The DIY Investing Podcast

• Discount Rates
• Gordon Growth Model
• Discounted Cash Flow Calculation

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Twitter Handle: @TreyHenninger

YouTube Channel: DIY Investing

This is a podcast supported by listeners like you. If you’d like to support this podcast and help me to continue creating great investing content, please consider becoming a Patron at DIYInvesting.org/Patron.

You can find out more information by listening to episode 11 of this podcast.

The full show notes for this episode are available at https://www.diyinvesting.org/Episode85

• What is a DCF?
  • An estimate of all future cash flow (dividends or earnings) and discounted back to the present.
  • When you add up these values you get the intrinsic value of a company.
• Gordon Growth Model (perpetual constant growth of a dividend - DCF)
  • P = Div (next year’s) / (r-g)
  • R = discount rate (10%)
  • G = constant growth rate in perpetuity.
• Example:
  • Dividend = $1.64 (Coca-Cola)
  • Specific estimates: $27.85 (based on specific year estimates)
  • Growth rate: 3% = $23.42 (equivalent to a 7% dividend yield)
  • Growth rate: 5% = $32.80 (equivalent to a 5% dividend yield)
  • Current price: approx. $46 per share
  • Always invert.
    • Dividend yield of 3.5% or growth rate of 6.5% in perpetuity.
• Example 2: P/E ratios for growing companies.
  • I want to estimate how quickly I can reach a 10% earnings yield.
  • I want it to be less than 5 years.
    • Without compounding this means a 10% grower you can pay P/E of 15.
    • A 20% grower you can pay P/E of 20.
    • All of these imply you can sustain that growth for 5 years.
    • Why ignore compounding? It’s simpler and conservative.

Discounted Cash Flow calculations and models provide precise estimates of intrinsic value but tend to be flawed. It is much better to improve accuracy by ignoring DCF and using a simple intrinsic value calculation like the Gordon Growth Model.

• Goals and Habits
• Concentration vs Diversification
• Signal vs Noise

If you enjoyed this podcast and found it helpful, please consider leaving me a rating and review. Your feedback helps me to improve the podcast and grow the show's audience.

Twitter Handle: @TreyHenninger

YouTube Channel: DIY Investing

This is a podcast supported by listeners like you. If you’d like to support this podcast and help me to continue creating great investing content, please consider becoming a Patron at DIYInvesting.org/Patron.

The full show notes for this episode are available at https://www.diyinvesting.org/Episode107

• Identify 2 new companies worthy of holding a 20% position in my portfolio
  • Actually, build those new 10-20% positions by selling out of 2 of my current holdings. (I have already identified which ones to sell)
• Become more comfortable with high levels of concentration.
  • My current largest holding is 35% of my portfolio. It's grown to this size from 20% and if all goes as I expect, it will likely continue to grow as a percentage of the portfolio. I need to become comfortable with 50% of my portfolio in a single stock if that company earns it through business performance.
  • I may also sell 2 of my current positions before I have found the two new positions. Consequently, I need to tolerate holding less than 5 stocks for part of the year.
• Earn a 20% annual return for the year 2021.
  • I earned a return of 22% in 2020, beating the S&P 500 by 3.7%.
    • Read my full annual letter here.
  • I believe I can match or exceed that return again this year.
  • My discount rate is 10%, but that is used solely for the fundamental analysis portion of my stock analysis. With the current setup of my portfolio companies, I am often seeking 10% of the cash flows of the business, and an additional 10%+ from multiple expansion.
  • I am optimistic that I can achieve this rate of return and perhaps substantially exceed it due to the types of companies I currently hold. We'll see how that comes to fruition.
  • This is clearly an inferior goal as it is results based instead of process-based. I'm simply documenting it s that I have it as a reminder.

• Pass the Series 65 Exam
  • Needed to become a Registered Investment Advisor
  • Will allow me to take on clients interested in me managing their portfolio.
  • If you'd like information about this and are perhaps interested in joining a waitlist, you can reach out for my information at my email: trey [at] diyinvesting.org
• Marketing Goals:
  • 5,000 Twitter Followers (Currently just over 2k)
  • 1,000 YouTube Subscribers (Currently just over 300)
  • At least 1 outside investing client
• Useful research goals:
  • Screen X number of companies this year (Say 100)
  • Write-up 12 companies this year
  • Read a 10k a day or a 10k a week, etc...

It used to be my goal during 2020 to move to only checking stock prices once a week.

Going forward, I will no longer have that as a goal. I have found that my focus on illiquid stocks means that I'm often monitoring stocks frequently because it takes a long time to build a stock position. If I had completed that prior goal, my results would have been worse.

In this episode, I outline my top investing goals for the new year. I aim to identify 2 new companies worth buying and my goal is to attain a 20%+ annual return for 2021. I also cover process-based goals relating to how to go about investing research. Finally, I would like to pass the Series 65 exam so that I can begin managing money for outside clients.

This podcast was inspired by the book "The Power of Habit" by Charles Duhigg. You can support the podcast by purchasing the book through one of my affiliate links:

• Available in Hardcover
• Available in Paperback
• Available for Kindle
• Available as an Audio Book (from Audible)

*Disclosure: If you make a purchase through one of these links, I may earn a commission. This commission comes at no additional cost to you. Please understand that I have personally read all the books that I review. I recommend them because I believe they are helpful and useful, not because of any small commission I might receive. Please do not spend any money on these books unless you feel you need them or that they will help you achieve your goals.*

1. Exercise Regularly
   1. The definition of "regular" will vary by the person. The key is to exercise at least every week with a focus on multiple times per week.
   2. My personal goal is to exercise 6 times per week every week. This is as close to "daily" as I consider reasonable.
   3. The more often you exercise, the greater the results you'll gain from turning exercise into a keystone habit.
2. Cook most of your meals at home from scratch
   1. Inspired by the books of Michael Pollan outlining how and why of eating healthy to promote a healthy lifestyle.
      1. "In Defense of Food" by Michael Pollan*
      2. "The Omnivore's Dilemma" by Michael Pollan*

This is a podcast supported by listeners like you. If you’d like to support this podcast and help me to continue creating great investing content, please consider becoming a Patron at DIYInvesting.org/Patron.

You can find out more information by listening to episode 11 of this podcast.

The full show notes for this episode, including my outline for today's podcast, are available at https://www.diyinvesting.org/Episode21

If you enjoyed this podcast and found it helpful, please consider leaving me a review. Your feedback helps me to improve the podcast and also grow the show's audience.

• Leverage
• Fractional Reserve Banking
• Margin
• Economies of Scale
• Operational Leverage

If you enjoyed this podcast and found it helpful, please consider leaving me a rating and review. Your feedback helps me to improve the podcast and grow the show's audience.

Twitter Handle: @TreyHenninger

YouTube Channel: DIY Investing

This is a podcast supported by listeners like you. If you’d like to support this podcast and help me to continue creating great investing content, please consider becoming a Patron at DIYInvesting.org/Patron.

You can find out more information by listening to episode 11 of this podcast.

The full show notes for this episode are available at https://www.diyinvesting.org/Episode79

As some of you may remember, one of my goals for this year is to improve my understanding of bank stocks. Today’s podcast will focus on the basic business model that banks use to make money.

Key Concepts:

• Deposits
• Cost of Deposits
  • Direct Cost: Interest Rates paid on Deposits
  • Indirect Cost: Overhead (Employees, Rent, etc...)
• Loan Yields
• Loan Losses
• Fractional Reserve Banking -> Leverage Rate
  • ROE = ROA * Leverage
• Banking Profits = Loan Yields - Loan Losses - Cost of Deposits - Overhead

• Recently watched: The Banker on Apple TV+
• Two black entrepreneurs in the 1960s buy two Texas banks.
• Samuel L. Jackson
• Anthony Mackie

The movie follows their journey and the ensuing blowback by Jim Crow.

One of the things the movie did very well was to explain the basic banking business model. Banks are easiest to understand when you focus on single branch banks instead of large money center banks like JP Morgan or Wells Fargo.

Banking is the business of bringing in deposits and lending them out.

Banking is a perfect example of a capital intensive business. A bank cannot grow unless it receives capital in the form of deposits. Deposits are the lifeblood of a bank and only through healthy deposit growth can a bank sustainably grow loans and therefore profits.

• Scuttlebutt
• Circle of Competence

If you enjoyed this podcast and found it helpful, please consider leaving me a rating and review. Your feedback helps me to improve the podcast and grow the show's audience.

Twitter Handle: @TreyHenninger

YouTube Channel: DIY Investing

This is a podcast supported by listeners like you. If you’d like to support this podcast and help me to continue creating great investing content, please consider becoming a Patron at DIYInvesting.org/Patron.

You can find out more information by listening to episode 11 of this podcast.

The full show notes for this episode are available at https://www.diyinvesting.org/Episode84

• If your company isn’t public, assess it qualitatively or do this work on your spouse's company or where a friend works.
• If you work for a non-profit or government, do the same.
• Email me your write-up during the month of July 2020 and I'll send you a response.

• Assess the industry
• Assess your company’s place in the industry
• What is the culture of your company like?
• What is the priority of management? Are they shareholder friendly? Are they employee-friendly? Other concerns?
• How are capital allocation decisions made?
• How are CapEx decisions made?
• Does your company earn high returns on capital?
• Does it use leverage?
• In summary: Is it a high-quality business?
• What are the risks?
• How would you value your employer’s stock? (Write down an explicit intrinsic value)

The company you work for should be the first place you look to begin understanding how to perform scuttlebutt. Investors should analyze their employer's stock as a potential investment candidate. Culture, Quality, and Management are key areas.