Stock Market for Beginners 2021 | Step by Step Guide

hey everybody welcome back to whiteboard finance my name is marco and i'm here to help you master your money and build your wealth in today's video i'm going to teach you how to invest in stocks for beginners step by step so this video is basically going to be a course or a mini course in and of itself so i highly recommend that you watch it from beginning to end whether you're a beginner or even an intermediate trader or a stock investor you're going to find nuggets of information all throughout this video if you're not a fan of this kind of setup or if you like the whiteboard better the reason i'm doing it this way is because this is going to be a powerpoint presentation mixed with live trading mixed with me actually handwriting some stuff on this tablet here so that's an easier way to teach you just that way you can see it live and it'll be easier to connect the dots so let's get right into it so this presentation here i created obviously it's presented by me and if you don't know who i am uh here's you know some quick credibility points on me i've been investing in the stock market for 15 years now i started when i was 18 years old i'm 33 at the time of this recording which is pretty crazy how time flies um but i started with a trade king account so tradeking was acquired by ally and i've actually advanced to you know vanguard td ameritrade m1 finance robin hood weeble there's a million different brokerages that i have my money on uh the reason for that is because i actually review brokerages for both my blog and also for this channel so i like to have my money in a lot of different places i actually have a finance degree and an entrepreneurship degree as well i graduated in december of 2010 uh literally 10 years ago to the date which is pretty crazy starting to feel old and i've actually worked in finance and commercial real estate a majority of my career so i worked at a publicly traded bank as a credit analyst so basically doing what i do with the stock information or these balance sheets and ratios that i'm going to teach you about i actually did that as a job so key bank is a publicly traded bank i worked at markson mill chap on the commercial lending side they're a publicly traded real estate advisory services firm and i also worked for a real estate developer for many years i've built homes that's actually a duplex that i built from the ground up and i've done a lot of stuff in real estate and then finally i've been providing free value on youtube since november of 2017. at the time this recording i think i have somewhere around 465 000 subscribers so just some housekeeping before we get started we're going to get into the presentation but there's a lot of value in this slide so please pay attention i'm going to make this presentation downloadable after i upload it and have a link and then that way you can actually download this entire powerpoint presentation that way you can keep it shared do whatever you want with it there are some offers with free stocks using the links below at the time of this recording robin hood which is the broker that i will be giving you examples on of actually buying and selling a stock on there they're actually giving out a free stock weeble is and then m1 finance as well i also do have a free training available in the description below for m1 finance and then finally whiteboard finance university that's going to be my university which is essentially going to take you from finance 101 being somewhat financially illiterate all the way to finance 401 which is basically a master's degree in finance if you will so complete financial literacy under understanding how to master your money and build your wealth over time so with that being said let's get right into it so why should you invest in the stock market so it's clearly been one of the best tools to grow wealth over time throughout human history the market has averaged roughly a 10 percent annual return on investment historically the second point is savers are losers this is to battle inflation so everyone knows that having assets is better than just sitting on cash especially in the interest rate environment that we're living in but if you're a beginner to the stock market or the economy this may be a little bit over your head just understand that you are losing purchasing power by not investing it's never been cheaper to invest these are zero dollar trades those are the norm zero dollar fees is the norm i remember when i started the only reason i went with trade king is because they had super cheap trades i think it was like 4.95 a trade and this was 15 years ago so now it's pretty much free everywhere also there's low expense ratios for solid investments with index funds and etfs through vanguard and other brokerages which we're going to talk about later in the video and then finally you don't have to be a genius there are strategies that help you grow your wealth over time which i will talk about in this video so let's get right into it i'm going to give you a a little preliminary background a little bit of analytical background and then we're going to go exactly into the live demo of buying our first stock okay but before we do that um we don't want to put the cart before the horse what is a stock exactly so a stock is simply a share of ownership in a company so think of each share being a slice of pizza okay so when we're buying shares this gives you equity aka ownership shares in a company so let's take an example we have microsoft okay which everyone is familiar with they have shares outstanding of 7.56 billion so if you think of a pizza or a pie think of a pie divided into 7.56 billion slices this is essentially what their shares outstanding are so their share price just for easy numbers i did um re i did create this presentation a few days before i actually recorded it so some of these numbers may not be exactly accurate but i will be showing you a live demo on how to figure out all this stuff so their share price at the time of this presentation was 216 dollars and two cents so you need to understand what market cap is so market capitalization is simply the shares outstanding that's 7.56 billion multiplied by the share price okay so let me give you a quick example of that okay so just so you can visualize this let's pretend that we have a pizza here and the pizza has four slices so we have slice one two three four okay it's almost like a pie not a pizza pretend that this is a company let's just say that this is microsoft okay these four shares that you see here are each worth let's say a thousand dollars thousand dollars times four shares uh answering down in the comments below if you know the answer i'll give you a second here well that's simple math that just tells us that this company's market cap is four thousand dollars so going back to market cap that is simply the number of shares outstanding multiplied by the share price so if each share is worth a thousand dollars and you have four shares of this company their market cap is four thousand dollars so let's go back into the presentation here so now that we understand market cap you just simply take that seven point five six billion multiplied by the share price of microsoft which is two hundred and sixteen dollars and two cents uh may be easier if i have a pointer here and then you simply get a market cap of 1.633 trillion dollars okay this is important because companies are typically measured by their market cap okay so market cap changes over time because share prices and shares outstanding can change over time that's like saying hey xyz company went up in price xyz company went down in price that's obviously changing their market cap as time goes on so why do companies issue stocks well this is simply to raise money for their business think of it like this they are giving out shares of their pie their equity that's why stocks are called equities uh in order to receive money from the general public in an ipo an initial public offering that's that's basically crowdfunding for their business if you will so this could be used to fund a new product line it could be used for r d and research and development it could be used to invest in the growth of their company a lot of companies themselves were doing stock buybacks which is actually reducing the number of shares outstanding and then you also have paying off debt okay so there is a difference between preferred stock and common stock so preferred stock is that you have no voting rights common stock you do have voting rights however you are the last in line to get paid out in case of a liquidation so if a company goes bankrupt and they have to sell everything that they own uh they may be going bankrupt and you may not get paid out that's a rough reality of being a common shareholder and then also you are the last to get paid a dividend and then when you're thinking of buying a stock or the if you're a complete newbie and you're saying like hey i'm just buying stocks you are typically buying common shares when you um hear that that analogy or hear that statement so how are stocks categorized this is important so we have large cap mid cap and small cap stocks so if you remember we talked about market cap in this example down here with the different shares outstanding that's pretty much how you capital how you capitalize a company okay so market cap again is just shares outstanding by the share price so large cap companies are typically 10 billion plus okay these are typically hard to achieve massive growth due to their size so think of a huge well-established company right these could be your johnson johnsons or your pfizers or these companies that have been around for years they've pretty much reached their peak and now they're a huge large cap company they have proven track records over many years and they frequently offer dividends that's because they want to offer the dividend back to their shareholders as kind of a thank you for being a shareholder in the company the easiest analogy to make with that is picture you're a landlord and you have a single family home you know the price of the property can go up or down just like the share price can go up or down but the tenants in the property are paying you rent every month that's kind of what a dividend is then you have mid-cap stocks which are 2 billion to 10 billion in market cap they're not quite large capped they're not quite there yet um but they also have a more established track record than the small cap stocks they are also often the target of m a okay so if you're not familiar with what m a is that simply stands for mergers and acquisitions these are bigger fish that are eating up the smaller fish either for their staff or their technology or making an exit because the owner just wants to get paid then you have small cap stocks which are 300 million to 2 billion in market cap these are typically younger and are seeking aggressive growth and they are typically higher risk and don't usually offer dividends this is because they are so early on in their journey as a company of going public they may have a proven track record up until ipo or up until going public but they may not pan out there's a lot of these tech companies that happen um even today that this happens to so if we want to visualize this you can take a look at this classic box by morningstar i'm sure you've seen this either in your 401k or in your fund at work you know this box is like your typical classic categorization of different types of stocks obviously this isn't you know 100 you know granular but it gives you an idea of how these things are broken up so if you look at the x-axis which is on the bottom you can see value blend and growth we'll talk about those in a minute here and then if you look at the y-axis on the right you can see large mid and small cap so you can have a combination of all these things right however um the companies typically gravitate towards one end of the spectrum or the other and sometimes you have some outliers but this is a good way to think about it when you're looking at different companies to invest in so how are these stocks categorized continued we have growth stocks we have income stocks and we have value stocks so growth stocks have big potential for growth so these are typically companies that are outpacing the market such as amazon facebook microsoft um they typically offer low or no dividends however because they're reinvesting their retained earnings into the things that we talked about uh this could be things like research and development it could be things like paying off debt it could be things like um you know trying to improve their product or their service line or advertising or marketing then we have income stocks so these could these are stocks that pay a regular dividend payment or a regular income payment so think of 3m think of walmart think of verizon think of utilities companies okay these are companies that have been around a long time and have the ability on their balance sheet to pay a dividend so they typically have a proven track record or business model and they have consistent increases in dividends over time if you want to learn more about my own dividend portfolio you can click on that link once you download this presentation and the presentation download link will be in the description below and then finally we have value stocks so value stocks are perceived to be trading below their fundamentals so think of something that's on sale or that's cheap typically as value investors we look at price to earnings ratio or price to book ratio and all these ratios we're going to talk about later in the video and then typically these are seen as unfavorable in the marketplace that's why they are undervalued so think of um you know the puppy that no one wants to take home at the shelter but it could end up being like you know the greatest dog in the world or the greatest companion in the world that's that's kind of like my cheesy analogy to value stocks right a lot of people see the fleas and they see you know the disease and the worms and things like that on the on the dog and they don't want to take it home but once it gets cleaned up and the values brought out it could end up being your best friend so continuing on on how stocks are categorized we have stock sectors okay so there are 11 broad-based sectors these are areas of the economy in which businesses share a product or a service so we have energy this could be your oil gas coal fuel things like that we have materials which are chemicals metals paper industrials which is your defense your aerospace your manufacturing so think of like boeing or lockheed martin for example you have consumer discretionary this could be apparel household products things like that consumer staples these are your food your beverages uh healthcare which is big pharma healthcare equipment like medtronic for example financials are typically banks so think of like key bank m t bank you know wells fargo all these big publicly traded banks number eight is it which is internet software semiconductors this is a sector that has grown a lot over the past 10 years so think of your you know teslas your microsoft's your apples etc and then number nine is telecommunications services att and verizon for example you have utilities so these are the big electric companies gas companies water companies and then you have number 11 which is real estate which could be reits these are real estate investment trusts such as apartments malls office space we'll talk about all this later in the presentation so now that we're understanding how stocks are categorized we need to understand risk risk is the whole point of investing this is how we're compensated as investors we're compensated for the amount of risk that we take on so what is risk risk is the chance that your actual outcome will differ from your expected outcome so if i'm little jimmy and i'm starting to invest in stocks right and i think that tesla is going to go to 20 000 a share right and it ends up not doing that that is the risk that i'm taking by going into that position so risk includes the chance of losing some or all of your investment so contrary to popular belief and contrary means especially at the time of this recording stocks don't always go up okay there's times when stocks do go down and that is risk and that's what you're being compensated for so risk as mentioned here should be your reward as investors we're compensated for the level of risk we assume so for example if i want to invest in a startup versus a savings account i need to be compensated significantly higher for the amount of risk that i'm taking on for investing in a startup company which has no proven you know model or track record versus just putting my cash in a savings account for example which is fdic insured and a much safer quote-unquote investment so there are different types of risk okay there's there's there's a million different definitions in a million different types but these seven i've highlighted because i've come across them many times throughout my career and also through my education so number one is market risk this is basically the market as a whole so if you look at economic developments or other events over time this could pose a risk to your portfolio if you remember 2008 some of you do some of you don't 2008 was huge systemic risk it was huge market risk that crushed everyone's portfolio in almost every product type all across the board of course i'm generalizing but i'm just trying to prove a point here with market risk number two is liquidity risk so this is the the fact that hey i can't sell this investment it's not liquid uh say you own a huge warehouse in the middle of nowhere in the middle of a corn field for example um you know that that warehouse may produce an income it may be worth something intrinsically but what if you want to go sell that warehouse how many buyers do you want to buy a warehouse in the middle of a corn field that comes down to liquidity risk can you sell this asset quickly number three is concentration risk you have too many eggs in one basket meaning that you have way too many stocks that are similar or you know you have all your money just in one stock that kind of a thing this is your your capital is concentrated so much that it's become a risk meaning that you have too many eggs in one basket number four is credit risk this this means that the entity can't repay so the company that you're investing in for example um you know they can't pay off their credit and which causes them to liquidate certain things or causes them to go out of business okay this also applies in bonds which i'm not going to get into in this video you have inflation risk which is the loss of purchasing power i alluded to this earlier in the in the video if you've been following my channel for a while now i've been making multiple savers or losers videos over time this is basically talking about if inflation becomes too low or if inflation becomes too high you are literally losing purchasing power okay so say for example you have uh three percent you're making three percent in a savings account online which is laughable at the time this recording i'm just using this for an example um and then the cost of everything else is going up five percent you're actually losing two percent a year in purchasing power okay so think about that number six is horizon risk this is your uh investment time frame if it changes over time okay so say for example uh you're originally planning on getting into an investment um and being in it for 10 years however you got sick and you have no other money so you had to sell part of that investment after only a year because you needed to fund your medical bills for example that's just a quick example that people can relate to so your time horizon if it changes time horizon is a risk if you think it's going to take 10 years for an investment to pan out or one year for an investment to pan out and that changes again that is horizon risk number seven is foreign investment risk so this applies to foreign investments so say for example i want to invest in you know the hottest new startup in north korea for example and that that startup just gets crushed or whatever it just gets put out of business instantly by the government for whatever reason that is the foreign investment risk that i'm taking on by investing into that area or that country okay so moving on what are the types of stocks or equities or what are we even buying here so number one is individual stocks so when you think of individual stocks this goes back to common shares or common stock that i talked about so when you're saying hey you know i'm buying a share of tesla i'm buying a share of microsoft i'm buying a share of apple these are individual stocks okay number two is mutual funds i'm not going to explain that here because i'm going to go into each one of these in detail number three is index funds number four are exchange traded funds or etfs i'm sure you've heard of that acronym especially if you've watched my channel and then finally you have reits which are real estate investment trusts so individual stocks this is as i mentioned these are your walmarts your netflix's your exxon mobiles etc etc these are individual companies or individual shares in individual companies some of the pros are that they have reduced or no fees to buy or maintain these there's no management fee to own them meaning you're not paying a professional manager to buy or sell these shares and you're also not paying anyone to actually manage this investment for you you are the owner of these shares you have complete control and understanding hopefully of what you own because you're researching you're doing your due diligence you're watching this video and sharing it with a friend and you're understanding completely what you're doing when you invest in these companies and then finally the pro the last pro is that taxes are pretty easy to manage i'm going to talk about this in the last slide but you have capital gains and capital losses the cons to owning stocks are that they're hard to diversify so if you're investing in one individual company you're exposing yourself to concentration risk as we talked about so you're going to need 20 to 100 different shares of stocks not shares excuse me different companies to achieve adequate diversification this takes more effort or time to monitor your portfolio because you're always looking at rebalancing which we'll talk about and then you're also doing your due diligence you're reading 10ks you're reading you know different financial reports which we'll talk about in this video as well you're doing all this stuff burning the midnight oil trying to find that one gem that seems to be underpriced or undervalued or is a value stock which we talked about so this takes a lot of time and effort and then finally uh fomo and emotions so fomo stands for fear of missing out so when you're in the rec center locker room and all these guys are saying oh man i bought tesla when it was 100 bucks now it's a million bucks you start to get that fomo and you want to buy in at a million bucks because everyone else bought in is making money right so let's go into mutual funds so mutual funds are simply pools of money from the public to buy securities or assets or equities so the pros of this is that they're extremely liquid they don't have that liquidity risk when we talked about that warehouse in the middle of a corn field these are very easy to buy and sell and partake in they're very diverse because they invest in a lot of different things typically most mutual funds typically have professional management whether this is active meaning that there's an actual portfolio manager or a human being and a team of human beings managing this versus passive which we'll talk about in the next slide there's a lot of options you have balance mutual funds you have fixed income you have money markets you have income producing mutual funds so there's a lot to choose from some of the cons are that these have higher fees especially if they're actively managed most mutual funds are not fdic insured meaning that if you're familiar with going to your bank and having your savings account insured up to 200 or 250 000 at the time of this recording mutual funds don't offer that coverage or that benefit okay then finally they have large cash holdings which means that they have to keep a lot of their money uh in cash which we all know at the time this recording savers are losers and cash is trash if you don't understand that i suggest you sign up for my school uh it'll all become more clear or watch the videos that i've done on that and then finally it's hard to evaluate to make an apple samples comparison from one mutual fund to the next okay so moving on with index funds this is a basket of stocks to mimic a certain market index so if you're familiar with the s p 500 or the nasdaq for example these are all indices that are able to be tracked by index funds some of the pros are that they have low fees actually extremely low fees especially if it's passively managed the studies have shown that these have typically outperformed active management over time which is pretty crazy to think about which actually makes them extremely easy to own manage invest in and achieve your goals over time some of the cons are that you don't have any of the control over the holdings you're not picking individual stocks you're basically just accepting what that manager or that passive fund is giving you you have a lack of downside protection meaning that if stocks take a plunge this isn't a hedge fund meaning you're not hedged to help prevent any downside okay so if you looked at etfs or index funds after 2008 you know they got hit almost just as hard as individual stocks and then they lack different strategies okay which we'll get into later so moving on to etfs etfs are simply a basket of stocks again to mimic a certain market sector that trade on an exchange so some of the pros to this is that you have access to many stocks so if you think of an etf think of one share just like you would buy one share in apple for example except that one share contains hundreds if not thousands of different companies or stocks weighted up to a hundred percent so one share is buying you a basket of stocks with an etf so they have extremely low expense ratios again because they're either passively or actively managed which actually passes the savings on down to you if you don't i should have clarified if you don't know what expense ratio is it is simply a percentage or an annual fee to pay whatever fund you're using so if i'm using a vanguard etf i'm paying them an expense ratio of let's say point zero five percent okay so five basis points meaning five uh fractions of a percent if you will so they're easy to own they're easy to manage they're easy to invest in and they're easy to achieve your goals with just like index funds however some of the actively managed etfs have higher fees they also have a lack of downside protection because it's not a hedge fund again and then diversification is limited by focusing simply on one industry if that is the case so to round this out we have reits which again are real estate investment trusts this is a company that owns operates or finances income producing real estate so the pros of this is that the uh you actually have access to a historically unaccessible asset class this used to be for the you know the rich people bourgeoisie super wealthy you know peasants that were middle class and lower class you know what business do we have investing in commercial real estate right well reits have actually allowed these companies to go public and make them very liquid and actually give the masses access to their balance sheets if you will so you get stable cash flow through dividends because reits have to pay out 90 of the income they produce and historically commercial real estate has been a sound asset class i worked in commercial real estate for many years it's definitely a wealthy person's game at least on the physical side but again with these reits you are partaking in actual physical real estate some of the cons are that the dividends are taxed as regular income they're subject to market risk so if you look at the economy downturn in 2008 a lot of commercial real estate got absolutely crushed i know a lot of people personally that went bankrupt a lot of people that you know drank themselves to death but i'm not i'm not going to get into that especially in this video but it is what it is maybe may be in a smoke-filled room we can talk about that but probably not because i ain't no snitch so cons you can have high management fees okay so with these come a lot of high management fees that sometimes these owner operators may end up paying themselves so uh let's talk about how to evaluate a company so now that we know um you know what to buy in what a stock is common shares preferred shares all that good stuff let's talk about how to actually evaluate these things are we sitting there like um like some random investor that's just kind of like picking stocks on a dartboard you know blindfolded or are we someone that's actually doing our due diligence and actually breaking these things down and finding out what they're worth so we're going to talk about how to evaluate a company right now so there's financial ratios when buying stocks i'm sure you've all heard of like p e ratio or price to book ratio or things like that but where do these numbers come from okay where are we actually coming up with these numbers so they come from three different sheets or three different financial statements excuse me so you have your balance sheet which is a snapshot of your financials so think of someone taking a snapshot of a picture in time this is defined as assets equal liabilities plus shareholders equity that is a picture of your balance sheet next you have your income statement which shows your revenues and expenses during a specific period so you typically have your net income equals total revenue plus any gains that you have minus your total expenses plus losses for that period and then number three is a cash flow statement this is talking about the cash inflow and the cash outflow of a business so number one is operations these are your business activities number two is investing this could be pp e which is property plant and equipment or capex which is capital expenditures and then number three is your financing so you have cash flow between your business and your creditors which is shown on a company's 10k so let's dig into the five different financial ratios when buying stocks okay so this is there's more um but it boils down to basically these five you have valuation ratios you have profitability ratios you have liquidity ratios you have debt ratios which are talking about solvency like how are you as a company financially health-wise do you have the ability to pay your debts and then number five is efficiency so if we look at a price to earnings ratio this is a p e ratio i'm sure you've all heard of this if you've been investing for any amount of time this is what we call a valuation ratio a p e ratio is simply a company's share price to its earnings per share so this is showing the relative value of a company's shares apples to apples okay so the formula for this is market value per share divided by earnings per share so let's take a look at a live example right now of microsoft okay so this is finvis.com if you've never used finvis before it's a great website for visualizing value and analytics they even have a nice little heat map right here so you can see exactly what the market is doing uh green being you know gains red being losses however that's besides the point i've been using this since college actually which is crazy it makes me feel old um but anyway uh you can see here the chart of microsoft uh this right now is showing a candle chart uh which i'm going which is beyond the scope of this video because this gets in into technical analysis but basically you can see that the chart is from april to december and you can change the time frame you can change it to weekly monthly but this isn't really what finn biz is designed for what it's designed for is to give you quick easy metrics and a way to actually select criteria that way you can invest in stocks that you're interested in based on your criteria so remember if we go back to our definition of p e ratio it is simply the market value per share divided by earnings per share so this these numbers aren't 100 up to date so they may be off just a little bit but it's important for you to see how this is calculated so if i know if i'm looking at microsoft right now in robinhood i can see that the price of one share is 225 dollars and 56 cents uh so if i go back to finviz i can see that their earnings per share right here for the last 12 months that's what ttm stands for trailing 12 months is 6.2 okay so if i want to figure this out i would simply go to this calculator i would type in this the share price remember our formula its price per share divided by earnings per share which is 6.2 so if i go back to the calculator put in 6.2 we should get something close to 35. so we get 36.38 okay so you know how i know that because the pe ratio the answer is right here it's 35.94 so we aren't necessarily wrong it's just that these are using you know outdated numbers to come up with this p e ratio so our number is correct we simply took the share price right here divided by the earnings per share giving us 36.38 so that is how we figure out uh price to earnings ratio so if we go back to the presentation here a healthy p e ratio typically historically and there's a lot of there's a lot of background to this comment but basically historically before you know low interest rates money printing all that good stuff a healthy p e ratio to value investors was typically 15 or lower so we can see at a valuation of the p e ratio of 36 microsoft seems to be a little bit overpriced because we're that's what we're paying in terms of the price to its earnings per share okay so the the price of the stock divided by its earnings per share of that stock that's what helps us get that apples to apples comparison okay so the next ratio we're going to take a look at is the peg ratio the peg ratio is simply a valuation metric that takes the company's share price to its earnings per share growth okay so this gives us the relative value of a company's stock value factoring in growth so if we look at the formula the formula should be the price divided by the earnings per share which we know both those things we just calculated that for p e ratio divided by earnings per share growth so the earnings per share growth is an estimate so if you take a look at finvis right here we typically use the next five years for the long term annual growth estimate that analysts predict and we can see here that it's 14.55 so if i want to show you guys how to do this uh let me write this down so remember that our formula is simply the share price so let's just use 225.50 for easy numbers divided by the earnings per share remember this was 6.2 in our last example and i'll show you right here again uh you can basically see in the top right earnings per share is 6.2 and then we're going to have the earnings per share growth which was 14.55 percent so this should get us a number uh close if you take a look at the peg ratio the answer is right here 2.47 if we put this all into the calculator right here we can use 225.5 divided by 6.2 that gives us 36.37 which was our p e ratio divided by 14.55 that gives us 2.49 so we were close enough remember these numbers are not updated so we're going to look wrong even though we're not um so that's peg ratio that was pretty simple you guys so moving forward i'm going to give you some more ratios i'm not going to go through each one but i will show you the answers on finviz and that way we can actually glean some information on microsoft using this so the next one is the price to book ratio this is also a valuation ratio the price to book ratio is a company's market cap to its book value so this compares the cost of a stock to the value of its equity if the company was sold today so this is basically the stock to assets value so the formula for this is the market price per share divided by book value per share book value is simply total assets minus total liabilities divided by shares outstanding and we're shooting for a healthy pb ratio of three or lower okay so if i go to finvis we can see here that the pb ratio is 13.66 so this basically means that the stock is trading 13.6 times what the microsoft's total assets are if that makes sense or the book value of its assets so that's really really high okay so the next metric is return on assets uh return on assets is a profitability ratio return on assets basically shows you how profitable a company is compared to its assets so it gives an investor an idea as to how efficient a company's management is basically running uh the assets to generate earnings it basically says like hey you know what have you done for me based on what i've given you did i give you lemons did you make lemonade that kind of a thing so the formula is net income divided by total assets and i'll give you a live example here i'm not going to do the math but i'll show you on finviz you can see right in the middle of the screen in the middle column the roa is 16.2 percent which is very good uh the other thing i like about finvis is it kind of highlights the green and the red meaning that if the ratio is black it's kind of neutral if it's green it's good if it's red it's bad so if we go back to this you can see here at the bottom i made a note that a healthy roa ratio or a healthy roa is five percent or higher and if we look at this we can see that robin or excuse me microsoft is 16.2 percent uh the reason i have an asterisk after all these healthy ratios is because this is all subjective uh you know these ratios are completely dependent on the type of company the type of business uh is it a small cap medium cap large cap is it a high flying tech stock is it a conservative income or value stock that's why this is all subjective typically these numbers come from value investing historically but you can see here that it's all subjective so the next ratio is return on equity this is another profitability ratio return on equity is simply a measure of how efficient a company is at generating profits so this gives an investor an idea as to the profitability of a company in relation to its stockholders equity so the formula here is simply net income divided by total assets so if we look at this you can see that microsoft's roe is 40.7 percent which is crazy high a healthy roe ratio is subjective by industry as i just mentioned but we can see here that that to me is very very good this says that the income that they're producing divided by their assets is very high okay so the next ratio is the current ratio this is a liquidity ratio meaning that how easy can this company take their assets and liquidate them to pay off or satisfy debt or payables so the current ratio measures the ability to pay short-term obligations or those due within one year and this basically gives an investor an idea how a company can maximize those current assets on its balance sheet as i just mentioned to satisfy debt and payables so the formula for this is current assets divided by current liabilities so if we take a look at microsoft you can see that their quick ratio is right around two and a half so two and a half is okay what you're typically looking for is anywhere from like you know just over one to about two that means that you have the ability to liquidate very quickly and that your current assets are greater than your current liabilities so if we look at the quick ratio this is another liquidity ratio which gives a measure of a company's capacity to pay its current liabilities without needing to sell inventory or get more financing this is obviously considered more conservative because this is taking into account if you look at the formula here uh cash plus marketable securities plus accounts receivable divided by those current liabilities so if we go back to microsoft their quick ratio is 2.5 as well ideal is somewhere one to one which basically means that you have just as much cash as you do liabilities meaning that um going back to the theme of kind of like cash is trash you're not just sitting on a bunch of cash being deteriorated by um purchasing power going down it's basically just a one-to-one ratio at that point and you're utilizing your funds appropriately so if we go to debt to equity this is a debt to solvency or debt solvency ratio basically this is a measure of a company's financial leverage so a measure of the degree that a company is financing its operations through debt versus wholly owned funds this basically means that you can do this for your own personal finances if you want it's basically taking your total liabilities divided by total shareholders equity so i'll give you an example right now so if we look at this formula right here debt to equity is basically a ratio that measures that company's financial leverage so you take the debt that you have divided by the equity so if we take a look at these two companies we have company one which has a debt to equity ratio of five because they have a hundred thousand dollars in business loans and they only have twenty thousand dollars in retained earnings uh company two uh they have a 0.5 debt to equity ratio meaning that they have fifty thousand dollars in business loans in this example divided by a hundred thousand dollars of retained earnings this means that they are a low-risk company and a better investment so the next ratio is an efficiency ratio this is asset turnover so asset turnover ratio is basically the measure of a company's ability to use its assets to generate sales or revenue so what this tells us is the degree that a company is financing its operations through debt versus wholly owned funds meaning its own assets so the formula makes sense so take a look at this it's total sales divided by the beginning assets plus the ending assets divided by two the denominators divided by two i'll show you that here so if you take a look at these companies you have four publicly traded companies walmart target at t and verizon if you look at the y axis on the left you have beginning assets ending assets average total assets their revenue and then their asset turnover ratio so you can see that walmart is 2.3 target is 1.79 a t is 0.41 and verizon is 0.52 so if you go back to this slide again this is showing us the measure of a company's ability to use its asset to generate sales and revenue so a healthy pb ratio or excuse me asset turnover ratio that's a typo down there on the bottom the higher number is preferable so we can see here that amazon is utilizing their assets in order to create more sales if that makes sense okay the moment you've all been waiting for and some of you probably skipped to this section you probably skipped the analysis you skipped the ratios you're like that stuff's boring i want to buy stocks baby stocks only go up let's get rich right well stocks do go down as we talked about in the risk section however i'm going to be buying a stock right now together so we're going to be using robinhood and if you download this presentation or click on the link below and actually sign up for robinhood you get a free stock at the time of this recording so this is not a sponsored video or anything like that i actually have uh my money in robin hood as one of my brokerage accounts however the reason i'm choosing robinhood is because if you truly are a beginner and from a beginner's standpoint it is one of the easiest ways to get a full grasp of what's actually going on which we're gonna go into live right now so this is my robinhood account you can see here that right now i have uh 29 500 worth of equities and cash a combination of both keep in mind this is one of my many brokerages i use this to basically learn more about robinhood myself and that way i can provide you know critiques i can provide criticism i can provide you know pros and cons that kind of a thing in the reviews that i do so let's continue the theme of using microsoft so this is an individual stock remember we talked about stocks etfs things like that we are kind of getting close to the end of the trading day here at the time this recording so i'm going to try and squeeze this in very quickly so this is a chart okay this is not the most technical chart in the world but basically you can see here that if i choose to expand this i can get into something a little bit more technical but that's not the point of this video i'm actually going to use this just to kind of prove my point here so right now we're looking at a one day chart of microsoft so this means that anything that's going on from the beginning of trading which is monday through friday 9 a.m eastern standard time all the way to the end of the day which we're not at yet just yet it's 3 48 at the time of this recording so you can see that it went up and down up and down but it stayed somewhere right around let's call it 225 dollars per share as we've been using in our example so you can actually zoom out you can go to a one-week chart you can go to a one-month chart you can go to a three-month chart you can go to a one-year chart or a five-year chart um most charts or most brokerages will actually let you go to all-time meaning that from when the company ipo'd which was the initial public offering all the way until current time so if you can see here in the past five years if you invested in robinhood you would be up a whopping 306 percent okay so that means that you basically started january 1st 2016 when it was valued at 55.48 cents per share five years later you basically went up to um 169 per share which gets you at 225 per share which is a crazy return now imagine if you did this over many years compounding on the dividends that microsoft offers so what we're going to show you here is how to actually buy a stock so if you look at the top right corner up here you have buy and sell and it gives you the ticker symbol of msft so if i go to buy microsoft i can either invest a dollar amount or a shares amount so there's different schools of thoughts on this now with fractional shares you can actually invest any amount of money and it will let you buy a fraction of this 225 dollars and 18 cents or this fraction of the share price that is called fractional shares so to give you an example if i wanted to buy one share of microsoft it would cost me this right here 225 dollars and 13 cents so how do we arrive at this price how does this price even come into existence well let me explain here remember that this is a market okay we have a bid and an ask so if you look at if you click on the question mark here or click on market price this will open up this window right here you can see what the last sale of microsoft was it was at 225 dollars and 14 cents there's always going to be a bid and there's always going to be an ask the bid is what bidders are willing to pay for microsoft or one share of microsoft the ask is what people are asking for the sellers of it so remember buyer seller it's a marketplace you have to come somewhere in the middle and come to an agreement okay um so people can unload their shares for less or for more but you may or may not have buyers and at that point the market isn't efficient so um but that's a topic for a whole another you know video or course if you will but if i wanted to buy let's call it 1.5 shares you can see here that my estimated cost is going to go up the cool thing is is that you can go out to a bunch of different decimal places as long as it lets you buy it i wouldn't recommend going out too too far however if you wanted to do a dollar amount it makes it much easier say for example you're a beginner and you're just getting started and you deposited let's say a hundred dollars right and you wanted to buy that hundred dollars worth of microsoft well at this point it'll let you go out to one two three four five six decimal places and actually allow you to buy 0.444 207 for example shares of microsoft so in this example let's do a dollar trade just because i don't feel like buying a whole share of microsoft let's buy 50 dollars worth of microsoft so if i click on review order the nice thing about robinhood is that they're actually going to explain to you exactly what's happening so it's saying that you are placing a good four day market order which i'll explain in a second here to buy fifty dollars of microsoft based on the current market price of two hundred twenty five dollars and five cents you'll receive a plot approximately x amount of shares your order will be executed at the best price available now this is what we call a market order okay so if i wanted to edit this actually let's let's just do this let me buy 50 that way i can explain this and we'll end this note here so i'm going to click buy and it's going to ask me to put in my password and a bunch of stuff which i'll do right now okay so i just put in my password and you can see here the amount i invested was fifty dollars i purchased point two two two zero three four shares at an average price per share at 225.19 okay so we can see here if i compare my average share price 225.19 to the current share price of microsoft i'm actually down uh whatever that is in cents you know multiplied by 0.222 so without this getting any more confusing um the cool thing about robinhood is that if i actually go to buy this in shares let's say i click on i want to buy one share you can then review this order however what i recommend doing is clicking this little carrot right up here and changing the order you can change it to a limit order or either a recurring order since this video is for beginners i don't recommend playing with stop loss or stop limit or trailing stop that's a different conversation for a different day however the difference between these orders i'll explain right now so when i bought that 50 worth of microsoft that was a market order i basically said hey whatever the market price is or whatever the shares are of this stock i wanted to fill right away and i wanted to execute right away i don't care if it's you know 225 or 235 dollars for example that is a market order these are going to be executed almost right away as long as there is a buyer and a seller okay what i recommend for newbies or for people that you know have a certain dollar amount in mind um is a limit order so what a limit order is is basically putting in a price you can see here there's a limit price i know that it's trading for 225 dollars but say that i know that there's going to be some you know bad news or there's going to be you know something that drives the price down and i don't want to buy it right now at 225.13 i want to buy it when it goes to 224 30 for example so if i put this order in i can pick how many shares i want let's just pick one share for example and i'm going to make this good for the day okay so up until the end of trading today this will basically execute you can change this until good until cancelled so this order it'll give you 90 days to expire but either way it will not strike this will not happen until my limit price is reached okay so since i don't want to buy another share of microsoft at this price let's just make this a ridiculous number just for um for example for this video we're at 198 dollars it's definitely not going to reach that by the end of the day today i can guarantee you that so we can either do good for end of the day or good till canceled let's do good for the end of the day you can also check to allow this order to execute during extended hours which means any time after 4 30 pm that's the trading time eastern standard time but we don't care about that so now i'm going to hit review order and this will explain to you you're placing a good for day limit order to buy one share of microsoft the order is pending meaning that it's not going to execute until it reaches your limit which is 198. so if you're a beginner the whole reason i'm telling you all this is because if you are if you don't want to get into a certain stock right away or if you want to get into it at a lower price or if you don't if you want to hedge the market price meaning that hey say it's at 224.97 but it jumps up to 227 for whatever reason at least you know you're going to get the stock at your limit price this is almost buying at a guaranteed amount as long as there is a buyer and a seller make sense okay so now that we've actually bought microsoft let's teach you how to sell so selling is very simple it's the same exact process remember you have a market order or a limit order these stop losses and stop limits and trailing stops they actually become very handy but again that's outside the scope of this video so if i want to do a market order that means that i'm going to sell my microsoft at whatever the market price is right now it's showing that it's 225 dollars and four cents if i'm not happy with that what would i do that's a quiz to my audience if you're still with me at this point i know it's a long video but it's important i would set up a limit order so i know that hey i know that i want to get rid of my microsoft shares for 227 a share and i'm going to sell i don't know let's call it five shares actually i don't own five shares let's just use one i actually own a couple here i have two point you can see down here i have 2.38 shares available of microsoft so if i wanted to do this i can set it up for a good till day or good till canceled this is this gives it basically 90 days and i can also allow this to execute during extended hours since i don't want to do that i'm going to sell microsoft at a market order and it's going to be in dollars i'm just going to sell 50 worth remember that's the amount that we basically bought i bought at a higher price than this i'm going to take a very small loss i'm going to take an l for the audience so hopefully you're with me here but i'm going to click review order and sell okay so since the market is actually closed at the time this recording it won't let me sell and i don't want to get into after hours by selling a whole share that is basically the process so i know that was very anti-climactic but you guys get the idea based on the buy order so those are the two different ways with market orders and limit orders to buy stocks what i would recommend again if you're a beginner all you do is click on the carrot do a limit order figure out the price you want to pay multiplied by the shares that you want and then you can set it for good for day or good for cancelled if you want to do a market order you can do the same thing in dollars orange shares and that's how much stock you will actually buy okay so now let's get into the rest of the presentation so there are ramifications and taxable events when you do buy and sell stocks so we tried to sell that microsoft stock but we took a big l in terms of presentation quality we weren't actually able to do it because it was 4 p.m over here but basically there are two different things that happen when you buy and sell stocks so you can buy and sell a stock for a gain you can buy and sell a stock for a loss so number one here is explaining a capital gain so a capital gain is simply when you sold for greater than what you bought it for so say you bought it for a hundred dollars you sold it for a hundred and ten dollars that is a capital gain of ten dollars let's take a look at a capital loss this is simply the same thing just in reverse you sold it for less than what you bought it for you took a loss so say for example you bought microsoft worth a hundred ten dollars you sold it for a hundred dollars this is a capital loss of ten dollars so what happens here is with a short term capital gain or loss this means that you did this within one year you did it within a one year time frame so you held that microsoft stock you bought it and sold it within one calendar year this counts as regular taxable income so your tax brackets can be anywhere depending on your income but that is the percentage you will pay on that capital gain okay same thing with a long-term capital gain or loss this is the same thing as the short-term capital gain except that you held this equity or you made this transaction longer than one year you held it for longer than one year so with this being said with a capital gain this is taxed differently and typically more favorably depending on your income tax bracket uh it could be anywhere from 0 15 or 25 dependent on you know your filing status and your income so that pretty much concludes the entire presentation i just wanted to give you a quick reminder about the free gifts and the added value in this video so now that we know how to kind of analyze stocks we know how to look at some metrics some ratios how to read the balance sheet uh cash flow income statement things like that i know i didn't go into super depth but it actually helps you if you're a beginner to actually learn those things early on and build a strong foundation so very quickly again if you want to download this presentation you can do that in the link in the description below it'll also probably be in the pinned comment the first comment of the video there's free stocks if you sign up for robinhood weibull and then m1 finance there's a free training available also in the description below that's my free training it's a private link to a youtube video and then also if you want to get courses that are going to be higher quality than this one this is just an intro you guys please make sure to join the waiting list for whiteboard finance university this is my school it's going to be packed with courses weekly live streams q a with myself talking about anything and everything we're going to be talking about uh literally macro economics crypto you know bitcoin stocks like literally anything that's on your mind and we're also going to have a community discord um so you can get that community chat involved as well and courses will be updated as well throughout the lifetime of the group so that's pretty much all i got for you guys thank you so much for sitting through this this took a lot of work to outline and record but hopefully you watched the whole video please send it to one friend or a family member or post it on your whatsapp investing groups or facebook groups all this stuff is free and it's all about providing free knowledge thank you so much everybody uh hit the like button and have a prosperous day [Music]

Channel: Marko - WhiteBoard Finance

Views: 3,125,241

Rating: 4.9516883 out of 5

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, ivesting for beginners guide, stock market for beginners 2021

Id: bJHr6_skXWc

Length: 57min 17sec (3437 seconds)

Published: Tue Dec 29 2020