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Financial Frameworks addresses the question "What is a wide moat stock?" in the first of a two-podcast discussion by providing an overview of how professionals define moat stocks - with a particular nod to Warren Buffett. And by taking a concrete and practical approach to the matter by looking at one stock in particular - Occidental Petroleum - using criteria outlined in the podcast and by present some professional investment opinions as to whether it qualifies or not. Guess what? There is considerable disagreement. The significant stake that Berkshire Hathaway has in Occidental (34% at this writing) is evidence that Berkshire is looking at Occidental in that light.
The discussion around Occidental makes it an excellent learning example because it is not a cut and dried proposition like a Coca Cola or Google. As Financial Frameworks always does, there are questions for listeners to answer. And all sources cited will be posted on Financial Frameworks website, https://finframeworks.com.
The next podcast will look at selecting moat stocks from the other end of the telescope by investigating how we - you and I - employ our investing skills in searching for moat stocks and counteract our biases to best analyze the information presented in this podcast. The next podcast will draw heavily from Daniel Kahneman and the late Charlie Munger. Who is currently being greatly missed at today's Berkshire Hathaway annual meeting. The reason for combining an examination of how you and I use our intuition to find and sort data with the objective information itself is my belief that both engines of our brains need to work together in order to succeed. Just having the data without examining how we make the "moat stock sausage" is only half of the process. Avoiding biases, counteracting impulses and selecting moat stocks in a disciplined process requires discipline as well as valuable information. I think you will enjoy both podcasts together.
Thank you for selecting Financial Frameworks as part of your financial education journey.
Mike Lehan
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Financial Frameworks is focused on helping value investors integrate their skills and decision-making styles with solid fundamental financial concepts. This podcast provides a way to determine if an investment is close to meeting a person's criteria for making a solid, possibly exceptional, investment, but must be passed on because, while it is close, something is missing. Dr. Lehan, the author, is mindful of Warren Buffett's and the late Charlie Munger's admonition that "saying no most of the time" is a perquisite for excellent value investing.
The podcast walks through an example, then outlines the steps for listeners to walk through their own "mini-simulation" for applying one Buffett tool and two Philip Fisher tools to a prospective investment to see if it fits or is a near miss.
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Financial Frameworks has been discussing what Dr. Lehan sees as difficult tasks when performing value investing. This podcast outlines his third hardest task, committing to the decision in a way that is self-aware, rational and available for review and future learning. Dr. Lehan points out Daniel Kahneman's research that proves that we don't always remember things correctly. Like other Financial Frameworks podcasts, Dr. Lehan focuses on things to do to make the clearest possible decision and learn for better decisions in the future.
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"How do I know that I am making the right decision?" Financial Frameworks continues its highlights of Dr. Lehan's most difficult tasks by presenting research and suggestions on how to answer that question when making an investment. This podcst focuses on behavioral finance research that has shed light on how a person learns to trust their judgement and avoid overconfidence when information is conflicting, or absent, or, as is often the case, just plain confusing. Financial Frameworks' purpose is to help investors create frameworks that are durable, thorough and solid. This podcast describes common errors in decision-making processes and outlines PROSPECT THEORY research done by Daniel Kahneman and Amos Tversky that illuminates how our brain makes connections that aren't really there and how to avoid making those mistakes. What occurs when we are making decisions about money is not complicated, but is a process that most of us are unaware of - if we didn't know what to look for. Financial Frameworks job is to make the connections from the abstract, conceptual level to the point of action. This podcast does that - or at least begins to - regarding why and how to trust our judgements when investing.
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Financial Frameworks is now focusing on two topics: Value investing and how we learn about investing - for the purpose of getting better at it. This podcast outlines Dr. Lehan's "Four Hardest Value Investing Tasks" - for him anyway, and then discusses his first hard task - insuring a margin of safety in an investment. After a brief tribute to Charlie Munger - who definitely believed in margin of safety - Dr. Lehan outlines his three basic criteria, then presents three examples of different techniques that are widely, and successfully, used. This is followed by a problem - the learning portion of the podcast - to apply the concepts to their own investing thinking.
The examples are Benjamin Graham's Net-Net approach, Dr. Bruce Greenwald's three-step valuation approach and a review of the principles applied by The Baupost Group, run by Seth Klarman. Dr. Lehan presents his assessment of Berkshire Hathaway's margin of safety using his three criteria and provides a blank template on his website - https://finframeworks.com .
The podcast alternates between clear, basic, concepts for investors new to value investing and a detailed overview of Dr. Greenwald's thought for more experienced investors interested in refining their thinking.
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Financial Frameworks is narrowing its focus to cover two topics - one of which Dr. Lehan sees as not well covered on the Internet - how to learn better - and the second, the core of Financial Frameworks work, value investing. Dr. Lehan believes that most of us would be more successful by applying learning techniques that have been developed in the recent past. This podcast provides value investing content and a problem to solve that are designed to test the learning skills covered in this podcast (Active Listening tools) and increase a person's experience in applying them to a value investing exercise.
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Financial Frameworks presents fundamental financial concepts in a practical, applied format and has been focusing on value invest both for its own sake and as a solid way to learn about broader applied and behavioral finance.
This podcast outlines Professor Bruce Greenwald, Directo of Columbia University's Heilbrunn Graham & Dodd Value Investing Center, approach to estimating and calculating the potential growth of an investment/stock. The goal of his method is to find an undervalued stock that will produce long term gains, similar to Warren Buffett's experience with Coca Cola.
Dr. Lehan outlines the central calculations in Greenwald's method and provides key concepts Greenwald uses in making informed judgements about a stock and its industry.
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Financial Frameworks continues looking for ways to apply margin of safety when selecting investments by looking at Professor Bruce Greenwald's approach to value investing. Prof. Greenwald divides a company into three parts for valuation. He measures assets first, then current earnings and finally makes future growth estimeates separately. Today's podcast outlines Prof. Greenwald's thinking, the underlying logic and changes in markets that guide his thinking and suggests how you can apply his method. Because his future growth estimates is so interesting, and more detailed than Discounted Cash Flow projections - which we discussed earlier - I will spend the next podcast on the hows, and what I think are the why's of Prof. Greenwald process for estimating future growth a company's future growth. The context for my analysis is to build a margin of safety into investing. I may be being repetitive in reminding you of the context, but I don't think emphasizing margin of safety can be done often enough.
Additionally, in response to listener comments, the podcast considers why most people look at savings accounts and investing as different activities - more like a fork in the road than as different stores on the Main Street of investing - and why we shouldn't. That topic brings me to a review of our loss aversion bias as the podcast's final topic. Financial Frameworks focuses on being clear about our decisions and understanding our values. This discussion is part of that process.
As always, if you find this useful, please mention it to a colleague.
Mike Lehan
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Margin of safety is an important concept, but how do I apply it in practical terms. This podcast shows how value investors like Warren Buffett use Owner's Earnings and the Discounted Cash Flow method to invest. Fancy terms but basic math and sensible thinking. I think you'll find the description of both methods clear and helpful.
Financial Frameworks' previous podcast focused on linking your overall investment strategy with two techniques for estimating future stock values or prices. Because Financial Frameworks believes in balancing future growth with safety, I’m following that podcast with one that focuses on translating the concept of margin of safety to a set of calculations that you can pair with the earnings tools to fit your overall investing strategy.
Today we’’ll discuss margin of safety basics, contexts, then, using Berkshire Hathaway as an example, do a margin of safety calculation using Owner’s Earnings and the Discounted Cash Flow model. We’ll also talk about current market issues and, as always, present you with your usual problem for you to apply the tools to your situation. -
Dr. Lehan suggests that the best starting point, and long-term perspective is by building your investing skills on what you already know. How does a person do that? There have to be right ways and wrong ways. How do I translate my general knowledge of business into focused inquiries that accurately assess the value of a company and its stock? Dr. Lehan outlines the steps for one value investing approach to estimate a company's potential and future value. He also introduces margin of safety - a critical value investing principle - for a more lengthy review in the next podcast. The final topic is why strategy is critical, along with plans. As always, the podcast concludes with practical questions for listeners to answer and compare with Dr. Lehan's subsequent answers to the same questions.
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Successful investing is an interdisciplinary process that starts with what you know; using that knowledge to create good questions to build a durable framework to hold onto your money. Today's podcast examines multiple threads that run throughout Financial Frameworks' podcasts - building on what you know, value investing tips, beginning of March market observations and ESG developments that are unfolding.
Pulling the threads together to create a strong tapestry is what makes successful investing work for individual investors. Peter Lynch has repeatedly said that an individual investor has advantages over institutional money managers, but you and I have to use those advantages. That is the focus of today's podcast.
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Environmental, Societal and Governance (ESG) business practices are increasingly an important part of many investors criteria for buying stock. Dr. Lehan looks at four alternative methods to assess ESG, reviews their details in this and three previous podcasts, then recommends a vetting method that does not require a lot of time while being comprehensive. This, and previous podcasts focus on the greenhouse gas element of ESG for simplicity and time sake. This same process could be applied to other ESG issues.
Dr. Lehan believes that some ESG metrics will grow and become stronger in this developing field, while others will fade and not be used over time. Understanding what and how to measure should be insightful in selecting successful investments. This podcast is intended to assist in that process.
This podcast provides a perspective regarding the development of the ESG arena that investors should keep in mind while focusing on their purposes and their particular investment strengths while the specifics, intent, and application of ESG criteria evolve in the coming years. It is sort of keeping track of the buoys, cans and other channel markers on our ESG investing voyage.
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Financial Frameworks Podcast 25 looks at four ways to measure ESG performance by a company you might want to invest it. Dr. Lehan starts at a high level with the United Nations Principles for Responsible Investing and finishes with the concrete metrics of Key Performance Indicators. The review of these four different approaches will lead to tools to evaluate the ESG information you get in a way that you can use them with individual investments. After all, if you can't use something, what good is it?
Value investors balance safety and growth and now ESG factors come into the equation. How to measure ESG performance? Who is doing the measuring and what do the indices mean? Dr. Lehan reviews four methods so that we understand different approaches before applying them.
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ESG investing is growing and with that growth and interest comes competing concepts of what Environmental, Societal and Governance standards are. Dr. Lehan explores way to commit to ESG with minimal research by an individual investor and examines assumptions and different metrics, and their basis, for investors who want a more detailed understanding. A more detailed understanding is helpful to those building a lifetime investing financial framework for themselves. This podcast is number 3 in a 6 part series as Dr. Lehan applies his framework building tools to assist interested investors in building metrics that mesh with their values while incorporating financial and business standards.
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Financial Frameworks Podcast 23 continues last week's discussion of ESG investing as a way to hold onto your money. This podcast examines two companies - one and ESG (Environmental, Societal, Governance) company by virtue of the way it does business - Microsoft and a second company that produces an environmental improvement product and service, renewable energy. That company is Next Era Energy. Dr. Lehan, using a drill down method uses these two companies as models for listeners to develop their own templates. Both companies are making significant efforts, provide investors with a lot of high quality information and also generate opinions about their efforts - more information for investors to put into their mental grist mills when considering alternative ESG investments. In short, in addition to be being solid companies, they are excellent teaching tools.
Dr. Lehan offers his own criteria for investment safety, growth and ESG evaluation in a way that listeners can build on those tools. Finally, questions and tasks are presented to listeners as next steps in their investment and savings education process.
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This podcast is part of a series about holding onto your money through savings accounts, CDs and investments. This podcast focuses on ESG investing. Dr. Lehan provides listeners with different definitions of ESG investing that should help a listener sort through the wheat and the chaff. Examples, a demonstration of how to research ESG and finally Dr. Lehan outlines a couple of tasks for listeners to undertake in order to make ESG investing their own.
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Saving money is not easy. Holding onto those savings is important work and requires attention. We've looked at issues in using stocks and bonds for savings and this episode considers certificates of deposit and savings account. As always, I look at how we think about matching our values with financial plans and included a question or problem or two for listeners' consideration. References for further exploration are included.
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Setting money aside to create savings is difficult and challenging work. Inflation makes it harder. Let's say that you are doing that, now where are the savings stored so that you hang on to them for the long-term - whether that is 2 years or 20 years? This podcast finishes setting the context - all the information you receive and how you think about saving - and outlines two strategies. One from game theory and one from Peter Lynch. Both balance safety and growth. Both address your thinking and focus on stocks and bonds as the vehicles. The strategies are summary level, and that is ideal for you to explore the aspects of the strategies that are most important to you. The podcast contains questions for you and additional resources. The next podcast will move onto savings accounts and CDs.
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This podcast is the first of three that, reviews stocks and bonds as places for savings in terms of balancing safety and growth. The podcast asks listeners to examine how they handle financial information - especially conflicting and uncomfortable data.
The podcast provides filters and tasks for a listener's self-assessment and sets the stage for the next podcast in which I'll suggest how to make safety and growth measurable - within a person's financial framework - before outlining two strategies to do it. The goal here is for a person to be clear about their decisions, continue to learn and build at the same time, during this savings challenged inflationary time, and to hold onto their savings despite the current market volatility and cost inflation headwinds that we all face.
There will be a third podcast that applies the same framework to other savings vehicles including savings accounts and CDs.
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Financial Frameworks is about building financial decision making skills and habits. This podcast outlines why saving money is hard and provides some practical - as well as theoretical - insights in how to make it happen. The podcast doesn't assume an income level but focuses on the mental and actual process of turning this goal into a set of repeating actions that help create a solid financial future. Problems and resources are included in the podcast.
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