Preface: Why Focus on US Stocks Now?
The world of investment is vast, and finding your way through it can sometimes feel like navigating through thick fog. Today's investment environment is fundamentally different from the past. I define the current investment landscape as 'the invisible world.' While tangible assets like factories and facilities remain important, intangible assets—the power of platforms, brand value, and innovative R&D—have become the key factors determining corporate value.
The problem is that these intangible assets are difficult to properly reflect in corporate financial statements. Traditional valuation methodologies have hit their limits, leaving investors confused. Moreover, the unprecedented low-interest-rate environment demands that we predict and imagine a more distant future. To succeed in this rapidly changing 'invisible world,' we must first correctly recognize this transformed reality and adopt new perspectives.
This book was written to help you make that start. It aims to serve as a guide for beginners taking their first steps into the investment world, as well as for anyone seeking new opportunities amid waves of change. Through this book, we'll explore why the US stock market—the center of the global economy—presents significant opportunities, and how to discover 'invisible value' and separate wheat from chaff.
Successful investment doesn't come from fragmentary information or lucky breaks. It stems from deep study that penetrates the essence of change and the right mindset to maintain your principles amid countless temptations. I sincerely hope this book becomes a reliable compass on your long investment journey.
1️⃣ Entering the World of US Stocks
Investing in US stocks means more than simply buying shares of overseas companies. It's the most direct way to read the massive flows occurring at the heart of the global economy and participate in the growth of companies creating new wealth through innovation. This chapter will provide a solid foundation to develop the basic concepts and macroscopic perspective needed to take your first successful investment steps. From new paradigms defining the investment world to market characteristics and essential terminology, it's time to build a strong foundation.
1.1. The Investment World: The Advent of the 'Invisible World'
The economy of the past revolved around tangible assets like factories, machinery, and real estate. But the era we live in now is different. Corporate value is no longer evaluated solely by visible assets. 'Intangible assets'—platform network effects, brand value that drives customer loyalty, and R&D capabilities leading the future—have become the core drivers determining corporate success. This is why I call the modern investment environment 'the invisible world.'
This change is shaking the framework of traditional corporate analysis. For example, Apple—the world's number one company by market capitalization—had a PBR (Price-to-Book Ratio) of 2-4 times before the iPhone launch, but by 2021, it had risen to an astonishing 34.6 times. PBR is calculated by dividing market capitalization by net assets (book value), so a PBR of 34.6 means the market values Apple at over 34 times its book value. This phenomenon cannot be explained without understanding the value of invisible assets like brand, technology, and ecosystem that don't appear on financial statements.
In this era, we must ask ourselves: "What happens if I don't invest?" The dramatically increased money supply following COVID-19 inevitably leads to currency devaluation. When money becomes abundant, its value must fall. Simply holding cash means your real assets are shrinking. Investment has become not just a choice for the wealthy, but an essential survival strategy for all of us to protect our assets and prepare for the future.
1.2. Characteristics of the US Market: Opportunity and Risk
The US stock market is like a massive melting pot where capital from around the world converges. Within it coexist tremendous opportunities and deadly risks. Value investor Guy Spier, with his impressive credentials as Oxford's top graduate and Harvard Business School alumnus, began his professional career at a Wall Street investment bank called 'DH Blair.' He entered expecting to strike it rich, but the reality he faced was a morally bankrupt world.
DH Blair's main business was clear: packaging businesses with exceptionally low success rates—like cold fusion or Kazakhstan spaceport construction—and selling 'junk stocks' to naive, uninformed investors. The telemarketing room on the 14th floor evoked scenes from The Wolf of Wall Street, where fresh MBAs were thrown into a ruthless environment where you either devoured others or were devoured. There, he had the horrific experience of watching his reputation and morality ground to dust.
This is why I show you the harsh reality first. You must be able to protect yourself before seeing opportunities. The US market is both a hub of innovation and growth and a place riddled with traps to deceive investors.
Nevertheless, the reason we should focus on US stocks is clear. Companies like Apple, Amazon, Microsoft, and Tesla are not simply American companies—they're innovation icons transforming the lives of people worldwide and leading the global economy. Investing in these companies is the most effective way to participate in the massive megatrend of the Fourth Industrial Revolution. The US market provides the broadest and deepest field of opportunity to share in the achievements of great companies changing the world.
1.3. Key Investment Terms
To enter the investment world, you must understand their language. Here are the most basic key terms used when analyzing US stocks:
- Market Capitalization: The total value of a company as assessed by the market. Calculated as 'stock price × total outstanding shares,' it's the most representative indicator of company size.
- PER (Price-to-Earnings Ratio): A company's market capitalization divided by its annual net profit. A PER of 10x means that at current profit levels, you could theoretically recoup your investment in 10 years. PER divides into Trailing PER (based on past 12 months' earnings) and Forward PER (based on expected future 12 months' earnings). Forward PER is more commonly used since stock prices tend to reflect future expectations.
- PBR (Price-to-Book Ratio): Market capitalization divided by net assets (book value). If PBR is 1x, the market values the company equal to its liquidation value (money left after selling all assets and paying debts). A PBR exceeding 1x means the market positively evaluates the company's PVGO (Present Value of Growth Opportunity).
- PSR (Price-to-Sales Ratio): Market capitalization divided by revenue. Like Coupang's case, this is useful for valuing growth companies not yet profitable. It gauges future growth potential through revenue scale for companies whose value can't be explained by profit (PER) or net assets (PBR)—companies boldly investing to expand market share while accepting current losses.
In Chapter 1, we examined the new paradigm of the modern investment environment, US market characteristics, and basic investment terminology. Building on this conceptual understanding, the next chapter will specifically address what you need to prepare for actual investment.
2️⃣ Preparing for US Stock Investment
Successful investment begins with thorough preparation. No matter how excellent your investment ideas, they're useless without the tools and environment to execute them. The first button determining investment success lies in this technical and procedural preparation. This chapter aims to establish the institutional and technical foundation you must know before entering real investing. Let's check the essential preparations for starting your investment journey, from opening accounts to utilizing information.
2.1. Starting to Trade: Accounts, Exchange Rates, and Taxes (Conceptual Understanding)
※ Important Notice: The source context for this document doesn't include practical information like securities account opening methods for Korean investors, specific currency exchange strategies, or tax calculation methods. Therefore, this section aims to help with 'conceptual understanding' of why these elements are important in US stock investing.
For successful investment, you must consider three essential elements. These are core variables directly affecting investment performance:
- Securities Account: The essential gateway for trading US stocks. Many domestic securities firms provide overseas stock trading services, with accounts serving as the basic platform where all investment processes are recorded and executed.
- Exchange Rates and Currency Exchange: US stocks trade in dollars. Therefore, exchanging Korean won to dollars is essential, and the won/dollar exchange rate directly impacts investment returns. Even if stock prices rise, final won-based returns may disappoint if the exchange rate falls, and vice versa. Exchange rates are another key variable determining investment success.
- Taxes (Capital Gains Tax and Dividend Income Tax): Part of investment profits must be paid as taxes. For US stocks, capital gains tax on trading profits and dividend income tax on corporate dividends apply. Taxes are important factors determining final returns and must be considered when establishing investment plans.
※ Strong Recommendation: For specific procedures regarding actual account opening, timing and methods of currency exchange, and complex tax filing, carefully review the latest guidelines from the domestic securities firm you'll use, and seek professional tax advice if needed.
2.2. Investment Tools: The Importance of Information
Past investment environments had severe information asymmetry. Only a few institutional investors enjoyed the 'First call' culture of receiving information from analysts first. However, technological advancement has completely transformed the investment environment. Now anyone can watch securities firm morning meetings in real-time and easily obtain global company information with a few smartphone clicks. The investment environment has become like an 'open-book test.'
In an open-book test where everyone gets the same information, what determines success? Not the quantity of information, but the ability to interpret information and grasp important context. Guy Spier recalls that during his New York hedge fund days, the $20,000-per-year Bloomberg terminal was 'addictively like a drug.' While the Bloomberg terminal was a useful tool providing vast data quickly, it also had an addictive aspect that could lose investors in the noise of constantly pouring information.
In this age of information leveling and excess, true competitiveness comes not from faster information than others, but from deep insight—separating wheat from chaff in the flood of information, filtering out short-term noise, and reading medium- to long-term megatrends.
In Chapter 2, we checked the conceptual preparations for starting investment. Now that tools are ready, let's move to core questions about which companies to invest in and with what strategy.
3️⃣ US Company Analysis and Investment Strategies
Thousands of companies exist in the US stock market. Selecting pearl-like 'good companies' from these numerous choices and establishing the 'right strategy' matching your investment philosophy and goals is the essence of successful investing. Investment without analysis is no different from gambling, and investment without strategy is like a drifting ship. This chapter will guide you to analyze companies' intrinsic value and understand various investment strategies to establish your own investment principles.
3.1. Company Valuation: Beyond Numbers
Many investors rely on traditional valuation metrics like PER and PBR. While useful tools, investment fixated only on numbers carries great risk. Particularly in the Korean market, analysts' estimates often show 'anchoring effect' bias—tied to past data or existing forecasts, failing to properly reflect future radical changes.
Samsung Electronics' Q4 2013 earnings announcement is a representative case of this bias. Analyst estimate consensus started around 10.5 trillion won and gradually adjusted downward as year-end approached, converging near 9 trillion won. Though a reasonable adjustment reflecting reality, actual announced earnings shocked the market at just 8.3 trillion won. Numbers often lag reality or become distorted. This is one cause of the so-called 'Korea discount.'
The core of modern corporate valuation lies in reading the value of 'intangible assets' beyond financial statement numbers. According to 'Smile Curve' theory representing manufacturing value chains, while the greatest added value was created in the 'manufacturing' stage in the past, now far greater added value occurs in 'pre-manufacturing' stages like R&D and design, and 'post-manufacturing' stages like marketing and services. Indeed, while 1975's top 5 US companies' assets were mostly tangible, 2018's top 5 big tech companies' assets show intangible assets overwhelmingly exceeding tangible assets.
To evaluate corporate value unexplained by numbers, NYU Professor Aswath Damodaran proposed the 'Narrative and Numbers' concept. For example, while Coupang recorded massive losses for years, the market valued it based on the powerful narrative that it would 'become Korea's Amazon and dominate the distribution market.' However, this narrative mustn't become blind faith. Guy Spier's costly mistakes, covered in detail in Chapter 4, vividly show the price paid when falling for plausible stories without cold numerical analysis. Successful investment is possible when balancing cold numerical analysis with narrative power imagining the future.
3.2. Investment Types: Alpha Hunters vs. Beta Grazers
Stock investors broadly divide into two types: 'Alpha Hunters (Active Investors)' hunting for performance exceeding market returns—'alpha'—and 'Beta Grazers (Passive Investors)' following market average returns—'beta.'
Category Alpha Hunter Beta Grazer
| Goal | Pursue returns exceeding market ('alpha') | Follow market average returns ('beta') |
| Method | Individual stock selection and active trading | Index-tracking funds, ETFs |
| Philosophy | "I can beat the market." | "Beating the market is difficult." |
| Representative Products | Individual stocks, active funds (e.g., ARK Invest) | S&P 500 ETFs, index funds |
Value investor Guy Spier's investment journey is a good example of 'alpha hunting.' He initially followed Benjamin Graham's philosophy, investing in 'cigar butt stocks' trading at bargain prices. This was a strategy based on tangible assets—book value. But influenced by Warren Buffett, he evolved toward long-term investment in 'quality companies' with sustainable competitive advantages (moats)—intangible assets—rather than simply cheap companies. Value investing is thus a representative alpha hunting strategy pursuing excess returns by deeply analyzing companies' intrinsic value to capture opportunities the market misses.
3.3. New Approaches: Real Options
Some companies are difficult to explain with traditional valuation methodologies. Particularly companies like Tesla, pharmaceuticals/biotech, and gaming companies—where value is attached to uncertain future success possibilities rather than current performance. The useful concept for analyzing such companies is 'Real Options.'
Real option value can be compared to lottery tickets. The cost (loss) of buying one ticket is limited to 1,000 won, but the profit from winning could reach billions. That is, an asymmetric return structure where losses are limited upon failure but profits are virtually unlimited upon success.
New drug development projects are typical real options. Failed development means treating entire R&D costs as losses, but success generates enormous profits. The phenomenon of Kia's stock price soaring when the 'Kia-Apple collaboration' issue heated up the market in early 2021 can also be explained with real options. The market pre-reflected in stock prices the value of the option with tremendous potential—'successful collaboration with Apple'—added to Kia's existing fundamentals. When specific events can dramatically change a company's future, stock prices incorporate option value.
3.4. Finding Hidden Discount Rates: Understanding Cost of Equity (CoE)
When evaluating corporate value, we often talk about 'interest rates.' But remember: stocks have their own interest rate. That's the Cost of Equity (CoE). This is shareholders' minimum expected return for tying up their money in that company—the 'opportunity cost.' CoE is used as the 'discount rate' converting companies' future profits to present value, so lower CoE means higher corporate present value.
CoE comprises the sum of two elements: Risk-Free Rate (Rf) and Equity Risk Premium (ERP). The risk-free rate is returns obtainable from safe assets like government bonds. ERP is the additional compensation investors demand for choosing the risky asset of 'stocks' while forgoing safe asset returns. I compare this ERP to a 'wall.' All investors must cross this psychological wall before investing in stocks.
So which companies have high walls—high CoE? In other words, when investing in which companies do investors demand higher compensation? Three types:
- Bad Companies: Companies with opaque governance making decisions only for owners, not shareholders. Investors naturally demand higher returns to become shareholders of companies disrespecting minority shareholder interests.
- Lazy Companies: Companies with inefficient capital policies—not efficiently reinvesting money earned through business but piling it in deposits or purchasing real estate unrelated to business. Companies wasting capital on activities shareholders could do themselves aren't attractive.
- High Earnings Volatility Companies: Companies sensitive to economic cycles or with unstable financial structures making future profits hard to predict. Greater uncertainty means investors demand higher premiums.
In conclusion, wise investors should seek the opposite—companies with good governance, efficient capital policies, and stable profit generation with low CoE. Such companies can be valued highly because they're subject to low discount rates.
4️⃣ Real Investment and Investor Mindset
No matter how excellent your analysis and sophisticated your strategy, everything becomes useless when your heart wavers before market fear and greed. In the investment world, the greatest enemy isn't market volatility but our internal psychological biases and impatience. This chapter aims beyond investment techniques—to cultivate the internal principles and psychological control necessary for long-term success. Let's learn how to conquer ourselves through the wisdom of great investment masters.
4.1. Advice from Investment Masters: Buffett and Munger's Wisdom
Guy Spier considers his lunch with Warren Buffett as a life-changing encounter. He deeply ingrained the wisdom of Buffett and his longtime partner Charlie Munger into his investment philosophy.
- Buffett's Principles: Buffett says investment principles are extremely simple.
- Munger's Wisdom: Charlie Munger deeply understood human psychological weaknesses. He warned how easily humans fall into psychological biases through '24 reasons people misjudge.' He also considered the attitude of admitting mistakes most important.
4.2. Managing Investment Psychology: Your Greatest Enemy Is Yourself
The investment journey is filled with numerous psychological traps. Simply recognizing and guarding against these traps can greatly reduce failure probability.
- Impatience and Excessive Expectations: Guy Spier expected to 'strike it rich' when joining Wall Street's DH Blair. But what he faced was unethical business practices and miserable failure. Impatience to make big money quickly often leads to reckless decisions with costly consequences.
- FOMO (Fear Of Missing Out): 'The fear of being left behind' is the most dangerous emotion leading investors to blind chase-buying. Guy Spier avoided getting swept up in that frenzy during the late 1990s tech stock bubble. He remained within the sphere of influence of calm value investors like Buffett. Through this, he learned that "environment is stronger than intelligence."
- Lemming Effect: Like lemmings blindly jumping off cliffs following their leader, countless investors invest following the crowd without any analysis. Professor Damodaran says the reason to study valuation is precisely to avoid becoming 'lemmings.' Lee Hyo-seok humorously reinterprets this warning, saying we should become 'lemmings wearing life jackets' to prepare for worst cases.
4.3. Common Beginner Mistakes and Lessons
Guy Spier honestly shares lessons from his costly mistakes. His failures become important case studies for us.
- Case 1: Choosing the Wrong Environment (Joining DH Blair) He considers voluntarily entering an environment that eroded his morality his worst life mistake. Through this experience, he learned these lessons.
- Case 2: Jealousy and Arrogance (New York Hedge Fund Days) After fund management success, he became obsessed with becoming like other famous fund managers. He unnecessarily rented expensive offices and bought Bloomberg terminals to show off success.
- Case 3: Investing in What You Don't Understand (Farmer Mac) Through lunch with famous investor Bill Ackman, he painfully realized he'd invested in a company called 'Farmer Mac' without properly understanding it. This is a perfect example of why the 'Narrative and Numbers' concept from Chapter 3 matters. Spier was caught up in the plausible narrative of 'a hidden gem sponsored by the US government,' but Ackman probed his vulnerabilities with cold numbers.
4.4. Setting Up for Success
Guy Spier made an extreme decision to redesign his investment environment: leaving New York, Wall Street's heart, for the quiet city of Zurich. He called financial centers 'Extremistan,' borrowing Nassim Taleb's term. There, emotions like greed and jealousy easily incite irrational decisions. In contrast, he called Zurich—where he moved—'Mediocristan,' explaining this environment is far more conducive to rational, long-term investment judgment.
Warren Buffett remaining in Omaha, Nebraska rather than Wall Street has the same reason. Successful investment absolutely requires deliberate efforts to maintain physical and psychological distance from market noise, interact with people who positively influence you, and intentionally build the optimal environment for yourself.
4.5. Final Check: Your Investment Checklist
Surgeon Atul Gawande proposed using 'checklists' to reduce fatal mistakes in complex surgical procedures. Guy Spier applied this idea to investment. Checklists are the last safety net preventing obvious mistakes due to emotional judgment or psychological bias.
Synthesizing all content from this book, here's the final checklist that beginning investors should ask themselves before buying stocks:
- Principle of Understanding: Can I easily explain this company's business model to others? (Guy Spier)
- Principle of Value: Is the current stock price sufficiently attractive compared to the company's intrinsic value? (Benjamin Graham)
- Principle of Psychology: Do I have the courage to buy when everyone else is selling and sell when everyone is cheering? (Warren Buffett)
- Principle of Environment: Is my current investment environment (information channels, people around me) positive for long-term investment? (Guy Spier)
- Principle of Mistakes: If this investment fails, what would be the cause? Can I handle the worst-case scenario? (Charlie Munger)
- Long-term Perspective: Can I hold this stock even if the market closed for 5 years? (Warren Buffett)
- Principle of Intangible Assets: What competitive advantages (brand, technology, network effects) does this company have that don't appear on financial statements? (Lee Hyo-seok)
- Principle of CoE: Does this company respect shareholder interests, use capital efficiently, and generate stable profits? (Lee Hyo-seok)
- Principle of Self-reflection: Am I trying to buy this stock out of greed, jealousy, or vague expectations? (Guy Spier)
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