In one sentence: After the 300th-episode giveaway, Phil and Danielle answer three listener questions (a favourite stock, the CFA and tracking software, and what money printing does to stocks) and argue about whether to sell winners early or hold.
Key ideas
- A stock tip with an inversion. Danielle's current favourite is Square: payments for both consumers and merchants (card readers, Cash App, online and in-person), led by Jack Dorsey's co-founder Jim McKelvey, whose book The Innovation Stack is mentioned. Her inversion: it tries to do everything while rivals win each niche, and it was not consistently profitable then. Phil agrees ("bet on the rider, not the horse") but says he can't tell whether it will be bigger or gone in 10 years. These are their views in January 2021 and not recommendations. [05:00–14:30]
- Phil's example: Ulta and Chipotle. Phil says he likes Ulta and would buy more if it fell, but has stopped buying; he also names Chipotle as one he would buy again on a drop. The inversion for Ulta: Sephora (owned by LVMH) competing downward, and a likely ceiling on store growth. He mentions that he can't say more about positions for regulatory reasons and because lots of buyers lift the price. [15:00–18:30]
- Growth rate decides if you keep a great business. To aim for about 26% a year, Phil says he moves money out of a company whose growth falls to a modest rate, even a good one like See's Candy, because Ulta won't hand over cash to reinvest. At Berkshire, See's cash can be redeployed at about 20%. [18:30–20:30]
- You only need a few companies in a lifetime. Natural fluctuations every seven to ten years bring them back on sale. The trick for small accounts is to sell near or above intrinsic value and buy back on the next dip, as Buffett did in 1955–65. Once an account is huge you hold, because selling moves the market. This is Phil's view, and not everyone agrees (see 298). [20:30–22:30]
- CFA designation. Phil says the CFA mostly teaches modern portfolio theory, which Munger and Buffett mock, but that for a professional it signals credibility to pension funds, more than an MBA. Danielle says a friend finds it a great education and hard to pass (three exams). They agree the designation is the real value. [24:30–29:30]
- Tracking basis with options and dividends. Brokerage tools struggle; Phil's funds use outside administrators, and his analysts built their own Excel tool, which isn't for sale because of the support burden. [29:30–31:30]
- What does currency debasement do to stocks? (Karen's question, grand prize.) Phil: the dollar has lost about 96% of its buying power since 1934 (his figure); governments worldwide print money; M1 rose from about $4 trillion to $7 trillion in 2020 (his reading of FRED). Low rates push savers into stocks and real estate, and corporate buybacks help. He puts the S&P 500 at about 45 times earnings and the Shiller P/E at about 34. All are his numbers, taken from the air date. [31:30–39:30]
- Nobody knows when it ends. Danielle: predicting the market is a waste of time and "right or wrong, it doesn't change a thing". Phil quotes Keynes's line (as attributed) that markets stay irrational longer than you can stay solvent, so don't short. He says Buffett's 2017 "bucket" remark is an example of how long a wait can be. [39:30–44:30]
- Cost of waiting vs payoff. Phil says staying disciplined has still earned steady returns, though lower, and that buying in a crash makes up for it: a ten-stock paper portfolio from his June 2009 Singapore workshop grew about 12 times, roughly 32% a year, over ten years. Danielle points out ten years of waiting is a lot of life. [44:00–49:30]
- Sell too early, or never? Phil sold some winners near or above intrinsic value to build cash. His filter is two checks: is each holding anti-fragile (does better in a recession) and still below intrinsic value? Selling early is the better error: "nobody ever went broke taking a profit". If you keep riding something far above value, use stop losses and know gaps can jump past them. Danielle says her lesson is also that she sold too early. [50:00–54:00]
- Buffett on rates. Phil recalls Buffett saying that unless rates stay near 1% for a long time, valuations will have to change; see the 2020 Berkshire meeting. [54:00–54:30]
How it maps to RuleOne
- Square's "inversion" is the pattern for the site's what-could-go-wrong note: write the case against a holding before the case for it.
- Basis tracking with dividends and options is exactly what /holdings/ records; the site does not yet handle option premiums.
- The "growth rate falling" test is on the stock page as the Big Five growth lines; a name with slowing growth may stay on the screen only if it's cheap.
- The "stop loss" is Phil's suggestion for riding over-valued names, not something the site implements.
Buffett, Munger and Graham links
- Selling when price reaches intrinsic value is Graham's discipline; Buffett's partnership letters (1957–69) describe it, and Berkshire's later "never sell" stance is the contrast.
- Phil paraphrases a Buffett "bucket in the rain" line from 2017 and recalls his 2020 meeting remarks on interest rates. Both are from memory, so check the Berkshire letters and meeting transcripts before quoting.
- Munger's contempt for modern portfolio theory runs through Poor Charlie's Almanack.
Words to know
- Inversion: asking how a thesis could fail before asking why it will work.
- Anti-fragile (Taleb): benefits from disorder.
- Basis: what you paid for a holding; dividends and option premiums can lower it.
Try this
Choose a holding on /holdings/. Write two sentences: the inversion (how could it go wrong?) and the growth rate you now expect against the 26% target. Then decide, in writing, the price or business fact at which you'd sell.
Check yourself
- Why did Phil say he might sell a good company whose growth slowed?
Answer
To keep his money's velocity high: cash from a sale can be reinvested at a higher rate than the company's slowing growth. - What two checks does Phil run on his holdings?
Answer
Is it anti-fragile, and is it still below intrinsic value? - What did Danielle say about predicting the market?
Answer
It's a waste of time. Pick good companies, and right or wrong the prediction changes nothing. - Is the CFA mostly about picking stocks the Rule #1 way?
Answer
No. Phil says it teaches modern portfolio theory; its value is the credential for a professional.
Short quotes
"Nobody ever went broke taking a profit." (Phil, citing an old adage, ~51:00, auto-transcribed)