Show Notes
Here’s a scenario: you’ve identified a potential investment, you’ve gone through the checklist and done your research, and you decide that you’ve found a deal that other people seem to be overlooking. You pull the trigger to buy into this company, and then the stock price begins to decline and you begin to wonder if you’ve made a mistake.
Knowing the difference between having confidence in your investing process and being arrogant or blindly confident in a position can allow investors to act on proven strategy as opposed to being driven by fear and emotion. Having a long-term outlook and a diligent methodology is the way for capable value investors to find the deals and realize the returns that many others in the market get wrong.
This week, Phil and Danielle tackle another constant issue for investors as they dig into when, how, and why you should (or shouldn’t) stick with a purchase that doesn’t seem to be panning out the way you’d suspected.
For help finding businesses that you feel confident investing in, click here for the “3 Circles” Exercise Guide: https://bit.ly/3LOexg2
Topics Discussed:
Patience and discipline in value investing
The dangers of hubris and confirmation bias
Informed assumptions vs speculation
Resources Discussed: Berkshire Hathaway shareholder letter (2013)
Learn more about your ad choices. Visit megaphone.fm/adchoices
More from InvestED: The Rule #1 Investing Podcast
In the high-stakes world of investing, mindfulness helps value investors stay focused, patient, and rational. It strengthens resistance to fear and greed, promotes long-term thinking, and sharpens decision-making. By staying present, investors can tune out market noise and stick to their principles. In this Vault interview, Phil and Danielle revisit a conversation with mindfulness expert Dawa Tarchin Phillips. His insights on leadership and mindfulness equip investors with the patience, clarity, and resilience needed for volatile markets. By integrating mindfulness into investing, he provides tools to stay focused and make rational, long-term decisions—essential skills for any serious investor. For more inspiration from some of the investing world’s most brilliant minds, click here for Phil’s free guide to The Best Investors in the World: https://bit.ly/4haMBQ6
Engaging in any form of investment involves some level of uncertainty. While it's natural to feel proud of our achievements, it's equally important to analyze our process when things go wrong.
Free cash flow is a key metric in value investing. It provides a more reliable view of a company’s financial health than its earnings, which can be influenced by creative accounting. By focusing on free cash flow, investors can identify financially solid companies with long-term potential and reduce reliance on speculation.
So a business you own is undergoing an event that’s made the future less certain—so what’s your next move as a value investor? Finding the right time to sell can be difficult when the M.O. is to buy and hold, but knowing when to break with an investment can be just as important as knowing what to buy in the first place. Investing success hinges on finding antifragile companies—those that thrive in adversity and compound growth over time. Focusing on a few resilient businesses, rather than over-diversifying, leads to better long-term returns, especially during downturns. Rather than timing the market, investors should prioritize companies with strong fundamentals and compounding potential. Patience and discipline are vital to benefit from their growth through adversity. On this week’s show, Phil and Danielle discuss how to approach your investments having events and what the Rule #1 philosophy can tell us about these situations.