Each week you'll learn how to be a better dividend investor and follow the journey of a welder with a passion for passive income to $1,000,000 and beyond.
When I'm welding, setting the perfect amperage is critical. Too high, and I'll burn straight through the metal. Too low, and the weld won't penetrate properly and could fail. Finding that sweet spot between too much and too little precision makes all the difference.
It turns out that investing is similar.
When Precision Becomes a Problem
Curtis Jensen, who used to run billions at Third Avenue Management, nailed it when he said: "DCF is sort of like the Hubble Telescope—you turn it a fraction of an inch, and you're in a different galaxy."
That fancy formula so many investors love - Discounted Cash Flow (DCF) - claims to tell us exactly what a stock is worth. Change one tiny assumption, though, and your target price shoots from $20 to $180. Just like cranking my Miller Bobcat welder too high, too much precision can destroy value instead of creating it.
The Blockbuster Blindspot
Do you remember Blockbuster Video? I do. All the best movies and games are checked out on Friday nights, late fees flow like water, and revenue climbs every quarter. Many investors run their DCF models, projecting those profits years into the future.
The terminal value in their calculations? Massive.
The actual terminal value? Zero.
At Blockbuster's peak, no DCF model had a line item for "Netflix invents streaming." No spreadsheet predicted that people would love no more trips to the video store to battle for rentals.
What Really Drives Value
Instead of getting lost in decimal points and predicting the future, I focus on:
Is this company growing?
Do they have pricing power?
Are they buying back shares?
Will they be bigger and more profitable in 5-10 years?
Take Visa (V) or Costco (COST). I don't need complex math to know people will still use credit cards and buy bulk toilet paper in 2030.
It's a matter of supply and demand that drives stock prices, not DCF models. If there are more buyers than sellers, the price will increase. It's as simple as that.
DCA: The Silent Wealth Builder
While analysts and investors debate their DCF models down to the penny, most real wealth gets built through simple Dollar Cost Averaging (DCA) in retirement accounts like 401(k)s.
That automatic investment from every paycheck? It never asked for your opinion on future cash flows or terminal growth rates. It keeps buying through booms and busts, letting time compound your money.
Talk to Me!
Do you get intimidated like I do by complex investing math and future predictions?
What companies do you think will be obvious winners in 10 years?
Are you using DCA in your investing?
Hit reply - you know I read every response!
Keep it steady out there, ~Russ
P.S. If you know someone who might enjoy stepping off the DCF hamster wheel, share this newsletter with them. We're all in this together!
😁THANK YOU to everyone who responded to the last newsletter!!
The highlight of this podcast from Motley Fool Money was a 2002 interview with the one and only Mr. Rogers. A huge part of most of our childhoods, it was fantastic to hear Mr. Rogers talk a little about money and life. The interview starts at 20:14.
🎦In case you missed it, Big News from Realty Income (O)!
Click the image above, sign up for a 7-day free trial, and get $30 off!
*This is an affiliate offer, and I will receive a small commission at no additional cost when you buy a premium annual subscription after clicking the image above.
Special offer: $30 off Premium for the first year. At the end of the free trial (or immediately if you are no longer eligible for a free trial), $269 is charged automatically for the first year of your annual subscription. Auto-renews at the then current annual list price (current list price is $299).
Each week you'll learn how to be a better dividend investor and follow the journey of a welder with a passion for passive income to $1,000,000 and beyond.
Here's your weekly helping of interesting investing information and insights. Opinion "All the best games are easy to learn and difficult to master." — Nolan Bushnell, founder of Atari Around 1991, I was hooked on a SEGA game called Shining in the Darkness, a dungeon crawler. The concept was simple — go in, fight monsters, find your way out. But getting to the next level? That was a whole different story. I drew maps by hand so I wouldn't get lost making the same wrong turns twice. I compared...
Here's your weekly helping of interesting investing information and insights. Opinion If you'd like to support this creator and interact with some of your favorite investing community members like Ryne Williams, Ian Lopuch and Joseph Hogue AND get notified when trades happen, check out the Blossom app for FREE... and if it sucks, just delete it and pretend the whole thing never happened. It really is the only place outside of YouTube that I interact on, and I think you might like it too....
Here's your weekly helping of interesting investing information and insights. Opinion Have you ever sold a stock for all the right reasons and then watched it just... keep going up? I have. Once or twenty-two times. Here's something worth thinking about — and this goes for life as much as investing: stop beating yourself up for not knowing the future. Because you couldn't have known. When I sold Lockheed Martin (LMT) and Nexstar Media (NXST), I didn't know about the geopolitical drama or the...
