Stig Brodersen, host of The Investors Podcast, joins Doug on this episode to discuss exactly what gives a stock its value. Many times people are shocked by an expert’s valuation of a home, a car, or other personal item. The reason behind the surprise of a professional evaluation is because folks’ emotional attachment to items tend to inflate their value. Follow Stig and Doug’s discussion to learn why stocks value reflect investor expectations.
Stig offers guidance about how to take the emotional component out of stock and investment selection. He also explains why a stock’s value increases/decreases and why people are willing to pay more when a money manager is involved.
Are you ready to retire early?
Doug discusses early retirement. Even if you want to retire early, should you? And if so, what do you need to do to make sure you have enough money? He answers the last question with two suggestions to change your investing habits in order to maximize chances of financial success.
You can follow Stig Brodersen at The Investors Podcast and on twitter at @stig_brodersen
Watch How Do You Value a Stock? on YouTube.Read the Transcript
Interview With Stig Brodersen
Stig Brodersen, author and host of The Investors Podcast, shares his thoughts on investing and stock valuation.
Douglas Goldstein: I’m very happy to be talking with Stig Brodersen, who is the host of one of the top podcasts on iTunes called The Investors Podcast. Stig, how are you doing today?
Stig Brodersen: I’m great, Doug. Thanks for inviting me.
Douglas Goldstein: You talk a lot about stock investing. In fact you often talk about “stock investing 101,” which I think a lot of people sort of overlook.
They think, “I invest in stocks,” but they don’t get how complicated it is. Is it complicated for people to make money investing in stocks?
How Complicated Is It to Invest in Stocks?
Stig Brodersen: No. I don’t think it’s complicated but it’s definitely time consuming, and I think that’s probably one of the problems that we are facing as investors.
How much resource do we need to put into our stock research? That really surprises a lot of people.
Douglas Goldstein: What is the answer? How much resource do you have to put in?
Stig Brodersen: I’m glad you asked. Think about it like this first. Think about how long it takes for you to save enough money to start investing in stocks in the first place. Think about how much time it takes to find a stock.
For most people, whenever they find the stock, they say, “I go to Starbucks every day. I really like the coffee. I will go buy Starbuck stock.”
That might seem like a reasonable approach for most people, and I suggest that you invest in goods and services that you like.
Say that you want to buy a house. You would probably like to know how many square feet the house is, how many rooms, the location, a lot of different things. Whenever it comes to stock investing, it seems to be, “Well, we don’t need to know all the details. I think the stock price will go up.”
It’s important to separate the two because the key question is, how much is it worth? Doug, you probably wouldn’t buy your home if it was 10 times as expensive as it really was. No, because you’re thinking about the valuation, and it’s the same with stocks.
Douglas Goldstein: Here’s the problem with valuation. My siblings and I, and my mother are dealing with selling the house that my parents owned for about 50 years. We met with a few agents and interestingly, all the agents gave a certain price which they said the house was worth.
My siblings and I all thought it was worth about 20% more. We were laughing because that’s what we wa