481: FROM THE VAULT: Understanding Debt and the Unexpected

InvestED: The Rule #1 Investing Podcast

Phil Town & Danielle Town

Investing, Business

4.6 • 1.6K Ratings

🗓️ 6 September 2024

⏱️ 33 minutes

🔗️ Recording | iTunes | RSS

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Summary

Debt plays a significant role in determining the value of a company. But how can you accurately assess the worth of a business you're interested in when it's burdened with debt? In last week’s Vault episode, Phil and Danielle explored this issue through the lens of Liberty Media Corporation’s acquisition of Formula One Racing. Building on that discussion, they take a deeper dive into using the 10 cap formula to uncover a company’s true value—debt included—and help investors make smarter decisions. They also touch on the inherent unpredictability of investing, using Tesla’s past and future as a prime example of the uncertainty you should always anticipate. For some Rule #1 tips on dealing with debt in your own financial life, don’t miss your free copy of our Get Out of Debt Checklist: https://bit.ly/3TjolSK Topics Discussed: Value Investing Factoring debt into investment opportunities The 3 Fs of shorting Unpredictability in investing Resources Discussed: InvestED by Danielle and Phil Town Investing Lessons from Formula 1 Learn more about your ad choices. Visit megaphone.fm/adchoices

Transcript

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0:00.0	Hey everybody welcome to Invested. I'm Danielle town. Here's the second part of our
0:05.1	vault series related to Formula One and now how debt can be used to determine whether a
0:12.0	company is investable or not.
0:14.6	Enjoy your investing practice.
0:16.2	Thanks everybody.
0:17.2	Hey everybody, this is Phil Town. And this is Phil Town and this is Danielle Town
0:24.9	welcome to the Invested Podcast you guys it's great that you're back here with us
0:28.8	we've been obviously talking about all things value investing.
0:32.5	Well, I hate to, I don't like that sound of that.
0:35.0	I like the sound of that.
0:36.0	Very much like the sound of that.
0:38.1	Now, value investing is, is even Warren Buffett doesn't really love the idea of the name being value investing because he basically said, yeah, well, all investing is value investing, you know, it's like, how do you buy Apple computer as a value investor, right?
0:54.0	Yeah, but that's what we, that's what's so interesting about it.
0:58.1	That's I don't want to call it that.
0:59.5	It's Rule 1 investing.
1:01.9	Rule 1 investing is such a better name for it because it focuses your
1:06.6	attention on what is important about real investing and that is not losing capital, no permanent loss of capital is what should happen to you if you're a good investor.
1:20.0	So for example, if you put your money in a Treasury note for, you know, 10 years, you shouldn't have a least a nominal loss of capital and you could argue you're losing money because of inflation, but apart from that, you're not going to lose your money because the government is going to be able to pay you and the reason is they have a printing press and they can just print it.
1:40.0	So you're not going to have a permanent loss of capital. On the other hand, if you put your money in
1:44.3	Bitcoin, and this ought to raise some hackles, you could buy Bitcoin at $60,000 per coin and have it go to $2,000 per coin and never come back ever and suffer a permanent loss of capital.
2:00.1	And the difference between investing versus putting money into Bitcoin is that if you invest in a good company, it will produce cash flow and that company's cash flow has a value and that value is permanent. It can't go away as long as it's producing real cash flow.
2:20.0	And that's the difference between investments and speculation.
	...

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