 Good day fellow investors! We often call ourselves long-term investors but what does that actually mean? In this video we're going to discuss the three biggest phalases that surround the notion of long-term investing and then we're going to discuss seven principles of long-term investing, what actually makes you a long-term investing and I'm going to use a stock Metanex to explain long-term investing versus the short-term mindset that drives actually the financial world. Let's start! The first thing with long-term investing is boring. It is deadly boring. You buy something and then you can actually make it exciting if you have a life. If you don't have a life investing is boring, you can just sit down and watch it, watch it, do nothing for ages and that's what investing should be. If investing is exciting then you're not investing then you're speculating because that speculation gives you excitement. Investing is a straightforward stable line cumulation of growth over the very very long term so if you love boring but money-making then stick to this channel and to this video. If you love excitement then unsubscribe to this channel and bye-bye. Thank you for watching. Now that's the first phallacy and unfortunately just very few of us have that long-term mindset and then the perseverance to endure that boring and that boring is because you buy businesses not stocks. If you own a business let's say you buy, you find a great business, you buy at a great price, you practically don't have to do anything to it for the rest of your life so you made an investment once and then never again anything. That's investing. Everything else leads more to speculation. Secondly the second phallacy is when a stock drops like Kraft Heinz did over the past year then I read a lot in the comments oh I bought at this level, I bought at this level and I'm in it for the long term and that comment I'm in it for the long term always comes out after there is a stock price drop because then okay they hope a they have anchoring behavioral concept that describes that they anchor the success of their investment to the price they paid in the past. They want loss aversion, they want to avoid loss aversion, they don't want to lose money so they hope that the price returns to that level so that they can sell and feel good about it. That's again speculating and the worst thing is that they are focused on the stock price not on the actual business on the actual investment. So the second phallacy is that many focus think they are long-term investment investors but then focus on the stock price especially when it goes down and that's again a phallacy. Many people think they are long-term investors but cannot be. To be a long-term investor you have to own a business not the stock the business to own a business you have to understand the complete business you have to listen to the last conference calls of the last three years and then randomly probably the annual call over the last five seven years to understand how the business works you have to know how to analyze the financials how to analyze the sector the whole complete sector where the business operates and when you know that then you can invest your money into the business you have to be a business analyst to be a long-term investor if you're not a business analyst then you are again buying stocks. So to analyze businesses which is what I do day in and day out it takes a lot of time many ask me what do you think about this stock this stock this stock and I reply without an analysis of 10 20 40 pages and me spending five days on it plus an analysis of a sector analyzing competitors me spending a month on it every opinion I have is worthless is even worse than that is can be even costly so that's something again that many think they are long-term investors but then they don't apply the necessary work to become a long-term investor for example I made a video about Vedanta that's down 20% since I made that video and I get many many questions about it on a daily basis when will the stock go up what will be the catalyst will the company go bankrupt how will Zambia affect Vedanta what will be the dividend and that's the kind of questions I get all the time and that's because the stock dropped and the stock keeps dropping but if you invest in businesses you focus on other things you focus on how much you can add when you can add at what price to add the second round etc so that's very different to what most out there do again the third fallacy is that many say when you are a long-term investor you are never allowed to sell a stock that's again completely wrong because being a long-term investor to use the definition from benjamin means that when you're investing for the long term it means buying an asset at the price below its intrinsic value and then wait until the price of an asset is again in line with its intrinsic value when that happens you compare what you own to other opportunities sell the overvalued and buy the undervalued so this doesn't mean you hold forever if the stock price goes far up and you think it's far above intrinsic value of course you sell only over time you get what Buffett has which is a very concentrated portfolio or at least it was on one hand let's check it out this is 1999 Warren Buffett's stock market portfolio if you look at it you would say extremely concentrated American Express Coca-Cola Freddie Mac Gillette Washington Post and Wells Fargo but Freddie Mac he sold the 2000s because he thought it was overvalued so selling something and look at the profits 10 beggar on Freddie Mac already in 1999 so he made even more money there Gillette Company was acquired by P&G 2005 sold the Washington Post Company was acquired by Jeff Bezos recently for a billion and something his cost was 11 million and then compare also something else look at the total cost for common stocks the first column is 8.2 billion others so others many others the that were included then he was holding McDonald's and things like that were half the cost of the let's say portfolio legacy items so how look at the cost what he invested in them later just a few of those became the great companies that compounded at higher return on invested capital internally and continued to grow expand globally but on the cost basis there are many many others that make Buffett what he became over the long term I made a short pyramid that let's say you look at the 1000 stocks that's something I do in debt over a few years of those thousand stocks I own 10 80s now the number in my lump sum portfolio but over the long term only one or two will emerge as forever holdings that can constantly grow reinvest that capital and make it really a winning winning situation for both of us others some cyclical stocks that I own some really bargain investments might not be the core portfolio holdings for a very very long term but that's value investing and that's long-term investing and in the principles that we'll discuss now seven principles will explain how that fits a long-term investing mindset and scenario let's go on the principles so in short seven principles would be buying below intrinsic value owning a business not focusing on the stock selling when the stock is above intrinsic value by companies that offer long-term quality so they have a special asset brand location scale management whatever low-cost production have patience and let those dividends and investments compound either eternal internally with the com within the company or externally when redistributed through dividends keep some cash on hand to take advantage of the opportunities the rational short-term oriented market offers and always be patient a nice discussion is buffets patience when it comes to coca-cola to the coca-cola purchase he was looking at the business since 1936 but bought only in 1988 he was waiting 52 years for coca-cola stock to be at the right moment for him where he had enough cash to deploy in such a company I recommend reading that part in the 1989 letter to shareholders before we come there and summarize the letters and then additional point that I really want to discuss in this video is always put things in the long-term perspective and require also margin of safety margin of safety we'll discuss in other videos let's put things into a long-term perspective when it comes to investing I'm currently researching the chemical sector which is at pretty lows when looked again from a long-term perspective and I will use metanex nasdaq meoh as an example of long-term cyclicality this is the stock price the green line and then you can see over the long term how the business slowly but steadily and surely grew and that the business is always reflected in the stock price over the long term but in the meantime you have these crazy ups and downs that make for me the stock market irrational and a long-term investor looks at the red line and then takes advantage of the rationality of the market that is the green line so if this is 27 years the stock went from 10 to 30 so it is not a great return to 3 percent over the years the dividend yield is now 5 percent so the return is 7 percent over the year if you bought probably then at the IPO so already overvalued from the start those who bought in 2000s at 2.5 bucks and sold in 2018 just last year September a year ago above 80 those had what a 30 beggar from this company so depending on when you buy what's the margin of safety and that's something you can get to by looking at the long-term trends of a company of a business so to analyze this you have to analyze the methanol sector that they are what is the commodity they are producing and the key is that it is cyclical everybody can produce that so it is a high capital intensive commodity it is used for a lot of things so plastics fuel so it practically depends on economic growth economic growth in the world depends on china so it's really showing it's a barometer of showing where the world goes future expected growth all things as equal is 5 per year and then producers from iran or something that used the cheap gas to produce methanol add the supply in order to fulfill that demand if there is a year where the demand doesn't grow then you have oversupply and methanol prices really crash and that has happened let's say 2016 2009 and it's happening again and consequently metamax stock price is also dropping but then you look okay let's look at the long-term long-term investors believe the world will continue to grow will it be china india africa global developed countries are also growing germany's paused a little bit but still the world is developing and then you look okay what is the average 10-year average methanol price is 350 per metric ton or whatever it is the measurement there and you see that at 350 at an average price over the past 10 years the company makes free cash flows of 625 million that's okay you have right now the average and you can estimate that probably in the future it will be higher or lower if you want to be more conservative you add a margin of safety you go you say okay average future prices will be 300 and then cash flows will be 400 million if average future prices are 250 then that will decline at the bottoms that we have seen in 2016 2009 2016 expect the chinese crisis that didn't happen then profits will be much much lower and this will look like an expensive stock but when that happens the cycle turns and then they make a lot of money 900 million in profits operating cash flows 2018 they'll make even a billion if things are good here when things are bad it will be zero and then you take the average of that and that's long-term investing you look at what the company will do over the long term and then invest when you find a high margin of safety the more you can wait and the more you can compare to others and really get those lows when you buy reinvest your dividends or whatever the better your return will be if you buy quality companies that have a low likelihood of going bankrupt then the lower the price is over the long term because short-term investors push the price down because if there is more room to fall everybody is selling which ignites more selling in a spiral then you know you can at some point start averaging down buying cheap and have low risk long-term extremely high rewards like those that bought in 2009 or in the 2000s 2000 crisis so this is long-term investing on whether to buy metanex now well it depends on what your required return is let's say the market cap now is 3.1 billion the cash flows average long-term cash flows will probably be 400 million so that's already good return be a little bit more conservative let's say cash flows 300 million that's a 10 return long-term volatility of the stock has to be implemented in that if you want a larger margin of safety wait for the market cap to fall to 2.3 billion then you have a 15 percent return if you want 20 percent return then wait for 1.5 billion which might happen given the volatility and the short-term orientation of the market especially if we see a recession China slowing down and then you can buy such companies that will do very well over the long term the key is that high prices high methanol prices over 2018 create a high input of investors all around the world to invest in producing capacity low prices create no input and therefore people don't invest in its normal cyclical long-term investing so thank you for watching if you like to read such reports as I write on Metanex and many other stocks over looking from a long-term value perspective with a margin of safety feel free to check my stock market research platform if you have any questions please send me an email thank you for watching looking forward to your comments and I'm looking forward to seeing you on Friday when we'll give a view on the commodity sectors in the usual stock market news we look at what copper and other commodities say about the probabilities of the coming recession stock market crashes yes or no thank you and I'll see you in the next video