Rule #1 Finance Blog

With Investor Phil Town

Invested: The Rule #1 Podcast, Episode 06- The Emotional Stock Market

The stock market can be very emotional. It often prices businesses incorrectly. Phil and Danielle discuss that the price of a stock does not always equal the stock value.

The stock market in the short term can be a very emotional place which is why investors such as, Warren Buffett invest based on finding a wonderful company for the long term.

Phil puts it like this…

“If you pay 150,000 dollars for a car that you could have bought for 50,000 you made a big mistake. The price of the car was not equal to its actual value.”

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In Episode 06 You Will Learn

1. Charlie Munger goes over the 4 basic principles for choosing a company. 4:54

2. What it means when Charlie says, “We can’t pay an infinite price for a business.” 6:50

3. Why the price has to make sense and there has to be a margin of safety and what that means. 7:00

4. Why Warren Buffett, Charlie Munger, and Rule #1 Investors were buying stocks in March 2009 after the stock market crash. 8:35

5. The myth of diversification. Most fund managers don’t think you can protect yourself from the ups and downs of the stock market so they diversify. 9:45

6. A price has to make sense and be rational to buy, have to buy the business cheaper than the price that makes sense. 12:29

7. A margin of safety is protection if you are wrong about the business so you don’t lose money. Essentially, you want to buy a wonderful business for 50% of the price the business is worth. 16:00

8. Phil dispels the efficient market hypothesis that price is equal to value, and everyone trading in the stock market is rational. 20:00

9. The stock market, in the long run, is efficient and prices things correctly. In the short run, the market is emotional. 25:33

10. Is stock price really equal to value?

Show Notes

Charlie Munger Video Starts at 6:00 minutes

Warren Buffett

Margin of Safety

Diversification

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On the InvestED podcast, Phil and his daughter Danielle shine a light on the successful investing strategies that gurus like Warren Buffett have used for 80 years. Listen in for a great stock market education on basics, learn how to invest on your own, and follow along with real-time examples and investing tips from week to week.