105 - Investing vs Speculation vs Gambling

Mental Models discussed in this podcast:

• Investing
• Speculation
• Gambling

Please review and rate the podcast

If you enjoyed this podcast and found it helpful, please consider leaving me a rating and review. Your feedback helps me to improve the podcast and grow the show's audience.

Follow me on Twitter and YouTube

Twitter Handle: @TreyHenninger

YouTube Channel: DIY Investing

Support the Podcast on Patreon

This is a podcast supported by listeners like you. If you'd like to support this podcast and help me to continue creating great investing content, please consider becoming a Patron at DIYInvesting.org/Patron.

Show Outline

The full show notes for this episode are available at https://www.diyinvesting.org/Episode105

Definition of an Investment

An investment meets all 5 conditions:

1. Utilizes a Margin of Safety
2. Provides an Adequate Return (>10% for me)
3. The 10% hurdle is met solely on a fundamental cash flow basis
4. Is a Positive-Sum Game
5. 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:
  • https://twitter.com/TreyHenninger/status/1336004138061209604?s=20
• Which was a rebuttal of this thread by @10kdiver:
  • https://twitter.com/10kdiver/status/1335267196625244162?s=20
• 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