The Investing for Beginners Podcast - Your Path to Financial Freedom · By Andrew Sather, Stephen Morris, and Evan Raidt | Stock Market Guide to Buying Stocks

Listener Q&A: Should You Adjust Your WACC for Inflation?

·52 min·3 clips

The DCF gets used twice, so inflation can affect both the whack and terminal growth rate.

1. The Investing for Beginners Podcast answers a Spotify question from Passaro94 about WACC, inflation, and the Fed's 2% to 2.5% goal. 2. Andrew and Steven are the hosts, and Andrew carries the valuation explanation while Steven asks the listener question and pushes the math. 3. The episode asks whether inflation should be baked into WACC and DCF work, and Andrew says the model should stay consistent across companies. 4. Andrew says the Federal Reserve is separate from the government and has a dual mandate to keep inflation between 2% and 3% while supporting economic growth. 5. He says people say "don't fight the Fed" because lower rates can lift stock prices, real estate, and other asset prices. 6. He argues that 2020 Fed intervention helped avoid a deflationary spiral, even if the later result was higher inflation. 7. Andrew defines deflation as a world where dollars become more valuable and prices fall, which can cause consumers to delay spending. 8. He says if nobody spends, businesses lose revenue, lose profits, and can move toward bankruptcy and job losses. 9. He describes the rate structure as a chain from the Fed funds rate to savings accounts, car loans, mortgages, and corporate borrowing. 10. He says interest rates from the 1980s to 2020 trended down steadily and helped make homes more affordable through refinancing and cheap capital. 11. Andrew says 2020 made borrowing extremely cheap, and he mentions companies like Apple or Amazon borrowing $10 billion at about 1%. 12. He says cheap borrowing let companies reinvest and hire, but keeping rates too low for too long eventually feeds inflation. 13. On company analysis, he says inflation exposes differences in business quality instead of affecting all businesses equally. 14. He uses Warren Buffett's See's Candy as a capital-light example with strong margins and pricing power. 15. He says auto insurers, home builders, Visa, and MasterCard are examples of businesses that can pass through higher costs more easily. 16. He warns that chicken and other more substitutable products have weaker pricing power when prices rise. 17. Andrew says a DCF uses the discount rate in two places, including terminal value, so inflation can affect the model twice. 18. He ties terminal growth to the 10-year Treasury and keeps it aligned with the whack to avoid unrealistic valuations. 19. The episode sounds like a tutoring session between two regular hosts, with jokes, corrections, and repeated attempts to translate jargon into plain English. 20. Investors learning WACC, DCFs, and inflation sensitivity will get the most from it, while listeners wanting a light, nontechnical show may skip it.

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