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S6, Episode 8 - What is CAPM?

S6, Episode 8 - What is CAPM?

October 22, 2021

Good to see you here again!

If you listen to our last episode about IRR, this new episode will teach you about CAPM which can help you with finance, business, and investment.

If you haven’t heard our last episode title “What is IRR?”

Check it out, because there’s a lot of lessons that you can learn in that episode.

In this episode, you will…

  • Listen about what is CAPM?
  • Learn about CAPM Formula
  • Why should we use CAPM? What is it for?
  • How can we apply it in Real states?
  • Helps you determine about good investments or not?
  • Learn about market risk

Resources Mentioned In This Episode:

Empath IQ

Investopedia.com

Wikipedia.com


Transcript

Hello, my friends and welcome back to another episode of the freedom formula for physicians podcast, a podcast dedicated to helping doctors like you slash your debt, slash your taxes, and live a liberated lifestyle. Well, today we are continuing this series of trying to teach you kind of the basic finance of understanding terms that I learned in business school that maybe you are not familiar with. And certainly if you've taken business classes in finance, specifically, you have heard of some of these concepts. But if you haven't, perhaps you have not heard some of these concepts. 

So today, we are going to ask the question, what is CAPM, C-A-P-M, it’s the capital asset pricing model. Capital asset pricing model is basically trying to assess risk versus reward. And you can use CAPM for paper assets, you can use cap them for real estate, you know, there's all kinds of ways that you can measure it, CAPM is a very specific formula. So very specific formula. But it's pretty easy to understand this is not complicated. 

Here's the formula, the risk-free rate plus beta, we'll talk about beta here in a moment. And we're multiplying beta times the expected rate of return minus the risk-free rate. So imagine, the right side of the equation is beta times expected rate of return minus risk-free rate, the left side of the equation being just risk-free rate. So we have to add up and multiply that right side of the equation before we can add the risk-free rate to it. So I hope that makes sense to you. 

Investopedia has great information, I'm sure Wikipedia and all kinds of other places do too. So what is behind, this formula, what was behind the CAPM, and why we want to use it is because we want to evaluate the reasonableness of future expectations as to whether or not an investment might be a good one. We have this whole thing we grapple with, with so many different investment possibilities, we have to weigh the risk and reward of each one of them. And so there's this whole idea that markets are efficient. How can I explain that essentially, things are priced accurately. So that's one of the assumptions behind capital asset pricing model, that as you're taking more risk, that you should expect a higher and higher rate of return as your risk increases. 

So in this formula, where we have the risk-free rate, plus beta times your expected rate of return minus the risk-free rate, let's break down each one of these components. And that's equal to CAPM, which is the expected return of the investment. So the risk-free rate, most people will measure the risk-free rate as being something that is extremely low on the risk scale. So for example, if you have a savings account or a money market account or something, something like that, you know, on a scale of one to 10, that's a one, you know, very, very, very low risk there. There's government insurance behind some of that stuff. So you could use a savings account or a money market rate or something like that as a risk-free rate of return. 

A lot of people will generally look at treasury bonds as an example, as being a benchmark of a risk-free rate. So something that may That'd be the United States government might be another country that man, they have a sterling reputation, great cash flows, we know that they're going to pay, therefore it's risk-free, a risk-free rate. So typically, people might plug in 2% or 3%, somewhere in that range based on maybe a 10 year Treasury, or something like that as a benchmark.

So let's use 3% as an example. But you could use 2%. Because 1%, we can argue what that risk-free rate of return should be. So that's the first thing we add on the left side of the equation. Now we're going to use that same number on the right side of the equation for the risk-free rate as well, because we're going to subtract that, from our expected rate of return for an investment. The next number that we should probably talk about is the expected rate of return. And this is where there's, there's a lot of conjecture, and it can be hard to measure this because now you got to plug in an assumption. First, we assumed the risk-free rate. Now we got to plug in an assumption of what that expected rate of return might be. 

So let's say, for real estate, for example, that we feel that 6% is a good solid historical rate of return, this investment might do better, I might do worse, but we feel an average this kind of investment might be a 6% rate of return. So now, let's use 6% minus the 3%. That gives us three, right? On the right side of the equation. Well, now we have the multiply that times the beta, what is beta is how does this potential investment measure up to how much risk this particular investment will compare to a larger portfolio of them like the whole market. So if we buy a million-dollar house, compared to a $200,000, starter home, there is a lot more risk in that million-dollar home compared to the average value, let's say is $200,000 and most houses, so your beta might be a two, twice as much risk versus the general market. So if we take that two, now that risk that we're taking, we're measuring the amount of risk that we're taking two times that difference, 6% minus 3%, that gives us 6%. Again, right, six minus three is equal to three, three times two, our beta gives us six. And now we have to add that to our risk-free rate 6% plus 3%, gives us nine 9%. Being the overall expected rate of return on this investment, which actually, I'm sorry, the expected rate of return in that formula is the expected rate of return for the market in general. So if the market is six for let's just say houses, then we subtract the three. And that gives us 3% is the expected return on the market now we're multiplying times beta for this specific investment. So the 9% total expected rate of return for the investment is like you're getting another 3% on top of the market at six. So it's telling us the expected rate of return for investment relative to the market relative to the risk-free rate. So essentially, as we compare for an efficient market, we should expect the more risk you're taking that beta number, the higher your rate of return, the lower the risk, the closer to the risk-free rate you get the lower your rate of return is going to be and again this is all assuming an efficient market well we all know sometimes things go crazy sometimes or not in an efficient And market at all, you know, you can take a look at March of last year during the pandemic. And in certain assets got creamed. Every asset got creamed for a brief time period doesn't matter what it was a paper asset, or real estate, or whatever, things got creamed for a short period of time. 

So there's a lot to absorb here. A lot of assumptions that we make in terms of what they are. And ultimately, you know, what, what this should help you with is determining whether or not it's worth the risk to invest in an asset. 

Last week, we talked about the internal rate of return, which is another way of measuring it, CAPM is helping us analyze, what's the market at what is the risk of this investment relative to other ones cuz remember, IRR wasn't telling us relative risk, CAPM now we bring that in. Now we can talk about relative risk on top of an IRR. So we can look at those things together. And we can run multiple scenarios in IRR. Look at CAPM could look at multiple scenarios and CAPM to determine does this looks like a good investment or not? So that's ultimately what we're trying to do, as we look at different degrees of risk different kinds of investments, and trying to figure out what is this all about. 

So that basically is a very quick primer, my friends on this concept. I hope now if you ever hear it, you know you can talk about it somewhat intelligently. I made a mistake when I talked about the initially I forgot to mention that it was the market risk of that category, not that specific investment. So I make mistakes to myself, as I get passionate and talking about this. There's remember this term CAPM as a way of measuring risk relative to the risk-free rate relative to that same category of investments. And remember, all of this is based on assumptions and what your assumptions aren't. So the main lesson I can tell you from practical experience is using a variety of assumptions is the right way to go. And so my friends that wraps up another episode for today, I would love to hear from you on what are other finance topics. And as I look forward to the rest of this season, at season seven coming next year, I would love to know from you what are topics that we should tackle What are basic finance terms that you're like, what the heck is that? And what does that mean? I would love to hear from you to have a good idea of how I can better serve you in these podcast episodes. As you know doctors mean so much to me and my family want to do my part to contribute back to you guys and helping you understand everything here for the freedom formula for physicians podcast. 

This is Dave Denniston, thank you again so much for listening, my friends, wish you and yours all the best. And remember, to slash your debt, slash your taxes and live a liberated lifestyle.

 

For all the show notes, and more, check out the podcast website at www.doctorfreedompodcast.com

S6, Episode 7 - What is IRR?

S6, Episode 7 - What is IRR?

October 15, 2021

Good to see you again in Freedom Formula for Physician podcast!

During this pandemic, we are thinking about how to invest our money properly. We are all struggling during this time, so we must be wise about our money.

This episode will teach you about finance that you can use for your business and investment.


In this podcast, you will...

  • Learn about IRR, Finance, and Investment
  • Be knowledgeable about other business terms
  • Learn more about cash flow
  • Weaknesses in investing and how to deal with it
  • Difference between IRR and ROI
  • What is a good IRR?

Resources Mention In This Podcast

calculatorsite.com/finance/calculator/IRR-calculator.php

Dave@doctorfreedompodcast.com

 

For all the show notes, and more, check out the podcast website at www.doctorfreedompodcast.com

S6, Episode 6 - Michael Neal - Build My Team

S6, Episode 6 - Michael Neal - Build My Team

October 8, 2021

Welcome Back to Freedom Formula for Physician Podcast!

Today’s episode is really interesting. If you want to get some tips in the medical field or are interested in building your team in the future, then you have to check this out.

But first, I would like to introduce to you the founder of Build my team, an eye doctor and a gentleman who’s very dedicated to helping health professionals.

Let us welcome, Dr. Michael Neal. Welcome, Dr. Neal!


In this Podcast, you will…

  • Discover more about Dr. Neal - (Captivating life stories)
  • Why did he move from Canada to the US?
  • How did he end up as an eye doctor?
  • Why did they almost get a divorce during their practice?
  • Listen to his adventure during his practice
  • His nanny as a bookkeeper?
  • Advice for people in medical fields
  • How does he evaluate potential employers?
  • Process and tests in hiring people
  • Hints to have game changer to your life

 

Resources Mentioned In This Podcast

www.buildmyteam.com

 

For all the show notes, and more, check out the podcast website at www.doctorfreedompodcast.com

S6, Episode 5 - Arya EHR - Richard Sztramko

S6, Episode 5 - Arya EHR - Richard Sztramko

October 1, 2021

Happy return to The freedom formula for Physician Podcast.

It’s the first month of October and a great time to start a routine to listen to our episode today.

Let’s start this episode by welcoming the Physician Co-Founder of Arya EHR.

Please help me welcome Rich Sztramko, Welcome Rich!


In this podcast, you will…

  • Discover about the journey and struggle of Dr. Rich Sztramko
  • Difference between US and Canadian medicine
  • Dr. Rich story about growing up with his dad working as a fishery 
  • How did he come up going to medical school?
  • Process of getting to medical school
  • Shares about money lessons he learned along the way
  • Canada Vs. US salary
  • How hard would it be to get into medical school in Canada, if you’re from the US?
  • How did his current venture of making an EMR come all about?
  • His evolution from nothing to becoming a successful one
  • Listen to his advice to other physicians that want to be entrepreneurs 
  • How does he balance being an entrepreneur and an employed physician?
  • His insights about how would you know when you achieve financial freedom

 

Resources Mention In This Podcast:

www.aryaehr.com

https://www.linkedin.com/in/richardsztramko/

 

For all the show notes, and more, check out the podcast website at www.doctorfreedompodcast.com

Season 6, Episode 4 - Sherie Neufville of Start Med Life

Season 6, Episode 4 - Sherie Neufville of Start Med Life

September 24, 2021

Good to see you again here! I know we are in the midst of a pandemic but this won’t hinder us from achieving our dreams and be successful in life.

If you are interested in having a business or you are a medical student or you want to be one in the future, then you have to listen to this episode.

I want to introduce to you a very hardworking woman, a doctor who’s teaching medical coding, a business owner, and a mother.

 

Let us welcome Sherrie Neufville. Welcome, Sherie!

 


In this podcast, you will…

  • Get Inspired by the story of Sherie about her medicine journey
  • Money lessons she learned along the way
  • What did she end up doing in Medical school into residency?
  • Her advice about going into residency or going to practice?
  • The ups and downs that she’s been through during the process
  • How did she start her business while practicing medicine?
  • She shared about the biggest mistake she made
  • Who is her target audience for her product?
  • Time management from doing business, taking care of her family, and practicing medicine.
  • Sherie’s thought about people who are good candidates to do be owning a business
  • Life advice for people who want to succeed in life

Resources Mentioned In This Podcast

Email

Website

 

For all the show notes, and more, check out the podcast website at www.doctorfreedompodcast.com

S6, Episode 3 - Jacob Vanderslice on Self Storage Facilities- VanWest Partners

S6, Episode 3 - Jacob Vanderslice on Self Storage Facilities- VanWest Partners

September 17, 2021

Good to see be back! I know you are here to learn and to feed your brain something for your growth and I am so proud of you that you keep yourself improving.

Today, I want to give you an idea about a man who was once a firefighter but now a successful real estate investor.

He is the Principal at VanWest Partners, a Denver-based real estate investment firm focusing on the acquisition and management of self-storage centers and other opportunistic real estates throughout the United States.

I can't wait for you to learn more from him!

Let me introduce to you, Mr. Jacob Vanderslice. Welcome to the show, Jacob!


In this podcast, you will...

  • Learn about Storage Facilities, and Prons and Cons of the asset class
  • Discover the journey of Jacob Vanderslice from being a firefighter to Principal, Real state, and Finance
  • How did Jacob learn real state? Was it hard for him?
  • How did he start from it? Listen to his stories during one of his tough years and how he goes through it
  • Jacob shares lessons and advice on how to survive during hard times
  • What was Jacob’s zero-down kind of thing that happened to him?
  • Learn about low-interest-rate environments
  • Do Tenants live in Storage Facility?
  • Discover the Positive and Negative side of having Storage Facility Business
  • Jacobs explained about cap rates
  • How Covid impacted his business
  • What are the pros and cons of being a passive investor VS. an Active investor owner?
  • Learn Jacob’s advice to people who want to start a self-storage business
  • Discover the budget range on buying a square foot building
  • Learn the Inflation rate in the Real state / Cash flow in the Real state
  • Understand more about investing in real state
  • Are the use of leverage fixed or variable?
  • What is the potential danger of interest rate?
  • How to avoid bad operator and how to spot a good one

Resources Mentioned In This Podcast

Book:

The Big Short - Michael Lewis

Websites:

Amazon

VanWestPartners

Jacob Vanderslice

 

For all the show notes, and more, check out the podcast website at www.doctorfreedompodcast.com

S6, Episode 2 - Land Academy Interview

S6, Episode 2 - Land Academy Interview

September 10, 2021

Good to see you back. I know a lot of you are excited to learn and be knowledgeable about something today and I am happy to see you here.

Our guest for today will inspire and motivate you especially, for the couples out there who want to start to build their future.

This lovely couple has been cofounders of Land Academy Since 1999. Since their start, they have completed the acquisition and sale of more than 15,000 properties without incurring leverage or debt. With such an amazing track record, it is no surprise that they began sharing their experience as investors with the real estate investment community! Jill and Steven rose to become some of the best investors in their field. They have easy-to-follow advice and lots of free tips and tricks for all of you!

I can't wait to hear about their journey!

Please help me welcome Steve Butala and Jill DeWitt. Welcome, Steve and Jill!

 


In this podcast, you will…

 

  • Learn more about Land investing
  • Discover the stories of Steve Butala and Jill DeWitt on how they start this kind of business
  • Learn the struggle and hardships that you need to go through in Land investing
  • How Steve Butala and Mark Podolski join forced together
  • Discover about Financial and technology crisis before and now
  • What are the technology that helps them buy and sell land much easier
  • Discover the tools to use for Real estate investor
  • How Jill and Steve deal between their relationship and business
  • Learn the process on how they generated seven digits together
  • What are the motivations to not give up on your dreams / to the things that you want to achieve
  • Find out their secret to sold properties for the past years up until now
  • Jill’s perspective about how their business and relationship have grown for the last 10 years. How have they done things together?
  • They reveal about their stepping journey to become successful
  • Listen to their advice for people who have a lot of excuses to learn and take action
  • Their formula to financial freedom

 

 

Resources Mentioned In This Podcast

eBay
Landtank.com
Land Academy - (Youtube, Facebook, and Podcast)
Docusign
Google earth

 

For all the show notes, and more, check out the podcast website at www.doctorfreedompodcast.com

S6, Episode 1 - Changing Leaves in a New Season

S6, Episode 1 - Changing Leaves in a New Season

September 3, 2021

Welcome to season 6 of the Podcast. I've taken some time off and you have been relistening to season 2 and season 3 of the Podcast that we've been replaying them and I hope you are enjoying them. 

This season I am looking forward to bring new content and some new guests. Last season was a lot of focus on what happened with the coronavirus and the financial implication of the coronavirus. 

In this podcast, you will discover: 

  • What content I'm planning to discuss about finance 
  • Discover the land businesses that I have and partnered with 
  • Learn about tax liens I've been dabbling in 
  • How to get a great deal on the books that I have 

 

Resources Mentioned In This Podcast 

Email: dave@doctorfreedompodcast.com 

For all the show notes, and more, check out the podcast website at www.doctorfreedompodcast.com

S3, Episode 41-The Complete Guide to Taking The Road Less Traveled-[Physican Fireside Chat] with Dr. Michelle Mudge-Riley from Physicians Helping Physicians

S3, Episode 41-The Complete Guide to Taking The Road Less Traveled-[Physican Fireside Chat] with Dr. Michelle Mudge-Riley from Physicians Helping Physicians

August 27, 2021

My name is Dave Denniston, your host. Welcome back my friends to the latest episode of The Freedom Formula for Physicians Podcast.

Welcome back to our monthly fireside chat with a physician to get to know their journey, their joys, and their struggles with finances and outside of finances.

My friends, in this show, I try and dig deep to find interesting people. As a matter of fact, our next guest was featured on the August 27th, 2016 episode of Dr. Nii Darko's podcast, Doc's Outside The Box.

I was immediately drawn to this episode, as it was titled, "This doctor had it all, but didn't want it."

She was top performer in medical school, and then got to the point of struggling with whether or not she wanted to be in clinical medicine. Fresh out of residency, she decided she not to.

In this interview today, we’re going to talk about her journey and successful transition, because now she is helping other physicians do this as well.

Please help me welcome Dr. Michelle Mudge-Riley from Physicians Helping Physicians. Welcome Michelle!   

In this podcast you will:

  • Discover what led Dr. Mudge-Riley away from clinical medicine into helping other physicians who also want to escape clinical medicine.
  • Be inspired on how taking the road less traveled can lead to the greatest successes.
  • Gain knowledge on how Physicians Helping Physicians, Dr. Mudge-Riley's organization, develops customizable plans for each of their clients.
  • Learn from Dr. Mudge-Riley's mistakes and acquire the right tools and protocol to protect yourself if you decide to also move away from clinical medicine.

Resources mentioned in this podcast:

Doc Outside The Box-Dr. Nii Darko's Podcast

Dr. Michelle Mudge-Riley's Docs Outside The Box episode

Physician's Helping Physicians-Dr. Michelle Mudge-Riley's organization

 

For all the show notes, transcription and more, check out the podcast website at http://doctorfreedompodcast.com/

S3, Episode 40-[Physican Fireside Chat] with Dr. Fahd Ahmad from Rogue Dad MD.

S3, Episode 40-[Physican Fireside Chat] with Dr. Fahd Ahmad from Rogue Dad MD.

August 20, 2021

My friends, in this show, I try and dig deep to find interesting people. As a matter of fact, our next guest was recently featured on The White Coat Investor.

This wasn’t just some guest post that I read. This physician worked with some colleagues to do an assessment of residents’ and fellows personal finances literacy.

In this interview today, we’re going to get into that assessment as well as to learn about his journey and his experiences.

Anyhow, I can’t wait to hear about his journey and his advice for us!

Please help me welcome Dr. Fahd Ahmad from Rogue Dad MD. Welcome Fahd!   

In this podcast you will:

  • Discover what led Dr. Ahmad away from a finance career into a career in medicine.
  • Aquire knowledge on what financial training is being missed that can you lead you to financial independence.
  • Receive a technique that is father used to teach him about money and investments at a young age.
  • Gain the thought process that Dr. Ahmad would use now if he could go back and restart his spending and savings habits at the bigging of hgis carrer. (HINT: You may be suprised at how he would prioritize his money)

For all the show notes, transcription and more, check out the podcast website at http://doctorfreedompodcast.com/

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