Podcast Education - Value Investing Mini Series
Overview of my Investment Process
Welcome to the first episode of the Investor Education Mini Series. Today I am going to give you a brief overview of my investment process.
First I look to investment in quality businesses which I understand and that have long term prospects. My idea is to find the best businesses on the market and analyse them to give me a better understanding of how they operate. I will continue to monitor and follow these businesses, waiting for…
Stock Filters
In today’s episode, we will be talking about stock filters and their time saving benefits.
A stock filter is a way to screen out any undesirable businesses by using a predetermined set of metrics like low debt and high returns on capital. This will help save you time when it comes to analysing in which business to invest. As you could imagine, trying to analyse each of the roughly 2,000 businesses listed on the ASX, one by one, could take you years…
Checklist
Today we will be talking about the importance of having a sound checklist. I see the checklist as the most important step in my investment process. Having a checklist ensures you have minimised as much risk as possible by answering a list of questions you have developed over time from your research and past experience. I know that without my checklist I would forget to look for half of the important points I have listed.
Discount Rate
Today I will talk about the Discount Rate, also known as the Investors Required Return or even Opportunity Cost. By including a Discount Rate in your Intrinsic Value calculation, you provide yourself with a buffer against things like inflation and investment risk. By purchasing a company at its Intrinsic Value, you should expect to receive a minimum return which includes an offset against inflation and also allow for the inherent risk associated with…
Valuation Overview
Today I will provide a brief overview of valuation and why we need to calculate a business’s intrinsic value. In later episodes I will delve further into some of the different valuation techniques such as the discounted cash flow model, providing you with more detail on how to value a business. In this episode we will primarily focus on the difference between price and value.
Cash Flow
Today we will be talking about a company’s Cash Flow and how to calculate it by using the Cash Flow Statement. We will also look at earnings as reported on the Income Statement. We will compare the two figures to understand the difference between Cash Flow and Earnings. I will also provide a run down on the difference between the Income Statement and Cash Flow Statement. A final point we will be covering is Owner Earnings, this is another earnings figure used by Warren Buffett when he calculates the Intrinsic Value of a business.
Growth
Today we will be looking at a company’s growth and how we can forecast its expected future growth rate. We will be using the compound annual growth rate formula to calculate the growth rate. I also have a few additional tools we can use to calculate the expected growth of a business in the value investing spreadsheet I created to help me value a business. It is free to download from my website at www.growthwithvalue.com/tools
Some things to consider when forecasting the growth of a business is to first take a step back and…
Valuation Methods – Part A
For this episode we will be discussing two different valuation methods. We will break up the episode into two parts, in part A we will look at the Discounted Cash Flow Model and in part B we will look at how to calculate the Liquidation Value of a business.
In this episode we will look at the Discounted Cash Flow method, we will be applying many of the topics we have discussed in previous episodes such as; Discount Rates, Cash Flow and Growth, so if you have not already listened to those episodes I would recommend you go back now and have a listen.
Valuation Methods – Part B
Welcome to Part B of the two part episode on Valuation Methods. In part A we ran through how to value a business using the Discounted Cash Flow model. This method can be used to value the majority of businesses, especially those that are expected to continue operating well into the future. Today we will take a look at the Liquidation Value of a business. Liquidation Value can be used to estimate the potential investment risk of holding a company, as it provides you with an estimated value you, as an investor, can expect to receive if the company was to go out of business and its assets liquidated.
Margin of Safety
Today we will talk about the Margin of Safety. Basically, the Margin of Safety is the difference between the value of a business, its Intrinsic Value, and the price which you pay for that business, its market price. It is different from the Discount Rate and can vary, depending on the perceived risk of the investment. The Margin of Safety is there to; absorb the impact of any unforeseen events that may adversely affect the business or the market in general, minimise the impact of any miscalculations made during the valuation process, allow for small declines in the company’s future earnings power…
Putting it all Together
Over the last nine episodes we covered a number of different topics which together form the basis of valuing a business’ intrinsic value. I began the Investor Education Series in Episode 2 with a brief Overview of my Investment Process. My basic investing concept is to find the best businesses out there and increase my understanding of these businesses so I am ready to invest with conviction if or when the time comes that they trade at or below their respective intrinsic values.
I outlined the process I undertake to find these wonderful businesses…
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