Mark Zuckerberg  1:18  

One of the hardest parts for me was actually when Yahoo offered to buy the company for a lot of money because up until that point, that was the turning point in the company. Before that, every day we just come in and kind of do what we thought was the right next thing to do. 

We opened operations in more schools. We opened beyond schools and launched more photos, because that’s what it seemed like the next thing that we needed to do to help people express themselves and understand more what was going on around them. 

Then, Yahoo came in with this really meaningful offer, a billion dollars. We had ten million people using the product at the time. It wasn’t as if it were obvious that we were going to succeed far beyond that. 

That was the first point where we really had to look at the future and say, “Wow, is what we’re going to build going to actually be so much more meaningful for this?” That caused a lot of interesting conversations in the company and with our investors. 

At the end of that, Dustin and I just decided, “No, we think that we can actually go connect more than just ten million people who are in schools. We can go beyond that and have this really be a successful thing.” 

Then, we just had to go for it. However, it was really stressful, because a lot of people really thought that we should sell the company. For a lot of the folks who joined early on, they weren’t really aligned with me. For me, they joined and being able to sell a company for a billion dollars after a couple years, that was like a home run. It is a home run and I get that. 

I think that the fact that I didn’t communicate very well about what we were trying to do caused this huge tension. The part that was painful wasn’t turning down the offer. It was the fact that after that, a huge amount of the company quit because I didn’t believe in what we were doing.

Preston Pysh  2:55  

This is a really interesting exchange and while he was he was saying that, I kept thinking to myself, “What would you have done in that situation?”

Immediately, I guess my first intuition was I would have definitely sold the company, but then I thought a little bit more about what the metrics would have looked like that he was seeing. 

That’s the thing about this kind of business is he can see everything in the numbers, right? It’s all coming out. He can see the number of signups. He can see the dwell time on the site. He can see all of that stuff, but it’s a really interesting exchange.

I’m curious to hear your thoughts, Stig.

Stig Brodersen :28  

Facebook was founded back in February 2004 and Yahoo was not the first suitors, not the first of the string of suitors. Google and MySpace for those of us who remember that, the Washington Post, there had been so many huge companies who were rumored to want to take over Facebook at the time. Probably the most talked about that was Yahoo’s offer in June 2006. 

If you look at some of the numbers, around ten million users, that’s a lot after just a little more than two years. They had around $20 million in revenue at the time. I mean, on the metrics basis, obviously, this was outrageous. Many people would say so. 

It was a very interesting discussion I think he had with himself. At this point in time Mark Zuckerberg was 22 years old. Think about saying no to that much money when you were that age. Perhaps that’s also one of the reasons why he did say no. If you’re 22, and you already have 10 million uses on your platform, why wouldn’t you just continue? 

I also think there is something to be said about being in the position when someone offers you a billion dollars. If that happens, you probably do not need the money. For him perhaps, one of the things he was getting at was to have a chance to change the world and have a chance to test new things on his platform. You can test a lot more if you’re the owner of Facebook than if you have a billion dollars. At least that I think is what Mark Zuckerberg was thinking at that time. 

I guess from that perspective, it makes sense. It is an interesting thing to consider though that Peter Thiel, one of the first investors in Facebook, tried to tell Mark to sell because for him it was all VC money. I don’t know how many actually he would make on that investment. But yeah, why wouldn’t you say yes?

However, for Zuckerberg, obviously he was more the visionary, not the money behind Facebook. 

Preston Pysh  5:19  

I think a lot of the venture capital investors would have been providing so much pressure on the sale. I don’t know that a lot of them would have been wanting to kind of hang around and see how well 22-year-old Mark Zuckerberg would have done as he grows the business. 

The next question that Mark was asked: “How do you think about making big changes to Facebook’s platform?” This was how he responded.

Mark Zuckerberg  5:43 

I actually think when you do stuff well, you shouldn’t have to do big crazy things. When we started off, we didn’t have anything like Newsfeed that showed you updates from what people were sharing. 

We just had profiles and what we found were originally one of the big behaviors were people just click around. They’d click on different profiles, hundreds of them, and then go through all their friends to see what people changed and to see what the update was and their friends’ day. 

We learned from that, that people were not just interested in looking up and learning about a person, but also understanding the day-to-day changes. So first, we made this product that just showed an order which of your friends and updated their profile, right? That told you whose profile to click on. 

The first version of newsfeed was really simple. All it did was it basically took the content that people were posting, and put it in order on your homepage. 

When things are working well, you use data. You use the qualitative feedback that you’re getting from listening to how your community is using your product to tell you what problems to go solve. Then, you basically use intuition to figure out what the solutions to those problems might be. Afterwards, you test those hypotheses by rolling them out and getting more data and feedback on that. That gives you a sense of where to go. 

We bought the Oculus team for a lot of money. I actually view that as If we’d done a better job of building up some of the expertise to do some of that stuff internally, maybe we wouldn’t have had to do that. Instead, we hadn’t done that.

The Oculus team is by far the most talented team working on that problem. It just made sense to go make this big move, but you can’t be ahead of everything. It’s better to make big moves and be willing to do that, than have pride and not do that and never admit that you could have done something better in the past. 

Then, when stuff is working well, you’re learning incrementally and growing that way.

Stig Brodersen  7:28

For this question, I would really like to talk about Mark Zuckerberg’s process in terms of how he’s thinking about improving his platform. 

First, he would look at his data. That would be the first place for perhaps most business owners of this size. He saw that people clicked around on their friends’ profiles to read status updates. That’s one thing. 

It does not tell you that you should create a newsfeed or not necessarily. It’s more how he’s using his intuition. That’s really the key word here that I would like to talk about: how to use your intuition and then come up with a solution based on that?

Most people come to you with problems or come with you with data. Really, the challenging thing and the way to be competitive today is to provide the solution. That’s really what adds value. 

It’s also one of the most common characteristics we see when we study billionaires in general. When we talk about intuition, perhaps, we can also look at it as a hunch, or something that is really hard to quantify. 

I’ve read this book about this concept of intuition, which itself is a very abstract thing. Apparently only 25% of adult Americans have intuition as the predominant trait, where 75% has the opposite, which is called sensing. 

If you’re a sensing person, you would need to experience the Facebook Newsfeed before you can provide feedback. If you have intuition as your dominant trait, you will come up with this solution. Why don’t we just create a Newsfeed and then start pulling in data? 

I don’t know why we see that with so many of the billionaires. My own thesis is that because they read a lot and they have a good imagination, but it’s just something I really wanted to mention here.

Preston Pysh  9:22  

I really like the discussion around intuition and really kind of subconscious thoughts that kind of drive and help you be creative. There was a book that we covered by Allen Gannett called “The Creative Curve.” This book was fantastic if you’re trying to hone that skill. 

One other book that I would recommend that we have not covered on the show, that’s, in my opinion, one of the best out there for understanding your subconscious. There’s a book called “Deciphering How the Brain Codes our Thoughts.” 

Wow, this book, I had recently read that and would love to cover it on the show, but it just really doesn’t kind of fit our niche. If you’re trying to understand how your subconscious works, that book is fabulous. 

I didn’t have any other follow up comments on that one, so we’ll go on to the next question that Mark was asked. 

This question was, “What are you most excited about over the next coming 20 years?” 

This was his response.

Mark Zuckerberg  10:23  

We have this 10-year roadmap. We’re focused on three things: connectivity, it’s getting everyone in the world on the internet. 

Right now, more than half the world is not on the internet, which is I think a lot of people in Silicon Valley take this for granted. It just is not uniformly available and if we want to solve a lot of the big challenges of the world today, they’re not problems that any one group of people or even one country can solve. They really involve coming together and giving everyone an opportunity to participate in solving them. 

I think connecting everyone is really a key thing, which is going to be great for people around the world. 

The next one is AI. I think that that’s just going to unlock so much potential and so many different domains. We use it at Facebook for a lot of different things for showing people content that they’re going to find more meaningful and for making sure that you connect with the people you actually care about on the service.

In a lot of ways, the work that we’re doing on AI to push the fundamental state of the art forward is exactly the same stuff that’s going into systems that diagnose diseases better, or find better drugs to treat people. Other companies are using AI when they build self-driving cars. These are things that are going to save lives.  

I heard this story recently. There was this conference where someone has built a machine learning application where you can take a picture of a lesion on someone’s skin, and it can detect instantly whether it’s skin cancer with the accuracy of the best dermatologists and doctors in the world. You’re going to be able to put the power in your doctor’s hand to become the best doctor in the world at that thing. Everyone will be the best doctor in the world. That’s a really fundamental thing.

I get a little bit frustrated when people fear monger about AI and how it could end up hurting people, because I think in many real ways around diseases and driving more safely. That’s a really big deal I think for the next 10 years.

The next thing that I always think is going to make a big difference, every 10 or 15 years, there’s a new major computing platform that comes around that allows people to do completely different things than they could do before. 

Twenty years ago, most of us were using desktop computers. They were kind of clunky. We used them in work, because it made our work more productive but most people didn’t use them for fun. 

Now, we have phones, which help us connect with each other and they’re much more human devices. There’s going to be another platform after that. I think that’s going to be virtual reality and augmented reality. That I think is just going to help people be more creative and experience what other people are feeling much more immersive than we even can do with video and things like that today. I’m really excited about that trend as well.

Preston Pysh  12:55  

Some interesting comments. I don’t think anything he said really surprises anybody as far as what he sees being important moving into the future.

There’s something that I want to play here on the show and now that we have an opportunity to talk about AI. I was recently introduced to a video where Google has rolled out a new AI platform. That person can basically interact with their Google Home. I don’t have one of these things but it’s basically Google’s AI service that they’re trying to get people to put into their homes. 

What you can do is you can contact this device, you can say, “Hey, Google Home. Make an appointment for me tonight at eight o’clock to have dinner at whatever restaurant.”

The Google device will say, “Okay, no problem.” 

Then what it actually does is it calls the location and it actually talks to the person, the human on the other end. It has a conversation with that person and then it books the appointment.

What I’m going to do is pull up this audio and we’re going to play it right now on the show. You can hear how insane this is because this is AI that is making this call and I just want people to hear this. This is totally nuts.

Google Speaker  14:12  

As I said earlier, our vision for our system is to help you get things done. What happens is the Google Assistant makes the call seamlessly in the background for you. So what you’re going to hear is the Google Assistant actually calling a real salon to schedule an appointment for you. Let’s listen.

Google Assistant  14:37  

Hi, I’m calling to book a woman’s haircut for a client. I’m looking for something on May 3. 

Salon Assistant  14:43  

Sure, give me one second. What time are you looking for? 

Google Assistant  14:51  

Well, at 12pm.

Salon Assistant  14:54  

We do not have a  12pm available. The closest we have to that is a 1:15. 

Google Assistant  15:01  

Do you have anything between 10am and 12pm? 

Salon Assistant  15:05  

Depending on what service she would like. What service is she looking for? 

Google Assistant  15:09  

Just a woman’s haircut for now. 

Salon Assistant 15:12  

Okay, we have 10 o’clock. 

Google Assistant  15:14  

10am is fine. 

Salon Assistant  15:16  

Okay, what’s her first name? 

Google Assistant  15:18  

The first name is Lisa. 

Salon Assistant 15:20  

Okay, perfect. So I will see Lisa at 10 o’clock on May 3. 

Google Assistant  15:24  

Okay, great. Thanks. 

Salon Assistant  15:25  

Great. Have a great day. Bye.

Preston Pysh  15:32  

I don’t know what’s scarier. The fact that that call took place or the fact that everyone’s cheering after it took place. For me, that’s totally nuts because let’s think about how they arrived at the solution. They’re taking a bunch of data and they’re then plowing this data through a neural network. That’s then coming up with a prediction, right? 

It’s saying, “Hey, I think that this is the way that I should respond based on the data that has been flowed through this model.” Then it’s providing a response and this is all being done through deep neural networks. This stuff is totally nuts.

Stig Brodersen 16:09  

I’m pretty amazed. I mean, that is even possible, especially the mirroring part. 

One of the things that they would say, after this, as we match we make sure that through artificial intelligence we can match. We can have someone if it’s a female then our system where the female. It’s around the same age. They speak the dialect. They will do the same thing. It is absolutely amazing what it can do. 

I absolutely agree with Mark Zuckerberg whenever he talks about AI being typically a good thing. If it’s about cars and about being better at diagnosing diseases, then yes, it is better. 

Now, where I think that AI and machine learning in general is not good, that is when it comes to something like Facebook. That’s actually why I really wanted to play this question, because when Zuckerberg talks about how we use artificial intelligence to get more meaningful content. That’s when I hear targeted ads and algorithms. That is what I’m hearing. That’s not doing a better thing for humanity. 

Preston Pysh  17:12  

Where I think it even comes into more of a concern, Stig, is more just on basic news, because it’s a confirmation bias algorithm is what it really is. 

Tony Robbins told us during the interview that Ray Dalio and him and some others feel that confirmation bias is probably one of the strongest bias influencing people to make poor decisions in financial markets. I think that that would probably likely carry over to almost any type of event in your life. 

When you look at these AI algorithms, pumping people specific news feeds, it has an ability to polarize the public. I think that there’s a real concern there and I don’t know how they necessarily address that. 

However, I think that it’s a concern that a lot of people need to be aware of. I completely agree with you Stig, where AI with respect to social media. I don’t know if that’s a good thing. I don’t know if it’s a good thing at all. It’s a very interesting conversation to have for sure.

Stig Brodersen  18:09  

I think that AI will enable services like Facebook, for… I’m about to say more human misery. I think it’s been documented for quite a while now that the more time you spend on Facebook, the worse you feel about yourself. 

The way that Facebook is built up around this algorithm where you need to… It’s almost like you are pulling in the leverage when the price and that price might be more likes or that fix when someone has responded to your text and you get that notification. 

I think there will come a lot more initiatives like that. What is good for Facebook is that you will spend more time there and you will, through Facebook, also spend more money.

I think from a human welfare perspective, social media and services that are really much tied to you as a person would probably be where AI is exploiting us as consumers the most. 

Interesting enough also where it will help us the most. That was really why I wanted to play this, especially because it was Mark Zuckerberg, the founder of Facebook, who brought it up.

Preston Pysh  19:16  

Alright, so moving on to the next question that Mark was asked. He was asked about his intentions of internet.org and the initiatives that aim to bring affordable internet access to less developed countries. This was his response.

Mark Zuckerberg 19:30

For those of you guys who haven’t heard of internet.org, and what we’re doing here, we have this whole effort where we’re trying to help everyone in the world get on the internet. It turns out that the vast majority of people in the world have no access to the internet, right?

Living in the US, especially here in Silicon Valley, it’s pretty easy to miss that fact. But it turns out that there are about 7 billion people in the world and only about 2.7 or 2.9 billion people have any actual access to the internet at all. There are more than 4 billion people, the majority of people in the world, who don’t have any access. 

That’s what we’re trying to solve through this internet.org program, where we basically go around the world working with mobile operators and governments and local entrepreneurs to be able to offer some basic internet services for free. 

The way that I kind of think about this is, it’s kind of like in the US, we have 911. So even if you can’t afford to pay for your mobile phone, you can still always dial 911 and you can get help on basic things that you need. 

I just think that there should be a version of this for the internet where people can access some basic education information, health information, job listing, same basic things that you need. The idea is that by getting access to this content, we actually find that more people who use these basic services, then go and decide to go pay for a data plan and get full access to the internet. 

Out of those 4 billion people, actually, a lot of them can afford to pay for the internet, but maybe they grew up and they didn’t have a computer. They haven’t used the internet. They’re not sure why they would want the internet yet. But by trying it out and using some of these basic services, a lot of folks then end up using it. 

What we found in research that other firms and companies have done is that for every 10 people that gain access to the internet, one person is lifted out of poverty in countries like India. 

I mean, India has 1.2 5 billion people, and actually more than a billion of them are not on the internet. So, if we could snap our fingers and connect all of them, then there would actually be 100 million fewer people in India in poverty. 

I actually think this is one of the bigger things that we need to go around and do in the world. It kind of makes sense, right? If you think about it. People need a lot of things to live good lives, but access to education, information, health information, job opportunities, all that kind of stuff are a lot of the things that people need to be able to go get jobs and join the modern economy. 

In a country like India, where a lot of people are not connected to the internet, giving people those tools really is pretty empowering. It’s not the only thing that needs to happen. 

However, I think it’s one of the big things that we’re working on doing. When I was getting started in my dorm room, you don’t kind of dream about one day, we’re not just going to build a service that a lot of people use but we’re also going to try to get people on the internet. 

Now, we are a bigger company, and a lot of people use Facebook, and we have the resources to go try to take on some of these bigger problems. I feel like we have a responsibility to do that. I’m excited about this and excited to keep doing it.

Preston Pysh  22:27  

There’s some pretty interesting stuff to have that mission to try to spread. Really, I see it as spreading knowledge around the world and giving people access to knowledge. 

I don’t think Mark’s intent is to create more market share for his business. I think he’s just truly doing this to help make people more educated and help people have access to information. Stig, I’m kind of curious to hear your thoughts on the question.

Stig Brodersen 22:52  

I think you’re right. As an investor, you kind of feel that he might want to grow a new market. That’s kind of the first idea that you have. I don’t think that’s it at all, especially if you look at how Facebook is making money. 

In places where people do not have internet, and especially very poor people, there is not a lot of money in targeted ads. I mean, if you just look at it as simple as something like that. 

I also think there’s a philanthropic way of looking at the world and Mark Zuckerberg in his defense, I know I was bashing him before. In his defense, he pledged to give away 99% of his Facebook shares to charity. 

Just like someone like Warren Buffett who talks about how he’s not good at giving money away. So he’s outsourcing that. He’s better at accumulating capital. He should do what he’s best at. I also like Mark Zuckerberg, being a tech person, that he would use that competitive advantage to help with poverty around the world.  

I have one thing here that I would really like to talk about in those regards. I would like to talk about something called M-PESA. Something I stumbled on here and end up looking more and more at is really payments for the unbanked. M-PESA, M is for mobile and pesa means money in Swahili. 

That’s a service that was launched already back in 2007, but has really gained a lot of traction here recently. It originally had a rollout in Kenya, but now you can also use it in Tanzania, Afghanistan, South Africa, and India. 

You can think of this as Square in the US. Basically, it’s a service that allows you to deposit, withdraw or transfer money, pay for goods and services easily with your mobile device. 

The reason why I bring this up is that I see a lot of promise because of the progress we’ve seen in technology right now. I mean, just like how Africa skipped landlines and went directly to mobile phones. What we see right now in these countries is that they skip the entire process of credit cards and then goes directly to Square because it’s just a more efficient way for them to do this. 

I’m saying this because I feel that because of technology, we might look at poverty differently in the future. This is not the way of saying that we won’t have poverty in the future. I don’t think we will ever avoid that. However, I think that we might see a change in the way that people can interact and people can take themselves out of poverty around the world. 

That was one of the reasons why I really wanted to play this clip here today. Also to show that despite Preston and me continuously, episode after episodes, whenever we get the chance to try to bash Facebook, I also think we need to give credit where credit is due.

Preston Pysh  25:40  

All right, so this is the point in the show where we play a question from the audience. This question comes from Thomas. 

Thomas  25:46  

Hi, Preston and Stig. My name is Thomas from Belgium. First off, I wanted to let you know that I’m a huge fan of your show. I have been listening to it since you guys started. I’ve learned a lot throughout the years not only about investing, but you really introduced to much broader topics and thought leaders, how to live by your values, among others, for which I cannot thank you guys enough.

On top of that, I would have never had the courage going to the Berkshire meeting without the great instructions and the practical tips which you’ve been sending out to your mailing list. Thanks again for that. 

Anyhow, to my question. I was wondering whether you guys are convinced users of checklists. I’ve read a few articles and books such as the Checklist Manifesto. I’ve heard you mentioning sometimes there are certain red flags to look out for when you’re analyzing businesses. 

Therefore, I was wondering whether you consider them a necessary requirement to avoid certain kinds of biases, which might lead us to wrong conclusions when we’re analyzing investments.

Preston Pysh  26:45  

My response would be yes, I do follow a checklist but mine is not actually written on a piece of paper that I literally go line by line, kind of like computer code. I have a process. A lot of the process that I use can be seen, if you check out any of the articles that I write on Forbes. 

The methodology that I use for every time I do an intrinsic value assessment for a company is the methodology that I use and the thought process that I use is a step through. They always start off trying to understand holistically, what does the business do? 

I go through that analysis. I see how much they do in sales, just to kind of give myself a general idea of what the business is. If I feel like the business has been filtered based off of enterprise value to EBITA at a good return, okay, I’m using that as a filtering tool. 

I then go in and I calculate the intrinsic value based off of a discount cash flow analysis. Stig and I talked a lot about that with videos and all that kind of stuff on how we do that. 

Then I figure out what I think that the return is going to be as a percentage. I’m basically calculating the IRR of the business. 

Then I compare that IRR to every other investment opportunity that’s out there on the public markets. 

Then I compare that to how I would invest that money operationally into the business that I own. If I could get a better return, comparable to the risk and so that’s really where I step into the comparative analysis of the return to other returns that I could get in the market. 

So, let me give you an example. Let’s say that I just did the intrinsic value for a business and I calculated it at 8%. Then I compare that to the S&P 500, which I think is given you 3% or less today, compared to the 10-Year Treasury, which is also around 3%. 

I’m comparing it to all these other different asset classes. Now, let me give you an example. Let’s say that I just calculated the intrinsic value of a business and it was 3%.  

I can go to the S&P 500 and get 3%. I am clearly obviously going to pick the S&P 500 over the individual stock pick because I’m getting the same exact return but I’m assuming a lot more risk by owning the individual company. 

Now, the growth rate could potentially impact, if I have an expectation that growth rates are going to drastically increase in the future, maybe that could impact it. But for the most part, generally speaking, that’s how I look at that. 

After I do that, well, then what I’m doing is I go through an analysis of looking at the competitive advantage of the underlying assets of the business. 

Business schools will tell you that your risk is the volatility of the past performance of the stock, which I think is absolutely ludicrous. So do a lot of other billionaires that we study. 

Your real risk in owning a business is the ability of the underlying assets, especially the assets that are bringing in all the revenues that are profitable. The impairment of those assets is your real risk. 

Let me just explain this in simple terms. So if you own a coffee shop on Main Street, and there’s a vacant building right across the street, and there’s somebody in the business of trying to open up another competitive coffee shop right across from you, the endurance of your competitive advantage of your coffee is at stake. Your assets could be impaired. That’s how you got to look at the impairment of the underlying assets because that’s where your real risk is. 

Then, what I do is I look across… Let’s say that the first checkmark of looking here is basically the second checkmark of looking at the intrinsic value of the business. 

I say this has a high yield, I’m very interested in this company, but then I get to the second step in my checklist, which is understanding the impairment of the underlying assets. Then I find that they could be greatly impaired, I might discount the return that I’m expected to get on that company. 

I make adjustments to what I think that that return is based off of the ability of the company’s assets to be impaired. 

I then also consider at the very end, I look at the macro factors. So where are we at in the economy today? How do I expect the economy to perform moving forward from a global sense? I basically look at the momentum of the overall market and I also look at the momentum of the individual company and what that price action looks like. 

Then, I basically make my final decision on whether I’m going to own it or not. Those are the main variables that I’m looking at as I go through the process. 

I would like to tell you that I do it in a linear manner in the same order every time. Maybe that’s to be honest with you… Maybe that’s a disadvantage with the way that I do things that I don’t do it in a sequence ordered way. 

For me, I guess I’m trying to look at things more holistically. I always cover all of those bases as I’m going through an individual stock pick. So yes, I have a checklist. I hit all that, but I don’t necessarily do it in a sequential order.

Stig Brodersen 31:33  

Just really a quick note to what you said, and especially for people listening to this. Wow, that’s a ton of steps and how to best illustrate this. We have a completely free resource on TIP Academy. It’s our intrinsic value index. I think we have around like 40 or 50 picks and we use this process that you talked about, Preston. We will make sure to link to that in the show notes. 

Of course people can also sign up to our email list. We would send out these picks on a monthly basis. So yes, I also use a checklist. If I could just highlight a few of them and provide some comments to that, one of the first things I look at is revenue. I know that Preston also briefly mentioned that. 

If I could just add one more thing to that, I’m looking at if there’s a new revenue decline in the core business. One thing is that you might be looking at revenue, just to see what’s going up. Yes, but what is the core business? Do you see revenue from the client there? 

What you see a lot of companies do is that they would acquire a lot of new companies to sustain revenue growth. That does not always make a lot of sense to all companies. Sometimes it’s a short term win for long term pain. 

Of course, unless you have a company like Berkshire Hathaway, it is their forte to add new businesses to their existing business and thereby grow the revenue. It is different for most businesses. So that’s something I look at. I look at declining margins and debt.

Specifically about debt, one thing I would like to highlight, if you use a checklist, it’s very important to control the checklist and not let it control you. If we can just provide one example of that is that I have this general rule that I would like to cover a ratio to be above 10, meaning that you can at least pay back your debt 10 times with your operating income. 

But it really depends. I mean, you can have interest coverage ratios that are at a comfortable level. Then whenever you look closer at how it’s financed and if it’s not fixed, if it’s a variable and if you learn that they will finance new acquisitions next year with more valuable debt, perhaps then you can’t use that checklist. There are too many things. 

I just wanted to put it out there in terms of if you have a checklist, you can’t just say, check and then move on to the next one. You have to really understand what it is and then make the necessary provisions.

I know this sounds might sound counterintuitive, because the point about a checklist is that these are your rules, and you shouldn’t deviate from the rules because that’s really when you will paint yourself into a corner. 

I do think I have the opposite view. I think it’s very important that you control the checklist, rather than the other way around. 

Preston Pysh  34:20  

Thomas, thanks so much for asking your awesome question. To show our appreciation, we’re going to give you a free subscription to our paid intrinsic value course on the TIP Academy website. This course goes into all the detail to show you how we calculate the intrinsic value of the business. Basically what we’re describing there.

If anyone listening wants to check out this course, go to TIPintrinsicvalue.com to see the course and the contents contained in the course. 

So Thomas, thanks for your awesome question. We hope you enjoy the course. If anyone else out there wants to get their question played on the show, go to asktheinvestors.com. There’s a little button, just click the record button. You record it and it automatically goes into our servers. We see it pop up and then we listen to all the questions that come in. If your question gets played on the show, you get access to a course just like Thomas.

Stig Brodersen  35:09  

Alright guys, that was all that Preston and I had for this week’s episode of The Investor’s Podcast. We will see each other again next week. 

Outro 35:18  

Thanks for listening to TIP. To access the show notes, courses or forums, go to theinvestorspodcast.com. To get your questions played on the show, go to asktheinvestors.com and win a free subscription to any of our courses on TIP Academy. 

This show is for entertainment purposes only. Before making investment decisions, consult a professional. This show is copyrighted by the TIP Network. Written permission must be granted before syndication or rebroadcasting.