328- Valuation Checklist

InvestED: The Rule #1 Investing Podcast

Phil Town & Danielle Town

Investing, Business

4.6 • 1.6K Ratings

🗓️ 3 August 2021

⏱️ 32 minutes

🔗️ Recording | iTunes | RSS

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Summary

“Sticker price is what I call the value of the business.” — Phil Town Why does Phil call it the Sticker Price? You know how you have a sticker on the window of a new car and it tells you what the price of the car is, and you never pay the Sticker Price? That’s why we named the value of the business the “Sticker Price.” Rule #1 investors never pay the Sticker Price. They always want to buy it at a significant discount to its true value. How do you find the Sticker Price? That’s the critical part of this whole equation of understanding what businesses to buy. First, you have to make sure it’s a business that you understand the meaning of. You understand it has a big, durable moat and it has a great management team. Now you can start looking for the value. Next, in order to evaluate the Sticker Price you want to find the Future Growth Rate, the P/E Ratio, and your Minimum Acceptable Rate of Return. The Future Growth Rate is always an estimate, the other numbers you can find on financial statements and plug them into the calculator above to see the value, or Sticker Price, of the company's stock. Next, you simply cut that price in half (or take 50%) and that is your Margin of Safety price. For example, if you wanted to buy into a business that was worth $80 per share (Sticker Price), you would look for a Margin of Safety of $40. If the company cannot be bought at $40, then you should add it to your watchlist, update your calculations periodically as new information becomes available, and exercise patience. This week on InvestED, Phil and Danielle discuss Phil’s investing valuation checklist more in-depth and discuss why it’s critical to only purchase companies with a large Margin of Safety, at a discounted Sticker Price. If you want to learn more about evaluating companies using the Four Ms of Rule #1 Investing, check out this guide where Phil explains these principles more in-depth: https://bit.ly/37hIOPv Topics discussed in this episode: Valuation methods of investing Rational investing The Four Ms of investing How to pick stocks Chipotle Stock Warren Buffett Charlie Munger Learn more about your ad choices. Visit megaphone.fm/adchoices

Transcript

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0:00.0	Hey everybody this is Phil Town and this is Danielle Town. Welcome to the
0:08.1	invested podcast. We're unfolding, unpeeling the onion of Warren Buffett's
0:13.2	investing strategies that I've been using for 40 years. Danielle's been using
0:17.3	them for five. She's my daughter and an attorney and and now she's a good
0:22.9	investor. So we're helping you guys figure out how to be a good investor too.
0:26.5	So we're in the midst of doing our checklist which is highly proprietary and for
0:31.4	some reason I've decided to tell you guys all about it and you should just say
0:35.4	that you're leaving a lot of stuff out. Well okay some things are being left out.
0:43.0	Secret thing. We're gonna give you every bit of the secret sauce. Come on really.
0:49.8	So so what we're on this time is we've we've gone through radar which is how
0:56.3	you come to find a company and we're on to the last of understanding of
1:00.2	business which is meaning, mode, management, margin of safety. We've talked
1:03.9	about payback time as a margin of safety view. We've talked about 10
1:07.2	cap as a margin of safety view and today we're talking about the what we call
1:12.0	the margin of safety which is I'll just add quickly for anybody who's listening
1:17.1	this going what the heck I listened to a couple of episodes ago and you were
1:20.7	not talking about checklists. We started this checklist thing a year ago. So go
1:25.8	back to episodes 269 to 70 to 85 to 80. It's in that range and you can listen to
1:34.7	extreme detail about all of those sections that you just mentioned dad. So we
1:40.3	are now picking it up again a year later for the the next part of this
1:45.4	checklist pricing. Yeah and I said last week that the margin of safety analysis is
1:51.4	a discounted cash flow analysis is very MBA-ish view of the world that we've
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