Preston Pysh 4:02
So Cailyn, really good question. So I think that for a lot of people, whenever they start out, they’re a little hesitant to just dive into an individual stock pick. There’s–and to be honest, there’s a lot of risk in investing in a individual stock pick because if one thing goes wrong for that particular company, and let’s say you put $10,000 into that pick, you could potentially lose a very large portion of that principle. So I’d like to tell people that are just starting out that they should go with an index fund, okay? And the big debate then becomes: Do I go with an index fund or do I go with a mutual fund? So many people, especially in the past 10 to 20 years, have all kind of use mutual funds. And the reason that people use mutual funds is because there’s somebody that’s actively managing the fund. And so psychologically, you think, “Well, somebody who’s managing it is obviously going to be doing better than somebody who isn’t managing a fund, and it’s just going straight off of an index.” But here’s what’s interesting, and a lot of people don’t realize this: 84% of actively managed mutual funds did worse than their index, okay? And that was from a stat from 2000 Level that US News report did. And it’s just, it’s quite fascinating, when you think about that. But the reason, and I think if you had to attribute the reason why mutual funds perform worse than an index fund, is because people–when, when you’re a manager, and you’re investing other people’s money–people tend to give you the money at the exact wrong time. Okay, so if I’m a mutual fund manager, and let’s say the stock market is really climbing and doing well. There’s a bunch of people giving me more and more money to invest. And unfortunately, is people who understand value investing really well know is that when I get that money at the wrong time, I’m actually having a harder time investing it and getting a better return. And then, whenever the market would collapse, they’re trying to pull their money out, and that’s whenever I need the money as a manager, in order to be buying it at a cheap price. And so, what happens is, is this money manager, he’s moving things around, and a lot of the times–so they’re paid through their transaction fees and their transaction costs on a lot of these mutual funds. And so the turnover is actually good for them because they’re actually making more money. And I think that those are met–some of the main reasons why you actually see a mutual fund perform worse than an index. So…sorry that this, this answer is kind of long, but this is a really important question. And this is something that I think is probably going to relate to people probably the most out of all your questions. So then, the next question becomes: Which index is it that I buy out of the ones out there? So in our show notes, we’re going to have a link that goes to a US News report that they did on the 25 Best Indexes, and know there’ll be a link, you just click on that link, and it’ll take you there. And the reason I really liked this report that US News did is because what they did is they broke down index funds specifically and ranked them from from best to worst, okay? And they used four factors in order to to determine that criteria of how they selected the number one index and the number two index. How they factored this in is they broke it down into first the expense ratio. So how much are you paying in order to be in that index? So back in the day, whenever mutual funds were really popular, you might pay 1-2% or even higher in order to be a part of that fund. Well, that’s an enormous cost for people, when–but we have stats on that on Buffett’s Books that kind of shows how much that cost actually adds up to in a long term. But with index funds that, that rate that cost; that expense ratio to being in the index is extraordinarily low. So like the one of the indexes that I own, the expense ratio is .07%, okay? That’s not 7%. That’s .07%, it’s extremely low. So in this–back to the point that I was trying to make, so there’s four criteria that they used in this US News report, where they were picking the basically the Top 25 Indexes. So the first thing that they rate is the expense ratio. The next thing that they, that they rate is the tracking air, okay? How close does that index come as say you’re buying an index for the S&P 500? How close does it actually come to, to matching the performance of the S&P 500? So that’s the next criteria that they used in order to determine that. The next thing that they used was a bid-ask ratio, okay? And what the bid-ask ratio is it measures the spread between the bid and ask prices of different various ETFs or indexes. Now that might have sounded really confusing, okay? So how is that important? It’s important in this regard: if you have a fund that has a very large gap between its bid to ask ratio, and it doesn’t have a lot of volume, you could potentially get hurt, whenever you try to sell that ETF. So this is a really important factor. A lot of people don’t even realize that something like this exists. But this is something that’s captured in this report that we have the link to on our show notes. And then, the last criteria is that diversification factor. Let’s say that you go to an index by, let’s say, Fidelity. And I don’t even know Fidelity’s index would be like this, but I’m just gonna use that as an example. Whenever you would buy that index, which is being managed or, or being set up by Fidelity, they might have too much diversified money into, let’s say, Apple. Maybe Apple is 10% of the portfolio. And maybe, you know, the next pick might be GE, and maybe it’s a large chunk of it. So whenever it’s offset that diversification inside of that index, you’re not going to have a return that matches the actual performance of let’s call it the S&P 500. So that diversification factor’s also played into this top four criteria that they’re using for this US News report. So really long answer. I’m sorry that I, that I I took so long. I might have…maybe lost some people in there. But I think the important thing is is for a first-time investor who’s maybe not comfortable with just picking one individual stock pick, it might be good for you to get your feet wet. Get into the…get into the market by investing in an index. And what you’re doing is you’re spreading your money across many companies. It could be up to 500 or 1000 companies across that index, and you’re not having a very high expense ratio.

Calin Yablonski 10:21
So Preston, I have one follow up question. Considering that an index fund is just a collection of common stock, can you use common value investing techniques such as looking at a P/E ratio to find out whether an index fund is overpriced or underpriced?

Preston Pysh 10:40
So the answer to that is absolutely. Whenever you’re trying to value an index, it’s actually a little bit easier in my opinion than individual stocks. And the reason that it’s easier is you can take the P/E ratio, which is the price that you pay compared to the profit that the overall index as a whole is producing. So let’s say that, you know, that the P/E ratio for a current pick would be a 20 or for the index would be a 20. So that means you’re paying $20 right now in order to get $1 of profit out of that entire index, okay? So when you’re trying to figure out what would be my yield, or my return on that, the easiest way to figure it out is just take one divided by that P/E ratio, which in this case would be 20. So one divided by twenty gives you a 5% return. So that’s how I’m constantly reassessing the value of an index over time as I’m constantly reassessing where that P/E ratio is at, in order to determine what kind of yield I think I’d get from it.

Stig Brodersen 11:39
Yeah, and if I can add something, I would definitely also say that another value investing principle is really understanding what it is you’re buying. And you might think that if you’re buying something like S&P 500, well, that’s just a lot of companies or if you’re buying an index mirroring Dow Jones, well, that’s also just a lot of companies. But trials (*inaudible*) is to think about which companies is it actually that you are buying? Because to a lot of these indexes, they actually, they requires quite a lot to be a part of. For instance, if you look at the S&P 500, this is the 500 biggest companies in the US. And it’s actually not that easy to be a part of that. So you have 500 fantastic companies. Well, there might be some companies that are not performing as well. But you know that these companies probably probably have very good business models, so that will also give you some kind of security for the long run.

Calin Yablonski 12:33
Great! Okay, so moving on to the next question that I had. We recently had the opportunity to discuss the concept of dollar cost averaging as an investment technique. So the philosophy behind dollar cost average–averaging is really practical. However, what if a person is starting with a relatively large amount of capital, say $100,000 plus, do they structure their payment plans, so that it’s $10,000 per month over the course of, say 10 months, knowing that a large portion of their capital will be out of the market during that period of time? Or would you recommend they, they front load their investment with say, $25,000 or $50,000? You know, what is the best way to go about that?

Stig Brodersen 13:19
I think that–to reiterate what Preston said before–I think it’s very important that you get your feet wet in the beginning. So say, that you have something like $100,000. I would probably just start out by spending two, three, plus $5,000 buying an index. And then, I would see what my stomach will do the first time that the stock market took a dip. I think that would be my first advice. (*inaudible*) Just to see how I would react because it wouldn’t make any sense to, to say, “Well, you should front load it or do something, when it turns out that you can’t handle the emotions.” So I think that would definitely be my first advice. And then, I would probably also be looking at the price to earnings ratio. Okay, so I’m gonna just gonna step back because the reason why you want to use the dollar cost average pros is because you don’t want to put too much into whether or not the stock market is overpriced or if it’s underpriced. You just want to have the average outcome. But any way, even if you’re a beginning investor, it is still possible to look at the P/ E for that common index. And if you’re looking at something like a P/E of 20 or 25, then you probably shouldn’t pour all your cash into the stock market right away.

Preston Pysh 14:40
So, Stig had a very insightful answer. And I think his answer was probably better than my answer for a first time investor. In that, you have to know how you’re going to be able to stomach that psychological loss, even though it’s not an actual loss until you would sell, and it materializes and actualizes. For people to see their account go down by a very large sum of money, they might not be able to handle that. And they might sell in that situation, and, and if that’s how you are, and that’s…and you know that you might react that way, Stig’s advice of maybe just investing a little bit of money to see how you can kind of handle the, the roller coaster ride is probably the best advice you can receive. Now, if you are the type of person that this would not faze you in the least bit, and it wouldn’t upset you, or you wouldn’t psychologically get attached to this; emotionally attached to this, then I would tell you a different answer. And the answer that I would tell you is that you can only make decisions with your money in time now, okay? So investing is completely relative to the opportunities that exist right now. And the thing that I would ask myself is: Do you want $100,000 today or do you want $100,000 spread over the next year. And my answer is I want $100,000 today. And the reason I want it today is because I don’t want to wait, and let–let’s call it $900,000 sit until the next month. Because whenever I do that, and I keep a cash position, what I’m actually choosing–okay, whether I know it or not–what I’m actually choosing is to take a -2% or -3% return because that’s what, that’s what inflation will do to your money, okay? Annually. So for me, even though I might not be real happy, and right now in November of 2014, the market you know, when I look at the P/E ratio, it’s almost approaching a 20 for the market. So I know my returns probably around a 5% return if I would invest in an index, I’m not real happy with that return. I don’t like 5%. I like more than 5%, okay? But those are the options that I have based in relative terms because my opportunity cost of putting it into a fixed income investment is 2%, little over 2%. And then fixed income investment is completely impacted by inflation. So let’s call that another -2% off of that for a 0% percent return from fixed income investments, okay? And I’m coming 0% return to the 5% I could get in the index. So for me, it’s an easy decision. I take the hundred thousand dollars, I drop it into an index or I invest it into a stock that I feel might give me a better return than the index that’s low risk, which I feel that there are stocks out there that would give me that. And that’s where I put the hundred thousand dollars. But I am comfortable seeing the principle of my investment go down. If it went down to $50,000 tomorrow, I wouldn’t blink an eye that wouldn’t bother me in the least bit. And I would just buy more of the same stock that I just bought the previous day. So it really comes down to: What can you handle as an investor? What are you comfortable with? And that takes time. You have to be in the market for decades, in order to get that experience, and get that comfort level in order to invest like that. So kind of a different, you know, opinion or different guidance, depending on where you’re at, and what your stomach can handle.

Calin Yablonski 17:51
You know, President I’m going to jump to one of the questions that I had later on in, in this process because both you and Stig talked about something that I think is so critical to the investing process, and that’s the emotional-psychological components. Because personally, when I went to make my first stock purchase, and you’re sitting at your computer, you know, it’s quiet. You see this screen, and it’s kind of flickering in the background, and you’re about to purchase, say 2000 or 3000 shares of a company. And you feel as a new investor, personally, I felt like I had this huge rock in my stomach. And it almost got to the point where it was nauseating, where I was like, “I cannot believe I’m going to just throw, say $10,000-$25,000 at a company that I have literally no control over. So I guess my question is, is: What is the last thing that goes through your mind, when you go to make a stock purchase?

Preston Pysh 18:53
Okay, so I’ve got to answer this in different phases because the Preston today thinks completely different than the way I thought, whenever I was a first time investor, you know, many years ago. And so, whenever I first started out, and I didn’t really know that much, I know exactly that feeling that you’re talking about. That fear, and that unknown like, “Oh, my God! This thing could–I could lose half the value tomorrow.” And you know where that really stemmed from is I just didn’t really know what I was doing. I was investing in companies, and I, I had no idea what was behind that company itself. I had no idea what kind of debt levels the company had. I didn’t know what their earnings were. None of that stuff made any sense to me. And so, whenever I started developing more knowledge, and I started understanding what it is that was behind that stock; that equity of, of owning a business and really kind of understanding that piece of it, that’s whenever things kind of started making a turn, and it started being a whole lot easier for me to pull the trigger on a $5000, $10,000 purchase. And so, here’s the thing that I think about now. So that, that’s where I was years ago as a young investor and really didn’t have the knowledge. But now that I feel like I really understand what I’m doing and kind of look at things in a completely different light, the question I ask myself, whenever I do pull the trigger on a new purchase is: Was I the smart person or the dumb person on that deal? Okay, that’s what I really ask myself. And did I just do the opposite of the typical investor? That’s what I’m asking myself. Because at the end of every single transaction, whenever you’re buying equity, there’s a buyer, and there’s a seller. And so there’s a person who thought that the, the equity was a great deal, or the stock purchase was a great deal. And then there’s a person who thought, “Oh, this isn’t something I want to own anymore. This was a bad purchase, so I’m going to sell it. Or I’ve made a lot of gains, and I don’t think it’s going to go much further. So I’m going to sell it.” So which of those two people am I? And that’s the question I always ask myself after I make a purchase. Am I buying the equity at a good price from a person who doesn’t know the real value? Or am I the person who’s selling it? And I don’t know the real value because there’s somebody buying each one of my sells as well, which I don’t do a lot of. I don’t sell a lot. What about you, Stig?

Stig Brodersen 20:59
I’ve got to be honest with you. I don’t, I don’t have the same advanced thought process as you and Preston. I think…in the beginning…well, I know that in the beginning, I had the same, you know, same feeling in my stomach. I don’t know. It probably also helped me that I used to play Poker. No, all kidding aside. I think it was a really, really insightful question. I think that as long as you’re doing your, your research, and as long as you have a long term and time horizon to be looking at. I think that you’d be doing quite well. But on this–that’s what we’re talking about. I actually don’t have the same–I don’t think I have the fear anymore. Perhaps I should.

Calin Yablonski 21:50
Basically suck it up, and make some stock picks.

Preston Pysh 21:53
Well, I, I think that if you’re not comfortable, you should never buy anything. You should not make that decision. You have to be comfortable. And what’s your intuition telling you? If your intuition is like, “Oh, boy! Oh no, I don’t know what (*inaudible*).” Then, you shouldn’t be doing that. I mean, why put yourself through that? But I, I really think the key to all of this, Calin, is really the knowledge piece. As soon as you become more knowledgeable, and you study the art of asset selection, and, and asset valuation; whenever you understand that, and you really study it, the, the fear factor really kind of goes away real quickly because I know whenever I buy a certain stock pick and I’m looking at, it’s like, “Okay, what are all the things that could go wrong?” Okay, and whenever I look at that, and I feel that the upside drastically outweighs anything that could go wrong. I’m very comfortable going in there and making a stock pick. And you know what? If the stock market doesn’t agree with my opinion, and it, it penalizes it by 25% the very next day. Like I said, “Hey, great! I’m buying more of it because my opinion of why I purchased it in the first place hasn’t changed.”

Calin Yablonski 22:55
Yeah, and I think one of the challenges for new investors is that in most cases, we have such a short term horizon that we’re comparing our stock picks against. So, you know, it’s really interesting for a person like me to look back at say, 2008, and see what was happening to the market because I in all honesty was not aware that the stock market was reacting in that way. It just was not on my radar at that point in time. And I, I completely agree. I, I think there’s a Warren Buffett quote that, that sums this up perfectly, and it’s that “Risk comes from not knowing what you’re doing.” And that’s exactly how, you know, I think a new investor feels–is that, you know, even though you’ve gone through the valuation process, and you found the intrinsic value of your company, and they have low debt to equity–you still feel a little unsure. And it seems like risk.

Stig Brodersen 23:50
Oh, yeah! Definitely. And as you’re saying, history really repeats itself. So if you’re a new investor, I would definitely suggest that you will check out the returns that Warren Buffett had for the last, I think, it’s 49 years, since he bought Berkshire Hathaway, something like that. And see that in some years he lost, you know, 30% or something like that. And in a lot of years, he did much worse than the, the S&P 500. And so, as you’re saying, it probably comes from having a very short-term perspective very, very often when you have this fear,

Preston Pysh 24:22
Yeah.

Stig Brodersen 24:22
Because if you know what you’re doing, then you’ll do fine all the time. And that time might be a lot, 10 years, 20 years, but you will do fine all the time.

Preston Pysh 24:31
Yeah. And I think that that’s a big factor is. I know, whenever I make any investment decision, when I’m buying stock, it’s always a very long term for, you know, for my lifetime type decision. I don’t plan on ever selling it, so I think that makes a, a lot easier, too. Is whenever you buy, and you know that you’re planning on owning it forever if it goes down tomorrow or the next month, it’s no big deal. I’m trying to buy more equity at that point. So and just to kind of piggyback off of what Stig had said about Warren Buffett. Yeah, he had some horrible years relative to the market. But, when you look at his performance over that 40-year period, his average return is a 20% return annually, which, you know, crushes the stock market. So, his guidance and his principles obviously work because he’s been doing it for a very long, extended period of time and has results that prove that.

Calin Yablonski 25:17
Okay, so the next question that I had for you, and this is along the same line as, as what we’ve been talking about already. But another quote that I really love from Warren Buffett is, “Be fearful when others are greedy, and greedy when others are fearful.” And it seems simple enough. However, how should a new investor react to financial news? For example, the apparent global supply glut of oil and how major institutions such as Goldman Sachs have slashed its 2015 forecast.

Preston Pysh 25:47
That one’s popular up in Calgary, I bet.

Calin Yablonski 25:50
Yeah, yeah, it’s very popular. Everybody is shaking in their boots downtown.

Stig Brodersen 25:55
Well, I’d say that you really have to be thinking about what you’re, what you’re hearing is that a permanent change or is it temporary change? And if it’s something that’s permanent, you should definitely take it seriously. But if it’s temporary, well, clearly, on the other hand, you should just say, “Well, price fluctuation will just happen.”

Preston Pysh 26:14
So this is…this is something that I actually–this is very ironic question because this week, I actually made a very large change in my portfolio with respect to oil. And…so to go to your question, when you’re saying, “Am I fearful? Or is it just noise?” And I think that that’s really kind of the thing that people got to understand. Whenever you talk about statistics, there’s a lot of noise in the numbers. There’s a, there’s a famous statistician that I follow very closely. His name is Nate Silver, and what Nate has done, he’s a, he’s a statistician’s genius. And he was able to correctly forecast the presidential elections and these midterm elections for years now. And it’s funny ’cause all these news networks follow him extremely closely because his, his selection rate is that out of all the counties across the whole United States, he might miss call only three counties in the whole United States, which is just massive. So his model that he’s using, he’s able to pick out what’s the essence of what gets a person, you know, the forecast of getting a person elected versus just noise. Because in the stock market, whether it’s it’s politics, or it’s the stock market, there’s a lot of noise. Most of it’s noise. 95% of it’s noise, but sometimes there’s that 5%, where it’s actually the essence of something that’s changing in the way things are moving. So with respect to oil, I’ve owned oil in my portfolio for a very long time. I know back in 08, I purchased Chevron, Royal Dutch Shell; quite a few picks that were paying very high dividends. I reap the benefits of that for years now; about six years that I was reaping the benefits of that. And literally this week, I actually sold out of my oil positions. I hated paying the capital gains. But for me, there was amazing shift. And I’m…and I personally think I might be wrong. But I think that there’s a major shift in the direction that oil is going. And I think that there’s a lot more supply. And whenever you look at charts, and we’ll have something in the show notes pertaining to this article that I read by a guy named Ben Castleman, who’s also a reporter for the 538 website, where Silver man has his his stats. But on this website, the name of the article was “The Law of Supply and Demand” suddenly applies to oil, too. And he has charts in this article that shows the oil production in Saudi Arabia and the oil production in the United States. And whenever you go back to like 2004, you can see kind of those levels at what they’re producing oil at. And if you look now in 2014, you’re seeing a drastic shift in the amount of oil and, and oil equivalents that are being energy equivalents that are being produced out of the United States. To the point where it’s more than double, where it was over a decade ago. Whereas Saudi Arabia is very slowly ramping up their efforts. So my personal opinion with this specific question is that we’re seeing a change in the supply and demand of oil. And for that reason, that’s why I am moving out. It’s not because maybe they missed their their quarterly earnings by 10 cents, or “the noise” as I’d like to call it. But I feel like there’s a fundamental shift in the production levels of oil. And that’s why I had moved out of it. So I think whenever you’re answering your question, Calin, you’ve really got to be able to delineate what is noise and what is the truth? And what is the essence of maybe something that’s happening right now? I personally think that there’s kind of a transition, where when there’s more competition, and there’s more demand in the market, the prices are going to go down and you might not have as good of performance. So that’s why I slowly transitioned out of that position.

Stig Brodersen 29:51
Wow, that was really, really insightful answer, Preston. Let, let’s do this, too. Let’s make this a Calgary special. I really like to talk about it. I like to talk about oil. I definitely think that you’re right, Preston. I think that we see some kind of–I wouldn’t call it a permanent shift. But we definitely see some kind of a shift because clearly if we have a lot of supply, and had the whole Shell boom and everything. So clearly, due to the law of supply and demand that will drive down the price. I’m gonna say I’m not that, I’m not that worried. But I also think it depends on where you invested in the, in the oil industry. Because the oil industry, oil and gas industry is such a large sector. So you really need to, to understand what it is that you are investing in. But clearly, if, if you are investing in companies that is very dependent on oil price, like right now, I think that you might be hurt for the next few years. I think that the–this is my strategy and something that I’d like to pass on–is you might want to consider investing in companies that is delivering services or delivering tools for these companies to exploit oil. Because that’s never going to change. That’s not going to change the next hundred years. So if when you have a sector that is very profitable and the oil, oil industry will still be profitable at the current level, and you have, and they have a moat, they have something that they can do in the industry that is very big and might be competitive, but they still have a competitive advantage. I’m pretty sure you, you could get decent returns for many, many years to come. So I don’t know if that would calm you down or not.

Calin Yablonski 31:36
Yeah, well, it’s snowed here very heavily last night. So I think regardless of what happens with oil, the Calgarians are going to be shaking in their boots, so.

Preston Pysh 31:46
Calin, I want to add another point here. So, whenever I was looking at the current performance that I kind of expected out of the, the picks that I had; these oil picks that I had, I found the performance to be very close if not exactly the same as what I would get out of like an S&P 500 index. And so why would I assume risk and owning one of these individual picks that are highly exposed to that particular industry, whenever I could transition that capital into something that has–that’s across the breadth of an index or another pick that I feel would give me a better return; that opportunity cost trade off that you’re constantly doing. And that was one of the main reasons I had transitioned. Because I felt like my opportunity cost in another area was much higher than where it was an oil, and that’s why I transitioned out.

Calin Yablonski 32:31
Okay, so my next question is just–I work a full time job, and obviously, once you come home from work, you want to spend time with your family. Maybe you’re going to cook dinner, and so you don’t have a lot of free time necessarily to dedicate to say monitoring your portfolio, or investing, or investigating stock picks. So typically, how much time is a value investor going to need to invest in themselves in the process to see a return…on the stock market?

Preston Pysh 33:06
So this is a question that I get a lot of the time. And I think my answer kind of surprises a lot of people because they probably anticipate me to say, “Oh, yeah! Well, you got to look at it every day. I spend three hours a day researching and stuff like that.” But really, the way I see it is a person should really focus on the quarterly results. And look at the, the 10Q. So really, that’s, that’s once every three months, That’s where I would focus a lot of my time and energy is reviewing that for the companies that I specifically own. Now, from a day-to-day basis, I might not even look at the tickers on a day-to-day basis. I might look at that maybe once a week; twice a week just to kind of see where things are at, and what they’re doing. But what I do a lot of is read the news. So if it’s a, if it’s a company, if it’s an industry, I will be reading that just to kind of see; just to kind of know what’s going on. Does it necessarily relate to the business that I particularly own? Maybe not. But the thing that I think a lot of people neglect is, you know, whenever they publish their quarterly results, what has changed from that to the next day, specifically for that company? Really nothing, okay? You don’t know until the next quarter’s earnings report that comes out when you see the income statement, balance sheet, and cash flow statement. Not for another three months. So what do you know that you didn’t know the day before that you really have to be looking at and doing a lot of research on? And so, what I would propose is that a lot of people probably need to look at it maybe a little less than what they’re, than they’re anticipating. But when they do get that new report, they do need to read that. They do need to understand what’s in it and what the direction of the company is going towards.

Stig Brodersen 34:44
I’d say that if you had to prioritize your time, and we all have to do that. I would definitely spend much more time improving my general investing skills than spending time on watching, I wouldn’t say the Silver news, but just, you know, reading all this different report, and all these rumors about the companies that you’re looking at. I definitely agree with Preston and Tim Hughes. That’s really the key. Because then you read the results from the last quarter. You hear what the management has to say, and then you should use the investment skills that you acquired to separate the noise from the reality. And, and when you do that, I think you’re good to go.

So that’s a fan–Stig, that’s a fantastic answer. If people would spend an hour a day learning more about accounting and learning more about their investment knowledge, opposed to reading an hour’s worth of news on, on the noise if we will. I think you’d see people really have a lot more success than the person who’s just watching Squawk Box all day, and getting worried because they’re hearing some person’s, some random person’s opinion.

Calin Yablonski 35:48
Okay, and this is the last question that I had for the two of you. And it’s one that I am very interested in learning your answer to. It’s, if you could go back in time, when you first started learning about value investing, what single piece of advice would you give to your former self?

Stig Brodersen 36:08
I definitely say, “Don’t swing in every pitch.” I think that is probably…that is probably the best advice. When I started out, I was very anxious. And I was definitely not a big fan of the dollar cost averaging method. I really just want to get into the stock market because the sooner I got into the stock market, the sooner I thought I could, you know, reap the benefits. So, whenever I found like a good stock pick, or what seems to be it; seemed to be a good stock pick, I would just go ahead and buy it. And that is very, very, very bad advice. So I would say–I think it was actually Greg Pasani, which we had on a few weeks ago. He said that the best investment advice he ever got was–patience. And that’s really what this, “Don’t swing in every pitch” is. You don’t have to–you don’t have to buy a stock every month, or you don’t have to buy a stock every year even. You should just wait until you find a really good company at a really good price, and then go into that stock. I think that is the advice I would like to give myself.

Preston Pysh 37:09
So I’m gonna cheat. I know you said only one piece of investment advice, but I would actually give myself two pieces of investment advice. I needed a lot of help.

Calin Yablonski 37:18
I’ll allow it.

Preston Pysh 37:19
Alright, so the first thing I’d tell myself is find people that are the best at what they do; people that you admire, and study them until you understand the essence of their decision making process, okay? That’s the first thing I told myself. And then the second thing that I’d tell myself is that stock investing is all relative to opportunity cost, specifically interest rates, okay? When you finally understand that piece; that, that you’re comparing that time now. You’re constantly comparing what you own to–or your–the capital that you have to what you could buy here versus over here. When you understand that it’s all about time now. And the, and the opportunity cost to switch into a different asset. That’s when you finally understand that you’ll be on the right side of the wealth equation as opposed to being on the wrong side of the wealth equation. So Calin. it has been just a blast having you on the show! I’m sure everyone in the audience really appreciate your questions because these are just fantastic questions. And what we’re going to do right now is we’re going to transition into one of the questions from one of our audience members that submitted it to our website. And this question comes from Scott Korea from New York, New York. And here’s Scott’s question.

Scott Korea 38:31
Hello, Stig and Preston. This is Scott Korea from New York City. So this question may invoke being kind of lazy, but what do you think about simply looking at the stocks that Berkshire Hathaway purchases and buying, buying the same stocks for the same or lower price? And a related question would be, what about buying shares of Berkshire Hathaway; just buying the shares of Berkshire Hathaway? Because wouldn’t be that, wouldn’t that be getting the results of their research and judgment without having to do a lot of work? So…I’d like to know your opinions on this. Thank you very much.

Stig Brodersen 39:09
Fantastic question. I actually like to start off my answer with a quote. It’s from the Mr. Warren Buffett himself. He’s saying that “I don’t look to jump over seven-foot bars. I look around for one-foot bars that I can step over.” I’m not necessarily saying that your strategy that you are assuming is the best strategy. But I’m definitely saying that if you can find a good strategy for yourself, and there’s not necessarily anything wrong with you not spending two, three, or four hours every day on your stock picks. If you can find a profitable strategy for you that works, then I definitely think you should do it, even though you only need to spend like 10 minutes a year to, to carry that out. But anyway, I was thinking about the same thing, when I started investing. Because I was just looking up the incident, I think, for the most profitable stock investor of all time, and I just found Warren Buffett. And I saw that he was disclosing all his stock purchase. So I thought I should probably do the same thing. Well, the problem with that approach is–I’m not saying that you shouldn’t…you shouldn’t do it. But the problem is that you are not really getting the benefit from Warren Buffett, at least not the full benefit. Because if Warren Buffett, he has the ability, or he has the option to buy until…unlisted stocks. And you probably won’t have that as an investor. So for instance, when he bought Heinz, you could do that, and yet it wasn’t listed. So you couldn’t do the same thing. So I don’t know. Preston, you have anything you want to, to add?

Preston Pysh 40:44
So Scott, I’m gonna say, you know, Leonardo da Vinci says that, “Simplicity is the ultimate sophistication.” And your question kind of reminds me of that because you’re like, “Well, why would I try to mimick Buffett if he’s already getting these fantastic returns?” And you know, there’s, there’s something to be said for that. Do I own stock in Berkshire Hathaway? Absolutely. But let me say this: I buy Berkshire Hathaway at times whenever its most opportune based off the value at that specific point in time. So a lot of people know that Buffett owns Coca-Cola. So do I just go out and buy Coca-cola because Buffett owns it? Well, the answer is no. And the reason why I don’t buy Coca-Cola right now is because Coca-Cola is at a completely different price point, and completely different valuation than whenever Warren Buffett purchased it two decades ago, okay? Whenever Buffett purchased Coca-Cola, it was at a completely different price point, giving him a completely different yield. And right now, Buffett’s held it for so long that his capital gains are in the billions for Coca-Cola. So is he gonna sell that and take that enormous capital gains tax by selling Coke or is he going to continue to hold it, and get that dividend that he locked in, whenever he purchased it two decades ago? Of course, he’s going to take the latter. He’s going to continue to hold it, and he’s going to continue to get those dividends. So like I was telling you earlier, and, and my guidance to myself if I could go back in time is your investing is relative to time now, okay? What opportunities are there right now that you can go out and capitalize on versus just mimicking or imitating somebody else’s decisions that maybe they made five years ago? And that’s really kind of gets to the root of do I–can I just buy Berkshire Hathaway? Absolutely you can, but you have to make sure that you’re buying it at the right time, when it’s giving you a good price and a good value.

Stig Brodersen 42:29
I, I must say that one thing that…I like to do at least when I started out was to use Warren Buffett’s stock picks as a, as a hint to where I should start my research. I think that’s another takeaway. I would take a brief look at the stock picks ,and then I would go, and look deeper into the best picks; picks that I really understood myself, and where will all my calculation would say that it’s, it’s undervalued.

Preston Pysh 42:56
Okay, so that wraps up our show for today. I’d like to tell that everybody that Cain Yablonski’s business that he has. He’s the president of Inbound Interactive, fantastic company for search engine optimization. So if you’re looking to drive traffic to your website that’s optimized; that you don’t have to pay for advertising down the road with advertising dollars on Google AdSense or something like that, I highly recommend that you go to Calin’s website. We’ll have a link to his company, Inbound Interactive, on our show notes if you’re interested in doing that. And Calin, thank you so much for coming on the show today and asking such fantastic questions.

Calin Yablonski 43:35
Yes, thanks a lot, guys! I really appreciate the opportunity. It was fantastic. And I look forward to hearing more from The Investor’s Podcast.

Preston Pysh 43:43
All right, Calin. All right, folks, we’ll see you next week! And thanks for joining us.

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Outro 45:41
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