IN THIS EPISODE, YOU’LL LEARN:

• An overview of the three financial statements.
• What GAAP accounting is and why the US is a good environment for investors from a regulatory perspective.
• Why Brian prefers that companies pay employees in cash rather than through stock based compensation.
• Why each dollar should be treated differently when analyzing different businesses.
• The role of financial statements in estimating a company’s intrinsic value.
• Why the P/E ratio is a useless valuation metric for growth businesses.
• Why Brian prioritizes optionality in his investment process.
• Red flags to look out for in the financial statements.
• What David Gardner taught Brian about investing.
• Why good investing is all about marrying the right side of your brain with the left side of your brain.
• And so much more!

TRANSCRIPT

Disclaimer: The transcript that follows has been generated using artificial intelligence. We strive to be as accurate as possible, but minor errors and slightly off timestamps may be present due to platform differences.

[00:00:00] Clay Finck: On today’s episode, I welcome back longtime guest, Brian Feroldi, to educate our listeners on how to analyze financial statements. Brian Feroldi is the founder of Long-Term Mindset, which creates educational content that can help anyone better understand how the stock market works.

[00:00:15] Clay Finck: His newsletter has over 100,000 readers, and he’s one of the best at making investing as simple as possible to understand. We cover a lot during this conversation. We give an overview of the three financial statements, what GAAP accounting is, and why the US is a good environment for investors from a regulatory perspective.

[00:00:33] Clay Finck: Why Brian prefers that company’s pay employees in cash rather than through stock-based compensation. The role of financial statements in estimating a company’s intrinsic value, why the PE ratio is a useless valuation metric for most growth businesses. Why Brian prioritizes optionality in his investment process.

[00:00:50] Clay Finck: Red flags to look out for in the financial statements. Why good investing is all about marrying the right side of your brain with the left side of your brain and so much more. It’s always a treat to bring Brian on the show. So with that, I really hope you enjoy our conversation.

[00:01:07] Intro: Since 2014, and through more than 180 million downloads, we’ve studied the financial markets and read the books that influenced self-made billionaires the most. We keep you informed and prepared for the unexpected. Now for your host, Clay Finck.

[00:01:31] Clay Finck: Welcome to The Investor’s Podcast. I’m your host, Clay Finck, and today we welcome back longtime guest, Brian Feroldi. Brian, so great to have you back.

[00:01:39] Brian Feroldi: Clay, awesome to be back. Thank you for the invite.

[00:01:42] Clay Finck: I’ve long wanted to do an episode touching on accounting and financial statements, but as you know, it can be so difficult to do just in a podcast format, so I thought there’s no better person to bring onto the show to explain these concepts as simply as possible.

[00:01:58] Clay Finck: So to kick us off, how about we just start with talking about the role that analyzing financial statements plays in your investing process.

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BOOKS AND RESOURCES

• Join Clay and a select group of passionate value investors for a retreat in Big Sky, Montana. Learn more ⁠⁠⁠here⁠⁠⁠.
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• Check out more financial statement visuals ⁠here⁠.
• Check out ⁠Long-Term Mindset⁠.
• Related Episode: ⁠TIP437: Why does the Stock Market Go Up? w/ Brian Feroldi⁠.
• Follow Brian on ⁠LinkedIn⁠ & ⁠X⁠.
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