Mental Models discussed in this podcast:
- Investing
- Speculation
- Gambling
- Margin of Safety
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Show Outline
Definition of an Investment
An investment meets all 5 conditions:
- Utilizes a Margin of Safety
- Provides an Adequate Return (>10% for me)
- The 10% hurdle is met solely on a fundamental cash flow basis
- Is a Positive-Sum Game
- Bounded by a specific range of prices and terms
Any investment operation that fails to meet all five conditions is either speculation or gambling.
Gambling is both a negative-sum game or an operation with a negative expected value.
References
- Based on this Twitter Thread I made:
- Which was a rebuttal of this thread by @10kdiver:
- Previous Podcast Episodes cited:
- Episode 30 – GameStop Post-Mortem
- Episode 95 – How to build conviction (FAQ)
- Good source of discussion on Margin of Safety
- Episode 23 – What’s a good discount rate?
- Episode 31 – Buying Stocks is not a zero-sum game
- Episode 32 – Shorting Stocks is a negative-sum game
