Value Investing Explained in 5 Levels of Difficulty
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- Опубліковано 5 чер 2024
- In this video, I’m going to explain how value investing works in 5 levels of increasing complexity. We’ll be starting with the most basic explanation, but as we get further into the video, it will get more detailed. Why would you want to spend 20 minutes of your life on a subject like value investing? Because it’s probably the most reliable and proven investment philosophy out there. For almost a century, it has created great fortunes for investors such as Benjamin Graham, Walter Schloss, Charlie Munger, William Ruane, Joel Greenblatt, and of course, Warren Buffett. I have even used it myself to beat the market by about 200 percentage points over a decade.
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00:00 Intro
00:28 Level 1: Noob
02:25 Level 2: Novice
06:02 Level 3: Average
09:59 Level 4: Advanced
14:57 Level 5: Expert
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Disclosure: I currently own shares in Kindred myself which I purchased for SEK 101 per share. I may not continue to hold on to this company’s shares in the future, especially if the price rises far beyond that level.
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My goal with this channel is to help you make more money and improve your personal finances. How to become a millionaire? There are many ways to get there - investing in the stock market, becoming a stock trader, doing real estate investing, or why not becoming an entrepreneur? But whether you are interested in how to invest in stocks or investing strategies for creating passive income with rental properties - I hope to be able to provide you with a solution (or at least an idea) here. Warren Buffett - the greatest investor of our time - says that you should fill your mind with competing ideas and then see what makes sense to you. This channel is about filling your mind with those ideas. And in the process - upgrading your money-making toolbox.
This is probably the best video explaining value investing I’ve ever seen
Boooooooring
Nice if you are 20 years old.
No time for this BS when double the age. I keep speculating.
@@johnniepeters2717 BUY CRYPTOS NOW!
@@muffemod I keep loading up on my favourites in crypto. We have at least another year to fill our bags I think. Loaded up on LCX this morning. Was bout to hit the apex. And guess what: from 0,05 to 0,07 in the last few hours.
No its hovering just above 0,06, so it came back a little.
@@johnniepeters2717 I GOT MINES!
Great video. Pleased to see I have already ordered half the books cited.
The Little Book of Common Sense Invevestment by John Bogle would make an interesting video.
“Positive cash flow” something people still don’t yet fully understand….
Amazing content! I am always amazed of how you brings your video to life. Sorry but I have to ask what program do you use?
Need guidance on how to earn through investment or a legit platform.
Fantastic video, need to graduate to the upper levels of difficulty ASAP
The problem with "You don't need to actually do a DCF, because it's too close to call if it isn't obvious." is that people new to investing probably don't have an internal metric or gut feeling.
Do the DCF until you don't need to anymore.
Same goes for engineering and decision matrices. If it's close enough that the decision matrix is useful, the "noise" of the data makes it not useful.
I would love to see a video about the ratios you use regarding P/E, cash flow, debts, etc for determining value investments.
Great point! If I can add, P/E, discounted cash flow rate will have other meaning depending in of the interest rate environment,
Buying a 20 PE last year when bonds and banks gave almost 0 was great.
Now that they give 5% it maybe better to stay safe at the bank..
So how do you folks include this "interest rate" environment in your metrics?
@@thecompanydna2022 When I do a DCF I simply add the interest rate to the discount rate. If I want an 8% return but interest rates are 5% then my discount rate is 13%. In increasing inflation markets like this, I'll even add 1% in addition to the interest rate to account for future rate hikes. Lastly, I'll add a percentage that I deem I need for a margin of safety (1%-5%) The more obviously good a company is, the less margin of safety I need.
@@matt9060 Hi Matt thanks for the answer,
Would you also adjust your return wanted depending on the industry
Exemple Luxury or Tech industries have been growing faster than constructionor or equipment, would you use 8% for both?
( I would use 10/12% for the first one and 5/7% for the second)
@@thecompanydna2022 The stock will have it priced in.
Hi,
I think he has a video on that. In that video he discusses how he screens stock on tickr
You don't sell when the margin of safety shrinks -- you just don't buy more until it returns.
Simply the best summary on value investing. Tangible and applicable information yet simple! Thank you "The Swedish Investor"
Great content as always. What software did you use to do you illustrations and animation?
thx some great tips on Technics for value investing . good, simple presntion
you explained it best in the first two levels. the next ones, you added more stocks scenarios. the first two works for any kind of investing.
Yay, you delivered on your promise to fix your pronounciation of "quite"! Now this channel is perfect
Haha, I appreicate the feedback NekoJet! Cheers to you! If there are more things that I can do to make it "perfecter", feel free to point it out in the coming videos 😉
I like your videos very much, would like to see more videos more often! 👍👍🙏🙏
your content is very good keep up the good work
Brilliant and very informative.
Best teacher for investing! Thank you so much
Cheers Ankit Kari! I appreciate the support a ton!
Your content is extremely good. I admire you.
You’re the man thank you
Thanks so much
From the graph 00:54 Buffett and Greenblat made 34% during the same time. Also, Buffett's graph is better than anyone else's if compared during their time of investments.
Thank you so much!
You always put out great content! Your channel inspired me to start a channel and it’s starting to grow!
I love the title of this video!
Hello, have you done some videos about dividend investors? Great content and well explained... very easy to go thru each topic. congrats.
I remember this from one of his previous summaries. "Dividends are like the screens on the back of car seats. It shouldn't be used to determine the value of a car but some people insist on it anyways"
Hi, can I know which software you used for the whiteboard animation in all your videos?
Bra video, bra förklarat!
Tack Bobby, kul att du tyckte om den!
Perfection❤
ur best video imo
What are you using for the visuals in your videos?
Incredibly good video/explanation
The DAX 40 🇩🇪 is a great opportunity 😃 👋
9:03 a fixed 4% APR bond *can* yield 8% per year. You just need to buy it at a discount of (4% * years to maturity).
Netflix was a perfect example of a hated stock that became a relative bargain this year. it gave ~100% return in ~6 months after giving you ~2 months to hop on the train north.
I was really happy you know that I was beating market by 1% but now when you me that chart I feel like I still have long way to go(Btw tomorrow I will be 20 years old and I started watching your channel when I was 18 Thank you so much for everything)
27 Shaqib Shaikh thanks a ton for the support! Anyone beating the market should be proud in my opinion, keep up the good work! 🙌
Thanks
But 1% is without dividend and with dividend it is 5.4% also inflation in india is 4% on average ,overall portfolio return is 17.14% market return is 16%
@@TheSwedishInvestor what program do you use for your videos?
Brilliant channel mate! I have only discovered you today but I will be watching much more of this!
Great video. Comment for the algorithm
can you make a second video, which explains this video
thanks
Awesome video, thank you very much! :)
Peter told way more than that and its not about value a business is all about rather buying great business which is easy to understand at a fair price for long term to get a great return.
Great video... i would like to know what is your opinon on the shameless cloner approach of Mohnish Pabrai is suggesting in a lot of his interviews.
Wow, this is an excellent video! I like how you applied the 5 levels concept to value investing. I also like the train ride presentation. I appreciate your explanations and illustrations. It was all very helpful, particularly the types of margin of safety. I also like the analogy of bidding on USD vs INR. I love the LOTR clip! Thank you for this.
amazing
hi can you make a video about mark minervinis books? thanks
Learning how to invest at a young age is key to success. A Teenager’s Guide on how to Invest Like Warren Buffett and Charlie Munger is a good resource for new investors.
I’d love to see a video about the best apps to invest on the stock market
Good video
Hey i have a question. I often here value investors say. By a stock that is undervalued and then sell once the stock reaches fair value! That part i understand as it make sense. However if you always sell once the stock reaches fair value. How do you ever hold onto a multi bagger if your always selling at fair value? What about the buy and hold strategy?
That example with Felix had me thinking of Masterworks. Is that what you were hinting at?
Many thanks for the lovely video, as usual, I always wait for your videos. The only thing I want to share in the context of this video which I know is unpopular opinion, is that in the latest videos of Mohnish Pabrai, he explicitly mentioned that in his updated investment framework he keeps companies and dont sell even if they are trading above intrinsic value, only when business started to loose their moat he sells,otherwise he is still fine to hold when share prices goes beyond intrinsic value
Cheers for the support mm0dk0ur! Many value investors seem to change their approach to "hold forever" once they've acquired a large fortune. Buffett also did this, but when he was younger and had a smaller account (like I assume that you and I have), he was in and out of companies quite frequently when he thought they were over or undervalued.
I think becoz buffet got high returns doing so when he had a small checkbook.large companies do not give large returns (unless perhaps becoz of you holding a large position).so once he got to a level this was a safe way way to park his money in wonderful companies at fair prices which would be probably be there for the next 100years or so. Ex Coco cola ,apple,. Quite similar to gold.
So money is parked safely
He holds a large position so he is in on board meetings
He gets dividends from these stocks which give him cashflow to either reinvest or into other stocks or just wait
During a crash this strategy is even more ❤😂
Safe powerful way of investing by Mr Buffet and mr Munger
Hey make detailed video on how to judge the management of a company
Bro for your information the 1000 Rupees notes in India are banned now Our country now has 500 and 2000Rs of notes
Great explanation very easy to understand 👌
I believe that in value investing losses are just as important as gains. Rule one is never lose money. Keep the capital you have and keep as much of the capital your investment has made.
Odd to not here you touch on “circle of competence” when I’ve heard the term so often learning about value investing in the last 6 months or so. Do you not consider staying within one’s circle of competence to be an important part of value investing?
Mitch C you are definitely correct that the Circle of Competence is an important concept for all value investors. It is only briefly mentioned at the first level: "After finding an asset that you understand, you should insist on a bargain price. Basically ...". It is probably difficult to go through level 4 without some basic understanding of the business, but I think you are correct. It deserves a little more attention than given here.
This is such a great explanation, thank you!
1:00 lol the y axis ;>>>
Hi. I just notice that the graph from 7:25 of discount rate suddenly change at 7:28. Now I am really confuse. It will really be helpful if you clarify this. Thanksss!
Use a minimum of 10% discount rate or the current 10 year treasury yield +5%, whichever is higher at the time. The idea is that by using a higher discount rate you end up with a higher margin of safety. In the last 5 years treasury yields have been unusually low, so using them as a discount rate would lead you to buy at very high prices and you will lose a lot of money in case they rise to say 5-6%. Prices differ a lot between using a discount rate of 1% and a discount rate of 5%.
Great video som nuance missing but great for people that are new to investing in businesses.
Great comment, some nuance missing but great for people that are new to reading comments.
Wait, you beat the market by 200% ?!? Do You have a course on this? I saw Your video about how You pick stocks but maybe something even more specific? :)
Excellent video - value investing explained in a simple and understandable way ! - keep up the good work
Could you list the book list from the intro, please?
I love your videos. The funny thing is that you can currently apply SOME of the same principles to some crypto DAOs during the current bear market, some are trading at below their net assets, net assets that are liquid, which I've done in the past few months (while watching your videos, and applying the same mindset) and have done well so far, especially when a vote to disperse assets between holders goes through. The craziest example was $7m mcap (crashed from $220m mcap) with $24m in assets, which got disbursed between the holders through a vote. Ofcourse this is not usually the case, and only applies to a very small portion, most (easily 99%+) are still vastly overvalued from a value investing perspective
Hey Garmon D! Very interesting to hear! These assets are other assets than cryptos? It sounds like you may have found an interesting intersection where there is little competition. Not many of the old value investors are looking at cryptos and the crypto crowd (most often at least) dosn't understand value investing.
@@TheSwedishInvestor The vast majority only holds crypto assets, although they tend to be stable coins (like USDC), which is backed by cash & short dated US treasuries. Which is less risky than algorithmic stable coins (I'm sure you've heard of the disaster at terra luna)
There is one that is currently at $14m mcap, with $10m in USDC, and 18m tonnes in carbon credits that are verra accredited, (with the credits currently worth $24m, was $190m when times were better) . The carbon credits are obviously not as liquid, and I don't think a liquidation will happen. (Their goal is to attempt make a more transparent and liquid market place, as in the traditional market it's all OTC and not transparent with little liquidity)
The others are all in stable coins, or other cryptos with no/little real world value.
You're completely correct with the crypto crowd. Honestly it's insane to watch, both the highs and the lows, the above example was $1.1bn market cap at their peak. Short term price movements is the only thing that is important to most. With very little regard to intrinsic value, both during the highs and the lows.
However, I don't suggest any one to invest unless they have a lot of experience in the space already, and are comfortable taking on risk, it's unregulated, and scams can, and do happen. This all happens in DEFI which is a lot more complicated than using central exchanges/brokers, as you need to self custody with your own wallet, which are inherently risky.
@@garmond6946 Simple question: How much cash it produce?
I’m not sure Warren Buffett considers cryptocurrency as assets as he’d understand them. On a basic level they don’t produce anything, and the returns are solely speculative on that basis.
Whilst I personally think there’s a space for a few coins (?bitcoin, etherium) for blockchain and transactions, many try to increase their worth with a ‘greater fool’ argument- I.e. you need to find someone who wants the ‘asset’ more than you to realise profit.
As these coins don’t work for you (unlike fractional share ownership) they only add value in this way.
Thank you.
Cheers wei48221, hope you enjoy it!
That last bit explains why Michael Burry bought Geo Group.
Bro, you've got this idea... But you never make a video about Naval ravikant book summary?
Spotlight Stock Market in Sweden seems like the young Buffet's Pink Sheet list. Any experience/opinions on that?
Yes, I've invested in a few companies there historically. Bahnhof, Novus and Veteranpoolen comes to mind. I'm not invested in any of them currently, though.
@@TheSwedishInvestor Interesting companies. Since Spotlight is "unregulated" I have some doubts; but this does not seem to be a problem.
I'm currently looking at Nimbus and GJAB from the list.
It occurs to me that value investors are simply classes of rent seekers who claim to be investors :-)
Quite the train ride
I don't use a DCF model,I buy wonderful companies when their shares are selling at a 50% discount,and that's it.
When doing a DCF, should one also include what's on the balance sheet, or only look at the cash flows?
Cash flow from dividends only. That's why margin of safety is better (14:25)
@@NeoTech78 If you mean to only include the dividend aspect of the financing activities of the cash flow statement - this seems like a highly dubious thing to do. This creates a bias towards companies that potentially payout too much as dividends (which aren't a tax friendly way of creating shareholder value in most countries anyway) and a bias against companies who allocate capital well (and thus don't payout dividends) and companies who use cash for stock buybacks (much more tax friendly).
There isn't any one way to do it. It's quite common to look at the cash flows and then add ((current cash + current cash equivilents) - total debt).
Some countries like Japan have a tradition of stockpiling cash, this is helpful to a certain degree but there's a point where it becomes a negative it it's just sitting there. Feel free to put a discount on the cash reserves if they're just sitting there with little prospect of being used.
@@PaulN91 Yes. I agree. Using dividends only is dubious. But that was what the first discounted cash flow models looked like and the financial industry used it, even if company's borrowed cash to it's dividends. It was crazy back then and now it's back even more crazy with DCF.
@@PaulN91 Yes. I agree it is doubios to use dividends. But that was what the first discounted cash flow models looked like, and the financial industry used it. Even if the company borrowed cash to the dividends. It's was crazy back then and it is more crazy now with DCF.
I definitely plan to add more Microsoft to my portfolio this year
How did that risk analysis on Alibaba go, Charlie? Dead cert? Maybe less so?
Question: In 5:40 it's stated that Tom is perfectly happy if noone buys his Pepsi stock because he collects the cashflows. What cashflows? If I have a company stock I don't get anything from its earnings. So my only hope for some gains is to sell the stock for higher price. What am I missing here?
Dividends
@@josep6593 Yes, but a lot of companies don't pay dividends. Generally dividends are just peanuts unless you've invested thousands and even millions in the stock. And good cashflow doesn't guarantee that the stock price will move up, so you can end up losing money even after receiving dividends.
@@musaka87 That is obviously something to take into account when choosing which company to invest in. You can see it as a somewhat guaranteed return of your investment. Even if the stock price has been going down a bit, you already received a portion of your investment back through the dividends.
Also, you are essentially owning a part of the company through your share. If for example the company you are invested in wants to go private, your shares have to be bought back first, so you are guaranteed some money that way. Even if the worst case happens and a company goes bankrupt, you are (at least in theory) entitled to get a percentage of the value of selling off its assets and distributing its remaining cash reserves, since you owned a part of the company. That is the argument made about intrinsic value when compared to e.g. an NFT, which only exists digitally and does not generate any value at all if nobody wants to buy it.
I would count stock buybacks as a cash flow, even though you do have to sell to take advantage. The distinction is that the business generates the cash for buybacks, not an outside speculator. Of course dividends should be counted as well.
If the stock doesn't generate dividends or buybacks I'm suspicious (looking at you, Berkshire, with your enormous insurance liabilities layered throughout the company)
Regular viewer here..
Selling when the stock goes up over time is limiting because tou have to go find another barron. Better to buy wonderful companies and hole them forever. That's compound interest at its finest.
so after watching your video, dividends is an important part to look at when buying a stock rather than just looking at earnings per share? so stock like sinarmas land (SGX:A26) is not really a bargain because its not paying a notable dividend despite its ratios,eps?
I am invested for one year and down 10% which is above snp500 but below my country's etf one year return. I follow a formula modified from benjamin graham's formula
Here is my value investing portfolio (til June 2025 - then I have a look). Dare to say it will outperform:
Rheinmetall
NVidia
Microsoft
Bitcoin Group SE
Corestate Capital
Joke's on Cathy because she cannot do anything with the decommissioned 1000 INR bill. 😆
16:19 The notes of 1000 rupees doesn't value because they have been banned by government a long time ago and are not in circulation
Pink sheets still exists. They are in OTC.
Everyone has been preaching "buy now, stocks are at a discount" but I've been buying stocks since the beginning of the year and yet nothing's changed, but I've been reading articles of people still in the same market pulling off over 350k in just a couple months, what am i doing wrong?
It is still a great time to get in positions for now.
I don’t like investing in companies which are acting against my core values. I can lose some of my returns, but I should invest in what I believe in.
Not mention risk - guns, cigarettes, marihuana, oils… those posses some legal risk as those Industries are heavily regulated
Wouldnt put oil in that line but oke.
@@Marc98338 Well there are a lot of taxes on oils plus you can get banned fossil fuel cars in near future - it is a risk you need to take into your models
Vilka hemsidor använder du för screening?
Jag använder framförallt TIKR. Du kan signa upp gratis och testa deras screener här: app.tikr.com/register?ref=tsi
Kostar ingenting men om du någon gång i framtiden väljer att uppgradera kontot till en betald version så får jag en liten commission om du använt den länken. Jag har tidigare använt börsdata.se som också är bra, men TIKR är snäppet vassare då de har fler bolag och mer detaljerad data.
@@TheSwedishInvestor perfekt, tack för ditt svar!
17:22 thats what I do too lol
Benjamin Graham never invested in shit. He just bought companies that were listed below book value and immediately liquidated them.
Dont get me wrong but a value investor video with so many “sell” mentions is kind of funny.
According to GPT answer to "Value Investing Explained in 5 Levels of Difficulty":
1. Basic: Value investing is a strategy that involves purchasing stocks that are undervalued by the market, with the goal of realizing a profit when the stock's value eventually rises. This is typically done by identifying companies with strong financial performance, good management, and attractive growth prospects that are trading at a lower price than their intrinsic value.
2. Intermediate: To find undervalued stocks, value investors often look for companies with a low price-to-earnings ratio (P/E ratio), a low price-to-book ratio (P/B ratio), or a high dividend yield. They also consider factors such as a company's earnings growth, cash flow, and debt levels. Once a stock is identified as undervalued, the value investor will typically hold onto it for a longer period of time, waiting for the market to recognize its true value and drive the price up.
3. Advanced: In addition to financial analysis, value investors may also consider qualitative factors such as a company's management team, competitive advantage, and industry trends. They may also use fundamental analysis techniques, such as discounted cash flow analysis, to estimate the intrinsic value of a company and compare it to its market price.
4. Expert: Value investors may also use more advanced techniques such as option pricing models and Monte Carlo simulations to evaluate the risk and potential return of a stock. They may also employ portfolio management strategies, such as diversification and rebalancing, to manage risk and optimize returns.
5. Master: At the highest level, value investors may use sophisticated machine learning algorithms and big data analysis to identify undervalued stocks and create custom portfolios that are optimized for their specific investment goals. They may also use advanced financial engineering techniques, such as short selling and derivative instruments, to hedge against risk and maximize returns.
Interesting! Thank you!
The Indian Rupee example perfectly illustrates the pitfalls of looking for bargains as well. Those ₹1000 notes are actually worth $0 now as they are no longer legal tender in India. So Katy basically threw her $300 down the drain... Many times while bargain hunting we end up with worthless junk.
Haha, that's hilarious. I really took it for granted that the #1 Google image would be the one currently in circulation. Also, yes, we must evaluate the risks carefully when investing in bargains, sometimes they end up being "value traps".
Yeah, sometimes things really are too good to be true
However, this IS the route one has got to take. As ralph wanger said in his book, if you don't end up with mistakes, you're doing it wrong. If you try to avoid some assets saying they are value traps, thats relying on your personal judgement about its future, biased by what group of news you hear about it. Contrarianism should be hardcore in my opinion. Something deviates from intrinsic value, pounce on it 🐅
I immediately wanted to comment here but waited until after i finished watching the video.
So in reality the Rs.1000 rupee notes were not deemed worthless without letting the people exchange it for an equal value in other denominations. The duration to redeem and the decision to demonitise is another debate. People did get their money in exchange for those notes. Barring ones who had more than they claimed while filing taxes..
Everyday metaphor: You go to a yard sale hunting for bargains. You find a stack of DVDs for $1 each. You take them home only to find several are scratched and skip part way through. Then your DVD player breaks.
Warren buffet found a good value stock called Ally Financial
Very good. Although I'd say that DCF analysis has two advantages. The process of constructing the model leads to a better understanding of what drives the profits and cash flows. And the results provide an additional tool for sorting through or ranking the best opportunities.
lost already at stage one. the investor does not necessarily have access to the cash flow via company profits, so the share has no intrinsic value unless the company pays dividends? that seems important, no?
I accidentally fried my testicles. Now they are very crispy. What should i do with my life without testicles ? Please help me i need guidance sir !!
The stock market is not the way to become wealthy or financially free. It's a way to retire. Even if you have a million dollar stock portfolio, it won't be viable for 30+ years. When it does become viable, that 1 million dollars will have less value because of inflation. If you want to become financially free, you have to invest in passive income streams. The stock market is not a passive income stream. You put money into it in the hopes that the stocks you invest in will be worth more than you bought them at.
If you research and invest properly it can become a way to be financially free. It creates an opportunity for you to be in a situation where you can work and dont have to work. Inflation depreciates your money, obviously, but you dont make a million dollars and quit the stock market. A million dollars isnt even a lot now. You compound your earnings and if you have done your research on your companies and understand the markets for those companies, you can compound your money properly and see upwards of 20% returns a year. The stock market is a way out if you are willing to do the work and research.
Background music ?
1000 rupee notes are demonetised in India so it’s worth would be 0
No indian will buy thoses notes..hahaha
Anyways jokes aside, nice video man..
sadly, you can't value invest without trading.
because the prices are speculative. so are share buybacks. companies are lead by CEOs that want their share price to go high to dump. which leads to fucked up things.