In one sentence: A rerun of 042, the 2016 argument about where investing ends and speculating begins; only the differences and extra points are recorded here.
Rerun. This is a rerun of 042; read that note for the full key ideas. The episode is the same recording with a new intro, and Danielle explains she was too ill to record.
Key ideas
- What's new in the intro. Danielle says the rerun shows how much her attitude and knowledge have changed, and invites listeners to remember where their own practice started. [00:00–01:00]
- Same ladder of certainty. Treasuries, corporate bonds, equity bonds (Coca-Cola, American Express, IBM, Wells Fargo), ordinary stocks, then venture capital, as in 042. [12:00–20:00]
- "Risky investing" is an oxymoron. Phil's point: if you can put odds on an outcome, you are speculating. Danielle's counter: Phil uses "investing" to mean low-risk investing. [22:00–26:00]
- Nothing wonderful has to happen. The New York building test: it earned about 10% on cost even if nothing changed, and rents would reset to market without any forecast. [33:00–35:30]
- Confidence is not certainty. An investor can be very confident and wrong, so the test is whether the return holds without the favorable outcome. [36:00–38:30]
- Where novices start. Narrow the world to companies you already use as a customer; chipotle is the example, with its valuation promised for the next episode. [40:00–42:00]
- Punch card. A 20-punch investing card forces you to wait for the very best. [35:00–36:30]
How it maps to RuleOne
- Same as 042: the zero-growth return test belongs next to the sticker price on a /stock/TICKER/ page.
- The picks you can defend without a macro forecast are the ones suited to /holdings/.
Buffett, Munger and Graham links
- Graham's definition of investment (The Intelligent Investor, ch. 1), as in 042.
- Munger's punch-card idea comes from a talk at the University of Southern California business school; check the source before quoting.
Words to know
- Equity bond: a stock with steady cash flow that works like a bond (Phil's term, drawn from Buffett).
Try this
Take one holding on /holdings/ and write whether its return would be acceptable at zero growth. If not, list what has to go right.
Check yourself
- What is Phil's test of an "investment" in this episode?
Answer
Whether it works if nothing wonderful happens, as in the building that earned about 10% on cost anyway. - How does Danielle challenge Phil's definition?
Answer
She says he equates investing with low risk and speculating with high risk, and that strong confidence and research make something an investment.
Short quotes
"With Buffett, nothing wonderful has to happen." (Phil, ~35:00, auto-transcribed)