MI317: Investing WIth Safeguards: Spotting and Correcting Common Mistakes w/ Brian Feroldi

24:49It also could mean that the company has bargaining power over suppliers because the supplier cost is embedded into that gross margin number. And the big thing that he likes to look for is this number to be consistent in good economic times and bad. So if you look at many of Buffett's biggest and top holdings, like Apple, like Coca-Cola, and you look at their gross margin throughout the business cycle in recessions and in bull markets, they tend to have gross margins that are above 40 % and they are consistently above 40%. Now, if you see a gross margin that is declining over time, that typically means one of three things is happening.

25:32Thing one is the company is facing intense competition. And in order to fend off that competition, it's lowering its prices. That's never a good sign for investors if a company is getting to a price work. Another thing that it could indicate is that the company's costs from suppliers is increasing so rapidly that it doesn't have the ability to pass on those increases to consumers, which of course could mean the third thing, the company lacks pricing power whatsoever, which Buffett has consistently called out as one of the most important attributes that a company can have. So if you're going to focus on any one of these nine rules of thumb, the one that I pay the most attention to is gross margin and gross margin durability.

26:13You've written that the financial statements answer three simple questions. The income statement answers, are you profitable? The balance sheet answers, what is your net worth? And the cash flow statement answers, are you generating cash? I'd like to start off with the income statement. What are the biggest mistakes that investors make when analyzing a business's income statement? And how do you think they can best overcome these mistakes? Well, the biggest mistake that I see investors make with the income statement is they basically look at revenue and then stop. The only thing that they pay attention to is, did revenue grow?

26:43How much did it grow? And was that number above what Wall Street was expecting or below what Wall Street was expecting and they make their decisions about this is a great company or terrible company solely based on the most recent quarter's revenue growth rate when compared to the prior year. Now, growth is an important thing for any business to hit, but revenue growth is not the be-all, end-all number that you should pay attention to on the income statement. I myself pay much more attention to margins, specifically gross margin, which we just talked about, operating margin and net margin than I do the absolute change in the revenue growth rate of a company.

27:19Another thing that investors overemphasize when they're looking at the income statement is simply earnings per share. They look at revenue, then they scroll their eyes down all the way to earnings per share, and they draw conclusions from there. Did earnings per share beat Wall Street's estimate or did they miss when compared to Wall Street's estimate? An unfortunate truth about accounting in the last couple of years is some subtle changes to the rules of accounting, specifically GAAP accounting in the United States, make that earnings per share number less reliable than it has been historically.

27:52One big change that was recently made, a change to GAAP, was that when a company owns a position, owns stock in another publicly traded company, they now have to actually mark up or down their net income based on the share price movement of the other stock that they own. Quick example of this would be Amazon. Amazon owns a significant chunk of stock in Rivian, the startup electric car company. So when Rivian's stock now goes up, Amazon has to mark up its net income saying, we made this money on our Rivian investment. And the inverse is also true. When Rivian's stock goes down, which by the way, it largely has since it came public, Amazon now has to take charges against its net income based on Rivian's stock.

28:42So because of that, Amazon's net income, which was already dubious as a metric because of the way Jeff Bezos runs the business, is now completely irrelevant of a metric to use to judge Amazon. So to me, I think net income, I could care less what Amazon's net income is in any given quarter. It's a completely useless number to me as an investor. One mistake or the mistake I see people make when they're looking at the income statement, even if I understand that, they pay too little attention to the number of shares that are outstanding. I actually focus in quite heavily on the share count that a company has and specifically how that share count has trended over the last one, two, and three years, and specifically the percentage change in the share count.

29:28I personally like to see it when a share count is stable or declining. And if it's declining, I want to see it declining by 1%, 2%, or 3%, or even more over periods of time. That indicates that the company is aware of the importance of its share count and is taking actions to reduce its share count over time through stock buybacks. The inverse is also true. When a company is rapidly growing, a lot of companies abuse their share count. They issue tons of stock-based compensation, which balloons to their share count, or they use their stock to make acquisitions. And that can cause their share count to increase dramatically.

30:06So I would say people spend too much time on revenue and earnings per share, not enough time on margins and share count. Let's look at the balance sheet now. Which areas of the balance sheet do you think investors need to emphasize more that will help them make better decisions? The balance sheet is a particularly useful statement for investors to look at. When I look at a balance sheet, I try to key in on a couple of key metrics. The first thing I look at is, to me, the most important number on there, which is the cash balance that a company has. Cash is like oxygen to a business. It can be, if you don't have enough of it, when bad times hit, you're going to be in a really tough spot.

30:44Meanwhile, if you have excess cash, when bad times hit, you can actually go on offense. Your cash balance can allow you to acquire competitors on the cheap, to invest in sales and marketing, and really take in to buy back their stock. So cash, I view as giving a company options. I also take a look at accounts receivable and inventory. I want to know how much working capital a company has and how much inventory and accounts receivable consume a company's current assets because that can give you an indication of the working capital needs of the business over time. Another thing that I like to focus in on is goodwill.

31:19Goodwill is an accounting term that essentially shows the premium that a company has paid in the past for previous acquisitions. Goodwill is my least favorite asset. In fact, I think it should be called badwill because the only thing that can happen to goodwill on a balance sheet is it can be written off over time if a management team is forced to admit that it paid too much in the past for a previous acquisitions. So if I see that goodwill in particular makes up a substantial portion of a company's balance sheet, that means it's extremely acquisitive and I typically want to avoid those businesses.

31:55On the liability and equity side of the balance sheet, I pay attention to debt volumes, how much debt a company has, how that compares to the company's cash, and what type of debt is it? Is it just straight up long-term debt that needs to be replayed, or is it convertible debt that could potentially lead to dilution over time? One other metric I love to see, love to see on the liability side of a company's balance sheet is something called unearned revenue or a deferred revenue. What that means is that a customer has made a prepayment to a business for a product or service that is yet to be delivered.

32:34So for example, if I was subscribing to a magazine and I paid for that magazine all upfront on day one, the company gets the cash. But since I haven't received all the magazines over the course of a year, the company has to record that as a liability. So when you see unearned revenue on the balance sheet, that is a wonderful sign to see because that means the business gets paid before it actually has to deliver the product or service. And then finally, in the retained earnings, excuse me, in the shareholder's equity section to look at the retained earnings that a business had, which is the cumulative profits that have been generated by the business over time.

33:10And I look for something called treasury stock. Treasury stock indicates the stock that has been repurchased from the market and retained by the company. It effectively tells you in one number, is the company buying back stock. Now, another unfortunate accounting rule is that some companies do not have to report out, separate out treasury stock. They could actually roll it in to retained earnings. So it isn't as prevalent as it was in years past. But I would say those are the big numbers that I like to focus on. And how do you determine how much cash you'd like to see on the balance sheet? You can make the argument that obviously more and more cash is a good thing because it just means they have more money to deploy.

33:45But you could also make the other argument that they have cash. And obviously, in these times of high inflation rates that cash is not the best use of money if it's just staying there earning zero interest. So how do you view that on a balance sheet? Yeah, there's different schools of thought with how investors think about cash. On the one hand, cash is a relatively unproductive asset, although now with interest rates about 5%, it's a more productive asset than it has been any time over the last 20 years. But I would say the more dependable, The revenue of a business is, the less cash there needs to be, and the more cyclical a company's revenue is, the more emphasis I would place on a cash.

34:27As we said before, take a subscription business like a cable business. Even though those businesses are largely in decline nowadays, their revenue is extremely predictable over long periods of time. Because their revenue is so predictable, I would say that a business like that doesn't have to keep as much cash on its balance sheet, as would a company that has extremely unpredictable revenue, revenue that is up and down, that is cyclical and cyclical profits. I would say it's more important to keep a lot of cash on your balance sheet. As a general rule, I like to see more cash than debt. And the more cash the company has, all things held equal, the better.

35:03But I would say it's particularly important for companies that have cyclical revenue versus ones that have a sustainable revenue. Let's look at the cash flow statement. Do you feel that generally accepted accounting principles, GAAP, which you referred to earlier, does a good enough job as is for the cash flow statement? Or do you think that there are specific adjustments that should be made to more accurately portray a business's cash flow? Yeah, I think that GAAP accounting does a fine job with displaying the cash flow statement. And what's so interesting is that companies have only had to report cash flow statements for roughly the last 20 years or so.

35:37In fact, we can thank Enron for investors having to get a look at the cash flow statement. Prior to Enron, companies did not have to produce a cash flow statement in the wake of the accounting scandal of the 2000s. One change that was made was companies were forced to produce a cash flow statement. For those that aren't familiar, a cash flow statement simply reports the cash flow in and out of a business. So while the income statement includes cash and non-cash charges, the cash flow statement only cares about did money come in or did money leave. And it's really important that investors look at both statements to get a true idea of how much cash, how much profits a company has made.

36:16When I'm looking at a cash flow statement, there's a few dynamics that I particularly pay attention to. Net income is, of course, the first number to look at, and that is at the top, so I always pay attention to that. As I scroll down and I'm looking at the cash adjustments, right below that, and cash from operations, I'm paying particular attention to stock-based compensation. It's probably the number one thing I look at. How much stock did a company pay out to its employees and how big of a number was that in absolute terms. I also look for any other unusually large charges or adjustments that explain the difference between net income and cash from operations.

36:51That could be things like inventory or accounts receivable or unearned revenue. So I look for those numbers on the cash flow statement. After that section, there's a section called cash flow from operations. And this is essentially the cash that a business generated during a specific period. I think that this is a very important number for investors to look at. And I always compare it to, is this number higher or lower than net income? It should, in most cases, be a higher number than net income. And if it's not, I want to know why. Right below that figure on the cash flow statement is capital expenditures, also court spending on property, plant, and equipment.

37:29This is essentially the assets that a company was purchased during the period that do depreciate over time that the company needs to operate and fund the business. And if you subtract those two numbers, that gives you the simplest definition of free cash flow that is out there. And free cash flow to me is a much more reliable profit number than net income is. So that is a key number that I look at on the cash flow statement. And then finally, if you keep scrolling down to cash flow from financing activities, I want to know, is the company issuing debt or repaying debt? Is the company issuing stock or repaying stock?

38:03And then finally, how did cash change throughout the period? There are a couple of numbers that I really key in on. And I would say that cash flow from operations, capital expenditures are the two biggest ones. So you invest in a lot of tech. And as we know, they use share-based compensation to retain and attract talent. How do you view share-based compensation as a part of free cash flow? Do you add it back in as Gap would say, or do you make adjustments for it? I understand both sides of the argument. And it's just an unfortunate truth of the time that we are living in that a lot of companies, especially ones that are young and growing fast, do not have a lot of cash on hand to pay their employees what their market rates would be.

38:41So they use stock-based compensation to fill the gap. And a lot of employees also like that because then that gives them upside potential if the business does succeed. So I understand the merits of stock-based compensation. Now, I personally am okay with using stock-based compensation as a part of free cash flow. Because again, the thing that I care about is how much cash is the business generating in any given period. And free cash flow does include the stock-based compensation as a part of that. When a company pays stock-based compensation, that naturally increases the share count of the company.

39:16So I think that the dilution that you're paying is accounted for in the increasing number of shares outstanding that a company has. So that to me is really one of the ways that the costs are being accounted for of that stock-based compensation. But on the flip side, if a company would not be generating positive free cash flow without that stock-based compensation, I will certainly note that against them. But it just totally depends on what stage of the business growth cycle you're going to be investing in. If you're investing in stage one, two, or three companies, so startups or companies that are not yet profitable, you're going to have to just be okay with that stock-based compensation.

39:52You're not going to find fast-growing companies that really don't have it nowadays. You just have to be aware of the negatives to doing so. And it's up to every investor to decide for themselves whether or not they should include or exclude stock-based compensation from free cash flow. Let's take a quick break and hear from today's sponsors. Hey, it's Sean O'Malley, just popping in with a quick message. If you like this podcast, well, I've got great news for you. we've got a handful of other shows for you to explore, from learning about Bitcoin to embracing a richer, wiser, happier lifestyle. Just go into your podcast app and type in We Study Billionaires to find our collection of shows.

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43:32All right, back to the show. There was an excellent graph you showed on X of the returns over the last two decades by asset class. In it, it shows the returns of the average investor versus other asset classes such as cash, bonds, index funds, REITs, et cetera. The sad fact is that the average investor gets crushed by the majority of asset classes and had a 3.6 % return between 2002 and 2021. You've gotten to educate many investors. What behaviors do you think are causing this massive performance lag? That's quite simple. Investors are humans, and humans are naturally born to be terrible at investor.

44:10There are so many innate human characteristics that we share that were extremely positive for us in hunter-gatherer societies that kept us alive. And many of those same natural attributes make us terrible investors. Real simple ones are things like a herd of behavior. If you see other people making money in the market and their stocks are going up, that naturally makes it feel like it's a safe time to invest and you want to get in on the performance that you see many other people making. And that causes many people to buy or add money to whatever is hot at the moment. They look back at what stocks, what industries, or what mutual funds have gone up the most in the last three months, six months, one year, or two years, and they want to naturally rush into that market because they think that those returns are sustainable.

45:04That is a perfectly natural human emotion. We copy what we see other people doing, and that causes investors to buy at the exact wrong time. The inverse of that is also true. When markets are in free fall, when you see a sea of red, when you see negative headlines, when you see other people freaking out, it's a natural human tendency to also want to freak out. And it takes real gusto, real conviction to see blood on the streets, in air quotes as it's been called, to see other people losing money, to see yourself losing money, and to be excited enough by that to actually buy when everybody else is selling.

45:44That's an extremely hard thing to do. And even if you understand at the outset the nature of those emotions and the nature of the emotions that you go through in bull markets and bear markets, it's a completely different thing to actually live through those market cycles in real time. The best thing that people can do, especially investors that don't pay a lot of attention to the markets, is take their emotions completely out of the picture by simply dollar cost averaging a fixed amount on a fixed schedule into the markets. And that way, there's no thinking, there's no emotions at play, and they're just continually buying at both the highs and the lows.

46:20And if you do that for a long enough time, the buys that you make at the lows will be so profitable for you that they'll more than offset any losses that you have from investing at the highs. So market cycles move up and down. And similarly, investor sentiment moves up and down and lockstep with these cycles like you kind of just discussed. At market highs, market sentiment is at its most euphoric with money coming in from all over the place to ride the momentum of the current upswing. When the market inevitably swings back down, sentiment becomes much less euphoric, quickly transitioning to panic and fear, which pushes investors to sell.

46:52And on and on it goes. What are the keys that investors should understand about market cycles and investor sentiment to help make the right decisions when emotions are running hot? It's really hard to do so. It's really easy to fool yourself ahead of time to tell yourself, I'll be able to sell when markets are at their high and I'll be able to buy when markets are at their low. Because if you look back at any chart of the S &P 500 over the last 100 years, it's very easy to be an investor in the rear view mirror. You say, I would go all in in 1982. I would sell everything in the year 2000. I would buy everything in 2002, sell everything in 2007, buy everything in 2009, sell everything in 2020.

47:31It's like the easiest thing in the world to look backwards and say, this is what I would have done if I was in that timeframe. What that logic eliminates though, is that living through something day by day, a moment by moment is a completely different experience than simply imagining what it was like to live through those periods of history. I wasn't alive during the Cuban, a missile crisis in the United States. So to me, that was an interesting footnote of history that had a very interesting movie. I can't imagine what it was like to actually live through that, to be in constant fear that literally a nuclear war was starting at any given time and to not know the ending of that, how that would play out.

48:08So I can't imagine what my emotions would be doing to me at that time. They would probably be screaming at me to sell everything that I own, to go to cash and to hide away in a bunker somewhere. When obviously looking back, it would have been like, wow, great time to buy. The market was cheap during that timeframe. So again, I think the best thing that investors can do is take as many emotional decision-making out of their process as they should by simply dollar cost averaging. Or if you want to try and time the market and you think that you can do it, do so with only a small part of your capital.

48:40So I myself, all of my retirement funds are simply dollar cost average into index funds. I don't even have to think about them as a part of my investing process. My cash that I invest beyond in taxable brokerage account, that I try and be more opportunistic with. I try and buy when I see things that are attractive and I try and just hold when I see prices that are a little bit more insane. I do try and quote unquote time the market or time the purchase of my buys, but I offset that with the simple dollar cost averaging that happens with the majority of my capital. So for investors who maybe just feel the need to own specific companies rather than index funds, what are some of their best kind of guardrails that they can do to help prevent them from making common mistakes?

49:23Well, I don't think there are guardrails that you can set up. I think that a lot of investing is studying and learning from others, but some lessons just have to be learned the hard way. The most impactful, the most important money lessons that I've ever learned was when I took my capital, I put it at risk, I did something stupid, and I said to myself, lesson learned, tuition paid, I'm never going to make that mistake again. This gets back to the whole theory of investing versus the actual experience of investing. When I first started investing, I had no idea what I was doing. I was buying absolute garbage.

49:56I was buying penny stocks. I was buying dividend stocks that yielded 15 % or 20%. I wasn't doing any research at all. I was trying to trade them based on price movements over a couple of weeks. I deserved to lose money because I was doing the exact wrong thing. And those mistakes that I made paved the way for me to become a better investor in time. So just know if you are a new investor and you have felt like you have no idea what you're doing, especially over the volatility that we've seen over the last three years, that's pretty normal. You shouldn't expect to succeed at investing right out of the gate.

50:30In fact, that could actually be a bad thing if you do, because you can get a false sense of security and you can bet beyond what you actually can reasonably afford. So some lessons, unfortunately, but this is just life, have to be learned the hard way. So you just mentioned, for instance, when you started looking for high dividend paying stocks or stocks with charts that had just very short periods of success, what are other common mistakes that investors are likely to make it at the onset of their investing career that they'll probably end up regretting. There's so many of them. If you're familiar with the Dunning-Kruger chart, it's essentially a graph that shows how much confidence somebody has in a new venture versus the experience that you have.

51:13And when you first start learning about investing, I know this was true for me. God, when I first learned about earnings per share and things like book value and things like the PE ratio, I thought I knew everything I needed to know about investing. God, this company is trading at five times earnings. It's a great buy. God, this company is trading at a hundred times earnings. It's a sell. How hard is that? It's like a single number you can use to make intelligent, in air quotes, investing decisions. Or people look at dividend yield. This company has a 10 % dividend yield. This one has a 1 % dividend yield.

51:43Obviously, the 10 % dividend yield is the much more attractive investment. That is the logic that makes so much sense to a beginner that doesn't know enough about the nuances of investing. I would say overly focusing on a single metric is a big mistake that investors make. They pay too much attention to revenue growth rate, too much attention to earnings per share, too much attention to dividend yield. Those are three common metrics that people look at. Another would be, what did the stock price just do? Did it just go up yesterday? Did it just go down yesterday? That is a good or bad stock, fill in the blank, depending on your interpretation of the situation.

52:21So investing is one of those endeavors where it is extremely easy to make the wrong decision. And just listen to that talk by Charlie Munger on the psychology of human misuse judgment. He lists out in there in wonderful detail, all of the biases that are working against us as an investor. And I myself, the first time I heard of that, that talk was like, yep, I've done that. Yep, I've done that. Yep, I've done that. In fact, I'm still doing many of those things. So the best you can hope to do is study them and learn from them by gaining actual experience. So the media, news, and markets are always giving us reasons to sell our stocks.

52:55But as great long-term investors know, most of the content out there is just noise, which just acts to confuse our decision-making. What do you think are the best strategies for investors to help them differentiate between noise and usable information, which they can make better decisions based off of? For me, that's simple. Watch less news. pay less attention to daily stock price movements, pay less attention to the movements of the Fed, pay less attention to what the hot thing they're talking about on CNBC is. To me, 90%, 95 % plus of that content out there is just financial entertainment. I've spent much more time listening to podcasts, listening to interviews of people, reading books about investing, and critically, reading actual SEC filings from companies.

53:43That is signal. That is actual information. When an earnings report comes out about a company, I take a fresh look at the income statement, a fresh look at the balance sheet, a fresh look at the cash flow statement. The company will also talk up the key metrics of that particular industry. That is signal. That is actual information. The commentary from the management team is actually signal. What happens between quarters is largely to be just noise. So pay attention to the things that, determine the things that matter, pay attention to those things and do your best to tune out everything else.

54:18It's again, a very simple concept that's easy in theory, hard to do in reality. One of the worst mistakes investors make is confusing the direction of a stock's price with the direction of its value. A large percent of investors will see a stock price go up and conclude that the stock's value is going up at the same time. Alternatively, they'll see a stock's price crash and assume that the stock's value is also going down. Can you explain why this isn't the correct way to look at your stocks and the market and how price and value regularly diverge. Yeah, I'm going to take a wonderful butcher, a wonderful Morgan Housel quote to explain this.

54:52And he just said it so elegantly. He said, the stock price today is the numbers from today times a story about tomorrow. And that essentially explains what every stock price is happening right there. And the thing that's so interesting about that is that the numbers from today part of that equation doesn't really change all that much and doesn't really move all that much from period to period. I mean, take a company that's growing like 30 % per year, which is an extremely fast growth rate. What that effectively means is that every given month, they're adding 3 % or so to their business. Not really all that big of a change.

55:28But of course, when you pick out over a full year, it adds up to a pretty large number. So for so many companies, the story of the business, the numbers for a business, aren't really changing all that drastically one way or the other over periods of time. However, the thing that does change drastically is the story about tomorrow. What a stock price will pay for today could be to change drastically based on the emotions, the collective emotions, and the collective feelings of all market participants. And there are good reasons for the emotions of investors to change drastically over a short period of time.

56:05If investors, more recently in the last couple of years, we've seen investors go from thinking that inflation was a thing of the past to inflation being a major thing that is impacting every business and every consumer out there. That caused a massive shift in sentiment out there and rightly impacted stock prices. Interest rates have been something that investors have all but ignored for the past 15 years, essentially everything in the wake of the great financial crisis of 2008. And more recently, for the first time in almost 15 years, interest rates are now something that investors have to seriously think about and consider.

56:40Those are monumental changes in the short-term psychology of the market that can significantly impact and rightfully so the stock prices that those businesses are trade at. As a long-term investor, it's your job to do your best to understand those changes, but focus heavily on the actual numbers, actual performance of the business. That will tell you what direction the intrinsic value of the business is growing. I've personally seen instances when businesses are flatlining or they're kind of stale and their stock prices are soaring. And if you only look at the stock price, you would get the wrong information about what's actually happening at the business.

57:18I've also seen the exact opposite, where the business is producing record results, and everything is going great, and yet the stock is down 80 % from its recent high because the sentiment has shifted that much. So it's not easy. It's not easy to focus on the business and to de-emphasize the stock. But if you want to make opportunistic investment decisions, that's precisely what you have to do. Let's turn our attention towards an often misunderstood topic, which is buybacks. You shared an excellent article which discussed six examples of buybacks which may act in opposition to the interests of shareholders.

57:51They were one, bolster the stock price, two, increase book value, three, increase earnings per share, four, reduce taxes, five, use treasury shares to pay employees, and six, hostile takeover protection. When you are analyzing a business's buyback program, what keys are you looking for to best ensure that the share repurchases are optimized to benefit you as a shareholder? I give management teams a lot of leeway when how I think about buybacks, because what a buyback is, is essentially a management team making a decision the same way that an individual investor would. And making decisions as an investor into a business, especially when you're dealing with scale of millions or potentially billions of dollars, it's not easy to deploy capital like that intelligently.

58:33So when I think of a big company like say Apple, Apple has consistently over the last, call it nine years or so, taken a huge amount of its free cash flow and use that to buy back stock from the markets, which has significantly reduced the number of shares outstanding and has added huge, huge gain to long-term investors in Apple. However, Apple is not really being opportunistic with its share repurchase program. It's essentially making cash flow and immediately using that cash flow to buy stock. And sometimes that looks like a genius move when the stock is trading low, and other times it looks like a less genius move when its stock is trading high.

59:10So I would say that that's the quote unquote normal way of investors doing it. What they're essentially doing is dollar cost averaging into their stock via their stock purchase programs, which is perfectly adequate, but it's not the optimal way to do it. The management teams that do stock buybacks best are those that build up cash over long periods of time. And when they see their stock price take a short-term hit or get impacted for a reason, which is bound to happen, that's when they get aggressive with a tender offer, or they go in and meaningfully use the depressed stock price to buy back their stock.

59:45That requires patience, that requires timing, and that requires being yelled at by investors for just letting your cash balance grow and grow and grow and essentially do nothing while you wait for that to happen. So that is the better way to do it, but it's way harder for management teams to do that than it is to just dollar cost average of buyback. If I see intelligent use of buybacks and a history of buying back at opportune times, that management team gets a huge vote of confidence from me. But if I see one that is just consistently lower on the share count, to me, that's acceptable. So Charlie Munger sadly just passed away on November 28th, and he was an inspiration for many of the investing community.

1:00:24What were the primary lessons that you took away from him? Charlie Munger is a fountain of investing and life wisdom, really. And it's hard to even summarize all the wonderful things that I've learned from him over time. But I will just point out a few. First off is that talk that I've mentioned now three times in this podcast is the psychology of human misjudgment. If you have not viewed that and listened to that and you invest, you are doing yourself a massive disservice. So go on YouTube, go on a podcast, type in Charlie Munger, Psychology of Human Misjudgment, and listen to every word that he said.

1:00:59That to me was the thing that when I first heard it, I was like, wow, this Charlie Munger guy is really a genius. Another thing that I love that he really emphasizes is the inversion principle. It's a quote from Jacoby who says, invert, always invert. And I just really love the idea of thinking forwards and backwards through problems. And then the final thing that I really take away from him is a quote that he almost has said in passing, but I think it's just so profoundly important. And it's that, be reliable. As a human, be a reliable person. If you're an unreliable person, it will actually cancel out a lot of other positive attributes that you have.

1:01:38And being reliable is something that is completely within our own control. So those are just a few that come to mind, but he is someone that should be studied deeply for years to come. Ryan, thank you so much for joining me today. Before we say goodbye, where can the audience connect with you and learn more about your course and your book? So the easiest place to connect with me is on Twitter or on LinkedIn. I'm just Brian Feraldi on both platforms. But I will say, I recently created a free stock investing course. It's just a five-day email-based course for people that want to get the most important lessons from the book that I wrote just for free.

1:02:13And that is just stockinvesting.school, stockinvesting.school. Just put your email address in there and I'll send you the lessons for free. Okay, folks, that's it for today's episode. I hope you enjoyed the show and I'll see you back here very soon. Thank you for listening to TIP. Make sure to subscribe to We Study Billionaires by the Investors Podcast Network. Every Wednesday, we teach you about Bitcoin and every Saturday, Today, we study billionaires and the financial markets. To access our show notes, transcripts, or courses, go to theinvestorspodcast.com. This show is for entertainment purposes only.

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