Investing In Stocks For Beginners

hey everyone today we are going to do something very different we have done dozens of videos about the stock market covering everything from the basics of the stock market to how to analyze stocks and everything else there is to know about investing in the stock market so in this video we have chosen the most important videos we have ever done and turned them into a little course a complete guide to the stock market it doesn't matter if you are a beginner who knows nothing about the stock market or already an investor this guide to the stock market will still help you to take your investing skills to a different level there is going to be a table of content in the description so that you can skip to the parts that you want to learn or come back and re-watch them again this is going to be a really long video so if you're ready grab a drink and some snacks and enjoy the video the stock market is hitting a record high people have invested at the bottom of this crash doubled or in some cases tripled their money think about it it took you 10 years to save a hundred thousand dollars and you had the opportunity to save yourself 20 years and triple your money in just five months i'm not even exaggerating the exact same tesla stock that used to cost five hundred dollars six months ago now worth over fifteen hundred dollars however a lot of people miss this opportunity which comes once in a decade simply because they don't know enough about the stock market so if you're an investor please skip this video because we will cover the basics of the stock market what exactly is a stock how does the stock market works how to buy a stock how to find good stocks that will earn you money but before we start make sure to give this video a thumbs up and if you want to learn more about the stock market you can join our community of investors on patreon here is a simple way to understand the stock market suppose you come up with an idea of selling stuff online you hire a bunch of developers to build the website for you for the sake of simplification let's say you decide to name your website amazon.com it's a simple and creative name that accidentally crossed your mind to make things easier let's say you start selling books lucky for you business is going awesome but you have a problem you're making money but not enough to expand fast theoretically you can start selling everything on your website from electronics to kitchen equipments but you need the capital to rent a place and build your infrastructure if you're not going to do that your competitor might take advantage of that and will crush you but don't worry here is a brilliant idea you can sell a portion of your company and use that money to expand your business let's say your company is valued at 100 million dollars divide your company into 1 million stocks with each stock priced at a hundred dollars let's say you could convince an investor to buy a hundred thousand stocks for 10 million dollars congrats now you have the money to expand your business and that investor gets a 10 stake in your valuable business you're doing great your business is growing fast but you want to expand even faster since you have made a name for yourself there are tons of people in the country or even worldwide who want to buy a small piece of your company but you can't simply sell pieces of your company from your office you need to list your company in a place called the stock market it's a market for companies where people come to buy and sell small portions of companies called stocks such as the new york stock exchange or the nasdaq since you own 90 of your company let's say you list 200 000 stocks on sale in the market and raised millions to expand of course we have oversimplified everything here but that's the general idea but most of the stocks in the stock market are not sold by the companies directly but rather by people who have purchased them when the company listed their stocks for the first time that's known as ipo initial public offering if you hit the stock market to buy some apple stocks you probably won't be buying them from apple directly but from someone else who owns a bunch of them and wants to sell them maybe he purchased them last year and the price has doubled since then and now he wants to sell them to make a profit unfortunately you can't get into your car drive to the stock market find an apple store and buy some apple stocks that's not how it works you need the middleman who has a relationship with the stock markets they are known as brokers it can either be an individual or a firm or even your local bank it's pretty much like real estate you can't purchase a house directly from the previous owner you need someone who is licensed to buy or sell real estate such as a real estate agent so if you want to buy apple amazon or whatever shares from the stock market you need to find a broker usually they have to get paid for their hard work for helping you to buy or sell stocks by charging you a small commission fee it could either be a fixed amount per trade or a fixed percentage of the total trade most banks today also provide such a service but recently there has been a lot of innovation in this industry in 2013 two guys from california launched an app called robinhood a broker agency that made buying and selling stocks possible from the comfort of your smartphone the best part of it is that it's absolutely free now since you know what exactly this stock and how to buy one you're probably wondering why should you buy stocks at all i mean why would you give the money you have earned with blood and sweat to this multi-billion dollar corporation that makes so much money that they can buy entire countries well let's say hypothetically company a produces and sells cars and has a total number of 1 000 shares or stocks where each share costs a hundred dollars so the total value of the entire company is 100 000 if let's say next year company a builds another factory hires more people and eventually sells more car the company's total value will rise let's say to 130 thousand dollars but since the company consists of 1 000 small pieces called stocks where each cost a hundred dollars individually each stock will increase by 30 dollars since the company as a whole rose by 30 percent so if you have purchased one stock from company a last year for 100 today it would worth 130 dollars you can sell it and make a profit of 30 in other words when you're investing in the stock market you are buying portions of businesses which are called stocks and as these businesses grow so the value of your stock but you may wonder if by buying a stock i become an owner of a certain portion of the company shouldn't they share with me the profits the company make yes they have to they're known as dividends apple for example paid a dividend of over three dollars for each stock last year by now you probably think that instead of saving money i can buy stocks and my wealth will grow theoretically yeah one of the companies that grew really fast in recent decades was apple since iphone sales were increasing year after year in 2014 a single apple stock used to cost around 100 six years later as the company kept expanding and introducing more products and increasing their sales the stock price rose to 379 dollars at the time of me writing this script in other words your hundred dollars invested in apple would worth 379 dollars when you buy a single share it doesn't make a big difference but let's say you have invested one hundred thousand dollars your investment would worth 379 thousand dollars you've more than tripled your investment in just six years but before you throw your money into the stock market because it looks so easy hear me out because there is a catch not everything is sunshine and rainbows because these stocks are listed on the public exchange the number of factors that influence the price of the stock are too many and often the price of the stock does not represent the real value of the company let's say hypothetically there is an electric car company that gets a lot of hype around it for the sake of simplicity let's call it tesla the company might generate a lot of hype around it because its ceo is a marketing genius a lot of people might get excited and start purchasing tesla stocks and according to the laws of economics when the demand outweighs the supply the price increases the price might double or triple in a matter of a few months but its real value did not double or triple in such a short period of time the demand artificially increased it in the last six months tesla stock increased from around 500 to 1500 tesla is a great company and is doing great stuff and it will probably be super profitable sometime in the future but from an investment point of view the stock price today does not represent the value of the company which means it's overvalued which means sooner or later the price will fall to its true value as an investor you either want to buy stocks of companies that represent their true value or stocks that are undervalued because both will rise in the future of course that's not an easy job you have to analyze companies read their financial statements assess their business models and make a rational decision based on facts and numbers which is what we teach here on this channel how many millionaires do you think are there in the world you won't believe this number but there are almost 47 million millionaires worldwide and guess what almost 20 million of them are here in the united states let me give you one more shocking statistics every year around 700 000 people become millionaires just in the united states alone it seems like becoming a millionaire isn't as difficult as many of us are led to believe but as we all know it's almost impossible to become one if you do not learn how to invest most people are interested in the stock markets but the problem that many people face is how to find good stocks how do you know if it's a good stock to buy or not people usually base their decision on the news if the stock is rising and it gets a lot of attention it must be a good investment and vice versa of course unfortunately that is the worst way to invest by the time it's out there in the news you're probably late so here in this video you will learn how to find great stocks how do you find stocks that will rise in value over time if you stick around by the end of this video you will learn how to analyze stocks like a professional investor apple has a valuation of 2 trillion dollars and its stock price is traded at around 120 dollars at the time of this script but what if i told you that just in august of this year apple's stock price was 500 does that mean that the company was already valued at 10 trillion dollars and it lost 80 percent of its value in the last few months in fact apple's stock price in june 2014 was 645 does that mean that the company was way more valuable back then not really that's why looking at the stock price is not investing oh yeah that's warren buffett's quote if it's already seems too confusing don't worry because that's why i'm here to simplify everything for you and turn you into a professional investor in under 10 minutes because the youtube algorithm taught me that my audience are some of the smartest subscribers on the entire platform and they learn 10 times faster than anyone else so i'm counting on you don't let me down if you take a look at the companies that are traded in the stock market they have a price tag but because no one can afford that they're broken down into many many stocks the key question is does this company really worth 768 billion dollars the answer is no you see there's a big difference between price and value the stock price jumps up and down every single day even slightly negative news that could be fake can drive the price down however not the value because the value is what the company is really worth for example in july 2018 facebook's earnings weren't as high as some of the investors expected so the stock price fell from 217 dollars to 176 dollars that's a 20 decline the company lost 120 billion dollars of market cup in a single day does that mean that the company became 20 smaller overnight of course no that's why the stock price jumped back to its pre-decline level and is 30 higher now so if you want to make a good investment you have to find out the real value of the company and then compare it to the price that it's traded in the market if it's undervalued it's a good investment if it is overvalued it's a bad investment it's as simple as that in 2002 buffett came across a company called petrochina after analyzing its financial statements it was clear that this company worth at least a hundred billion dollars but when he looked at its market cup the company was traded at just 30 billion dollars and based on the political climate it was clear that oil prices would rise he knew that it was a golden opportunity so he invested almost half a billion dollars into this company and guess what happened the company didn't just reach a hundred billion dollar valuation but it skyrocketed to 275 billion dollars buffett sold a stake and earned 3.6 billion dollars from this deal so the question is how do you find the real value of a company one of the most popular methods is the p e ratio or price to earnings ratio it basically means the amount of money investors are willing to pay for every dollar that this company earns it's a simple tool to measure if the stock is overvalued or undervalued let's say hypothetically apple earned two thousand dollars this year and has a total number of one thousand shares dividing apple's earnings on the total number of shares gives us earnings per share or eps in short this means apple has earned two dollars for every share to find the p e ratio you have to take the price of the share let's assume it's 50 and divide it on eps in this example investors are paying 25 for every dollar that apple earns in other words it would take the company 25 years to pay you back a good p e ratio is considered something around 15. anything higher than that could mean that the stock price is probably overvalued tesla's p e ratio is for example 970. does that mean that tesla is overvalued maybe or maybe not when finding a p e ratio of a certain company we take into account earnings per share for the last 12 months but when you invest in a certain company past earnings don't matter what matters is how much the company is going to earn in the future which is why there is something called forward p e ratio of course you can't know for sure how much the company is going to earn in the future so the number that is used is the average of what experts usually predict if we go back to tesla despite it having astronomical pe ratio its forward p e ratio is closer to the earth at 123 which means you will have to wait 949 years to earn your money back if you invest in tesla based on its past 12 month earnings but experts are calming us down by saying that don't worry it's not that long tesla is going to be much more profitable so it's just 123 years which is why most investors consider tesla an overvalued stock but we all know that elon musk is an alien and he's going to prove everyone wrong as he does all the time the price to earnings ratio isn't the most accurate method to value a company but it's the simplest way to have a broad idea of how the company is performing the company might come up with a revolutionary product and beat all expert predictions so to make a wiser prediction you have to consider other analysis as well such as price to book ratio it basically means how much the company is going to earn if it sold all of its assets and paid off its debts let's return back to tesla tesla has gigafactories thousands of charging stations offices patents and a lot of other assets let's say they all amount to 100 million dollars but it also has a lot of debt let's say 70 million dollars if we subtract its debts from its assets we'll get a book value of 30 million dollars so if tesla has 10 million stocks its book value per share is going to be 3 to find out how much you will be paying for each dollar you have to divide the stock price which is let's say 15 dollars by the book value of shares in plain english you will be paying five dollars for each dollar of assets that tesla has a good price to book ratio is considered something around one but sometimes it's really difficult to put a price on something like an algorithm that instagram is running on or snapchat filters but financial analysis is just one part of the story startups for example usually have a lot of debts and not many assets and might struggle with cash flow but could end up becoming widely successful so never rely on financial analysis as the sole predictor of company's success there are many other indicators that we have covered in previous videos which links i will leave in the description nevertheless financial analysis can give us a better image of how the company is performing one of the metrics that investors use to value companies is discounted cash flow it can help us to understand where the market is overall headed to without getting into a lot of details i will explain what discounted cash flow is how is that related to what the fed said and will there be another crush interest rates aren't just important because they make borrowing money cheap or expensive today but also because they influence the value of future cash flow which is what investors are concerned about the most you don't care about how much the company is earning today or how much it has been earning in the past what matters at the end of the day is how much the company is going to earn in the future based on that you will decide whether you should invest in this company or not stocks always compete with other types of investments such as bones cash fixed deposits whatever let's say you have a thousand dollars in your pocket is it better to invest in the stock market bond market or just keep it in your wallet obviously investing is way better let's say interest rates are just five percent if you invest in government bonds your thousand dollars will worth a thousand and five dollars next year so it's important to look at the time value of money the sooner you have the cash on your hands the more it worth because the sooner you will be able to invest it a dollar today is worth more than a dollar tomorrow so if the company is going to earn a billion dollars five years from now it is not going to be a billion dollars because a billion dollars five years from now worth less than a billion dollars worth today because you could invest it and get five percent at least every year so it's not enough to look at the company's future cash flow oh this is how much the company is going to earn in the next 3 5 or 10 years but you have to find the present value of future cash flow how much that billion dollars five years from now worth today it sounds a bit complicated but i'll try my best to simplify everything you can use this metric in the future to value other companies of course no one knows how much any company would earn in the future it's all predictions but these predictions are based on multiple factors such as how the company is performing today where is it investing what is their strategy how is the business environment what are the chances that the company will hit its annual objectives what is the political climate there are a lot of analysts who prepare certain type of predictions let's say hypothetically there is a company called amazon and it's expected that it will generate a hundred thousand dollars every year for the next three years on the other side interest rates are just five percent they're expected to stay there for the next three years at that rate a hundred thousand dollars next year would worth ninety five thousand two hundred thirty eight dollars i got that number by dividing the future cash flow which is a hundred thousand dollars by one plus point zero five percent at the power of one because the formula is future cash flow divided one plus r which is the rate at the power of the year if we apply the same formula in the second and third year these are the numbers we're going to get first here ninety five thousand two hundred thirty eight dollars second year ninety thousand seven hundred and two dollars third year eighty six thousand dollars three hundred eighty three the company's future cash flow isn't three hundred thousand dollars as it seems at first glance but two hundred seventy two thousand three hundred twenty three dollars or the sum of these three numbers i told you it's not as complicated as it seems here's the interesting part what happens if interest rates are lower what happens if the fed lowers interest rates to one percent for example how will that impact the projected cash flow let's do the math first year instead of 95 238 dollars it is going to be 99 0009 when the fed lowers interest rates suddenly on paper these companies are going to make more money even though nothing absolutely changed for them let's do the second year and the third the second year will be ninety eight thousand and twenty nine dollars and the third ninety seven thousand and fifty nine dollars which makes it a total sum of two hundred ninety four thousand and ninety seven dollars which is higher than the previous 272 thousand dollars remember the most important thing that investors care about is how much the company is going to earn in the future that's why whenever the fed lowers interest rates stocks become much more attractive even if they're not going to borrow money this metric is even more important when it comes to tech stocks because most tech companies are betting on making huge profits in the future such as tesla it's a great company but it's barely profitable but the idea behind it is that sometime in the future it is going to be super profitable it is going to make a lot of money but a dollar today worth more than a dollar tomorrow so when the fed lowers interest rates tech stocks suddenly jump through the roof when you think about the stock market the first thing that comes into your mind is this complicated world of the stock market where no one seems to clearly understand what's going on because whenever things seem to go in the right direction we end up facing a financial disaster but unlike everyone else one gentleman seems to know a secret formula when it comes to investing over his life he continuously made successful investments over and over and he is considered by many as the greatest investor of all time he was so good that just by the age of 16 he already made 53 000 it still surprises me how harvard didn't accept him they probably regret it now but that doesn't matter because what we are going to focus in this video is how does warren buffett invests a lot of people out there are eager to invest but they don't know which companies to pick so i thought how about we take a look at the step-by-step process of how warren buffett picks a stock he doesn't randomly invest if you take a look at all the companies he has ever invested you will realize that they are all interconnected they have similar traits similar values and function in a very similar way so let's find out why does he prefers one stock over the other why does he picks this company over all the other options that he has warren buffett is a long-term investor he couldn't care less about how the company is going to perform today or tomorrow or even the next year his primary concern is where the company is going to be 10 years from now or 15 years from now but it's quite difficult to predict that if the company is too complicated so it just looks for businesses that are simple and direct this is the product these are the customers and this is why they are going to buy it you don't have to be a genius to understand their business model it's so simple that even a little kid would understand it that's what buffett loves because the simpler the business model the easier it gets to predict if their products are going to stay relevant 10 years from now the second trait is will the customer buy the products again and why and this is remarkably important because if you have the kind of a product that would sell once and then the client wouldn't need anymore then your market is limited a great product is when your client would keep coming back for it every day or every week or even every year like bread for example if you're selling bread you would expect the exact same products to come back tomorrow or next week over and over and 10 years from now people would still need bread you might sell it in a different way or in a different form you might improve its quality package it fancier but it's still the same product that people would keep coming back for and that's what makes iphone by the way one of the greatest products in history because people kept coming back for it every september even though it's not a necessity like bread in fact that's the reason behind the rise of the subscription business model where businesses would charge you a little fee every month like netflix for example or every year like amazon prime because it's a more sustainable strategy but at the end of the day it all comes down to how much value you get for that subscription the third component is the brand people have the tendency to buy from the companies that they feel connected to or familiar whose sneakers would you buy the first ones are from a brand that you have never heard of and the second ones are good old nikes even if they look fancier you probably would hesitate to buy them because you simply haven't heard of that brand before on the other side you easily recognize nike it's a well-established branch you'll easily recognize it and they're known for making great sneakers you might already be wearing a pair of nike shoes so what would you choose and that's why buffett pays so much attention to how powerful is the brand name before throwing his billions into that company he understands how big of an influence it's going to have on the consumer's decision in fact if the brand is strong enough consumers would buy almost anything that company produces warren buffett is one of the major investors in coca-cola in fact he started investing in coca-cola back in 1988 and his investments since then have grown by over 16 times and coca-cola is one of the few companies that have all the trades buffett look at before considering investing first of all their business model it's so simple that anyone would understand it what do they sell a drink who are their potential customers pretty much anyone who is thirsty the entire world is it one-time product or their clients would keep coming back for it every now and then of course they would keep coming back some people drink four or five cans a day it's a product that satisfies one of our most important needs and once you get used to it it's addictive it's not easy to quit even if it's unhealthy however it has a lot of competitors i mean the shops are filled with endless numbers of soft drinks there's so many of them that it seems like there is a new soft drink company emerges every other day but the coca-cola brand is so powerful that out of 20 or 30 options you easily recognize it most people would probably pick coca-cola without even thinking and if it's out of stock you probably would go to another store instead of choosing one of the 30 other options they have think about it 1.8 billion cans are sold every single day if the company will earn a single penny out of every can that they sell that's 18 million dollars a day or 6.5 billion dollars a year but with the such a powerful brand that they have they can charge more than a penny for every can that's why buffett bought 1 billion dollars of coca-cola shares back in 1988. it's his biggest investment he was confident that 10 20 or even 30 years from now this company will keep growing regardless if the economy will crash or another financial crisis is on the horizon let's take a look at another example in 1989 warren invested 600 million dollars in gillette the company that makes razors if you give it a closer look gillette holds the exact same position in its industry as coca-cola does in beverages regardless of what happens people will still shave their products are just feeling that basic human need you don't need to have an iq of 150 to understand why people are buying razors or why they will keep coming back for that product even 10 years from now but of course gillette isn't the only company in its industry it has a ton of competitors however if you ask people to name a razer brand other than gillette ninety percent of people won't be able to do that do you see how it perfectly matches with all the requirements that buffett has it's a simple product that people would keep buying and it has a strong brand name the exact same story repeats with c's candy in fact it has been one of his best investments ever even though that the company wasn't as profitable as buffett wanted it had an extremely strong brand that made all the difference buffett realized that people don't usually buy candies for themselves but as gifts to others so people would keep coming back for christmas valentine's day birthdays or whatever so he acquired the company in 1972 for 25 million dollars when he was making roughly 4 million dollars in profit since then company's profit increased 20 times over the next 35 years in 2007 their profit exceeded 82 million dollars buffett always stayed out of the tech world but recently he massively invested in apple we live in an age where the technology has become more of a need than i want and apple keeps creating the type of tech that people keep coming back for apple has an army of fans who update their iphones every single year of course apple isn't the only tech company out there but it definitely has the strongest brand name of course you still have to look at the financial statements of the company consider all the other factors that will influence the future of the company and each company has some unique circumstances but overall these are the three most important factors to consider when you're thinking where to throw your money in you probably heard that the best investing strategy is just to throw your money into an index fund and let it grow until you retire and with an average growth of 8 or 10 annually with the power of compounding you will be doing great by the time you retire but no one really talks about how to do that how to invest in the s p 500 what stocks we have to buy to do that so here in this video we will answer that question but before we figure out how to invest in vanguard index funds or the s p 500 we have to understand a few key concepts what is an etf how do mutual funds work and what kind of etfs you have to buy to get an average rate of 8 annually an etf or an exchange traded fund is a security that includes within itself multiple other securities such as stocks bones real estate it's basically a financial management company that tax investors money and invest them in certain types of assets but at the same time their stocks are traded in the stock market like any other publicly traded company it's a great way to diversify your investment portfolio etfs usually track a particular index the most famous etf trap you probably heard about is the one that tracks s p 500 s p 500 is a stock market index that measures the stock performance of 500 large companies listed on the stock exchange in the united states there are around 3 700 publicly traded companies in the us alone so as an investor you have a pretty big choice however it's not easy to analyze so many companies and find out what are the best at the same time the safe and investments that's where s p 500 comes into the picture it filters the best and safest stocks out of this basket there are certain criteria that the company needs to meet in order to join the s p 500 suggest the company should have at least 8.2 billion dollars of market cup most of its shares should be in the public's hand the company should be in the stock market for at least a year and many other criterias even a company like tesla with its over 300 billion dollar valuation couldn't join the index but that doesn't mean that every company in the index fund is going to do great in the long run but since they are the largest 500 companies in the country most of them in the long run are going to grow at different rates and judging by historical data since its inception in 1926 it has been growing approximately at nine point eight percent annually or six percent after inflation however there were several years where the index declined over 30 during crises the 10 largest s p 500 companies account for 26 of the index companies such as apple microsoft berkshire alphabet johnson and johnson and a few others if you realize that at least half of them are tech companies so if they suddenly rise for one reason or another they will have massive influence over the market and drug with them the rest of the market but on the other side if they fall the entire market could be down just because tech companies aren't doing great a mutual fund is similar in many ways to an etf but functions in a slightly different way instead of passively investing in a certain index or an industry managers at mutual funds strive to beat the market but at least a small margin so before picking up a company they would analyze their financial statements and try to invest only in companies they believe would do the best investing in a mutual fund is like hiring a bunch of financial experts who will choose where to invest your money in but that doesn't come at a cheap price mutual funds usually charge a percentage for their hard work to manage your money which is typically between point five percent or point seventy five percent anything higher than that most probably doesn't worth it one percent my notes seem like a lot of money if you're investing a thousand dollars but if your portfolio is around a million dollars for example then that's at least a ten thousand dollar difference if that's the case why would anyone invest in a mutual fund well you see when you have a huge portfolio let's say a hundred million dollars beating the market even by a small margin like one percent is a lot of money because that will equal to one million dollars enough to provide you with a luxurious life for the entire year imagine if they beat the market by two or three percent the difference would be massive so the question is where do you find etfs or mutual funds to invest in and that's where vanguard comes into the picture the vanguard group is a financial management company that has multiple etfs and mutual funds under their wing with about 6.2 trillion dollars in global assets under management they have etfs that invest in bonds or different industries or mega caps indexes such as companies that have a market cup of over 200 billion dollars like mgc you can scroll down through their website and find the right etf or a mutual fund for you the famous etf that invests in the top 500 us companies is voo or the s p 500 etf that's currently trading at around 313 dollars at the time of this script its assets worth almost 600 billion dollars with its top 10 investments representing 30 of its assets since most of them are tech companies such as facebook amazon apple and so on which also makes it a slightly risky investment in the short run that's why vanguard puts it at level 4 risk tech companies are quite volatile which means they quite often either significantly rise as they are doing now or dramatically drop so if you're more of a short-term investor that's probably not the best option for you it makes more sense if you're looking for 10 years or more by the way it has an expense ratio but it's really low 0.03 percent that's insignificant this particular etf was created back in 2010 and since its inception it had an average rate of return of 17.7 percent that's incredibly high but you have to take into account that the last 10 years were the longest period of economic expansion in the history of the us and tech companies that makes up 30 of its portfolio skyrocketed in the last 10 years that's why it doesn't mean it's going to have the same rate of return for the next 10 years since if this etf was created three years earlier back in 2007 numbers would be completely different because in 2008 we had a financial crisis the s p 500 was down by almost 50 percent and financial crisis happen every now and then another etf worth taking note is vti or the total stock market etf it's huge with assets reaching almost a trillion dollars maybe because it was created back in 2001 so it has been around for almost 20 years that's why it can give us a more accurate rate of return which has been historically 7.8 percent but vanguard isn't the only financial management service company that provides such services the market is filled with them fidelity zero total market index fund is an etf that's provided by fidelity investment that also invests in the s p 500 or power shares triple q by investing capital management there are just so many of them that we can't cover here in this video the question that most of you are wondering about is how can i buy a vanguard etf stock to invest in one of these etfs all you need is a broker if you are in the u.s you probably heard about robin hood for example this video is not sponsored by them but because they are commission free it makes it easier for many to start but they aren't the only one you can use any other broker but if you're not in the u.s it doesn't matter you can invest in these etfs through almost any broker in your country you just have to find one if you take a look at the s p 500 rate of return for the last 90 years it has been 9.8 percent that doesn't mean it's going to be like that forever but 90 years is a long enough period to assume that it will be around that number for the next few decades or so if you have a full-time job or a business it doesn't make sense to you to sit down and analyze stocks every single day and find good investments you might not even know how to do that that's what makes etfs so attractive it's a convenient way to invest you probably heard about hedge funds but you don't know for sure what they do because they are not allowed to market themselves since they are not regulated that's why very few people know how hedge funds work hedge funds are made by the rich for the rich to make rich people richer and avoid taxes that's all that you need to know if you have never invested through a hedge fund before that's all right because you need a net worth of at least a few hundred million dollars unlike etfs they take a percentage of the profit besides a percentage of the total assets you invest in that's why they try to maximize profits for their clients the most common investing strategy you probably heard is buy low and sell high that's how you and i invest but they're ultra rich like hedge funds invest by reversing the strategy they buy high and sell low that doesn't make sense at first glance but it's simple let's say you expect a certain stock to decline like intel because you know that apple who is their biggest client will announce that next week that they will no longer buy intel chips and make their chips in-house so you pick up your phone and call your broker you borrow from him a single intel stock that cost a hundred dollars and instantly sell it in the open market for a hundred dollars congrats now you have a hundred dollars in your package but you still owe your broker one intel stock let's say you're right and next week until stock price drops to 70 you use that hundred dollars to buy one intel stock for 70 since the price dropped and return it to your broker and pocket the difference congrats you have made 30 out of a fall of a stock it sounds simple in theory but it's extremely difficult and risky in practice what happens if you're wrong what if the price doubles overnight you still have to return that single intel stock to your broker now you have to buy that stock back for 200 to return it to your broker when you buy a stock and try to sell it when it rises the maximum that you can lose is the amount you invested in but in the case of shorting if the price keeps rising your losses keeps rising theoretically you can make unlimited losses since theoretically the stock price can rise indefinitely so when hedge funds realize that gamestop is struggling they decided to play around with its stock and bet against it and shorted 114 of its stocks what wait a second how can you short more stocks than the number of stocks that exist it's complicated but here is a simplified version let's say elon owns one gamestop stock his broker lends his one share to a short seller jeff jeff borrows that stock and sells it in the open market to warren warren doesn't know that jeff actually borrowed that stock so when warren's broker lends his share to another short seller bill who then goes and sells that share to another investor the exact same share knob has been shorted twice this scenario should not have happened but it happens back when the pandemic wasn't even a thing timothy springer understood the danger of viruses and the damage they could cause so a decade ago when he came across a biotech company in massachusetts called moderna he decided to invest in it the company focused on developing drugs and finding new methods to create vaccines it wasn't as exciting as electric cars or online shopping but as a biology professor he understood the importance of vaccines so when the pandemic hit the world the valuation of modern skyrocketed and his 3.5 stake in the company now equals to 2.1 billion dollars that is probably one of the best investments ever but how do you find such companies way before they get popular how do you find investments that can turn you into a billionaire one book that can help us to answer this question is the intelligent investor in fact warren buffett has said multiple times that this book had the biggest impact on his investing philosophy by applying the rules and the principles of the intelligent investor warren buffett went from nothing to 90 billion dollars so let's find out the five most important lessons out of this book number one discover patterns before you buy a single stock or throw a dime into the stock market it's not enough to look at the stock's history what's more important is to look at the history of the stock market itself no matter how great a certain company is every stock is driven by regular stock markets ups and downs amazon has clearly been one of the greatest companies out there but in the 2000s when the dot-com bubble burst amazon's stock price fell from 107 dollars to a little over seven dollars in less than two years even if you have made your fundamental analysis and purchased amazon stocks you would have lost 90 of your investment in just two years but if you had understood stock markets overall history you could have predicted the crash as many other professional investors did and could have saved a fortune of course amazon got back on its knees and turned out to be widely successful but most companies didn't in 2008 the exact same thing happened with mortgage securities at the end of 2017 cryptocurrencies had their astronomical rise and a dramatic dip in fact we made an entire video warning everyone not to invest at the peak and wait until prices crash as an intelligent investor you should not speculate but rather understand stock markets history and discover patterns to find out what is the best time to invest number two choose an investing strategy that fits you apple is one of the companies that made a lot of investors millionaires and even billionaires but if you would have invested a thousand dollars in apple in june 2008 how much do you think you would have made by january 2009 negative 50 if you weren't risk tolerant you would have sold your stake afraid you might lose even more if you do not exit but if you have kept it it would have increased by 3 650 by december 2020 economic crashes like 2008 or 1929 are a fact of life and happen time to time thus you need to ensure that you can take a big hit and survive this means that you should have a diverse stock portfolio so that your investments do not get all hit at once if you're too emotional then consider investing in low risk securities such as government bonds or etfs if you think you can handle stock markets daily ups and downs then you might be able to take slightly higher risk and invest in tech companies for example and expect higher returns once you have found a stock that you have determined to be safe and sound you will want to set your investments on autopilot start by committing yourself to a certain amount of money like 50 bucks which you will invest every month number three don't trust the crowd or the market if the stock market was a human he would be the most emotional person on the planet let's call him mr market mr market is easily influenced and this causes him to have major mood swings you can see this in practice in the way the market always swings back and forth between unsustainable optimism to unjustified pessimism as a result when the market is too optimistic about future growth stock prices rising become too expensive on the other hand sometimes the market is too pessimistic about the future like it was in february 2020 and might push you to sell at the wrong time forcing you to make significant losses when apple came out with iphone xr a lot of people were unsatisfied with this phone so the stock price dropped but a few months later when apple reported good revenue for the quarter the stock price jumped back in fact it has grown significantly since then as an intelligent investor you need to be a realist and stop yourself from following the crowd and ignore the mood swings of mr market the market normally undervalues the stocks of companies which are either temporary and or suffering economic losses berkshire hathaway stock price dropped by 30 in february like the rest of the market but didn't recover instantly like the rest because it had huge stakes in airlines but once it sold its airline stocks and made a few good other investments and reported good profits by september the stock price jumped back if you would have trusted the crowd you probably have avoided berkshire hathaway but if you were an intelligent investor you would have jumped in and invested in fact i invested in berkshire back then and posted on my patreon why investing in berkshire hathaway back then was a good investment and also listened to my advice made a lot of money in fact i also predicted that disney's stock would significantly rise and i listed all the reasons why that will happen on my patreon page back then in september and guess what a few months later the stock price rose by 33 for the exact same reasons that i have told my patreons so if you want to join my patreon page and be the first to know about my future investments you will find the link in the description number four learn how to analyze stocks it's easy to assume that investing is complicated when you look at all these complicated charts but investing at its essence is simple you have to find out the value of a certain company and compare it to the price that it's traded in the market if it's traded at a lower price then it's a good investment since it's undervalued and if it's higher then it's a bad investment since the stock price is overvalued and at some point in the future the price will rise or drop to its real value the challenge is to learn how to analyze stocks for example there is price to earnings ratio which we have covered in a previous video how much you will be paying for each dollar that the company earns if you buy that stock or price to book ratio to compare a firm's market capitalization to its book value to find out how much the company is going to earn if it sold all of its assets and paid its debts or debt to equity ratio to find out to what degree the company is financing its operations through debt versus its own funds if the company is debt-free then it's not taking full advantage out of its resources tesla for example has the technology to build electric cars but it can only build a limited number of cars since it has only a certain amount of cash but it can borrow money at a very low rate of 2 to 3 percent and have a rate of return of 10 or 15 on that borrowed money by building and selling more cars so if it's not doing that then it's clearly missing an opportunity but there is just so much demand in the market so if it borrows too much it might not be able to sell enough cars to make interest payments and might default on its loan but it's not enough to look at the financial statements the management that runs the company is equally important how the company is planning to double or triple its valuation is one of the factors you should be looking at so before buying a stock you have to analyze it from the top to the bottom number five know when to exit the nature of any business is to rise and fall even jeff bezos said that he expects amazon one day to fail the world is constantly changing just because a certain company has dominated an industry today doesn't mean it's going to stay there forever so you have to know when to sell your stocks should you sell just because the stock increased by 10 or 20 percent should you exit and realize your gains not really as soon as you realize that one of the companies in your portfolio is overrated and its stock price is growing without any relation to its true value then it's better to sell before it crashes warren buffett invested half a billion dollars in petrochina when it had a valuation of 30 billion dollars and wasn't popular yet the stock price surged a few years later when oil prices rose first it crossed a hundred billion dollars then 200 then 300 and crossed a trillion dollar valuation but warren buffett sold his stake when the company crossed a valuation of 275 billion many have criticized him for selling too early but warren buffett did the right thing since the stock price was rising for no intrinsic reasons it was overvalued and would crush at any moment unlike every other investor warren buffett didn't know when that crash will happen so he sold his stake the stock price of course crashed once it crossed the trillion dollar mark and is now traded at just 112 billion dollars you don't have to follow each of your stocks every single day but you have to keep in mind that whenever one of the companies that you have invested in dramatically rises for no real reasons then it's better to sell before it crashes in 2017 bitcoin was so popular that it was difficult to come across someone who wasn't interested in investing in bitcoin or one of the other cryptocurrencies especially when tyler and cameron winklevoss the twin brothers were supposed to be the founders of facebook but got their ideas stolen by the software developer they hired named mark zuckerberg became the first bitcoin billionaires i'm not sure what's their net worth today but since bitcoin price has doubled compared to 2017 they have definitely crossed the billion dollar mark whenever something like that happens it definitely turns into a bubble and if you know anything about bubbles they burst when they get too big crypto prices crashed to the rock bottom people lost millions of dollars it seemed for a moment that it was the end of the cryptocurrencies but anyone who understood blockchain knew that this technology is here to stay and in the last few months bitcoin prices rose again up to forty thousand dollars that's twice bigger than it was at its peak in 2017. after the astronomical rest of the stock market in 2020 people are excited to invest since some stocks doubled or even tripled or even rose by over 700 percent within a span of a year so what i want to find out in this video is how do you find investment opportunities that can turn you into a millionaire should you invest in bitcoin or since interest rates are still low should you get into real state pay attention because you are about to learn how to find a million dollar opportunity if you're ready give this video a thumbs up and let's get right into it let me make you feel bad and tell you about all the opportunities that you have missed in the last few years that could have doubled tripled or even grew your money by over a thousand percent or more and bitcoin is just one of many since 2015 bitcoin grew by over 12 000 let me just give you an example of what does that mean if you have invested just a thousand dollars in bitcoin back in 2015 which wasn't that long ago your thousand dollars would have turned to over a hundred twenty thousand dollars this year but if you would have been a little bit more generous and invested let's say ten thousand dollars you would have become a millionaire today since that ten thousand dollars with worth today 1.2 million dollars there are people who purchased bitcoins way before 2015 for a fraction of that price and their thousand dollars worth today at least a few million dollars if not tens of millions of dollars some people even became billionaires as a result of that in summer 2019 which wasn't that long ago a single tesla stock was worth less than 40 dollars and in less than two years the stock price skyrocketed to over eight hundred eleven dollars that's a two thousand percent increase what that means is that if you have invested just a thousand dollars in tesla a little over a year ago your thousand dollars today was worth over twenty thousand dollars in other words if you would have saved fifty thousand dollars by 2019 and invested your entire fifty thousand dollars into tesla your net worth today would be over a million dollars imagine turning fifty thousand dollars into a million dollars in less than two years that sounds like a dream come true in 2012 when the economy just recovered from the mortgage crisis a small company named netflix was getting traction it intended to revolutionize how we watch tv instead of watching different channels you could log in and watch whatever movie you want whenever you want for a few dollars a month not everyone believed in this idea but also understood that the internet is undoubtedly the future decided to invest and the stock price since 2012 rose by over five thousand seven hundred thirty percent which means every thousand dollars that was invested in netflix back then now worth over fifty seven thousand dollars in other words if you invested just 18 000 in netflix in 2012 without doing anything else you would have become a millionaire today and you know what there are people who invested in netflix back then much more than eighteen thousand dollars and are now multi-millionaires let me give you a real-life example david carraton who is a computer scientist and a professor at stanford university came across one of the startups that focused on building a search engine called google back then it was a tiny tech startup that was desperately raising money and its founders were even ready to sell the company for a million dollars to yahoo but cherylton who was a computer scientist understood the potential of search engines so back in the early days of the company he decided to invest a hundred thousand dollars in this company and guess what happened later he did not just become a millionaire he became a billionaire and his net worth today is over 8 billion dollars a single investment turns someone from an average stanford professor who spent years saving that hundred thousand dollars to a billionaire without even participating in growing that company back when the pandemic wasn't even a thing timothy springer understood the danger of viruses and the damage they could cause so around 10 years ago when he came across a biotech company in massachusetts called moderna he decided to invest in age 5 million dollars the company focused on developing drugs and finding new methods to create vaccines it wasn't as exciting as electric cars or online shopping but as a biology professor he understood the importance of vaccines so when the pandemic hit the world the valuation of moderna skyrocketed and his 3.5 stake in the company now worth over 2 billion dollars he went from 5 million dollars to over 2 billion dollars in a span of 10 years unbelievable i can go on and on and give you a million other examples but here is the point there have been a lot of opportunities in the past there are a lot of opportunities today and there will be a million other opportunity in the future how many of them do you have to spot to become a millionaire or a billionaire 5 10 15 no just one you have to be right just once as warren buffett says you don't need to have an opinion on everything it doesn't matter if you miss all other opportunities as long as you spot just one and take advantage out of it you're good the real question is how do you find such opportunities since there are opportunities in every field your job is to be exceptional in one of them and you will be able to spot opportunities there those who are interested in online payments back when the internet was just getting popular got into cryptos gary v who was passionate about social media not only invested a lot of money into facebook twitter and other social media companies but built an entire company around it and is now worth hundreds of millions of dollars warren buffett is the greatest investor of all time but he missed the opportunity to invest in amazon tesla google and a million other opportunities he did not even invest in microsoft although bill gates is his close friend and tried to convince him to invest in microsoft back in the 1990s but you know what it doesn't matter he focused on one niche that he was really good at he waited passionately and only invested when the opportunity striked did he do the right thing well i guess yes since at one point he even exceeded bill gates and was the richest person in the world and he is still now one of the few richest people on the planet but here is the mistake that most people make they invest when they feel they are missing out check bitcoin for example in 2018 when prices crashed bitcoin was trading at around 3 000 all these passionate investors didn't care they completely forgot about it but once it's back in the news and rising everyone suddenly wants to jump in and make a fortune it's too late already investing at its peak is a horrible idea because it will crush can you get lucky maybe can you get unlucky definitely so relying on luck to make a fortune isn't really the best of the strategies i'm not saying that don't invest in bitcoin or don't invest in real estate or the stock market i'm just saying that if you're late to the party don't risk your money don't overestimate yourself and don't try to spot every opportunity out there because you will end up missing them all remember that you have to be right just once and because you're so good at this field you perfectly understand how this business this stock or this technology is going to grow by 10 20 even a thousand times in the next few years so you won't be distracted by the stock market's daily ups and downs anyways i hope you guys have enjoyed this video make sure to give it a thumbs up and if you're new around here and want to see more similar videos subscribe and turn on your notifications thanks for watching and until next time

Channel: Proactive Thinker

Views: 259,025

Keywords: how to invest in stocks, how to invest in the stock market, investing for beginners, investing for beginners guide, investing in stocks for beginners, stock market for beginners, how to start investing for beginners, how to invest in stocks for beginners, how to Invest in Stocks for Beginners 2021, how to start investing in the stock market, how to start investing in stocks, how to start investing with robinhood, stock market for beginners 2021, 2021, stock, stocks, how to invest

Id: 9lbSBtSFUvs

Length: 70min 26sec (4226 seconds)

Published: Sun Apr 25 2021