The Truth About Investing: How to Build Real Wealth in the Market

Alright, guys, this might be the most important investing article you ever read. I've spent 28 years analyzing businesses, buying stocks, investing in real estate, and learning the hard lessons so you don’t have to. And today, I’m giving it all to you for free.

If you can’t stay focused for a few minutes to read this, I’ve got news for you—you’re not going to make it. Real investing isn’t about hype; it’s about understanding businesses and making smart, calculated decisions.

This isn’t a get-rich-quick scheme. This is how you get freaking rich in the long run.

The Emotional Side of Investing

If you’ve followed this channel, you know we don’t take profound views on the world of stocks. Why? Because 90% of investing is emotion.

Can you handle your emotions? Can you stay in for the long haul? Can you hold onto a company when the world is telling you you’re wrong? That’s what makes investing difficult.

Warren Buffett always says: You don’t need a high IQ to be a great investor. If that were true, every MIT and Harvard grad would have the best returns—and they don’t. In fact, one of the biggest financial disasters of all time, Long-Term Capital Management, was run by a team of MIT grads.

Early on, I thought investing was 90% numbers and 10% emotion. Now I know it’s the opposite. It’s 90% emotion and 10% numbers. The simple ideas need to be burned into your brain.

Principle-Driven Investing

At the heart of successful investing is principle-driven investing. This means understanding a few core truths:

1. Every investment is the present value of all future cash flows. If you invest money today, your return will be based on the cash flow you get along the way.
2. We are investors, not speculators. Investors understand businesses, while speculators just hope prices go up.
3. If we don’t understand it, we don’t invest in it. I don’t invest in commodity-based businesses, banks, or insurance companies because I don’t fully understand them.
4. We don’t let market prices determine if we are right or wrong. The stock market goes up and down daily, but that doesn’t mean the intrinsic value of a company changes as often. Stock prices are a voting machine in the short run and a weighing machine in the long run.
5. A great company can be a terrible investment if you pay the wrong price.

The Stock Market Is a Money Transfer Machine

Warren Buffett and Charlie Munger have a saying: The stock market exists to take money from the impatient and give it to the patient.

Look at Tesla in the last year. It hit a low of $138 per share and a high of $488. You’re telling me a company with $100 billion in revenue rationally changed in value by over 3X in 12 months? Come on.

If you believe that’s rational, stick to ETFs. Nothing I say will help you.

Value Investing Is Just Investing

A lot of people think value investing and growth investing are different. They aren’t.

Every investor’s goal is to buy a dollar for less than a dollar. The difference is how they define that “dollar.” Growth investors assume future growth will justify today’s high price. Value investors assume a stock’s current price underestimates its future cash flows.

The first line of our Stock Analyzer Tool is revenue growth. Growth is a key component of value. If someone says value and growth investing are different, run. Punch them in the face (figuratively), and get away.

Understanding Business Fundamentals

A stock is ownership in a business. Your goal as an investor is to buy businesses that will do well over time.

Take Intel (INTC) as an example. In 2000, it hit $75 per share. Today, 25 years later, it's still under $22 per share.

Back then, Intel did $33 billion in revenue. Today, it does $55 billion. They’ve bought back over a third of their shares, yet their stock price has gone nowhere. Why? Because in the short run, stocks are a voting machine.

In the long run, they are a weighing machine.

How to Analyze a Business

When looking at a stock, you need to analyze its financials:

• Income Statement – Look at revenue, profit margins, and net income.
• Balance Sheet – Check their assets, liabilities, and cash.
• Cash Flow Statement – Free cash flow is the lifeblood of a business.
• Return on Invested Capital (ROIC) – High ROIC businesses can reinvest at high returns.

Take Apple (AAPL). Their return on capital is 48% over the last five years and 58% last year. That’s insane. But can they reinvest $100 billion in free cash flow every year at those returns? No. That’s why they buy back shares.

Stock Analyzer Tool – The Key to Valuation

Valuation is the key to investing. Our Stock Analyzer Tool lets you input revenue growth, profit margins, and multiples to determine intrinsic value. You need a margin of safety because:

1. We are human and make mistakes.
2. The future is unknown.

If you don’t know an industry well, increase your margin of safety.

The Power of Long-Term Thinking

Most people think one year is long-term. It’s not. Think in decades.

Ask yourself three questions before buying a stock:

1. Will this company be around in 10, 20, or 30 years?
2. Will their revenue, profit, and cash flow be higher than today?
3. Can I pay a reasonable price today to get an adequate return?

If the answer is yes, buy and hold.

The Emotional Side of Investing

The hardest part of investing isn’t numbers—it’s emotion.

In 2011-2012, I bought Microsoft (MSFT) at $17-21 per share. A tech CEO told me Microsoft could go out of business in two seconds. I knew he was wrong. Microsoft went to $60, and I sold it, thinking it was overpriced.

Today, it's worth $250+. I missed out on an 8X return because I lacked patience.

Another great example is Sprouts Farmers Market (SFM). I bought it in the low $30s; today, it’s $166. I didn’t even know until recently. I don’t care about short-term stock prices.

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