Both! (The Financial Athlete #120)

Thousands of athletes get plenty of exercise but neglect to nourish their bodies with fresh, whole foods.

Make a conscious decision to live an enduring, healthy lifestyle until a ripe old age. Place more emphasis on nutrition than exercise. If I had to put a percentage on it, I’d assign 70% for nutrition and 30% for exercise. Keep in mind exercise is subject to “dose response”, which means up to a certain point more is worse, not better.

How can you easily change your diet to consume more vegetables? Juicing! I regularly juice raw and organic carrots, tomatoes, and celery along with lemons. A side benefit to juicing raw vegetables is enhanced energy, which boosts performance in sports.

Always think both: nutrition and exercise.

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When I get asked, “Do you invest for value or for growth?” I reply, “Both!”

Investors should always think of both intrinsic value and potential value. If I had to place a percentage to reflect the importance of each of these, I’d assign 70% for intrinsic value and 30% for potential value.

Intrinsic value is more objective in nature because of its use of ratios. For stocks, ratios such as price/earnings, price/sales, debt/equity and cash/share are derived from financial results.  For residential real estate, the key ratios are price-to-rental income and price-to-average local income compared to historical averages. Ratios are the gateway to understanding the fundamentals, and understanding the fundamentals is the foundation of investing. However, it’s important to note that many value investors (those who emphasize valuations) receive average returns.

What then separates an exceptional investor from an an average one? An exceptional investor chooses assets with great potential and purchases them at or below intrinsic value. The classic example is the buyer of residential property who selectively limits her search to houses in desirable neighborhoods. Crime rates are low. Public schools rank high. The views are scenic. Development is built out. These factors contribute to greater potential value as the population rises. Beyond this, she has an eye for further potential value with capital improvements. She plans to demolish the old house to build a dream home or remodel an already attractive house.

Always think both: intrinsic value and potential value.

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