In This Episode
Dan starts off this week’s episode by wishing every dad listening a happy Father’s Day, and shares the story of his own dad’s life (still going strong at 94 years old) before getting into today’s big investing lesson: how to value a business.
It’s not about PE ratios, or price-to-book values, or any simple metric you can find listed on Yahoo!Finance. But as Dan explains, the two main concepts that come to bear are actually quite simple.
Dan then gets to the spectacular rise of Beyond Meat, up about 700% in a few short months, and why a famous name’s competing product could kill this company in the crib.
Dan also shoots down a fear-mongering article from Bloomberg about the “fear gauge” supposedly rising for U.S. stocks, and shares details from a conversation he had with some traders at the Chicago Board of Options Exchange that painted a very different picture. Before getting to this week’s special guest, Frank Byrd.
Frank is the founder and CEO of Fielder Capital Group, a New-York based investment adviser that manages money for families and institutions. Frank has 25 years of experience in the investment business, including 15 years in the hedge fund industry working as a research analyst and portfolio manager.
Frank is a chartered financial analyst, (CFA) charterholder and has an MBA from Colombia Business School.
He shares a fascinating story about his unusual rise on Wall Street, and a personal journey inspired by Warren Buffett that eventually uncovered major investing breakthroughs, zeroing in on founders’ personal visions, and long-term success.
NOTES & LINKS
- To follow Dan’s most recent work at Extreme Value, click here.
7:37: Dan begins his explanation of how to value a business by telling you what the assessment DOESN’T include. “It’s not about the PE ratio, or the dividend yield, or the price-to-book value.”
9:48: We all know what $1 buys today… but how do you value the dollars a business will be making a year from now? Dan walks listeners through the opportunity cost of receiving a dollar today vs. tomorrow.
15:21: Dan reveals why the most famous metric of valuation – the PE ratio – is, to him, totally meaningless.
17:05: Dan shows how Beyond Meat’s valuations after its big run are “a little crazy.” In fact, if it had no operating expenses whatsoever, and paid 100% of its revenues back in dividends – it would take investors 70 years to break even at today’s prices.
20:00: Everyone is focused on whether the Fed will cut rates, from President Trump to rank and file economists. Dan shows why the question is overblown, since market behavior is so schizophrenic about rate hike reactions anyway.
24:45: Dan introduces this week’s podcast guest, Frank Byrd. Frank is the founder and CEO of Fielder Capital Group, a New-York based investment adviser that manages money for families and institutions. Frank has 25 years of experience in the investment business, including 15 years in the hedge fund industry working as a research analyst and portfolio manager.
25:40: Dan asks Frank when he knew he was going to have a career in finance, and Frank shares how an unglamorous story from his childhood, including a prohibition form his mother, set him on a course to Merrill Lynch.
28:34: Frank explains why the experience of reading one of Warren Buffett’s annual investing letters led to him quitting his successful practice and enrolling in Columbia’s School of Business, like Buffett himself.
35:22: Frank explains the flaw in the saying “let your winners run” and why “exposing yourself to serendipity” can play into Wall Street’s hands – unless you zero in on one important personal factor.
39:50: We tend to think of glamorous tech companies as being market heroes, but Frank illustrates a time frame where “boring companies” walked all over Wall Street tech stars. “I want to remind people that there are a lot of great companies that aren’t tech companies, run by founders.”
46:35: Frank explains why there are always huge opportunities with any great stock – and not just right before it goes vertical. “Go look at the stock charts of any great stock, and you’ll find dramatic declines in the price… it is so important you have the conviction to know what you own and why you own it.”
1:02:46: Joe L. from the mailbag asks Dan how he could possibly be a competent investor in companies like Altius, which he barely understands, and what competence even means (following market conditions closely, understanding cycles, or just understanding the business model?) Dan explains the one point of understanding he boils competence down to.