69- Understanding Free Cash Flow

InvestED: The Rule #1 Investing Podcast

Phil Town & Danielle Town

Business, Investing

4.6 • 1.6K Ratings

🗓️ 2 August 2016

⏱️ 37 minutes

🔗️ Recording | iTunes | RSS

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Summary

What is a real investment? This week we discuss how to spot a ‘real investment’ by using a company’s free cash flow and how this method differs from the valuation method outlined in my book, Payback Time. We’ll also go over the two types of fund managers and share why they don’t follow Rule #1 style investing. For show notes and more information visit www.investedpodcast.com Learn more about your ad choices. Visit megaphone.fm/adchoices

Transcript

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0:00.0	Everybody this is Bill Town.
0:05.0	Daniel Town.
0:08.0	And we're here for the Invested Podcast.
0:11.0	Where we talk about.
0:12.0	Invested Podcast, Dad we talk about? You're talking about. You're learning about, well, I'm teaching, Danielle's learning and I hate to say it, but I'm learning too when she hammers me about what I believe is the truth about investing.
0:25.0	And, you know, she gets that lawyer background going and I'm, I'm
0:31.6	defenseless against her relentless attacks.
0:35.0	More like you have like the answer to basically everything, actually.
0:40.0	Well, I've been doing this for 30-some years, and I've got to tell you that I've looked at lots of different kinds of investing over the years and following Warren Buffett. I'll just say this. Following what Warren Buffett does works, number one, no big surprise there.
0:55.0	Okay. Number two, almost no other professionals can do it because it requires the ability to stay in cash for longer periods of time than fund managers are allowed by their investors.
1:08.0	Oh, because he has to be able to wait for a while for the right investments to come around and we've talked
1:15.8	about this before that's hard to do when you have investors who are going like all right
1:20.1	what's going on here come on now what do you do with my money let me know what's going on here? Come on now. What do you do with my money? Let me know.
1:23.4	What's going on? What did you do yesterday?
1:25.4	Yeah, it's bad enough individual investors do that. But what's really hardcore is that big successful fund managers have probably most of their money coming in from
1:36.9	pension funds who are managed by one person who is really interested in making sure that he looks good to his clients, which
1:46.2	might be the California Teachers Pension Fund, and they have $180 billion. this guy doesn't want to lose that
1:53.7	account so he's going to shift his money quickly off of a fund manager's who's not
1:58.8	doing well or doing nothing to somebody that's more active and doing something good. So these guys only have, you
2:06.6	know, between a quarter and half a year to prove themselves and they have to stay on
2:12.3	top like that. They don't have...
2:14.0	Because they have good intentions and the problem is just that their incentives are
	...

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