hold are are going down or
Underperforming the index all you see is The the index going up that’s the exact Same way that investing an individual Stock uh worked except for you get to See that thing happen in real time and This is similar philosophy to a lot of Uh silicon valley vcs i mean they have Hundreds of losers but the one unicorn They win on it just absolutely dwarfs Their losses just like you said so i Love it brian thank you so much for Coming on to the podcast where can People learn more about you Thanks so much margo this is an absolute Blast uh you can connect with me on Twitter i’m at brian ferraldi if you’re Interested in learning how uh we i pick Individual stocks and research them as You asked me before uh that’s what i do On my youtube channel which is my uh my Name brian feraldi love it love it so Much and go follow brian on twitter as Well thank you brian appreciate you Coming on thank you marco you’re welcome Thank you for listening to the Whiteboard finance show to read more About today’s episode visit Whiteboardfinance.com And don’t forget to subscribe to Whiteboard finance on youtube this show Is for entertainment purposes only Investing of any kind involves risk While it is possible to minimize your Risk your investments are solely your
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