Take 23 - Random Investing Notes
A collection of insightful investment pieces to broaden and elevate the investing mindset. Includes: 1) DIY Investing: Is It Right for You?, 2) Margin of Safety, and 3) Value of Currency.
Should You Manage Your Own Stock Portfolio?
Active stock picking may seem appealing, but it’s not a one-size-fits-all strategy. The process demands significant time, emotional resilience, and a commitment to ongoing learning. True success lies in choosing an investing approach that complements your personality, lifestyle, and tolerance for complexity.
Challenges of Managing Your Own Portfolio
⏳ Time Commitment: Requires hours of research, monitoring, and analysis.
😰 Emotional Discipline: Markets fluctuate; impulsive decisions can hurt returns.
📚 Research Burden: Continuous learning is essential; curiosity is a must.
📈 Information Overload: Too much data can lead to analysis paralysis.
🔄 Industry Changes: Staying updated is crucial to avoid falling behind.
😤 Discipline vs. Envy: Watching others win big can tempt poor decisions.
🥵 Burnout Risk: Constant vigilance can be exhausting and unsustainable.
Signs You Shouldn’t Manage Your Own Portfolio
Limited time, emotional reactivity, dislike for research, and lack of curiosity.
Prefer simplicity and stability over complexity and volatility.
If You Still Want to Try
Start small and build a repeatable process:
Define your investment universe.
Use filters like free cash flow yield and ROIC.
Understand customer loyalty.
Prewrite sell rules and use a checklist.
Size positions conservatively.
Review on a regular schedule.
Investing is essential—but it doesn’t have to be complicated. The key is knowing yourself and choosing a strategy that fits your temperament. For most, a simple approach like low-cost index funds with automated contributions can build wealth steadily without the stress. Let investing work for you, not weigh you down.
Margin of Safety
The margin of safety is a core principle in value investing that acts as a protective buffer between an asset’s intrinsic value and its market price.
🧠 What It Means
It’s the difference between what something is truly worth (based on fundamentals) and what you pay for it.
The bigger the margin, the more room you have for error—whether that’s misjudging the company’s future, unexpected market shifts, or economic downturns.
📉 Why It Matters
It helps investors minimize downside risk.
Even if things go wrong, the investment is less likely to result in a loss because it was bought at a discount.
It’s especially useful during volatile or uncertain market conditions.
📊 Example
Let’s say you estimate a stock’s intrinsic value is $100, but it’s trading at $70:
Your margin of safety is 30%.
If your valuation was off or the company underperforms, you still have a cushion before your investment turns negative.
🧮 How It’s Calculated
There’s no single formula, but common methods include:
Discounted Cash Flow (DCF) analysis
Comparing valuation multiples (like P/E or EV/EBITDA)
Liquidation value estimates
🧙♂️ Who Uses It
Popularized by Benjamin Graham, widely regarded as the father of value investing. He introduced it in his 1949 book The Intelligent Investor as a way to protect investors from errors in judgment and market volatility.
Warren Buffett, Graham’s student, later called it the cornerstone of investment success and made it central to his own investing philosophy.
Used by value investors who prioritize long-term stability over short-term gains.
Refer to my Valuations section where I analyze several stocks in my portfolio.
What Currency Teaches Us About Value
For value-oriented investors and long-term portfolio builders, understanding how money evolves isn’t just trivia—it’s a lens into how wealth is preserved (or eroded) over time.
💸 The Silver Quarter Thought Experiment
Back in the early 1960s, U.S. quarters were made of 90% silver. If someone earned $5,000 between 1960–1964 and was paid entirely in quarters, they’d have 80,000 coins. At today’s melt value of $8.91 per quarter, that stash would be worth $712,800. To hit $1 million, they’d need 112,360 silver quarters—just over $7,000/year in earnings back then, or about $73,623/year in today’s dollars.
This isn’t just a fun hypothetical—it’s a stark reminder of how currency debasement quietly chips away at purchasing power.
🏛️ Why the Switch to Copper?
The Coinage Act of 1965, signed by President Lyndon B. Johnson, removed silver from quarters and dimes. Why? Because silver prices were rising, and people were hoarding coins for their melt value. To keep coins circulating, the U.S. switched to cupronickel-clad copper, a cheaper alternative that looked similar but lacked intrinsic value.
Johnson insisted this wouldn’t devalue the dollar. Nixon echoed that sentiment when he severed the final link to gold. But history tells a different story: disconnecting currency from tangible assets leads to depreciation.
🍁 Canada’s Penny Exit—and What’s Next?
Canada followed a similar logic when it retired the penny in 2013. It cost 1.6 cents to produce a 1-cent coin, and inflation had rendered it useless. Rounding rules were introduced for cash transactions, while electronic payments remained exact.
Now, the nickel is under scrutiny. It has minimal purchasing power, rising production costs, and declining relevance in a cashless economy. While the dime still holds some utility, the nickel may be next on the chopping block.
💵 Minimum Wage vs. Inflation: A Parallel Lesson
Just as coins lost their metal value, wages have lost their real value. Minimum wage increases often lag behind inflation due to political gridlock and economic priorities. In Canada, real wages dropped nearly 5% between 2020 and 2022, even as living costs soared.
For dividend investors and portfolio builders, this reinforces the importance of owning assets that appreciate over time—like equities, real estate, or precious metals.
🧠 Investor Takeaways
Currency isn’t static—governments change its composition to manage costs and circulation.
Real value matters—whether it’s silver in a coin or purchasing power in your paycheck.
Invest in tangibles—stocks with dividends, hard assets, and inflation-resistant instruments.
Watch policy shifts—they often signal deeper economic trends that impact long-term wealth.
If you’re building a portfolio for the next decade, not just the next quarter, these lessons are worth more than a pocketful of change.
Past Editions
Includes: 1) Real Interest Rates, 2) Stagflation, and 3) Mindset of a Long-Term Investor.
Includes: 1) Yield Curve Steepener, 2) Stock Checklist - Part 2, and 3) Recurring Revenues.
Includes: 1) Buy-Hold Strategy, 2) REITs - FFO and AFFO, and 3) Stan Druckenmiller’s Investing Approach.
Includes: 1) Stock-Based Compensation, 2) Loyal Monopolies, and 3) Interest Rate Cuts.
Includes: 1) Norway’s Sovereign Wealth Fund, 2) Macro Against Sectors, and 3) Long-Term Focus.
