- How's it going today, guys,
welcome back to the channel. Hope you're having a great day so far. So in this video today, we're gonna be covering an ultimate guide to investing in the stock
market as a complete beginner. Now, I'm gonna be doing a full table of contents down below, guys, so you can skip ahead and move
around to different sections. But the very first thing I wanna do here, for those of you who may
have no idea who I am, is I wanna talk to you
a bit about my history with investing in the stock market, what this YouTube channel is here, and a couple of more details like that. However, if you are somebody who is already familiar
with me and my story, and some of my investing experience, go ahead and check down
below for a timestamp to skip ahead to the beginning
of the presentation here, because I have a ton of information
prepared for this video. Also, guys, I know this one is going to be a marathon video here, potentially one of my
longest videos to date. So I would highly recommend grabbing a beverage if you need one, turning off those distractions around you. And also, you may want to
just bookmark this video just in case you lose track of it or need to come back
to it at a later date. Also a real handy tip here for you, if you're watching this video
and then you have to stop, what you can do is comment down below the timestamp where you
left off in the video, and then when you come back
to it a few days later, you can just do a Control
+ F, search for your name and that'll lock your spot right there if you want to stop and
come back to this video at a later date. But anyways, guys, that being said, let me go ahead and tell
you quickly about who I am, what I do with this YouTube
channel, and more importantly, my actual experience with
investing in the stock market. So essentially, I started this
YouTube channel back in 2016, dedicated towards documenting
my successes and failures with the stock market. And I invested pretty heavily during the pandemic, as well in 2020. I've documented the growth
of my dividend portfolio to the point where that is
now around $185,000 there. And so I have a lot of
money invested in stocks. I have a lot invested in real estate as well as other businesses too. And I am 26 years old as well. So I am somebody who's been able to
accelerate my wealth a lot through participation in the stock market and also real estate in
a few different avenues. But by far, the stock
market has been massive in terms of how it has
helped me to be successful and substantially grow my
net worth early on in my 20s. Now, what I always like to do
too during videos like this is just tell you guys a couple of my best
investments that I've made, just so you know that I'm not
someone here blowing smoke. And I also wanna make
sure you're clear too, that my strategy of investing is a more longer term strategy. I don't do swing trading,
Forex, anything like that, I am a long-term investor. The majority of my stocks
are dividend payers, and I typically own stocks for
at minimum one year or more, which is generally what most
experts would recommend, especially for tax reasons
and things like that. But we're gonna get into more of that later on in this video. But earlier on in 2016, back when I started out
my investing career, one of my first picks ever
at around six to $7 a share was a company called AMD
or Advanced Micro Devices. Unfortunately I did not hold
for this entire duration, I sold way earlier on, but I ended up buying AMD
back at six or $7 a share, that stock is almost a
hundred dollars per share now. I did really well this
year with Boeing stock during the pandemic. I bought into Jets right
after Warren Buffett sold, Jets being an airline ETF. And we'll explain what that means shortly, if you don't know what these terms are. So the main thing that I
tend to do with investing is I like to look for unjustified levels of
pessimism in the market. And that is something that
comes from the teachings of Warren Buffet and Benjamin Graham in terms of just looking
for an area of the economy, where people are just selling the stock and getting out of it. So I tend to look for those
types of investments myself, but you're gonna kind of get a little bit of all different styles of
investing in this video here. So, like I said, I've got a couple hundred
grand in the stock market. I've made hundreds of
thousands through investing, whether it be real
estate, stocks, et cetera. And I also used to be in the business of selling digital products. At this point, I'm almost fully out of that business. I actually used to sell a course on investing in the stock market, and I've had people
make millions of dollars having gone through that course. It was not an expensive one. And it's also all the
information from that course, I've actually repurposed for this video. So I didn't really like the business model of selling courses. When I started doing this many years ago, it was not nearly as slimy as it is now. So I actually started selling a course on investing back in 2017. And so earlier this year, I made the decision to pull that course and just kind of get out of that business with stock market trainings, just because charging
people for stock information has become more and more
sleazy in recent years based on the type of person doing this. So I prefer to just offer
free information instead. So I went through the whole thing, did all kinds of updating and basically reduced
it by about 60 to 70%. So I don't sell my
investing course anymore. And if you are somebody
out there who did buy it, understand, you still get
almost double the information in that course yourself. So this is gonna be like a
highlights version of that course just to provide free value for you guys. And also just to be fully
transparent here, guys, I am not a financial advisor, none of this here is financial advice. You should always do your own
due diligence and research before investing in anything out there. While this course here or this video here is going to be a great supplement, you're always gonna want
to get other information from other sources as well out there. And also guys, there's no
pitch, no sponsor, none of that, no affiliate here that
I'm gonna plug here, guys, in this video, it's just straight value. If you do want to give back to me for putting this video together, I am gonna include a link down below with the best free stock promotions, and I'm gonna update
that every single month. So if you are brand new to investing and you want to sign up
for a brokerage account and you wanna get some
free money in the process and get free stocks, often a thousand dollars
or more of potential value based on a lottery system, well, check out that link down below. That's a great way to
give back to me because I may earn a commission if you
use the links on that page. But in terms of the
description itself here, guys, no sponsors, no courses,
nothing like that, just here to provide
you with straight value. So more on that later, guys, we'll talk more about that
free stock resource later on. For now, let's just get locked in here. You have a bit more background on myself, and I wanna start off by talking about the basics of
investing in the stock market as a complete beginner in
2021 or years going forward. So first of all, let's
cover what is a stock? Well, a stock is actually a share of ownership in a real company. And unfortunately, this
definition is sort of lost when people are trading stocks
back and forth in a frenzy, because of how easy it is to place trades and buy and sell shares of these companies at the snap of a fingers. But even though people do transact stocks and trade them left and right, it is still a small piece of fractional ownership of a real company. Now, what's important to
understand here is that when you become an owner of a company, you're responsible for
when the company does well, but also if the company does not do well. So when you are a shareholder and you own a share or
shares of a company, you're also holding a portion of the company's assets and liabilities because you have a fractional
piece of ownership, even though it's probably
one-10,000th of a percent or whatever it may be. But it's just important
to understand this, that you own a real
business and a real company as a shareholder, and you have a portion
of the company's assets, as well as their liabilities. Now, in terms of how much
of that company you own, the ownership stake is relative to the number of shares owned versus shares outstanding. And shares outstanding just means the total
number of shares out there of this given stock. So if there were 10,000 shares and you had a thousand shares, you would obviously own
10% of that company. And then another important
thing to understand is that depending on the type of offering, many of these stocks out
there that you can purchase, come with something called voting rights, which allows you to vote
in major company decisions. And this makes a lot of sense, the more shares you own, the more power your vote has. Think of it this way, it's pretty much like
every one share you have allows you to cast one vote. So if you have one share
and someone else has 10,000, they're gonna have a larger say in whatever decision that company makes. However, as we're going to discuss later, not all companies offer voting rights. And that's an important thing to consider before making an initial investment in a publicly traded company. So we understand the purpose for why people buy shares themselves. Typically, they're looking
to preserve their wealth or build their wealth
through the stock market by participating in
ownership of a real company. But if we turn the table here and look at the company itself, why do some companies
offer shares publicly while others do not? What is the purpose of shares and why do they exist? Well, essentially, companies offer shares as a means to raise capital or raise money for ongoing
operations for the business, or maybe they're looking to
do an acquisition or a merger, but essentially, offering shares
is just one of these tools that a company has in their toolbox as a method for raising capital
from investors out there. However, there are many other ways that companies raise money all the time. And that is typically by
borrowing it from a bank or issuing corporate bonds. And so it's probably not the most interesting
thing in the world, but since we're starting
off at the basics, guys, we're gonna get a clear distinction between the difference
between a shareholder and a bond holder. So essentially, a bond
is a debt obligation where you're essentially
loaning some entity, a set amount of money, and the terms are spelled out on the bond and you're getting some amount back. So based on the credit
worthiness of the bond issuer, there's going to be a set amount of yield that you earn from that bond, some are fixed and some are variable. But the big difference here
is that as a shareholder, you're an owner of the company, as a bond holder, you are basically just
holding debt for them, and you are a debt obligation
that that company has. So bond holders receive interest
on the principal loaned. However, one of the most
important things to understand between bond holders versus shareholders is that bond holders take
priority during bankruptcy filing. So if the company goes insolvent
here and they go under, and then there's a liquidation, bond holders are going to get paid back first
before shareholders, because that is considered
to be a debt obligation, and debts have to be paid back before any owners of the
company actually get paid. Shareholders are last for
distribution of remaining assets. And there's even something called preferred stock versus common stock, which means that common
shareholders or common stock holders are lowest on that list to receive money. So unfortunately, typically
in the stock market, if a company does in fact
go bankrupt or go belly up, oftentimes shareholders, unless they sell their
shares in the 11th hour, they end up with nothing
after all of the assets are sold off and the debts are paid back. So here's a few more pointers here about bonds versus stocks. So first let's cover bond holders. Bond holders do not see returns generated from rising profits. So a bond holder is literally just a debt
obligation that company has. So if a bond holder issued or
let this company borrow money and they used that money to
go acquire another company, and then the company that
did that doubled in value, the bond holder is going
to see no gains from that, he's just gonna get
that set rate of return or variable rate of return
that was agreed upon when that debt was issued. So they have no equity, they
have no skin in the game. They are just kind of like a
bank that loans them money, and they're paid back on
the terms of the bond. They typically receive a set interest rate only for corporate bonds, but there are variable
rate bonds out there. They're seen as a lower risk investment. They are a crucial part of
a well-rounded portfolio, but when you're younger,
they're not nearly as important. In fact, these days, a lot
of financial experts say, if you are 30 or younger, you probably don't even need to have any bonds in your portfolio because of how conservative they are. So historically, they pay an
annual return from five to 7%. So not nearly as much of a return as you typically see from real estate or other investments out there. Shareholders on the other hand, profit via asset appreciation or the price of a share going up as a result of rising profits. And then shareholders can also
earn money through dividends, which are just regular cash
payments sent to shareholders. They're seen as a higher risk investment because rather than just
loaning the company money, you're taking on a portion of
their assets and liabilities, 'cause you're an owner. You're also last to be paid if there is a bankruptcy type situation. However, because you
are taking on more risk, they historically pay an annual return of around eight to 10%. So there is a more upside to stocks than there is with bonds. Now the interesting thing here is that the bond market and the stock market typically behave very differently. So when people have a portfolio out there, which is just a bunch of investments, a portfolio is just a bunch
of investments that you have. What you do is you put some
of that money in stocks and some of it in bonds. Now, a popular rule of thumb
that people often follow is you take 120 minus your age, and that's typically the amount of money that you would put into stocks and the rest would go in bonds. So if we take me, for
example, I just turned 26, that would mean that I
should have only about 4% of my money in bonds
with 96% in stocks. And that's why at 26 years old, I have 0% of my portfolio in bonds. Once I turn 30, I might do 10% or 5%. But for the time being, I'm just 100% stocks,
real estate, other stuff, bonds just are not interesting to me. And based on how much time I
have to allow my money to grow, they're just not a priority for me. However, if you are in your 30s, 40s, 50s, bonds are going to be something that are a part of your portfolio. And it's important to understand that, they don't always go in the same direction in terms of value. So for example, let's say in a fair
market value situation, you were to put money into a
portfolio of stocks and bonds, and you decided to do 50/50, half of your money went in stocks, you are an equity owner
in these companies, the other half went into bonds, you basically loaned money and you are basically a
bank for this company. But let's say for example,
after that 50/50 allocation, the stock market goes on a tear and the bond market stays relatively flat. While over time, what some people choose to do is to allocate less money into
stocks and more into bonds. This is typically what people do here, favoring one asset over the
other, is if stocks are soaring, a lot of people will
rotate money out of stocks and into those bonds. On the other hand, let's say, for example, we're in a bear market, and a bull market simply
means stocks are going up, bear market means stocks are going down. Oftentimes in a bear market, you'll see people actually
rotate out of bonds and put more into stocks. Because typically speaking
during a market correction, bonds are going to hold
up better than stocks. So even if you started off at that 50/50, some people depending on market conditions will actually allocate more
or less to bonds versus stocks just based on the overall market. And even if you do just simply decide to do one of those portfolio
rules of 120 minus your age, and let's say you're putting
10% in bonds, 90% in stocks, you still need to rebalance that portfolio because those numbers are going to change. So even if you just wanna
set it and forget it, you still need to check it and rebalance. So what does rebalancing mean? Rebalancing means allocating more or less money to asset types. So typically, this is
what a lot of people do, during a bull market, stocks
often become overvalued, so they should often carry
less weight in your portfolio if you're looking to mitigate
some of that risk or avoid it. On the other hand in a bear market, stocks typically become undervalued. And at that point could often carry more
weight in your portfolio, allowing you to have more upside. So that's typically how people use stock and bond allocations. They either leave it at that and then rebalance once in a while, or based on the overall market conditions, they may rotate more or less money in and out of bonds and stocks just to try to mitigate or
lessen some of that risk. All right, guys, so that's the difference between shareholders and bond holders and stocks versus bonds. And we understand now that stocks are a way for a company to raise capital. But how do the stocks get
there in the first place, to where you can even open up an app on your phone and buy them? Well, initially for the first
time a stock ever trades, they have to go through
something called an IPO or initial public offering. So let's go ahead and
cover what that is now. So a company attempts to raise capital via a public offering of
shares in the company. So typically, you have a
company in a startup mode that starts off pretty small,
then they raise funding. They're still a private company, but they raise funding through
a couple of different rounds. And then once they become large enough, they typically have an IPO, which is also a way for
those early on investors to eventually sell some of their shares and get some of that
money for their efforts. Because what typically
happens during an IPO is once that company goes public, a lot of those early investors and people who started on
with that company years ago, assuming there's no lockup period, they'll often sell off
some of their shares, and new investors who never had the opportunity
before to buy those shares, take up those shares 'cause they wanna buy into that company. But it's kind of like the
only good option a company has if they're looking to make money. If you start up a company
and you have a startup, there's basically two exits, you're either gonna be acquired by a publicly traded or
privately traded company that just wants to buy you, or you're gonna have an IPO
and become a public company, which would allow these early investors to have a means of making
some money from their shares and being able to sell some. So how does the IPO process work? Well, you have somebody
called an underwriter who works with the company to
set a target price per share. And the price for an IPO is based on the perceived
interest in the public offering. So for example, Airbnb
had an IPO this year, that was one that people
were pretty interested in, so the perceived interest was high and the share price was higher. But the interesting thing here is that you don't even have the opportunity to buy these shares at the IPO price. That's because there's a different group
of investors out there called institutional investors who unfortunately have the
first choice to purchase shares, and these shares are purchased
at the actual IPO price. So what you might find sometimes with a company that goes public
is maybe you hear about it, and they say the IPO
price is gonna be $30. And then that day, you look up the stock and
it's already trading at 40, because it jumped up a bunch, 25% or whatever that is. That's because only the
institutional investors were able to buy shares at the IPO price. Then based on the demand on
the market, when the public, when the retail investor is trying to buy, that immediately pushes that
price up to a higher level. And then if some of these
institutional investors or people within the company that don't have a lockup decide to sell, you're buying them at that premium. So unfortunately, IPOs can
be pretty risky territory. I tend to not really touch them, because oftentimes they come
out of the gate red-hot, they trade for a premium, and then they settle back down to, or often below that original IPO price. So once they trade on a secondary market, that's when other retail
investors can buy shares, and stocks may trade higher
on the secondary market, as we said, depending on the level of
interest in that company. So for a small investor, it's very difficult to
be invited into an IPO because it's typically
like a billionaires club where you gotta have a ton of money and you gotta be one of
these institutional investors willing to buy tons of
shares at that IPO price. It's also high risk territory
because of the fact that these are companies that are not necessarily proven as public companies, they've done well maybe
as private companies, but you don't have much of a
operating history to go off of because a lot of private companies don't share a lot of information about earnings, revenue, et cetera. You will also often see
drastic price fluctuations as the market sets the
price for the stock. It's a brand new asset
that's never traded before. And so buyers and sellers are collectively through their buying and selling, setting a price of what do people believe this stock is actually worth per share. So I added this little Ryan's
thoughts section here, guys, to include basically my opinion here. And again, this is not a
financial advice, guys, but this is pretty much
what I follow myself. Most investors should
avoid investing in a stock for a few months after the IPO, unless you're like certain
that you wanna own this stock for like five to 10 years. Typically, I would not touch a stock a couple months after it IPOs
until it settles on a price. Also, unless you can get an early wait for the price to settle and for the excitement to drop off, because almost always
it does, people buy it, they get tired of it, and then they sell, and
then enough people sell, that the price goes low enough, and then you probably are gonna get a much better deal on those shares. Look at IPOs, guys, almost all of them tend to go
down before they go back up. So don't FOMO into it just
because you wanna own the shares. So just to show you guys
a few examples here, Airbnb did go public
at an IPO price of $68, but there was a lot of demand
for on the secondary market. So once it was available for trading, a lot of institutional investors and early investors unloaded shares, but it traded at a massive premium, starting off at 139 per share. And while I did say a lot
of stocks go down after IPO, it's not always the case. This one actually went up, and it's now trading at 214 per share. But the important distinction here is that during that IPO process, Airbnb only got $68 per share from the institutional investor. So even though the share
price is now worth 214, that doesn't actually make
Airbnb any additional money. It made money for the early investors or those institutional investors who bought shares during the IPO. And then for an example here of an IPO that didn't go well at all, just to show you how risky
these can be is Casper, which is a sleep company. I believe they sell the
mattresses in a box. Anyway, they had an IPO at $12 per share. And as soon as they hit
the secondary market, they've traded below that IPO price, which was not a good sign at all, and then this thing went
on a landslide down to, it looks like maybe three bucks a share, now it has recovered to about 10. But that's how IPOs,
sometimes they're great, sometimes they could be
your worst nightmare. That's why as a beginner, I don't think there is something that really should be on your radar, unless it's a company you wanna own, like I said, for like five or 10 years, and you don't care if it goes on a landslide
in the short-term. All right, guys, so hopefully you have a good
understanding of IPOs now. And you just understand
where shares come from, what they are and the difference between shares versus bonds. We got like 200 slides here
to cover with you guys. So I am gonna pick up
the pace here a little, 'cause this is just some
quick information here. So let's now talk about stock symbol. Well, a stock symbol is a
unique series of letters used to identify a security, and a security is just a
fancy word for a stock. A stock symbol is used to
execute trading orders, and stock symbols are often referred to as the ticker symbol or ticker tape, if you've ever heard of
those terms used before. You typically have two major exchanges that people use to trade stocks. It's the New York Stock
Exchange and the NASDAQ. New York Stock Exchange listed stocks have three letters or less while NASDAQ listed stocks
have four letters or more. That's nothing you need to know. It's pretty useless trivial
information, but I dunno, it might win you some brownie points at your next social gathering. So that is a stock symbol. These days, you don't even
really need to know it, because most brokerages allow you to just search
for the name of the company. But we'll cover a few examples. For example, Apple is
AAPL and then Google, there's two different types, but it's like GOOG or GOOGL. And that's actually based on the voting. Some of those shares have
voting rights and some do not, but that's a little bit above
and beyond the scope here. But that's just a way to identify a stock. Now let's talk more
about a stock exchange. This is simply a market for
buying and selling securities. It connects a buyer with a seller. So just like you'd have an open air market where a bunch of merchants come together who sell different things, similar to a stock exchange, a bunch of people virtually
who own shares come together and trade shares back and forth based on whoever wants what and what they're looking to sell. Now oftentimes, a stock is
referred to as a listed stock, and listed stocks are ones
that trade on major exchanges. And in America, that's New
York Stock Exchange or NASDAQ. That's all I trade. I very rarely have ever
traded a non-listed stock on a less desirable exchange. Typically those are called penny stocks or something like that,
I don't touch them. And when I have in the past,
I've lost a lot of money. So I recommend sticking to listed stocks. There's thousands to
choose from, penny stocks, over the counter markets,
not very desirable exchanges. Foreign countries also have
their own stock exchanges. For example, there's TSX, which is the Toronto Stock Exchange. So here in the U.S., we use New York Stock Exchange and NASDAQ. So that's the basics on a
stock symbol and exchanges. Now let's talk a little bit more about the idea of a bull market. One of my favorite
sayings out there is that a bull market means prices are bull, as in they're bullshit. Because that's often what happens, is prices are just ridiculous. That's one of my favorite
ways to remember this. Anyway, a bit more information here, during a bull market, share prices are rising,
most investors are buying. Bullish investors make money
from rising stock prices. Similar to the way that a bull attacks, you can see this guy over
here getting attacked. That's why it's referred
to as a bull market. You see bull markets during
strong economic times. That is because companies
profits are typically rising, unemployment is falling and hopefully wages are rising as well. And it kind of all
trickles down, hopefully, and then that results
in everyone doing well and companies doing well, people spending more money and then just share
prices going up over time. A quick thought here, guys, GDP, which is referred to as Gross
Domestic Product is growing, which is an indicator of the
overall size of an economy, looking at their total goods and services. So if you ever hear the word
GDP being thrown around, just think of that as the total value of
the goods and services that a company provides. So if that's growing, typically that's a sign that
we are in a bull market. That being said, here's a drawing of one. We've had a pretty wild
bull market run here with just a quick leap
here during the pandemic. But all of these highlighted areas are examples of bull markets that we saw. So we had one that
started in the late '90s, we had one in the early 2000s after the housing market crash, that was the longest of history. And then we had this quick
black swan event here, and now we're back up to, again, kind of the same trajectory we were prior, which is pretty wild how
quick the markets came back. Anyway, now let's talk about bear markets. A bear market is when
share prices are falling, most investors are selling or they're just out of
the market entirely. Bearish investors make money
from falling stock prices, similar to how a bear would
attack with their claws. So if you hear somebody saying
I'm bullish on that stock, that means they want and
think it's gonna go up. If they're bearish on that stock, they want it to go down or
they expect it to go down, and they're making money from
that stock price going down, typically through something
called a short sale. But we'll cover more about that later. Do we get into short selling briefly? Okay. So we typically see a bear market happen during poor economic times, or again, like a weird
major life event here like we saw with this pandemic, that was just something nobody saw coming. Company profits will be falling, unemployment will be rising and wages will be flat or falling. The primary triggers of a bear market are investor sentiment
and economic cycles. What I mean by that is the general emotion that investors have is typically what can
trigger a bear market, because bear markets happen when there's a lot more
selling than there is buying. So if investor sentiment
shifts towards that a fear, and people are afraid of holding stocks and they wanna get out of them, that alone is enough to
often trigger a bear market, or at the very least a correction. Also, federal interest rates and tax rates can result in economic
expansion or contraction. You've probably heard of something called the federal funds rate. This is the rate at which the federal reserve loans money to banks. And by adjusting that rate, they can actually basically stimulate or pump the brakes on the overall economy. However, we have lowered
that as low as possible, where interest rates are
lower than they've ever been for this long of a period
of time in history, so we don't really have much
of a safety net anymore. But in the past we used to
see higher interest rates, and then that rate would change based on the overall economic conditions as a means of controlling
the overall economy. So as you can see here, the bear markets are
times when, like we said, share prices are falling. We saw one around 2001, 2007, and this one right here was a quick one. So it was kind of hard to highlight, but we did actually have a
short bear market in 2020 based on that global pandemic. So the next thing I want to explain in a bit more detail here is something called investor sentiment, which is pretty much the
overall feeling of the market, because as much as people like to complicate the stock market and make it about all of
these different things, to tell you the truth, the stock market is all about emotion, and it's pretty much a
visual representation of the emotions of fear and greed playing out before your eyes. Fear indicates that a bear
market may happen soon, or it may not at all, but that's just a time
when people are fearful of the valuations of stocks, and they would rather have cash than have money in stocks,
they would feel safer in cash, which is certainty. A sell off can often turn
expectations into a reality. So that's kind of a weird
thing to wrap your head around, but oftentimes, the mere
thought of a market crash, if enough people are worried about it, could actually trigger one based on people actually deciding to sell their shares and unload. Just if enough people
are fearful and do that, that can often be the
outcome and the reality. So here's some truth here
about the stock market that I wanna hit you with
that you may not be ready for. But as a beginner, I want you to be
understanding of these things so that way you have
realistic expectations with what the stock market can and can't likely do for you. So most beginners often expect unrealistic returns from
the stock market period. They want to make 15, 20,
25% returns year after year. They wanna be a day
trader or a swing trader. This is how most people, including
myself, enter the market. And most people are just not successful
with strategies like that. And if you're expecting
consistent 15, 20, 25% returns for many years going forward, that's just not really a realistic goal to have with the stock market. But as a result, because people are looking for outsized
or unrealistic returns, many make the mistake of speculating, such as betting on a penny stock, looking for like a 100%
return in the short-term. So one of my favorite quotes
here is from Warren Buffet. It says, "The stock market is a device for transferring money from the impatient to the patient." So what he's saying there
in my opinion is that the stock market is a long-term game here. And those who make short-term trades are simply transferring money to those patient long-term investors. Also guys, investing is 100%
a marathon, not a sprint. So don't treat it like a sprint. Short-term investing and speculating is largely relying on luck, which is not a sustainable
or repeatable strategy. And also based on the
emotions of fear and greed, most investors out there buy and sell at exactly the wrong time, based on these emotional triggers. So now I wanna cover something called market cap or market capitalization. This is simply the total value
of a publicly traded company based on the price per share. So the best way to explain
this is to simply understand where the formula for
market cap comes from, and you simply take outstanding shares or the total number of shares out there multiplied by a set price per share, which is whatever the
current market quote is for that share. That's gonna give you the current instantaneous market cap or value of that company. So market cap is used to determine the
overall size of a company based on that perceived market value, which is set by the
overall feelings of emotion and of fear and greed
that these individuals who own shares actually have. Those emotions play out every
single day, prices fluctuate. And so all throughout the day, the market cap of these publicly traded
companies fluctuates too. So even though the business of Apple might not change on a given day, it's entirely possible to see the value of that company
fluctuate billions of dollars with nothing actually happening just based on investor sentiment surrounding that stock
and the overall market. So that being said, stocks are broken up
into five main categories based on market capitalization. I have a couple of examples here, just so you guys can reference
what these companies are. So first of all, you have microcap, which is companies worth
under $300 million. One example here being Sally Beauty. Small cap companies have a value of 300 million to 3 billion. For example, we have AMC, a popular stock people
have been looking at with these Reddit users discussing these stocks and all
the frenzy surrounding them. A midcap stock ranges
from three to 15 billion. Penn National Gaming
is an example of this. Large cap ranges from anywhere from 15 to like a hundred billion. That would be a company like Twitter. And mega cap is like a
hundred billion dollars plus. That's like Alphabet, which is the parent company of Google. Now there are no set rules on what is considered
micro, small, mid et cetera. But this is just a
generally accepted guideline that I was taught and that I found myself, but some people may disagree and say, "Oh, under 5 billion is small cap." There's no reason to split hairs. Just understand that smaller companies are usually worth a couple
hundred million or a few billion versus something like Google, which is multi-hundred billion, if not a trillion-dollar
company at this point in time. So typically that's a good way of when you're looking at a stock, understand that are you
looking at a microcap, small cap, large cap. What type of valuation are
we looking at on this company in terms of, what does everyone
think the company is worth? And later on, we're gonna talk about how to tell if a company is
overvalued or undervalued. It has very little if anything to do with
the market capitalization. So don't right off the bat just think that Alphabet is way
more expensive than Twitter. It may just be a larger company that commands a higher valuation. So now let's cover some
of the characteristics of stocks that fall in these categories. Microcap is typically the smallest and riskiest stocks on the market that are gonna have the most fluctuations. Small cap companies tend to have a little bit less of that
movement, still a lot, but often have huge growth potential, but there's still a ton of risk there because they're smaller,
less proven companies. Mid cap stocks, you often get a blend of
safety of the larger companies, as well as some of the growth
potential of small companies. So mid cap is an area I
actually like quite a bit in terms of looking for some
growth and some stability. And then large cap stocks, lower risk stocks for those looking for
appreciation and dividends. Almost all of my money is in large cap. Blue-chip dividend payers, I'll explain what that means later. But for one of my thoughts
here, guys, in my opinion, most investors should
avoid microcap stocks, maybe even small caps, and be cautious, understanding there's a much
higher degree of risk involved, and you're just more likely to see those drastic price fluctuations, which as a beginner, that's kind of the opposite of what you want to see
when you get started. Next up here, let's cover the PE or
price to earnings ratio. Well, the PE ratio measures the current
market price per share relative to the earnings per
share that a company has. The best way I like to explain it is how much you are paying for $1 of exposure to company earnings. So for example, if a
company had a PE of 30, that means that you're
paying a value of $30 for $1 of that company's earnings potential. And so that PE ratio is a
good metric for understanding if a company is over or
undervalued based on the market and based on competitors. Easy calculation here, you take the market value per share, divided by earnings per share. And that's gonna give you
the price to earnings ratio. The PE ratio is a comparison tool. It is not a one-size-fits-all thing where you just have to check this and it's gonna tell you, there's a lot to valuing stocks. But the PE ratio is a good
tool to utilize among others. It's typically used to compare stocks within the same sector
or area of business. And that's just based on levels of normality that you see within different sectors or industries. For example, utility stocks
often trade at a lower PE where tech stocks trade at a higher PE. So if you were comparing
the PE of a tech stock to the PE of a utility stock, it's not gonna be a
very helpful comparison, but if you compared the PE
ratio of two utility stocks, that's gonna be a much more
useful comparison tool. So a high PE can indicate
the stock is overvalued, usually too if it's higher
than the industry or the peers. And a low PE can indicate the stock is undervalued. But like I said, it's not a one-size-fits-all
or a one-stop shop, because a company that is
not generating earnings often has no PE ratio or a negative PE. So it's not useful at all
for looking at companies that don't have earnings
or that are not profitable because it's just not
gonna be a helpful metric. Also, a company could have a low PE, but if earnings are also going down, that means that as the
share price is going lower, that PE is actually staying the same. So that's referred to as a falling knife, something we're gonna talk about later, but just understand that we
recognize what the PE is. We look at it as a comparison tool, but it's not a one-stop shop,
and low PE does not always, and rarely does it mean that
something is a screaming buy. So just to give you a few
examples here of some companies and their corresponding PE ratios, Apple has a PE ratio of
36.49, Microsoft is 38.49. So if you compare those two, that's pretty similar, but Apple is actually looking like a little bit of a better deal
right now than Microsoft. And I own both in my dividend portfolio. IBM on the other hand
has a PE ratio of 19.39, obviously a company I also own myself too, but one that people are
not nearly as excited about or involved in a different
business for the most part. Although IBM does a
lot of cloud computing, that's what Microsoft and Apple do. So I have a lot of IBM in my portfolio, and I'm hoping that's one of these stocks that over the next five or 10 years can get up there with the
likes of Microsoft and Apple. And then Hewlett Packard, I don't even know what that
company is doing anymore, but they're coming in at a PE of 13.73. So investing $36.49 in Apple stock will expose you to $1 of Apple earnings as of February 16th, 2021, which is when we made the slide here. So that's the best way
to look at a PE ratio. And essentially what that means is, if you were buying Microsoft, you're paying basically 38.50
for a dollar of earnings, but if you buy Apple,
you're only paying 36.50, so it's slightly cheaper. So that's kind of how I
like to use the PE ratio, is comparing stocks within
the same sector or industry that are doing a similar
business operation. Next up, let's talk about volume. Volume is how many shares
of a particular stock were traded that day. And then we also have another
term called liquidity, which is the degree of ease associated with exchanging
that asset for cash. So high volume stocks, stocks that trade on a high volume, which is typically any
of those listed stocks on the New York Stock Exchange or NASDAQ, they have a high degree of liquidity, 'cause it's pretty easy to
exchange your shares for cash. And you have a good idea of what you're gonna get back for it based on the quoted price. If there's low trading volume, you're gonna have poor liquidity because it's not nearly as easy to transfer that money into
cash out of that stock. My thoughts on this, as far as
using volume as an indicator, look for a volume in excess
of the normal trading range. So that's one of the things I like to do, is if I'm looking at a stock, I'll take a peak at their
average trading volume. And if you see a day where
volume is way higher, either in the red or in the green, it's just an interesting
indicator that tells you, there's more people
trading this stock today than we typically see on
an average trading day. So volume is just how many
shares of these stocks trade hands each day
during the market hours. And also, we do cover this later, but market hours are basically 9:30 a.m. to 4:00 p.m.
Eastern Standard Time. The market's closed on holidays and some random holidays too. The market is closed
for like President's Day and random ones like that sometimes. So that's when you can trade shares. Some brokers offer a pre-market
or extended hours trading, but most people exchange their shares during that 9:30 a.m.
to 4:00 p.m. EST window. So just for an example here, looking at a volume chart, we're looking at Penn National Gaming, and at the bottom, that chart is actually
showing us trading volume. And you can see where you might be able to
use this as an indicator if you were looking to do a
little bit of technical analysis or looking at the charts of the stock. So we highlighted some sections
here and drew some arrows. You can see where higher
than usual trading volume often resulted in an
upward move of the stock. However, it's not the most
useful indicator out there, because typically when you
see the move in the volume, the price has already moved in. So there's not usually a great way to like jump in on a stock. But if you are keeping
track of volume and you see, purchasing volume or green
volume going up day after day, it might be a positive sign in
the long run for that stock. So now we'll talk about my favorite subject of the stock
market, which is dividends. I am a dividend investor myself. That's where almost all
of my stock portfolio is dividend stocks. So let's cover what that is here. And I'm not gonna go into an
insane amount of detail here because I actually have a full
52-minute step-by-step video about dividend investing. I'm gonna put a card up in the corner. So we're gonna breeze through it here and cover a lot of important details. But if you want more information, I would highly recommend that video as a supplement for this after you go through the whole thing here, so that's available if you need it. Dividends are regular cash payments made to the holder of a given stock. Not all stocks pay dividends, it's up to the company to decide whether or not they want to. Many large or mega cap stocks
pay dividends to shareholders. And investors looking
for dividend payments from stocks are often
called income investors. Dividend stocks are often large,
well-established companies, they're large or mega cap typically. So there's not usually as much risk associated with these stocks as there is with some of
these smaller growth stocks. So that's kind of why I like
dividend investing, it's easy, it's pretty passive, I don't have to worry
about the stocks I own. I own Titans of America and the world in terms of these companies that have been around forever. So that's why I like having
my money in dividend stocks. So as a lower risk investment, they sometimes offer a lower return. But the only thing I am gonna
say is you can do a style, which I do, of dividend growth investing, where you invest in companies that have both income
potential and growth potential. So you get the best of both worlds. Income investors can be
paid in two different ways. Number one, asset
appreciation or buying low and selling the share price for a higher price later
or regular cash payments in the form of dividends. So those dividends are often reinvested into buying more shares that allows you to earn compound interest, which we'll talk about soon. But I also like dividends because they can kind
of hedge against a loss. So let's say for example, you bought shares of a company
with a 5% dividend yield, and maybe that share price went down 10%. Well, through that next year, you're gonna get 5% back in dividends that are potentially gonna go back into shares of that company, meaning you're kind of slowly bailing yourself out with those dividends. So that's another reason I like them. They're kind of a cool
hedge against a loss. And even if you own a company
where the share price is down, it's still nice to get
those dividend payments and know that you're still
getting something for your money. So just to show you an
example of how stocks can pay you in two different ways, here we have Procter & Gamble, it's another stock I own
in my dividend portfolio. And so let's say you bought
shares on January 3rd, 2020 when they were trading
for 122.58 per share. Well, on January 4th, 2021,
roughly one year later, they're trading at 137.82. So your return there, if you were to sell this share or however many shares you own there, you would have a 12.4% return owning Procter & Gamble for one year. But on top of that, while
you owned that stock, you also earned dividends. And in 2020, they paid a dividend of 3.16 per share. It was actually paid
quarterly at 0.79 per quarter. So the yield on that
stock is actually 2.5%, which is pretty attractive. That's why I own Procter & Gamble. So let's say for this one-year period, you owned 500 shares of Procter & Gamble, while you would have earned
$7,620 of appreciation from buying low and selling high. But since that company
also paid dividends, you earned another 15.80 in dividends. So you would have made a total of $9,200. This is why I like stocks that can pay me in two different ways. That's why I love dividend stocks. So now let's cover a bit
about risk and reward, which is probably not something
that you wanna talk about, but it's one of the most important foundational pieces of investing, because every investor out there has a different level of risk tolerance. And risk tolerance is essentially how you react to losing money. And you should just start thinking about that in your own life. Like, how do you react when you go to the casino
with a hundred dollars and you leave with nothing? Do you care? Do you get emotional? Do you cry? That same emotion that you feel at the
casino if you lose money, is gonna be a similar feeling if you lose money with stocks. Some people are great with risk and they don't really
care if they lose money, other people are very conservative, and the thought of losing money stresses them to their core. And so it's important to
be honest with yourself when determining this risk tolerance, and age plays a large factor in the investor's risk tolerance, because a young person could have a very
aggressive risk tolerance as they are decades from retirement. So if they make bad financial decisions when they're younger, they still have many decades
ahead to undo those decisions and hopefully make money
from other investments. Whereas a person five
years from retirement would have a very low risk tolerance as they will be drawing
from their investments in the near future. This older person needs the
money in the next five years. Whereas a younger person is probably not gonna need that
money for like 40, 50 years. They can afford to take on more risk and give their money a
long time to trend upward. So one of my thoughts here, don't confuse investing
with your desire to gamble. One of the great lessons
from Benjamin Grahams, the intelligent investor. Remember, that a 50% loss
requires a 100% gain, kind of a funny statistic there. So if you buy something
and it goes down 50%, you need 100% return just to
get back where you started, which again, something to consider before you put a lot of money into some of these
speculative or risky gambles. So just to show you an example here of a high risk stock that paid off. And to be clear, I'm not saying that Tesla is a gamble. At this price, you got to make your own judgment on that. I would personally say it's a little bit insane, the valuation. But I don't own shares of Tesla, but to those who do, I like the company. I don't really have too much against them, but the price is the only thing to me. So I'm not saying this is
a gamble, it might be now, but this was a high risk,
high return potential stock. And you can see over the last year, it's up an incredible 375%. It went from 170 per
share up to 800 bucks, which is unbelievable. However, high risk can also be bad. Here's a high risk stock that went bad. It's called NextCure. I don't even know what this company was, to be honest with you, but in
one year, it went down 70.4%. So you would need more than a 100% return at this point on this stock, just to get back where you started, almost looking like a 3X or return potentially just to
get back to the $50 per share. So high risk is fun when
it works in your favor, when it works against you, it's horrible. So just understand that
if you are taking risks, this will play out as a reality. At some point in time, it's inevitable that you're gonna put a bunch of money in a stock and it's gonna drop like this, and it may just be a
learning experience for you. Alrighty guys, so it's another day here. We got some new energy for this video. Unfortunately I did have a
bit of an injury yesterday, so I'll be wearing a cast
of some sort on my hand, nothing cool, didn't get into a fist fight or anything like that, guys, just injury to the hand. So just wanted to mention it. So that's what's going on here, but everything is totally fine. The show must go on,
that being said, guys, so let's jump right back into it by talking about a very important document called the earnings report, which is one of the biggest
distinctions out there between a publicly traded
company and a private company, because private companies are not required to disclose
their earnings and revenue and certain documents like that. Whereas once a company becomes public, they are required to do this
quarterly earnings report where they're sharing financial documents and
updates with investors. So public companies file a
quarterly earnings report, and quarterly earnings
are used by investors to determine the overall
financial health of a company. But not only that, it also helps you to track the overall health of the company too, because as important as it is to do your due diligence at
the beginning when you invest, you also wanna make sure that you're keeping up with these
companies you're investing in to make sure that their overall
situation is not changing. And one of the best ways to do that is by looking at these
quarterly earnings reports, or they also have an annual
report in most cases, which may be even more of a synopsis that would be less to go through. Long-term investors tend
to spend a lot of time reading earnings reports to be familiar with their investments in the companies that
they're investing in. Also, analysts make estimated guesses on the quarterly results of a company, and they will also issue what
they call recommendations, whether it be a buy, hold or sell. Now, I personally don't pay
very much attention at all to what these analysts
are saying about a stock, I tend to just make my own decisions based on my own research. But especially as a beginner, something to at least keep an eye on is the overall analyst
recommendations surrounding a stock. But you have these analysts
who make an educated guess about how they expect
a company to perform, typically looking at metrics like revenue or earnings per share or things like that. And then if you see a company
beat those expectations, the share price usually goes higher unless it's already priced in. But we'll talk about that later. Or if the earnings fall
below expectations, typically we'll see a
move lower as a result. But the stock market is totally erratic and emotional at times. And I've seen times when a
company has stellar earnings and the stock still drops, maybe because all that
was already priced in. So up next here on this, guys, we are looking at Palantir
stock here just for an example of what can happen when a company has earnings
that disappoint shareholders. So I'm not familiar with this stock. I don't actually own it. I had my assistant here put it in the slide for an example. But Palantir had quarter one earnings, and you can see they came out, and this stock went from 31.80 per share down to 28.38, down 11%. But even if you look at
the five day move here, this stock went from 38
per share down to 28. So especially with a stock
that is a tech-related stock, I believe this is a cybersecurity company, you're going to expect to see
more wild and drastic moves. But it's just important to understand that the earnings report can certainly have an effect
like this on a given stock. And then just to show you an
example of positive earnings, we know that Twitter posted quarter one earnings
that were positive. A lot of social media companies have been doing really
well during the pandemic, as people are looking for things to do. And on the day they posted earnings, the stock went from 59.87 up to 67.77. So it jumped up over 13%. And if you look at the
one-month chart here, Twitter's doing exceptional here, they've gone from about $47
a share up to around 75. So stocks like this can
have really quick moves, but earnings reports certainly
do have a major effect on companies that you invest in. So the next thing I wanna talk about here is another important
stock market principle. And we've kind of alluded to this already in our discussions about the
emotions of fear and greed controlling the stock market. But instead of using the word fear, I want to instead
introduce the word supply. And instead of using the word greed, we're going to use the word demand, because it's essentially the
same factors at play here, but we can use these
words interchangeably. The price of anything out there is determined by the market
supply and the market demand. I'm sure we're all
familiar with this where there's been things before
that we're trying to buy that we have a hard time buying and then maybe the price goes higher because it's a highly sought after item. Like for example, right now the NFTs are very popular. So let's about NBA Top Shot. The only reason the price for those
things is as high as it is is because of the market
demand and the market supply. The demand far outweighs
the supply in this case, and that is why those prices
have gone higher and higher. However, you can easily hit
a tipping point at any point where the demand drops and
the supply hits the market, and that's when you
can have that sell off. So the emotions of fear and greed are sort of the precursors
to supply and demand. Supply is going to be from fear. That's when a supply hits the market, 'cause people are fearful of something and they don't want it anymore. Whereas demand is greed. People want as much of it as they can get, they don't care what it costs. They just want this asset, that is demand. So supply is the amount of a
commodity product or service available to the market for purchasing, whereas demand is the desire of the buyers for this product or good or service. High demand and low quantity or supply is going to create this emotion, or it comes from this emotion of greed, and that's going to drive the price up. Low demand and high supply is going to result in fear, and this is going to lower the price. Or fear can trigger low
demand and high supply. They sort of work interchangeably here. But these are the emotions
that we have at play controlling the stock
market day in and day out. And the advantage here is that since we're always seeing
these fluctuations, while it is difficult to unearth
hidden value in the market, if not impossible with how
efficient the market is today, it's entirely possible to strategically time your investments. And maybe if you decide
you're looking to add some shares of Apple to
your portfolio, for example, maybe you decide to do it on a day when there's a
lot of fear in the market where the NASDAQ is selling off, and maybe you're getting
a slightly better price by purchasing on that day. So even if you don't plan on
doing any short-term moves, you can look at the
overall market sentiment, and you can also kind of time things and try to do your purchasing on like a red day in the market, for example. So right here, guys, I wanna show you a visual representation of this supply and demand
looking at Tesla stock. So back in January, we saw the share price run up to around, it looks like $900 per share, and then it sold off down to about 800. That is because collectively
during that period of time, more investors were selling than there were investors buying. There was too much
supply hitting the market and not enough demand to purchase it. However, at a certain point when the stock starts selling off, more and more people are
interested in buying it. And then we get to this point where when it hit around 800 per share, enough buyers stepped up
to the plate and said, "We're gonna buy now." They got greedy rather than fearful. Enough people started buying, it changed the sentiment
surrounding the stock, and it went back up almost
to where it was prior. So you're always gonna
see supply and demand or fear and greed
impacting individual stocks as well as entire sectors or
industries and entire markets. So the next thing I wanna talk about here is something that nobody likes to discuss, and that is the concept of inflation. So there's a lot of talk
about this right now, based on all of the money
printing that happened in 2020. So inflation is like a buzzword right now. We're certainly seeing it with
certain goods and services or things that we're looking to purchase. For example, construction
material and lumber is really expensive right now. And a lot of people are saying this is a bad sign for hyperinflation. Well, I don't think that is the case, it is simply something that
is being discussed more now, and something to be
aware of as an investor. We're not gonna spend a ton of time here, but just to cover this here, inflation is less purchasing
power of the dollar over time. The simplest way to explain this is, imagine the cost of popcorn
at the movie theaters in 1930 versus 1970
versus 2010 versus today, we would all probably expect
that price to go up as it did. And so essentially what this means is you're getting the
same amount of popcorn, but it's costing you more money, because the buying power of each dollar goes down every single year. So the main purpose of investing, your goal number one should
be to simply outpace inflation to protect the buying power of your money, because at the end of the
day, savers are losers. While I do have an emergency fund and I recommend having
some liquid savings, you can't save all of
your money in the bank, you're gonna lose the buying power and you're not gonna be growing or protecting your buying power, it's gonna be going down over time. So inflation is the enemy here. We want to avoid that, you do wanna have some
cash for emergencies. But other than that, I try to keep myself
pretty heavily invested, that way I know I'm at least
outpacing inflation, if not, growing the buying power of my money through gains, through investment. That's pretty simple to
understand there, guys. Next up we're gonna talk briefly about saving money in a bank account. So most people simply save
money in a bank account. Very few people out there actually invest. It's pretty sad. Having an emergency
fund is very important, but I wanna explain to you how even though you are saving and earning some amount of interest, you're still losing money, sadly. Since 2000, the average rate of inflation has been 2.2% per year. Meanwhile, the average
interest rate on a bank account is around 0.05%. So even though you are earning some amount
of money in interest, the amount you're losing
based on inflation or the lessening of the
buying power of your money far exceeds that level of
interest that you're earning. So the net loss here is actually
a loss of 2.15% per year. So if you had a hundred grand, that's like roughly $2,000 of buying power that you would lose over
the course of one year, based on the current rate
of inflation that we've seen in the modern era. Alrighty guys, so now that we have a lot of the foundational
stuff out of the way, I wanna start talking about
some of the nitty-gritty here. And the first thing we're gonna discuss is how to actually purchase a stock, because it's not like going out there and buying a new pair of
shoes or something like that, where you just go to a store and say, "Hey, this is what I want." It's a little bit different, because you're utilizing
something called a stock broker. So the first step to
investing in the stock market, outside of taking care of your debts, paying off high interest credit card debt and setting aside an emergency fund, which I'm assuming everyone has done that if you followed any
finance videos in the past, that's always the first step. But beyond that, your first step to actually
invest in the market is choosing a brokerage. Now I actually am part owner
of a personal finance blog called investingsimple.com. I'm gonna link up to it down
in the description below. That's what we do over there, is we do apples to apples comparisons of all the top investing apps and try to help people understand in the simplest way possible, what avenues they may want to choose based on their investing goals. Just like this video here has been hopefully very
simple and easy to understand, that's also how we write our content. So you're more than
welcome to check that out, investingsimple.com or you can
put it right in your browser and bookmark it for later. But we have a lot of
helpful resources over there in terms of choosing your brokerage. Also guys, like I said, I am gonna put that link down below with all of the current
best free stock promotions. If you've enjoyed this video so far and you've gotten value out of it and you feel like using
one of my affiliate links, I may earn a commission
if you click on that link and use any of those links on the page. However, as I said earlier,
that is never expected, but always appreciated if you wanna give back to me
just by clicking on a link. But there's gonna be no upsell, no ask at the end of this video, guys, I'm just here to give you
five, six years of information, all packed up here in
a neat little resource that I hope will help people to accelerate their wealth
through the stock market. So anyway, brokers facilitate buying and selling of securities, and you need to go through a stock broker in order to transact on the stock market. So it's similar to a car dealership. Whereas if you wanted to buy a Ford, you go to a Ford dealer, your stock broker is like a stock dealer. So it's like going to the Ford dealer, you wouldn't just call
Ford and order a truck. However, that might not be
the case in 10, 15 years, because more and more
we're shifting to that, getting rid of middlemen and dealerships and just saving money. So as it stands now, we still go to a dealership
to buy a Ford F-150, but that may change down the road. Not to mention the
broker also provides you with a very important thing,
which is a trading platform, which is a user interface that allows you to direct the brokerage, to place those trades on your behalf and actually execute orders. Now the good news is if you are new to the
investing realm here, you've picked a really good time, because as far back or as recent
as five years ago, rather, we used to have to pay
commissions to these brokers. When I started investing, I did so with a Scottrade account, and I was paying six or $7 per trade. And this was just normal. Now, there are dozens of free
stock trading apps out there. And some of them appeal to more beginners while some are for more advanced traders. There's literally so many
options out there, guys, definitely many to choose from. Like I said, I'm gonna have an updated list down below of the best promotions. I'm gonna check it every month and make sure that it's current, that way you know you're getting the best
possible free stock promotions. And because all of these companies are competing with each other, there's a lot of venture capital and investment flowing
into this fintech space. So a lot of them are offering
free stocks or free bonuses. So it's really a good time
to take advantage of this if you wanna use some
of these free solutions. However, that being said, most if not all of them
have no storefront locations or direct manual account management, not to mention the customer
service is pretty lousy. My recommendation is always, if you want a really good brokerage, you can't go wrong with
something like Charles Schwab, I'm not affiliated with them. However, what you may find
with a brokerage like Schwab is they offer so much
that it's complicated to get up and running. Whereas these newer commission-free apps Schwab is commission-free too, but some of these newer apps
spend more money and time on user interface and user experience, and they're just way easier to use. And also another thing
you should be aware of is that many of these brokerages earn money through PFOF,
payment for order flow, and they also offer margin accounts and other features like paid membership. So they're not operating a charity, they're operating a real business. They have revenue streams to make money, they just decide to make
money in other ways, rather than just charging
commissions to customers. So it's a really cool
time to be investing. There's a ton of different ones out there. And like I said, if you wanna compare them, would recommend highly
investing.simple.com. Or if you want to take a
look at the promotions, that's gonna be down below, and just to keep an eye on what type of free stock offerings and things like that are available. Now we'll talk about account types. And for beginners, this is
where I would recommend. And this is a cash account. This is where securities
are always paid in full. And remember, securities is
just a fancy word for stocks. What this means is that any
money you have in your account is money you've deposited. You're not borrowing any money. And when you buy stocks, they're paid in full, you're not borrowing any money. Cash accounts do not have
strict credit requirements because investments are paid in full and no margin is extended. Here are the typical requirements for opening up a cash account. First of all, proof of identity. They're also gonna ask you for your employer social security number, address, et cetera, because this is a taxable asset here. And your investment activity
is 100% reported to the IRS. So we'll talk more about taxes later, but that's why they verify employment, get your social, et cetera, just so they have all
of their ducks in a row with what they have to do in
terms of regulatory agencies. Also, make sure when
you're opening the account, you specify what type of
account you are looking to open. We're gonna talk about
margin accounts now, probably something that you
don't want, I don't use margin. But some people I've heard of have accidentally opened
up a margin account not knowing what it is. Margin accounts allow you to borrow money against the investments in your account, and then use that money
to buy more stocks. So with a cash account, if you invested a hundred
dollars in a given stock, it's because you had a hundred dollars to put into that stock. Whereas with a margin
account, you might only have, let's say $50, but the brokerage might give
you another $50 to borrow using your other stock as collateral. So I'm sure you can understand
how this gets dangerous. You're essentially magnifying
losses potentially and gains, but magnifying losses is more so what I wanna leave
you with as a message here. You're charged interest
based on the line of credit. Every brokerage has their own rates. This allows you to increase,
leverage on a stock, which simply means you have
control of more shares. And it also will allow you to short sell if you do want to bet against a stock. I do not short sell. The only thing I would
recommend is a put option instead of doing a short. I've never shorted a stock, I don't think I ever will. I've never even bought a put, but that's the only way I would ever try to bet against a stock is through a put option, not shorting, because there's potential
there for infinite loss, which we'll discuss later. Margin is typically capped at 50%, which would mean that if you had a hundred grand
in your margin account, that would give you about 200 grand of leveraged buying power. However, for every dollar that
you use above a hundred K, you're going to pay interest monthly. So it can be very dangerous. 10 out of 10, would not
recommend for a beginner. And honestly, most people
should not use margin. I don't use margin, not recommended, but it's important to
understand what it is, that way you don't end up with
a margin account by accident. So now we're gonna cover
some of the basic order types associated with placing
trades in the stock market. So in order to buy or sell
a stock on the market, you need to execute something
called a market order. And each brokerage is going to offer different order types. Now you'll find most
of the same order types across all the major brokerages. And to be honest with you, guys, I mostly just use market orders, which we'll explain in a minute. So if this looks confusing, don't worry, and understand
that the majority of people are just gonna do a market order. And this is probably information that you don't need to know. But if you are curious, stick around for this little section here. Some trading platforms offer
sophisticated order types that may interest advanced traders. However, one of my thoughts here, most beginners only need
the basic order types. And familiarizing yourself
with market order types is crucial to your success, just to understand what's
available out there. Because the thing is, I've heard of this happening a lot, where people are placing
a order for a stock or they're trying to place an order and they're trying to
get something to happen and they get a different outcome. So they screw up an order
and they end up buying when they think they're
selling or vice versa. So I know it sounds stupid, but it happens all the time where maybe you go to sell a stock and you accidentally doubled your position 'cause you're not paying
attention to your orders. So let's cover that now. And I definitely recommend just understanding these order types so you're familiar if you're
looking to place an order. First of all, we have market order. Like I said, this is what
I use 99% of the time, if not all the time, for the most part. With a market order, you can place this order
during market hours only. As we said, that's 9:30 a.m. to 4:00 p.m. Eastern Standard Time, closed on holidays. And that's Monday through Friday. During a market order, you're buying or selling a stock at the current market price, whatever the price is at
that instant point in time. And that is going to be
based on something called the bid and the ask price. Now I'm not gonna get too deep in the weeds here with this, guys, but the bid and the ask price, this ties in with the level
of liquidity of a stock if you're trading listed
stocks on the major exchanges, which in the U.S. here is New York Stock Exchange and NASDAQ. There's enough people
actively trading shares that you typically know
about what you're gonna pay or what you're gonna sell
for when you're transacting. However, with more thinly traded stocks, unlike pink sheets or things like that, or over the counter exchanges, you can get a much wider spread, which is the difference between
the bid price and the ask. It's kind of like an
actual auction environment where you have maybe an ask for what someone's looking to sell for, and then people bidding on it
with less desirable exchanges. There could be a huge difference, like maybe someone's asking 1.90, but the bid is 1.40. So if you're looking to sell or buy, it's gonna be at any price
between 1.40 and 1.90, which is a wicked spread. Whereas with a listed stock, you might only have a spread of a couple fractions of a penny. Again, that's another advantage of just sticking to listed stocks, ensuring that you have the liquidity if you do in fact need to transact. You're gonna be aware of prior roughly what you're going to pay or what you're gonna
receive for those shares. So market orders are used when orders are to be filled
immediately during market hours when it's open, and your order will be placed
at the best available price, but may fluctuate from
the price that you see based on that bid and the ask price referred to as the spread. So now we'll talk about
a limit order briefly. That's pretty much if I'm
not using a market order, it's a limit order. And I don't use pretty much
any of the other order types. A limit order is an order to buy or sell a specified number of
shares at a specified price. So for example, a limit buy order could
mean that you're buying at a price below the current market price, or a sell could be above
the current market price. So with a limit buy, you could say, "Hey, this stock is 1.85,
I want to buy at 1.80. So if it reaches that price, it's gonna execute the order." Whereas a limit sell would mean, okay, the stock is at 1.85, you might have a limit sell that says, if it hits 1.90, unload all of my shares, but if it doesn't hit those prices, the order does not execute. Also, limit orders can be
issued in two different ways. There's trading day only, which would be only this
current trading day, or there's a GTC order,
which is good till canceled. So let's say for example
you owned a stock, this is where people sometimes
will use a limit order. Let's say you have a stock that you own, and you have a price target in mind of, "Hey, this is what I'd be
willing to sell it for." So you could do a GTC, good
till canceled limit order, and just have it hanging out there. And then if that price ever
climbs to your target price, the order will execute. And maybe you have a limit
order in place to take some, if not all profits off the table. I personally don't do that, I don't really use limit orders. But some people do that as sort of a way to automatically take money off the table and get some of their emotions out of play here with the market. So guys, there are more
order types out there, but to be honest with you, I
don't wanna waste your time. There's a stop limit
and a stop loss order. And a lot of brokerages offer that, but I don't use them personally. And I don't wanna waste your time with something I don't use. So now we're gonna move on
to another important topic, again, one that people
don't like to talk about, but it's good to understand, and that is something
called fund settlement. So stock trades settle three business days following the trade date. Meanwhile, options trades
settle in one business day. Your brokerage oftentimes allows you to reinvest unsettled funds on a good faith agreement that you will hold the securities until the fund settlement date. Because truth be told,
if you sell a stock, even if that cash enters your account, which it will instantaneously,
the funds are not settled. It takes three business days for the funds to settle
and the trade to settle. So during that time period, you can't withdraw the money yet, but a lot of brokerages allow you to reinvest it in other stocks, understanding that you will
not sell that other position before those funds settle. Kind of confusing, guys, but let's say for example, you sold a stock that you
had a profit on on a Monday, and then you took those proceeds on Monday and bought another stock. The funds from the stock
that you sold on Monday is not going to settle until Thursday, which would be three
business days following. So if you bought new shares
of a different company and sold it before Thursday, this is something called a free ride. And you can get in trouble
with your brokerage because you technically made
money using borrowed money. Something that the SEC
is not a fan of or FINRA, I can't remember which regulatory agency. But either way, brokerages
are on the lookout for this, it's called a free ride. They give it to you as a courtesy, but if you abuse the privilege,
it is taken away from you. And then you can also end up with a suspension for a period of time if you have multiple free rides. So never, ever, ever swing
trade with unsettled funds, because you might get
stuck holding a position, simply because your funds are not settled. And this is also important
to understand here too, a lot of brokerages allow you to use something called
instant deposit now, and essentially it's something similar. When you move money from your bank account to your brokerage through the ACH Clearing House, through the ACH process, it does take two to three
business days, if not longer, to get your funds in there. So rather than having to wait
for your money to arrive, a lot of these newer brokerages
will front you the money up to like a thousand dollars. That way you can invest immediately and your funds come in later. So that's another convenient feature of a lot of those newer apps. And I will say this,
I'm not aware of Schwab or the big brokerages offering this, but a lot of the apps that offer
the free stocks, et cetera, do have this instant deposit feature. That way you don't have to wait for the money to hit your account before you're able to invest. Alrighty guys, so we covered a lot of the boring stuff there, fun settlement order types, et cetera. Now I wanna start
discussing different assets that you're able to purchase
through the stock market, because a lot of people are
under this misconception that the stock market is just a
place to buy and sell stocks. However, there are different
types of assets out there that trade on these major exchanges outside of the realms of stocks. And even within stocks, there's many different
categories of stocks. So we're just gonna get
a bit more granular here and cover some more information. So stocks in general, I typically will break them down into three different categories. You have blue chip stocks, which are well-established companies, oftentimes dividend payers. That's where majority of my money is. Then you have growth stocks, which are newer companies that
have more growth potential. And then you also have
a hybrid of the two, which would be a blue chip growth stock or a dividend growth stock. And then you have more
speculative and penny stocks. Now within each of these categories, based on market cap or market value, you have a different risk profile. But if you were to break these
down into three categories, that's about how I'd separate these out. And for beginners, I would say, and this
is not financial advice, but just based on my own experience, blue chip stocks is a great
place to start for beginners. You're very unlikely to get burned there, and maybe a little bit into growth, maybe some blue chip growth, but speculative penny stocks,
that is not beginner territory and not something I recommend. You should understand what category a stock falls
into before investing in it. Then that's gonna be based on
doing your own due diligence, looking at the market
cap, et cetera, et cetera. But that's a lot of stuff that's gonna come
further on in this video. So first of all, let's talk about blue chip stocks. Blue chips are stocks of well-established financially stable and well-managed companies. It's companies with decades, if not centuries of records
and operating history, they've been through all kinds of different
economic conditions. They're larger companies that
may not be growing as fast, but they're less volatile
and more consistent than newer startup and growth stocks. Most of them pay
dividends to shareholders, which is great because that
gives you the opportunity to reinvest those dividends, allowing you to earn compound interest. So that's why I love blue chips. They're also a great option
for beginners to consider, because you're very unlikely to get burned or to lose all of your money purchasing a blue chip company. And we'll go over some
examples of them too, just so you guys have
some tangible examples. Growth stocks on the other hand are stocks of companies that
are increasing in value rapidly earnings are expected
to grow at a faster rate than the market or industry average. They are more recently formed companies, and they're not time tested
like the blue chip peers. They're typically significantly more volatile than blue chip stocks. And in terms of that PE or
price to earnings ratio, which we said earlier as essentially how much
money you're paying per exposure of $1 of
that company's earnings, you typically see the PE ratio be much higher in a growth stock versus a blue chip stock because of the anticipated growth. Now there's another metric I like called the forward PE ratio, that projects forward into the future based on earnings estimates, and tells you what that PE is likely to come in at in the future if the company hits those
revenue and earnings targets. And then for the final category,
we have our penny stocks. In my opinion, there's no business of these being in your
investing portfolio. Speculative investments
are a form of gambling. I'm not saying to avoid them entirely, but put them in a separate portfolio based on the teachings here of that book right there, "The Intelligent Investor"
by Benjamin Graham. So I have my main portfolio where I have my blue chip dividend payers, and then I have my play money portfolio, which is a much smaller amount of money. And that's where I do my speculations, and that's where I play around. I'm not saying you shouldn't
play around with the market, but any money that goes into
your speculative account, you should be willing to
lose 100% of that money. So you don't put your rent money in there, you don't put your inheritance in there, this is just play money. Treat it as if you were
going to the casino and playing roulette. That's pretty much the equivalent of speculating in the market. It's high risk, it's volatile. And oftentimes it's heavily manipulated, especially if you're trading
stocks off the major exchanges. And one of my thoughts right here, guys, as I said earlier, while I do not discourage speculating, I think this should be done
in a separate trading account specifically designed for speculating or earmarked for speculating. Again, that's not my original idea, that came from Benjamin Graham, but it's something I follow myself that I highly recommend to you. So now let's take a look at
a couple of fun examples here of some wild moves in the stock market and some things that a lot
of beginners got caught up in that probably burned
them pretty good here. Nokia stock went on a Reddit fueled rally earlier in January, and it closed at a high of 6.55 per share on Wednesday, January 27th. Well, one day later, that
stock closed at 4.69. So people potentially
lost about 28% in one day. That is the danger of speculation. Again, if you were
buying into Nokia stock, a lot of people were doing it based on the hype or the rumor, and they were buying it simply because they expected
it to go higher in the future, which should not be your main
reason for purchasing a stock. So this is what speculation can look like. Next example we have here, we go to mutual funds, okay. So the next asset type I
wanna cover outside of stocks is another popular one,
and this is a mutual fund. Mutual funds involve
active money management, which essentially means
rather than having you pick and choose what you're investing in, you have somebody else that you pay to make those decisions on your behalf. Because of this, active money management is significantly more
expensive than passive. Most retail investors cannot afford professional
management of their money. Hedge funds are the popular investment for millionaires and billionaires, but you often have to have a
multimillion dollar net worth just to utilize these services. So the alternative here
is the mutual fund. This allows small investors to
collectively pool their money and have it managed for them. And this was the most common investment during the '80s and '90s. And then in the '90s, the ETF was born, and that was kind of a game changer. Because prior to that, the main option that you had for getting to broad market exposure was through a mutual fund, which meant you're paying this guy, you're this office full of men and women to manage your money, and you're basically saying, "Hey, I don't know what I'm doing, I want you to do it for me. But then in the '90s, another product came out called the ETF, the exchange-traded fund,
which basically said, "Hey, maybe we don't wanna pay all of these people over
here to manage the money, but we don't want to do it ourselves. What if instead of actively managing it, we just did it passively, and instead we just owned the market in a very low fee manner?" That was the birth of the ETF. And now, mutual funds are really
not popular at all anymore. Not something I invest in, not something I really
discuss on my channel. And it's something that honestly
in the next 20, 30 years, I wouldn't be surprised if it's something that's fairly uncommon in terms of what people
are actually purchasing. It reminds me of how a lot of people would purchase treasuries
and savings bonds for kids, and it's not really something you see so much anymore these days. So basically, mutual funds are
for active money management. They're not really popular anymore. Personally, I don't recommend mutual funds because if you look at the statistics, most of them are actually
not outperforming the market when you consider the amount
you're paying in fees. So we've talked about
this quite a bit already, but a little bit more detail here about the ETF or exchange-traded fund. So mutual funds and ETFs are very similar in that they allow you to own a basket of many different stocks. However, the key
distinction between the two is that the mutual fund
is actively managed, which contributes to
higher investment fees, whereas the ETF is passively managed, meaning there's little
to no human involvement, making it significantly less expensive. So many people decide to simply own a piece of the broad market rather than trying to pick
and choose individual stocks. And statistically speaking, those who simply passively own the market tend to outperform those who pick stocks. I'm not saying this to discourage you from doing it yourself. You see me doing it every day, being active with my investments. I do it because I enjoy it. And it's kind of a social
aspect for me as well, being an active stock trader. However, if you're just looking
to passively build wealth, ETFs are gonna be one of the best options that you have available to you today. So the next thing on my list here is not technically a separate asset, it's a separate account type, but I included it here
anyway just to discuss, and that is the IRA or
individual retirement account. So a lot of people are
familiar with the 401(k), which is the employer-sponsored
retirement savings plan. But outside of the 401(k), you can also open something called an IRA and have additional money
that you're setting aside, be it tax deferred or you pay taxes or potentially no taxes
based on the type of account. So there are benefits to IRAs, especially if you're young and you have many years ahead of you to allow that money to grow. If you're investing for the long-term, especially for retirement, you should definitely consider
maximizing contributions to at the very least the Roth IRA, which for most people is the best retirement
account option you have available to you outside of
your 401(k) from your employer. Also, most people should do both, it's not really like one or the other. Most people should utilize the 401(k), especially if there's some type of employer match being offered. And then you should also
consider when possible, contributing if not
maxing out contributions to that Roth IRA retirement account. Anyone with earned income
can contribute to an IRA. Some people open them
up for their children. And there's kind of interesting loopholes with the tax system
associated with the IRA. So there's two main types of
IRAs for retail investors. That is the traditional
IRA and the Roth IRA. So first of all, let's
discuss the traditional IRA. A traditional IRA has a yearly tax deductible
contribution limit that changes over time. Basically over time, these limits are going
up based on inflation. So because buying power is less, people are allowed to stash
away more for retirement. So anyway, in 2021, the limit is $6,000 or 7,000 if you are 50 and up. Keep in mind that money is
growing in an IRA tax deferred, which means taxes are paid when you draw the money
out at retirement age, which for most people is 59 and a half. So every retirement account out there, except for the Roth IRA
has something called an RMD or required minimum distribution, which unfortunately means
that at 59 and a half, you have to start drawing
from that account. Whereas the Roth IRA, you can keep contributing, and there's no required
minimum distribution, meaning that let's say you work till 70, you're still able to
contribute to that Roth IRA. Whereas with the traditional IRA, even if you are still working, once you hit that golden
age of 59 and a half, you'll require to start taking distributions from the account. So another clear distinction and characteristic you should
be aware of between the two. So now briefly discussing the Roth IRA. With the Roth IRA, you do not get any type of tax deduction, you're using your post-tax money. However, the benefit
here is that your money is then going to grow tax-free assuming that you follow the guidelines and you start drawing past
the age of 59 and a half. Again, you don't have to
start drawing at that point, but if you pull money out before then, you may be subject to penalties and taxes, which can be pretty hefty. So money invested in a Roth
IRA has already been taxed, so it grows tax-free. And once you reach the
age of 59 and a half, you can withdraw the money
tax-free, but you don't have to. You can also keep
contributing if you want to. Early withdrawal penalties apply. And IRAs typically involve mutual funds, but there's a lot of
good options these days for self-directed IRAs, where you can actually pick
and choose the investments. So it doesn't have to be a
boring mutual fund investment. If you wanted to, you could put your IRA
in Tesla or Amazon stock if you chose to with
that self-directed IRA. That being said, guys, when you put money into
a retirement account, you should expect to leave it
there until retirement age. So don't direct money into a Roth IRA or a traditional IRA or a 401(k) if you don't plan on leaving
it there for a long time. There are a few exceptions, for example, you can use some retirement money towards the purchase of your first home or certain things like that. And also, one benefit to the Roth IRA is you can withdraw
contributions at any time, you just can't touch the earnings. So if you put six grand in a Roth IRA, and then two years later,
it was worth 7,000, you can pull out your $6,000 contribution
tax-free, penalty-free. But if you touch that $1,000 of earnings, now you have to pay taxes
and penalties on top of that. So just be clear about that and make sure before you put money into a retirement account, you're able to commit to that term of leaving that money in
there until retirement age. So we talked about this a little bit, but we'll briefly cover here 401(k) plans. Money is set aside from each paycheck and contributed towards
the retirement fund. Unfortunately, with 401(k)s, you're typically locked in with whoever the company
you work for chooses. Some 401(k) plans are better
than others, unfortunately. So hopefully you get a good one if it's like Vanguard or Fidelity
or one of those big names. But there's also a lot of
good resources out there that help you understand whether or not you have a
good or bad retirement plan. So it's also good to do
a quick Google search and just see what people
have to say about the fees and the investment choices
with your 401(k) provider, which your employer chooses. Some employers offer a match
up to a certain percentage. You should always take advantage
of that, it's free money, if they're offering that. A 401(k) is not self-directed. So be selective about what mutual fund or ETF your money is allocated into. Unfortunately, you're stuck with whatever options that provider has. And sometimes they're just really lousy depending on the provider. Contribution limits apply to a 401(k) plan of $19,500 per year. So now that we're past
retirement accounts, which is not technically
a different asset, but I lumped it in here anyway, now we'll talk about
other assets you can trade through the stock market exchanges. One of the most popular being a REIT or real estate investment trust. This is a pool of real estate investments. Essentially, you generate
revenue through leasing, renting and selling those properties, and they often generate hefty dividends, as 90% of the total net income or more is required to be passed
along to the shareholders in order to classify this asset as a REIT. I personally don't invest in REITs because I prefer to have
direct real estate exposure through my actual properties that I own. So I have a house hack in New York and I have my primary
residence now in Florida. So I have at least a quarter million dollars
of equity in real estate between those two properties
and over a million in terms of the market value. I don't own the whole properties, but over time, I do wanna get those mortgages paid down in the next couple of years. So I like that type of
real estate exposure. So with my brokerage
account, I stick to stocks, I don't touch bonds. And I also have a little bit of money in crowdfunded real estate. So personally, I don't invest in REITs, but if you don't currently
have any real estate exposure, this may be something that you consider as part of your portfolio. Alrighty guys, so the only other asset really to speak of is bonds, which we already talked about. You can also trade MLPs, master limited partnerships
on stock exchanges. I personally don't own any
bonds, I don't trade them. And I also have never
owned or traded MLPs. So I'm just simply not
going to cover them, but they are available if you wanna do more research about that. But most people don't invest
in those types of assets. Now we're gonna talk more about different investing strategies to give you an idea of the different ways that people are trying to capitalize on this thing known as the stock market. And of course, we're gonna
start off with the day traders. So day traders trade in and out of stock
during a trading day, and end each day in cash
with no open positions. Day traders are using sophisticated high frequency trading platforms to capitalize or to take
advantage of very fast, very short trends in the market. They're solely trading based
on technical stock analysis, which essentially means
looking at the charts, be it a line chart or a candlestick chart, which we'll talk more about later. Day traders do not study the
fundamentals of a company. They don't care about it, because it's not relevant to the current price
swings during that day. It's all about the emotion. Day traders solely care
about the emotion of a stock. The indications of fear and greed showing up in the price
movement of that stock, that is what they're
looking to capitalize on. They don't read earnings reports,
they don't do any of that. They look at charts, they look for certain patterns and they trade the patterns
they're familiar with. The idea here for day
traders who are successful is to take many small profits each day that add up to a large profit over time. For example, some day traders aim to have a 1% profit every day, because that would add up to a lot over a long period of time. The number one problem with day trading and trading in general is that all human beings for the most part are susceptible to this
emotion known as greed, which is going to cause you to oftentimes stay in a position longer, not sell. And the most common reason that people are not
successful with day trading is they frequently will get greedy and ride a winner into a loser. So just an important
thing to understand here, day trading is not for most people, the majority are not successful. I've never tried it. I've tried swing trading, which we're gonna cover shortly. But that's what day trading is, just so you have a general idea. So after day trading, which is the shortest
possible time horizon, where you end every day in cash, the next from that in terms
of duration is swing trading, which is where my stock
market journey started back in 2015 and 2016. This is how I started, I wanted to be a trade, I wanted to make 20, 30% returns per year. And I didn't, it didn't work out for me, but I ended up becoming
a long-term investor. And so it worked out in the
long run, but I feel like, again, a lot of people start
off in the stock market looking to generate crazy returns and they wanna find penny
stocks and do all this stuff. But as they mature and
learn more about the markets and how these things
function, they realize, "Okay, no more of a long-term strategy is what works for most
people, alleviate stress." And that's kind of the intended use case
for the stock market. So swing trading or short-term trading is typically a two to five
day hold on a position. The big difference between
swing versus day trading is that swing traders
hold positions overnight, whereas a true day trader
ends every day in cash. The goal here is to identify
a trend and capture the gains by following the trend in the short-term. Swing traders are following the overall prevailing
trend of the market, and swing traders rely mostly
on technical stock analysis to identify trends
within a price movement. And they're typically looking at something
called a candlestick chart. So after that, after swing trading and after day trading, there's like intermediate term, like short to medium-term trading. I kind of made this up myself here. I don't even know if there
is an intermediate term. But there is also a type of investing where you're not day trading and you're not holding
it for two or five days, but you're also not holding
onto it for two years. And I'm calling this
intermediate term trading. This is typically a term
of six to 12 months. An intermediate term investor is someone who invests in a stock with the intentions of selling it maybe in the next year. Now one of the most
important things to consider when buying and selling stocks is the tax implications
associated with that move. And so me personally, being in that highest bracket
with federal income tax, I always aim to have those
long-term capital gains and qualified dividends, just
to avoid paying those taxes. I pay as little as possible as a result. So we're gonna talk
more about taxes later, but for now, understand that
an intermediate term trader is typically like six to 12
months or around one year. And there's a big benefit to owning a stock for one year or longer, associated with the taxes that you're gonna pay with that investment that we'll discuss later on. Next up after that we have
the long-term investors, a long-term investment is an investment made with
the intention of holding it for like one year to maybe five years, a couple of year investment. Long-term investors have a
significant tax advantage over short-term investors and traders, which we are going to discuss later. Long-term investors are not concerned about
market corrections, seasonality, or other economic
factors for the most part. Historically, long-term investing has been the winning
strategy for most investors, especially those who do it passively. That is individuals who get into ETFs and they buy things
consistently over time, regularly contribute to the market and they leave their money in there for many decades to grow. That's basically the intended
use case of the stock market. And ironically, what they have found looking at successful trading accounts is that some of the most
successful accounts out there are ones where the recipient or the beneficiary of the
account had passed away or forgotten that they
even had the account. So activity is typically the enemy and something that's going to
eliminate some of your gains. Typically the more active you are, the less money you're making, you're just generating
a frenzy of activity that's kind of spinning
your tires in the mud. So historically, long-term investing has been the winning
strategy for most people, but then we have a different style here, which is that Warren
Buffet type long-term, which is super long-term investing. That's like the Warren Buffet strategy where some of the stocks in his portfolio, he's literally owned them
for like 40, 50 plus years. So when Warren Buffet buys into stocks, he's thinking out many
decades ahead in most cases. Some of his investments
are just super long-term. I'm not sure there's
certainly some companies I'm gonna hold for 10, 20
years, like Apple, for example, or something like Intel,
big companies like that. I'm sure there's gonna be some companies I own for 10, 20 years. But for the most part, I would classify myself as like an intermediate term
to a long-term investor, where the majority of my money is in these blue chip
dividend paying stocks, looking to capitalize on
some upside with the stock, but mostly dividends being reinvested. However, I also will make occasional changes to the
portfolio here and there based on shorter term moves, be it sector rotation, which we'll discuss later
or something like that. Alrighty guys, so now that we've covered the different terms
that people invest for, be it a short-term versus
a super long-term investor, now we're gonna talk more specifics about some of the different strategies that different investors utilize, starting off with value investing, which is pretty much the strategy of Warren
Buffett/Benjamin Graham, which is looking to purchase companies trading below
their true intrinsic value. So people like Warren Buffet, this worked a lot better for them, way back in the '70s and '80s when there was more value
to be had in the market. Now it's just more efficient and it's hard to find hidden value, but still a strategy that
is worth mentioning here. Essentially, a value
investor picks a stock based on the value of the
underlying company and the assets. They understand the
difference between the price and the value of the stock. So they're looking to purchase a stock, whereas the actual value
in terms of the assets is higher than the actual price per share. So they're just looking for a value that other people are not seeing. A value investor compares the
current price of ownership to the value of ownership
in the actual company. So it's essentially looking
for hidden gems in the market, where other investors have
not found this opportunity, easier said than done, almost
impossible to do this in 2021, but still a strategy worth discussing. So that is value investing. Next up we have growth investing, which is much more popular
in this day and age. The main goal of growth
investing is to grow your money. It's focused around assets that
tend to appreciate in value. So people tend to invest in
stocks for capital appreciation, which is where you're looking to buy low and sell for a higher price down the road. A straight up growth investor is only looking for
growth of the share price, they don't buy dividend stocks. They just want to buy low and sell high. Young people are at an advantage when it comes to growth investing because they have a lot
of time ahead of them, and they can afford to be more patient. Growth investors typically focus on the five-year
outlook of a given company. So to compare growth versus income. And just so you guys know, you
can do a blend of both here. I actually do what's called
dividend growth investing. But anyway, most people are typically either on the growth side of the fence or the income side of the fence, although some people are in the middle. But growth investors
are looking for earnings to be reinvested in the company, resulting in appreciation
of the stock price. So growth investors want companies to retain
profits themselves, reinvest that money into
other business operations, which should result in more earnings and a higher share price. Whereas income investors are looking for regular cash
payments from their investments rather than the company themselves reinvesting earnings themselves. So that's the typical
school of thought there. And then dividend growth investors, those people are looking for both. They want a little bit
of growth potential, and a little bit of income on the side. And that's basically the school
of thought that I fall into, where most of the stocks
in my dividend portfolio are dividend payers, but they still have some growth potential. For example, Microsoft, Apple, Intel are a couple of the names. I also have Logitech
and Texas Instruments. These are all companies
that pay dividends, but still have some level
of growth potential. Now when it comes to growth
investing, in my opinion, the number one thing to look for is a strong company in a growing industry. I would not recommend investing in the weakest links out there, because if you think of
an industry, as a chain, you don't want to invest in
the weakest link of that chain. In my opinion, you'd wanna invest in one of the stronger leading
companies in that chain. To determine if an industry is growing, you compare it to a benchmark. And what people utilize for this is typically the S&P 500. This is simply the overall performance of the 500 largest
publicly traded companies in the United States. And it gives you a benchmark of how the overall market is performing. So if you hear people
referring to the market or the market performance, nine times out of 10 what
they're talking about is the S&P 500. So one of the first things you tend to do as a growth investor is you look for a industry that's experiencing above average growth, outpacing the S&P 500. From that point, you then look for the
leaders of that industry. And then maybe at that point, you take a look at some of those PE ratios or different indicators to compare these companies side by side before ultimately making
an investment decision. That's pretty much the overall
process that I go through. For example, earlier this year, I got bullish on financials because they were sold off massively. So I said, financials are way in the red. I think this is gonna
go up in the short-term. So I did some research and I decided on Bank of America stock, and I experienced like a
60, 70% return in that stock in like six months time, not going to happen every time. That was really good timing
on my part, and a lot of luck, but there was some strategy involved, but that's basically what I do. I kind of start with the industry, and then I look at the companies, and I look for the stronger
links of that chain, but making sure I'm not buying a company that's the most overvalued in that given area of
the business, that SEC. So here we're looking at one
of my favorite tools out there, it's completely free. It's called the fidelity
sectors and industries tool, highly recommend it, guys. Check out that website
yourself and bookmark it, because this is typically
where I start my search. If I'm looking to add a new
stock to my overall portfolio, I look for an industry
that's underperforming, and then I look for a strong
leader in that industry. So for example, over the last year, airlines have massively
underperformed the S&P 500. So as we can see here, the blue chart on top of the
light blue is the S&P 500, the dark blue is the airlines. Now I actually got bullish
on airlines back in March, and I did exceptionally well with them. I traded an ETF called Jets, which basically owns a little piece of all the major airlines. So I got bullish on airlines
and I actually did well here. I pretty much sold
around this run-up here. I sold initial run-up here of Jets. But just for an example here, this is what it looks like
when an industry or sector is underperforming the S&P 500. Here it was following it, and then it underperformed. And even now, I think there's still
opportunity with airlines if you are comfortable with the risks associated
with this industry. However, even this video right now, as of making this video, we're still seeing that airlines are still underperforming that S&P 500. But if we go to a longer view here, which is actually a 10-year chart, we can see surprisingly that
from 2014 to around 2020, airlines were actually outperforming or doing better than the S&P 500. So in my opinion, guys, and again, this is not financial advice, but my opinion is that once all of the tailwinds of
the pandemic are behind us, airlines should go back to meeting if not outperforming the S&P 500, because that was the trend prior. So this is just one of my favorite tools for looking at the overall snapshot of how is the whole market doing compared to individual
areas of the economy. So let's say for example, you decide that you want to
invest in a certain industry, you maybe used that fidelity
sectors and industries tool, and you saw that a couple of
sectors were like red-hot, meaning they're way up and totally outperforming the S&P 500. I tend to avoid those if possible. And I look for potentially whatever anybody else is not focusing on. So when everyone was focusing on tech, I decided to focus on financials. Now everyone's focused on financials, and I actually got back into tech. So I tend to just go against
the prevailing trend, and I follow pretty much
something called sector rotation. So you're gonna find that certain sectors or areas of the economy
heat up for awhile, and then they sell off, but that money sells off
and go somewhere else, 'cause this is just billionaires
shuffling money around, it comes out of one and
it goes somewhere else. So I'm always trying to think about, "Okay, if money leaves tech, where is it gonna go instead?" That's why I got that
position in Bank of America, and that ended up panning out for me, and it was a positive investment for me. So anyways, let's say
you found an industry, and now you're wondering what
companies are there out there. Well, to find companies
within a certain industry, one of the best approaches is to find a major index
tracking this industry. So for example, there's the
New York Stock Exchange, ARCA Airline Index or Jets is probably the
more popular one now. I don't even know if Jets actually existed when I originally made this
presentation years ago. So we updated it to make it current, but it's kind of interesting. I think that Jets ETF has
actually come into existence between this timeline here. But anyway, what you're looking for is the components of the index, what individual companies
are part of this index. And then you're going to
look at those companies, do some research. And from there, look for a strong company
in a growing industry, or it's an industry that
was doing well prior, and now it's just not doing well. Like airlines were doing well
for like six, seven years, and then they weren't. And so they should do well again, assuming we have a safe reopening
and everything goes well. So that's what I tend to look for. Now beyond just the fundamentals, looking at the PE ratio or the forward PE or things like that, there's a lot more to consider
before making any investment. For example, does the company have a strong and recognizable brand? Does the company have
a high barrier to entry or could someone else easily disrupt them? Does the company have
intellectual property or patents that protect them? I actually just recorded
like a one plus hour video, big shocker, I bet, 'cause I never record long videos. But anyway, I just did
this long video called how I pick my stocks. I'm gonna put a card up in
the corner for you guys. It's another one you might wanna revisit. What we're talking about right here, guys, this goes through step-by-step
the criteria I look for when I actually pick a stock to invest in. Right now we're doing a high level overview of
the stock market as a whole. But if you wanna dive more
specifically into given topics, I have plenty of video resources for that. So I've got two cards there already, the one for my dividend investing, all about dividend investing if that's the strategy you wanna go with, and then I also have how to pick stocks, if you're curious, the actual criteria. I'll give you some basics in this video, but we certainly go into a
lot more detail over there. Now if you're looking to generate income from
your stock investments, you'll need to look at
stocks that pay dividends. Because unfortunately,
if you own a growth stock or a stock where you're
looking to make money by buying low and selling high, you can't make any money owning the stock unless you sell it. You have to sell it for
more than you're paid, and that's how you make money. One of my favorite parts
about dividend investing is that these stocks pay
you while you own them. You don't have to sell
any shares to make money, all you do is own those shares. And as long as you hold on to them, you will get your dividends, assuming that company
continues paying them. So when looking for dividends, you will want to look at the
dividend yield of the company, which is essentially the amount
being paid out in dividends each year expressed as a percentage. One of the biggest mistakes
out there for beginners is chasing a high dividend yield. It's often a trap. Dividends are never guaranteed. They can be changed, restructured
at any point in time. Like I said, check out that dividend investing video for more information on this. We'd literally spend about one hour just talking about dividend investing. Now one important thing to understand, if you decide to be an income
investor is called a DRIP or dividend reinvestment plan. As an income investor, you're going to need to decide what you're going to
do with your dividends. Pretty much, you have two choices, you can take your money and run and maybe you go buy a
sandwich or something. But the problem is, then your money is just
kind of thrown away and it's probably not moving
into a different asset. It's moving into a liability
or just a general expense. The other option is to
reinvest that dividend either back into the issuing stock or across your entire portfolio. That is what I follow as a strategy. All of the dividends earned are reinvested across my entire portfolio, and with the brokerage I use, it actually rebalances that
portfolio in the process. So as those allocations skew based on varying performance
in the stock market, the dividends that are earned are actually helping
to balance me back out and return me closely as possible
to the target allocations. This allows you to earn compound interest or dividends on dividends. You earn a dividend, it goes back into the stock, and then that dividend earns dividends, and then that dividend earns dividends. So you can see how this
compounds over time. And essentially a DRIP is a feature that automatically allows you to reinvest those dividends, either across your portfolio
or back into the issuing stock. So something you may want to consider when comparing features and benefits of different brokerages. Now another important thing to consider when investing in dividend stocks is looking at the dividend history. You want to be able to
answer these questions, number one, how long has the
company been paying dividends? I typically like to invest
in dividend aristocrats, which are companies that
have been not only paying, but also growing the dividend
every year consecutively for 25 years or more. There's only about 60
companies on this list. They're highly sought after. And a lot of them are in my portfolio, because these are the types of companies that I personally like to invest in. Another question, what is
the dividend growth streak? How many years have they
been growing dividends? Has the dividend ever been
interrupted or suspended? Also, does the company have a durable competitive advantage? These are all questions I like to ask myself and have answers to before adding a position
to my dividend portfolio. Now, the next strategy
I wanna discuss here is one of the most brilliant investment strategies out there. It takes all of the guesswork
out of the equation. It's free and it's easy, but not a lot of people like to follow it, and it's dollar cost averaging. It's virtually impossible to
successfully time the market. And even if you do it once, the odds of doing it over and over again, it's just highly unlikely. If you're not interested in
studying the technical charts and determining optimal entry points through technical stock analysis, or just simply maybe buying
on days that are more red or when there's blood in the streets, this investing strategy may be for you. DCA or dollar cost averaging
is the technique of buying a fixed dollar amount of a
security on a regular schedule regardless of the share price. Historically, this has proven
to be a great strategy, as over time, you just simply pay the market average. So at times when the
share price is up high, you're buying less shares,
but if it's down low, you're buying more. So over time, you're paying the average of the market. Dollar cost averaging, as long as you're buying
good quality assets, you really can't go wrong here. I actually right now have a stock, I'm doing this myself with, I'm actually putting like $250 a day into one of these stocks
that I'm excited about trying to build up a long-term position. I'll probably do a video
on that separately, 'cause I wanna specifically
talk about that stock later on. But dollar cost averaging is
a strategy that I use myself, and it's certainly helped
me with my investing career. Alrighty guys, so now we're
gonna talk briefly here about technical stock analysis or studying the charts of a stock. This is where my stock market career or stock market life started,
was back in 2015, 2016 when I was learning about swing trading, thinking I was gonna be this big trader. Obviously it didn't pan out that way. I eventually shifted into
a more long-term strategy, but I still do utilize
technical stock analysis when looking for optimal
entry points for stocks. So analysis of a stock using charts that displays price and volume patterns is the definition of technical analysis. The goal here is to identify
entry and exit points through predictive price
movements and trends. So day traders and short-term traders rely solely in most cases
on technical stock analysis when making decisions about
buying and selling stocks. Longer-term traders and investors may find this information
to be useful as well, as it can help you to
determine optimal entry points. And we're gonna cover
some really basic stuff just with price charts that
you should be familiar with, even if you don't plan on ever looking at a
candlestick chart in your life. So now I wanna talk about
a few different charts you should be familiar
with in the stock market. The most common one is a line chart. This is gonna show the
closing price of a security over a set period of time. Line charts are great for comparing a stock to
another stock or an index, and essentially benchmarking
it to a competitor or the industry as a whole or the S&P 500. Then we have bar charts. This is a single vertical bar that shows the opening and closing prices, which can be useful to
kind of show you like how the stock traded that
given day up or down. Also you'll have bar charts at the bottom that typically show you trading volume, which we talked about earlier. That's how many people are exchanging that stock on a given day. Candlestick charts are the basis
of technical stock analysis and it essentially incorporates
line charts and a bar chart, whereas a body and shadow are added. And this may sound crazy, guys, but we're gonna go over
an example right now. Even if you don't understand this, don't worry about this, guys, you don't need to understand
candlestick charts in order to invest. But I'm gonna give you a quick
understanding right here. A white or green body. So this one right here
or this one right here represents a closing price
higher than the opening price. So that means that in this case here, the stock opened here and
then it closed up here. And for the green chart, it opened down here and it closed up here. Now a black body on the other hand represents a closing price
lower than the opening price, but higher than the closing
price of the previous day. So for example, on this
black chart on the left, it means it opened up
here and closed down here. And the same thing with the red chart, it means it opened high here and closed all the way down here. So that pretty much shows you based on the color of the body, whether it's white or
black or red or green, depending on the software you're using, and there's free sites for this, I'll show you one. That shows you if the stock closed higher or lower than the open, and the actual shadow
shows you how high or low the range was for where it traded. So sounds confusing. But now let's just jump
right into an example here. Alrighty guys, so here we are looking at a candlestick chart for Apple stock. I got this from stockcharts.com. It's completely free. And I would definitely
recommend taking a peek at it if this is interesting to you. There's a lot going on here, guys. And there is a another type of body here, the solid black one, that's a little bit outside of the scope of this beginners video. But for the most part, we're focusing on the red
bodies and the open bodies for indicators of the stock
moving up or moving down. Now there's all kinds of different names for the different patterns
that show up here, like the ascending triangle,
descending triangle, the doji, different things like that. I don't remember any of them anymore, 'cause I don't really utilize
technical analysis that much. But I do pay attention on
the overall trend of a stock if I'm adding a sizeable
amount to my portfolio. Also on this chart here, you can also see trading
volume at the bottom, and black bars are bullish volume and red bars are bearish volume. And you can kind of see where,
like, let's say, for example, you're watching this stock for a while, and you see that it just
had a really red day here where it sold off massively, this probably would have been a good area to pick up some shares. And obviously a couple of months later, the stock continue to trend upward. So that is why I like using a little bit
of technical analysis. And that's kind of the general
picture it can paint for you. Also on this day here, when the stock actually
gapped much higher, you see that it was on very
strong bullish trading volume, which is a good indicator of a strong momentum behind a stock. So candlestick chart patterns can be used to predict price movements. It's not 100% accurate, but especially if you understand the personality of a given stock and you've seen that
pattern play out before, that's when it's more and more useful. Both bearish and bullish
chart patterns exist. We're not gonna get into any chart patterns
here in this video. Candlestick chart patterns are an entire field of study on their own. And maybe someday I'll do a whole video just talking about
technical stock analysis. A lot of people have written entire books about candlestick chart patterns. But the main thing you wanna know is understanding support
and resistance areas, which is what we're covering now. So support and resistance areas are a result of the market supply and the market demand
for a particular stock. And as we said earlier, supply
and demand, fear and greed, it's all the same thing. This scenario plays out
based on the level of fear and the level of greed people
have towards a certain stock. So essentially what happens is you have this resistance area, which is where this
first arrow is pointing, and this is like the ceiling for a stock. So it tends to trade to that ceiling and then towards that support, and it trades in that range until there is something to
push it upward or downward. So in this case here, it was bouncing back and forth between support and resistance areas based on people being fearful or greedy about the stock and this
back and forth tug of war. However, then in this particular instance, it broke out above the previous resistance and made a new high. What's cool about that
is the old resistance often becomes the new support
unless that support is broken. And that's the basics of
support and resistance areas. It'll make more sense when
we look at some examples of this playing out with actual stocks. So anyways, guys, that's the gist there of
technical stock analysis. If you understand support
and resistance areas, that's 90% of what you need to understand. Essentially what you tend
to have happen is that stocks will stay in a period
of what's called consolidation, which is where they're just trading within that tight price window
of support and resistance. And then eventually you're
gonna have a breakout above, or it's going to collapse below that price and fall to a lower support. That's why it's so important to understand the prevailing trend behind a stock, because if the trend is upward
for the last five years, you know what happened in the past is likely to continue going forward unless there's some major change. So that's why these days,
anytime I'm buying into a stock, I wanna make sure I have
solid momentum behind it, and I'm going with the
grain of the market. I'm not going against the
grain and buying into a stock that has a downward trend
over the last couple of years. So if technical stock analysis is the personality of
a stock or the emotion, fundamental stock analysis tells you about the overall
health of a company. Fundamental stock analysis is the study of the financial health
and fitness of a company. The main factors that you analyze looking at the fundamentals
of a stock is the revenue, as well as the earnings and the debt. Revenue is simply the
total amount of money that that company has come in. And then the earnings is what they keep after they pay their employees
and different expenses. And then you have the debt, which is how much money that
company owes to other people. The goal of fundamental analysis is to determine the
intrinsic value of a stock, but it's also to understand if the company's in good financial health, adequate or poor financial health. Now there's also a whole other
area of fundamental analysis, which studies the management
team of a company. And this is something that I do consider when investing in stocks,
because at the end of the day, a ship is of no use
without a good captain. So one factor you need to
consider when analyzing a company is the management team of that company, and whether or not that
company is being run well. So the best place to start out with this is called the board of directors. This is a group of individuals elected to represent the shareholders and create management policies, as well as decide on
major company decisions. Now remember earlier, we talked about how certain
companies offer voting shares. If you have voting
rights as a shareholder, the shareholders with voting rights collectively elect these members. So if you own more shares,
you have more of a say, if you own less shares,
you have less of a say. So that's another reason why
voting rights are important. And I know a lot of people
don't make a priority about this or even mention it. But I always like to have
a say behind decisions, especially if my money is behind it. And I know a lot of
people invest in stocks and they don't ever vote. And I'll be honest with you. I rarely have ever voted
in any company decisions, but I just like the idea
of knowing that I could if I chose to. And real quick, guys, I just wanted to show you this hierarchy here of a corporation. At the very top, you
have the shareholders, their needs and priorities
are typically met first, because if the shareholders are happy, the share price is going up. The CEO of the company, the management team is happy,
and it all trickles down. So at the very top you
have the shareholders, below that level you
have board of directors, which is elected usually
by those shareholders through some form of vote. And then below that
you have the president. And then that breaks off
into different categories, like a treasurer or a secretary. Then you have vice-president roles, management, middle management,
and then you have employees, just a basic drawing. Really the only thing I
want you to understand is the top two here, how the shareholders are really at the top and then the board of directors is essentially helping these shareholders have a voice in the company. Now in terms of doing
fundamental research, one of the best places to start is the investor relations section of a publicly traded company's website. So for example, Apple has
Apple investor relations. So if you're researching
a company right now, or if you're already
owned shares of a company and you wanna learn more
about the company you own, you should type in the name
of the company in Google, followed by investor relations. And this is gonna give you
earnings reports, annual reports, any SEC filings and different
important documents like that. So that would be your
first piece of homework after this video, is pick one of your favorite stocks or a stock you're considering,
put it into Google, blank, investor relations, and then skim through that website and look at what information
is available to you on this website geared towards
investors in the company. So now what I wanna cover here is sort of a Warren Buffet approach to fundamental analysis of a company. Now this is not his exact strategy. Nobody knows that for sure, but a lot of people have studied the decisions that Buffet has made over the many decades he's been investing. And these would be common questions that Warren Buffett would ask
before investing in a company, number one above all else, is the management truthful and straightforward with the shareholders? He's a big fan of honest management. And he knows that if the board of directors
and management is not honest, those problems are going to trickle down. Number two, is this a business
I can understand and study? And if you are brand
new to the stock market, you may choose to include some, if not all of these questions
on your criteria as well. Simply put, especially as a beginner, you should not invest in things that you don't understand
yourself clearly. Number three, is the operating history of this company consistent? Making sure this is not some
flash in the pan success. Number four, does the company have a long-term competitive advantage? Number five, is management
treating shareholders fairly? For example, are they
paying out dividends? Are they reinvesting earnings into things that are growing
the value of the business or are they being greedy
and retaining profits and not necessarily investing money in the right places for shareholders? And then lastly, is this company a leader, or is this company a follower? Very important questions that you may include in your own criteria when you begin researching
the fundamentals of companies. So another piece in the
fundamentals category is something called goodwill. And as much as I love that store, it's not what I'm talking about,
I do love goodwill though. But what we're talking about
here is something different. This represents the
premium paid for a company for those intangible assets
outside of the tangible ones. So tangible assets are things
you could put your hand on or things you can identify as real. Whereas the intangible assets are things that still have value, but they're not physical things that you can transact or look at. The best way to explain goodwill is in terms of an acquisition. If one company acquired another, the price paid above the book value would represent the goodwill of a company. And goodwill is solely based
on the subjective value. So it's very much based on opinion because it's not a tangible thing. For example, Coca-Cola
would have a lot of goodwill if a company was looking to acquire them. So a few examples of
items or intangible assets falling under goodwill could be the value of
a brand of a company. So Coca-Cola, for example, has a very strong, recognizable
and valuable brand. And another thing could be customer base, not necessarily a tangible asset, but something that still
has value, nonetheless. Anything under that category falls into the goodwill of a company. So the next ratio I wanna talk about here is the price to earnings to
growth ratio or the PEG ratio. Essentially what this does
here is it takes that PE ratio and compares it to the anticipated five-year growth of that company. Essentially, this helps an investor determine the level of speculation or risk involved in an investment. So essentially the way you calculate this is you take that current PE ratio, which is essentially
the earnings multiple, or how much you're
paying to expose yourself to just $1 of company earnings, and then you divide that by the projected earnings per share growth over the next five years. And this is gonna give you the price to earnings to growth ratio, and it allows you to kind
of normalize that data based on the anticipated
growth of that company. So PEG is not necessarily again, something where it's an end-all be-all, but it's another useful
tool in the toolbox. So just for some tangible numbers here, a PEG of one means the
PE ratio is justified based on the anticipated
growth of that company. But keep in mind, anticipated growth doesn't always translate to reality, it's based on projections. A PEG below one means the
stock is below the fair value based on the anticipated growth. Meanwhile, a PEG above one means the stock is above the fair value in terms of the anticipated
growth potential. So sometimes you might come across a stock with a really high PE ratio, but you might find the PEG is a lot lower based on the anticipated
growth of earnings over the next five years. So when I'm looking at stocks, I typically always look at that PE ratio, and sometimes I'll delve
into that PEG ratio too, just to paint a better picture for myself. So here's a real simple example
of that PE and PEG ratio. Let's say I have an ice cream stand that nets a profit of $10,000 per year, and I decide I wanna sell
this business for $1 million. Most people would say that's ridiculous, you're never gonna get that
much money for that business. Based on that figure, it would take 100 years
to recoup your investment at a $10,000 net profit per year. So the ice cream stand currently
has an earnings multiple or PE ratio of 100. So if you invested in
this ice cream stand, you're paying a hundred dollars today for $1 of annual earnings
potential of that business. Most people would never spend that much on an ice
cream stand, that's ridiculous. However, let's say this is a booming area and I expect to net $25,000
profit in the next 12 months, that would mean that the
forward earnings multiple or the forward PE would only be a 40 based on that earnings growth expected. So that's how larger
earnings tomorrow expected could mean that the PE is very high today. But as long as that company
continues doing well, hopefully it all becomes justified based on those earnings coming up and everything normalizing. So the next thing I wanna talk
about here is company assets. Examining a company's balance sheet is an important piece
of fundamental analysis. And to be honest with you, guys, this is pretty much the
only key financial document that I'm looking at these days when doing any type of
fundamental research on a company. It essentially lists out
different assets and liabilities, and gives you a general idea of the overall financial
health of a company. It's similar to our own personal finances. If somebody has a lot
of debt with low income and it's not looking very good, whereas if somebody has
minimal debt and high income and a lot of assets, they're
in better shape financially. The same exact thing
plays out with companies, some of them are in
excellent financial health and some of them are in total distress. So one of the first
things I wanna talk about is assets versus liabilities. Assets are things that have value, liabilities are things that
take money out of your pocket. In the words of Robert Kiyosaki, they're things that cost you money or they're a debt of some kind. Then we have current
versus non-current assets. A current asset is something
that is either cash right now, or assets that are expected
to be converted to cash within the next 12 months. So current assets shows you how much cash this company should be able to get at in the next 12 months to pay for debts and
other related expenses. Non-current assets are long-term assets that a company expects to hold onto for longer than one year. They still have value, but they're not gonna
be converted into cash in the next 12 months. So just to break this
into two categories here of current versus non-current
assets a company may have, current assets could be cash, foreign currency, highly
liquid investments, which oddly enough is a lot of companies are putting Bitcoin on the balance sheet. That's another one. Accounts receivable and inventory. These are all things expected
to be converted to cash in the next 12 months or less. Non-current assets still have value, but they're not gonna
be converted to cash. For example, property, any type of plants, equipment, the goodwill of a company, which we identified earlier,
illiquid investments, acquisitions, and any of
those intangible assets, which would mostly fall into
that category of goodwill. They still have value. They still belong on the balance sheet, but these assets are readily
convertible into cash, and they're not expected to
be in the next 12 months. Now let's talk about liabilities. Liabilities are things that
take money out of your pocket or they're debts or money
that is owed to a company. Basically like assets,
there are two types, there's both current and
non-current liabilities. Current liabilities are debts due to creditors within the next year. And then non-current liabilities aka long-term debt is just
debts that are going to come due in a term of greater than one year. So what I like to do is look at, what does the company
have in current assets compared to current liabilities, that tells me what is going to
be due in the next 12 months, and what's gonna be cash
or converted into cash in that same period. And will this be enough to cover any debts that have to be
paid in that time period? So just to go over some examples here of current versus non-current
or long-term debts. Current debts or current liabilities, that's short-term debt, accounts payable, taxes payable, interest
payable, declared dividends, and any maturing long-term
debt that comes due. Non-current liabilities
or any like long-term debt that a company may have typically related to
bonds that are issued, pension liabilities, deferred
revenues, deferred taxes, and deferred liabilities. There's a lot of
complicated accounting stuff that goes on with
publicly traded companies. I don't understand the majority of it, but there's a lot of
things that companies do to defer earnings or defer taxes and different things like that. All of this is spelled
out on the balance sheet. So since we covered a
lot here in this section, I just wanna cover a few key findings. And this is kind of the
questions I ask myself when studying the
fundamentals of a company, number one, are total
assets growing each year? It's kind of like seeing your individual net
worth going up over time. You want to see the net worth
or total assets of a company going up year after year. On top of that, you wanna pay attention to liabilities. Are they also growing each year? And which one is growing faster? Ideally, you wanna see assets growing faster than liabilities. Next is inventory growing or shrinking? Another good thing to keep an eye on. Does the company have enough cash to cover current liabilities? You wanna make sure that the cash or assets readily
convertible into cash is enough to cover any debts coming due in the next 12 months. It also helps you to understand what types of assets does the company own. Is it mostly current
or non-current assets? Lastly, it's very important to understand, is most of the debt
short-term or long-term? Typically, I would rather see a company with less long-term debt and more short-term debt
that's getting paid off. Long-term debt is a very
negative quality in my book when looking at a long-term investment. Next we're gonna cover something called stockholders' equity. Stockholders' equity is
essentially the net worth or what is left over when all liabilities are
covered by the assets. Stockholders' equity
should always be growing. And you wanna look for
stockholders' equity over the last five to 10 years. And if this is a growth stock, you're gonna wanna see consistent, hopefully, double-digit
growth of stockholders' equity over a multiple-year time span. So beyond the balance sheet, there's also another document
called the income statement. This is going to be reporting the revenues and expenses of a business as well as what areas
they are coming from. Essentially, the income
statement gives you a bird's-eye snapshot of everything going on with this formula, which is net income equals
revenue minus expenses. It itemizes all of that, gives you an idea of the
profitability of a company and just shows you the revenue
coming in, the expenses, and how that's translating
over to profits. Alrighty guys, so we are on
to day number three here. We're gonna go ahead and
wrap this video up today. So we're back to talking about
some of those key findings that I look for on the income statement. Now, as I mentioned earlier, the main document that
I look at these days if I'm doing any type of
fundamental analysis of a company is going to be that balance sheet. However, if you do wanna
go a bit deeper here, this is kind of above and beyond the scope of a beginner video. But if you're looking
at the income statement, these are a couple of the questions that I like to ask myself
when analyzing a company. Number one, is the
company increasing sales and increasing revenue? Because sometimes you'll
see sales increasing, and then that may not be
translating to profits, et cetera. So you just wanna get an idea of, are all of those numbers
heading in the right direction? Number two is gross profit
keeping up with total revenue? Because sometimes you'll find
a company is growing revenue, but sacrificing profitability
in the meantime, and their profitability is slipping. Number three, are we seeing
double-digit revenue growth? If this is a growth stock, I would always like to see
that double-digit growth there over a couple of years, looking at year-over-year revenue growth. Next up is cost of
revenue growth reasonable? You don't wanna see that accelerating faster than profitability. Otherwise that means that
they may be less profitable as they're bringing in
more sales and revenue. Number six is an increase in revenue resulting in an increase
in operating income? Number seven is the company
maintaining profitability? So it's good to see that
over many, many years, this company has continued
to be profitable. And then number eight, are
any of the expense items increasing at an abnormal rate based on prior years or quarters? So I just look at the expense items there and I look for anything
jumping out or accelerating or growing at a much faster
rate than anything else. So for the most part, looking at the income statement, I am looking for any anomalies or things that might look
like a potential red flag. So the last key financial
document to cover here, we talked about the balance
sheet, the income statement, the final one here is called
the cash flow statement. And again, guys, this is pretty intermediate
to advanced stuff here. So if you're totally overwhelmed about these financial documents, really the only one I recommend learning if you absolutely had to pick one would of course be the balance sheet. But if you find this
stuff to be interesting, you can always learn a lot by studying these documents
of different companies. So the cashflow statement
is a quarterly document that provides an update on these
three financial statements. Understanding these three documents allows investors to interpret
the quarterly earnings report. So in their report every quarter, they're gonna update on those three core financial documents. So more on the cashflow
statement and what this is. This cashflow statement shows how changes in the balance sheet have affected cash and cash equivalents. Essentially, cash enters
and leaves the company through three different avenues, operations, investing, and financing. And this paints the overall picture of all cash flowing into
and out of a company. So as far as operations goes, that's going to be everyday
functioning of the company, ongoing business operations. Investing is any capital
assets or securities, any money the company is
putting into investments, looking to grow or preserve
the value of their money. And then financing is any capital raising or payment of dividends. That's all going to be outlined and spelled out on that
cash flow statement. So between the balance sheet, the income statement and
the cashflow statement, you're gonna get a really
good overall picture of the financial health of this company. Now I know we discussed this earlier, but I wanna circle back
to the earnings report and talk more about
that now, because again, this is one of the big distinctions between a private
company and a public one. So public companies are required to file quarterly earning reports and report earnings
performance, and in doing so, they're gonna provide an
update to the balance sheet, the cash flow statement and the income statement
every three months. So it's a great way to
glance and look through this and make sure that your investment
is still performing well, and you still want to
be part of this company. This report also allows investors to determine the ongoing
financial health of a company. The main figures people pay attention to are the earnings per share,
revenue, and guidance. So if you don't wanna get into any massively difficult analysis, you can pretty much focus
on those three things here. Earnings per share is
the amount of earnings after paying all of the
related expenses per share. Then we have the revenue and
then we have the guidance. And essentially guidance is when a company gives forward-looking assumptions based on how they expect
to do in the future. And again, Wall Street analysts base buy and sell recommendations off of these quarterly earnings reports. So you should at the very least have a general idea of
your stocks that you own when their earnings report is, because at the very least, it's good to just tune into it and listen, or just be aware of
that on an earnings day, you could see a lot of
movement in that share price. Now in that earnings report, it often provides a comparison
to the previous quarter, as well as the year-over-year comparison, because what they're showing you is how are they doing from a year prior versus the quarter prior. Earnings reports also
typically include a narrative from the CEO about what
is seen in the report. And the CEO is like the leader, the chief executive officer of a company. Companies also file a
document called the 10Q, which provides a more
comprehensive report. The 10Q usually comes
out a few days or weeks following the quarterly earnings report. I don't typically look at that 10Q. I keep an eye on when companies
are reporting earnings. And I typically only tune in to like the big earnings reports for like Apple, Microsoft, et cetera, because these companies
tend to be the bellwether for tech in general. So I do have like 20 different stocks, 25 or so that I own, I don't go and listen to
every earnings report, but I do keep a general idea on what's going on with these companies, and I tune in for those
big earnings reports. So I know we mentioned this earlier, but I wanna briefly talk a bit more about earnings per share. And remember this is where
we derive the PE ratio from. You take the price per share divide it by the earnings per share, and that gives you the
price to earnings ratio. So just to make sure, let's go over quick and explain what earnings per share means. Well, earnings per share is
gonna be the bread and butter of the quarterly earnings report. It's going to be an indication of what the company earned per share in the previous quarter. So they basically take the
total amount of earnings that the company had, which is the money after revenue came in, they pay expenses, and then they pay other
things and they have earnings. This is the earnings per share. It's how much you earned. They take total earnings
divided by all shares out there. And that is your earnings per share, which is an indicator of the
profitability of a company. Beating or falling under the EPS forecast can send a stock soaring or tumbling as we talked about earlier. And remember, it is in the
best interest of an analyst to provide an accurate estimate. Now you are gonna laugh
once you start investing, because some of these analysts, you look at how wrong
they are and you're like, "How are they this far off with their guesses about these things?" But these are teams of people that literally spend hours a day just researching these companies, selling these reports to
Wall Street investors. So this is what they do in and out. But to be honest with you guys, I always like to make my own
decisions about my investments. I typically don't really care
what analysts have to say, but it is something to consider, that they are placing bets on how they expect a company to perform. And if a company beats or
misses those expectations, it can be a very volatile
time for a stock. For example, I can
remember back at one point when I owned shares of
Advanced Micro Devices, AMD, they had an earnings report
fell short of expectations, and the stock dropped like 24%. So sometimes there are massive moves surrounding quarterly earnings. And then to share a bit more
detail on that guidance. In my opinion, this is probably
one of the most important, if not the most important
parts of an earnings report, known as the company guidance. It's an indication of an estimate. This is simply an estimate of the future earnings
performance of that company. And it typically includes
revenue, earnings per share, margin and estimates of
ongoing capital expenditures. Guidance is not required, but large reputable companies tend to provide these
estimates to investors. There's a lot of talk
out there whether or not this forward-looking
guidance is even helpful, 'cause it typically causes companies to have to make short-term
moves to please investors. But for the time being, it's still common for large
publicly traded companies to issue forward-looking guidance. So I would always look for a company that is raising guidance. And if you hear about that, if you hear like a
company reported earnings and raised guidance, that means that they expect
to have better numbers, better sales figures or
whatever in the coming months than their original estimate. So that's always a very
positive sign to see. So just for a quick recap here of fundamental stock analysis, number one, learn about the
management of a company. Be like Warren Buffett, he invests in good management because they are the captain of the ship. And if management is being dishonest, typically that's gonna be a bad experience as a new investor. Number two, read through the vision or outlook report or the annual report. I always like reading Apples
and a couple of large companies 'cause it gives you a really good idea of what the company is working on and where they are heading. When I say study the balance sheet, really what I mean is look
through it once and understand, how much debt does this
company have versus assets? And what kind of situation
are they in with their money? Analyzing the income statement
allows you to understand how revenue and sales
are growing or changing and is profitability changing as well. The cashflow statement is
gonna help you understand the movement of cash in
and out of that company. And then reading the
quarterly earnings reports is gonna help you stay updated, provide you with updates on
those key financial documents. And if you want to uncover
even more information, you can wait for that 10Q to come out, which should have even
more in-depth information about the company's performance
in that previous quarter. So that's the gist on
fundamental analysis there, guys. We talked a lot about goodwill as well and how that brand can
have a lot of value. And so one thing I wanted to
mention as well here is that I always look for companies that have a strong well-known
and reputable brand, because that can always help out in terms of people continuing to utilize
those goods or services. That's why I love Apple. People love the brand,
are very loyal to them, and they will likely continue
to be for years to come. Also, another thing I wanna mention here is I tend to look for companies that do have high barriers to entry, whether it be patents, research and development
talent, et cetera. I go into a lot more detail
about that in my video on how I pick my stocks. And I talk about something called a moat or barriers to entry for a business. And guys, honestly this
video is super long as it is. So I had to trim some fat here and there. So if you wanna learn more about that, check out that other supplemental video, the card is still in the corner. But that's another
important factor I look at, is the moat that a company has or what is protecting them from new entrance and new competitors. That being said, I wanna shift gears now and talk about industries versus sectors and how to do some analysis
of businesses as a whole in terms of like an entire
area of the economy, rather than looking at
one specific business. So most people blur the lines between
sectors and industries. And it's kind of important to understand the differences between these two groups, because trends can exist within certain sectors and industries. You have something called sector rotation, which is when money moves out
of one area of the economy and moves into another. For example, we said
money was flying into tech over the summer and out of financials. And then the opposite happened where money was flying
into financials recently and flowing out of tech. So it's always good to keep
an eye on these trends, understand what is the hot
sector or industry right now, and what is the dog. Because when the sectors
rotate and the tables turn, there's always the potential
for good opportunities there. So let's start off by talking
about what a sector is. A sector is simply a group
of related industries, and it's a broad group
of correlating industries that all follow the same trends. For example, the energy
sector includes companies involved with the supply, as well as the production of energy. Even though there's two
industries in there, electrical supply and
electrical production, and then distribution
would be a third one, those are all correlating
together in the same sector, but they're parts of a different industry. This includes a number
of different industries, for example, oil or gas, drilling
exploration and refining, integrated power organizations. All of these industries impact the others within
the energy sector. So sector is kind of a
larger parent category and industry is a smaller child category. And within that industry, you'd have specific businesses doing exactly whatever
that business activity is. So that is what a sector is. So then we have an industry. An industry is an
isolated business activity serving more specific group
rather than a whole sector. So often referred to as a subsector, as it is a component of a
larger group, or like I said, a child category of the
larger parent category, which would be a sector. For example, the semiconductor industry is a collection of companies that design and fabricate semiconductor devices. The semiconductor industry is
an isolated group of companies within the technology sector. So you can go broad and look at a sector, or you can look at a particular industry falling within that sector. So hopefully you can start to see where there's good potential here to get a bird's-eye
view of kind of like how all of these different businesses are doing from a top level down, and then you can get
more granular and see, "Okay, within the energy sector, what industries are the winners
and what are the losers." And then once you pick an industry, you can get more granular
and start looking for maybe one of the strongest
links of that chain rather than investing in the lagger, you wanna typically look for one of the leaders of an industry. But now I want to further
complicate things here, but it's actually pretty interesting, because within industries,
there's two main types, cyclical industries, and then
there's defensive industries, and both are actually
good at different times. The performance of cyclical industries correlates with the performance
of the underlying economy. So essentially, in a booming
economy, in a bull market, when people have more spending
money in their pockets, the cyclical industries do very well, and they typically outperform
the defensive industries. However, in a sluggish
economy, in a bear market, when people don't have a
lot of extra spending money, the cyclical industries underperform the defensive industries because they typically hold up better. Cyclical industries are sensitive while defensive industries are durable. And we're gonna cover examples
of both of these shortly. So with defensive industries, goods and services are purchased no matter what the
underlying economy is doing, they're more durable, and they typically hold up
better in a bear market. During a bull market, these companies tend to
underperform or not do as well as the broad market or
these cyclical industries, because more spending is not necessarily directed
to these industries. So just to give you an example here, a defensive industry
would be consumer staples. And we're gonna use Procter & Gamble, 'cause Proctor & Gamble makes a lot of toothpaste and
personal hygiene products. So for example, we don't brush our teeth 10 times a day in a booming economy. We're still gonna just brush our teeth hopefully twice a day, maybe once a day. Just because the economy is doing good, you're not gonna celebrate
by doing extra toothbrushing. Maybe you should, but most people wouldn't. Meanwhile, though, if we're talking about like Hilton stock or
like an airline stock, we do travel and spend more money at restaurants and bars in a good economy. So when the economy is good, we're gonna see about the
same level of spending directed towards defensive industries, and when the economy is bad, we're gonna see about the
same level of spending directed to those industries. Like you're gonna buy toilet paper no matter what the
underlying economy is doing. So if you like that idea, I really do enjoy investing
in defensive industries. The only issue is when
we're in a long bull market, they tend to underperform. So one of my favorite defensive stocks that I own is National Grid. It's a utility stock, very boring, very consistent investment, but
I would challenge you, guys, take a peak at the
performance of that stock and how utility stocks held
up during the global pandemic, because most of them did not sell off nearly as much as the tech stocks or some of these more cyclical industries. Now this is one word of caution
I want to give you here. And it's about a quote, which is, a rising tide lifts all boats. Oftentimes, when there is
sector rotation going on and money is flowing out of
one area and into another, all of the companies within
that sector or industry are going to do well too. And so oftentimes some companies that may not be the
most quality investments will have their share
prices rising as well, just because of the prevailing trend and the rising tide lifting up all boats. However, this is why it's
so important to understand how to perform some basic
fundamental analysis, because let's say for example, you wanna invest in technology and you want to invest in
the semiconductor industry, there's a lot of different chip companies you could choose from. So rather than just throwing
a dart at the board, it's good to be able to understand, okay, let me look at
which ones pay dividends, how long have they paid those dividends? Cool, all right. Let's look at the PE ratio and
then compare it to the PEG. Maybe one company has a high
PE ratio, but a lower PEG because they're expected
to do better in the future. So now that you understand how to conduct some basic
fundamental analysis, you can figure out what industry
or sector is doing well, find a bunch of companies
in that area of business and then skim through them and
do a little bit of analysis to understand which one may be the strongest link of that chain. So here's two pieces of
advice I have here, guys, not financial advice, obviously, this is just what's worked
well for me in the past. Again, always do your own research before picking stocks, guys, but this is what has worked well for me. If you are looking at
a defensive industry, look for the well-established leaders with a long track record of success. That is typically what I look
for in a defensive industry. So for example, with consumer
staples, Proctor & Gamble, one of the stocks I own is a perfect fit, because they are an established leader with a very long track record of success. If you're looking at a cyclical
industry, I always say, look for the innovators, the leaders, the ones on the cutting edge. That's typically what I look for, 'cause that often translates to growth. However, there is one caveat there, be careful with those
innovative companies, because they often end up
being the market high flyers. Make sure you're also combining that with fundamental analysis, looking at the PE, PEG ratio, and just making sure that the stock is not totally overvalued before you begin purchasing shares. Also, another question
I like to ask myself when looking for new investments is, who has possible solutions to the big problems or mega trends? So I sit down and I think about, what are the biggest problems socially that we're facing right now, and who is poised well to solve them? That is oftentimes a good
way to like unearth companies that you may have never ordinarily
thought of to invest in. But I try to think about things in more of a backwards
way than most people would in terms of finding stocks to invest in. And in terms of mega trends, you guys can Google that and look at what are some of these
current trends right now that are gonna be going on
for the next 10, 15 years. So we talked about this earlier, but I wanna briefly touch
on again, sector rotation. It's one of my favorite phenomenons because it allows you to potentially unearth some opportunities. Sector rotation is often a great strategy for more active investors who don't wanna just put
their money in index funds or ETFs for the next 15 years. This is the process of moving investments from one industry or sector to another based on the underlying economic trends. For example, if investor
sentiment is looking bearish, you could rotate sectors and move away from the cyclical industries and invest in the defensive industries. So I typically would not recommend making a new jump or rush decisions. But let's say for example, you loaded up on tech stocks
and then three months later you were up like 40 or 50%
and you were getting nervous, you could sell off some of
those profits and instead, put that money in a defensive industry or sector or something else that you think might do better later. So for me, as I said, I bought tech early
over the summer of 2020, it pushed up, I had major gains, sold them off and rotated into financials. Then money moved over to financials, I sold off some of the
Bank of America stock, rolled it back into blue chip tech because of the fact
that it was selling off. So I don't make these moves very often, maybe like two or three times a year. But it is a way to potentially add some
value to your portfolio if you can keep up with
these broad market trends. So now what we're gonna
cover here is an index, just so you guys have a better idea of where this term is derived from and what exactly it means. An index summarizes the performance of a group
of securities or stocks. Major indexes summarize the
performance of an entire group. And there's indexes for
certain classifications, such as what exchange they trade on in a given market region. So there's all kinds of indexes out there. They can track U.S. listed
stocks, Toronto stocks, Chinese stocks, all kinds
of indexes out there. But the main ones that
we use here in the U.S. are the NASDAQ, New York Stock Exchange and then the S&P 500 as an
index of all of these stocks. It tracks the performance of all of them and gives us a benchmark on how these broad markets are doing. And then we have benchmarks from exchanges all over the world so we can compare the U.S.
markets to the European markets, the global markets, et cetera, et cetera. So that is the usefulness of an index. But not only can you just use an index to view a overall snapshot
of the whole market, you're also able to
invest directly in indexes in a very low fee manner and purchase a little piece of all of those different companies. So just for example, here, guys, the NASDAQ is a major exchange in the U.S. If you wanted to own every share
of companies in the NASDAQ, you could purchase the
Fidelity, NASDAQ, Composite ETF, and own a small piece
of every little company and big company on the NASDAQ. The next one here, the S&P 500, that is the 500 largest
publicly traded companies. One of the most popular
investments out there is VOO, the Vanguard 500 ETF, low fees. You simply own a small piece of the 500 largest
publicly traded companies. The cool thing is too, these ETFs typically pay dividends. So every quarter, all of those small dividends that you earn from those
hundreds of companies get pooled together, you earn one big dividend collectively from all of those companies, and then you can either take that money and direct it elsewhere, or reinvest that money back into the ETF to earn compound interest. So this slide here, guys, just shows you a couple
of popular Vanguard ETFs, just so you see some options
of what's available out there with the corresponding expense ratio. And guys, honestly, as far as ETFs go, you really can't go wrong
with Vanguard or BlackRock or a lot of Fidelity or Schwab products. They're all pretty low
expense ratios these days. And we're talking about
less than 0.1 of a percent for some of these funds. I'm not gonna go through them, but you can pause this if
you wanna look through these. And just so you see, there's U.S. markets, Total World Stock, emerging
markets, bond markets. There's a REIT ETF. And even within Vanguard, they have industry and
sector-specific ETFs. So if you wanted to just invest
in financials as a whole, there's a Vanguard ETF that
allows you to own a small piece of all of the financial companies. So you can pick a stock if you wanna try to pick
one winner of the group, or if you just think an entire area of the
economy is gonna do well, you can just buy an ETF. And if the whole sector
or industry does well, you do well too. Now if you're looking to
do some research on ETFs, I like the Sector ETF Channel,
they're not a sponsor, they haven't paid me and it's
a completely free service, etf.com/channels/sectors, it gives you a really good way to sort through all kinds
of different ETFs available. And there may be ETFs that you
have never even come across. That being said, watch out
for anything that's leveraged. You see this bullish 3X right here, that means that there's actually leverage
at play in that ETF, which simply means it's
gonna move up or down at a multiple of whatever the underlying thing it's tracking does. So just be careful with that. I don't get into any leveraged
ETFs or inverse ETFs. I would 100% recommend
stay away from them. And if you decide to do
them, do a lot of research. So if you see like 3X or
leveraged or inverse or short, things like that, that's not the type of ETF you wanna buy. And obviously, guys, before you pick a random ETF to invest in, make sure you do some research
on it and fully understand how this investment vehicle works and what has to happen in the market for you to make money from
this particular investment. Okay, guys, so now we're
gonna cover investment taxes. I know this is probably a boring subject, but I'm going to show you how to maximize the amount of money
you keep in your pocket with investments in the stock market. Because at the end of the day, what you keep is more
important than what you make. This is going to be an overview
of the taxes you will pay, likely as an investor, the most common ones
for common situations. However, this is not a replacement for a consultation with a tax advisor. I am not a tax advisor, and this is not gonna be like
individual-specific advice for any one person. I always recommend seeking out the advice of a qualified tax professional. So essentially with taxes
associated with the stock market, taxes encouraged from investments
are not created equally. And the way the current
tax system is written, it favors long-term investing strategies. Not to mention, if you learn
the actual tax brackets, what you often find is that
the more money you make, the more savings there is associated with being a long-term investor versus a short-term trader. So this is why I follow a mostly long-term investing strategy, because I wanna make sure that I'm keeping most of what I'm earning rather than earning a lot, but giving most of it away in taxes. So essentially, your investments can be taxed as ordinary income
or long-term capital gains, depending on how long you've
held onto that investment. As far as ordinary income, that's the same tax rate you're paying from the income from your job. If your investments fall under the classification
of ordinary income, they are taxed at the
same rate as your wages. Unfortunately, this is
the highest tax rate you will ever pay as an
investor for most cases. And it is in your best interest
to minimize this taxation. The two types of profits
recognized that fall under this are dividends as well as
short-term capital gains. However, there is something
called qualified dividends, which is a another story. So when you own dividend stocks long-term, they eventually become
qualified dividends, which have a favorable
tax situation as well. So you get the best of
both worlds, in my opinion, with dividend investing, because you can get
long-term capital gains and qualified dividends, which is a lot less than you're paying compared to the amount
of ordinary income tax you would pay on short-term capital gains. So if a stock is purchased
and sold within 12 months, it is going to be taxed as ordinary income at the same tax rate as
the income from your job. This is calculated using the
date of the order execution, not the settlement date. The taxation system favors investors who hold onto stocks for
greater than one year, as traders are always taxed
at the ordinary income rate. So if you do hear about people talking about day
trading or swing trading, you can kind of quietly laugh to yourself because you understand they are paying the maximum possible taxes because all of this is
short-term capital gains. The real money, trust me, guys, is all long-term capital
gains, qualified dividends, things like that that allow you to avoid putting a lot of that money back into the government's
pocket through taxes. Also, if you do plan on doing
any type of active trading, I would highly recommend doing so within the Roth IRA retirement account as tax sheltered accounts do not incur a short-term
capital gains tax. So let's say for example you want to do some short-term trades, but you don't necessarily
want to pay taxes. You could literally do
that with your Roth IRA if you wanted to place more
active trades with that. And then if you have a ton
of short-term capital gains, as long as you follow those requirements we talked about earlier
and it's a Roth IRA, you're never gonna have
to pay those taxes. So one of the easiest ways
to cut down on your tax bill is to go long and it also
cuts down on your stress. If you hold a stock for
longer than 12 months, it is going to be taxed as
a long-term capital gain. The long-term capital
gains tax rate has brackets based on your ordinary income tax rate. However, there are some
important details to cover here related to investment taxation. First of all, you are only taxed when you sell or once a gain or loss is realized. This is a major misconception out there. People think that just because they bought a
stock and the stock went up, that they automatically have to pay taxes. But what you have there is something called an
unrealized capital gain, and you have to realize that
gain by actually selling some or all of those shares and your profit, or the difference between
what you bought for and what you sold for is the
amount that you pay taxes on. Depending on how long you held that, it's either going to be
short-term maximum tax rate or long-term capital gains. So it's very important to keep track of how long you have
held onto an investment and consider the tax
advantage of going long, especially if you're somebody who's in the upper tax brackets. Also, capital gains from a short sale are always taxed as ordinary income regardless of the duration. So just to give you guys an example here of how this could save you money, let's say your income is taxed at 35% and your short-term capital gains tax rate is the same at 35%, however, your long-term capital
gains tax rate is just 15%. So let's say for example, you sold the stock on day 365, which means you did not hold
it for longer than one year, and you recognize the
capital gain of $10,000. You're gonna pay 35% tax on that or 3,500. But let's say instead, you waited just one more
day and sold on day 366, you had the same capital gain of $10,000, but you only paid 15%, because that is now a
long-term capital gain. You just went from paying
3,500 bucks in taxes to $1,500. In this bracket, the tax
advantage would be 20%. This is based on a couple of years ago. I'm not sure if these
brackets have changed, but this was a real example
from when I did this here. So I recommend looking at
the tax bracket yourself and comparing your short-term versus long-term capital gains rate. And the difference between the two is the amount that you save by going long. And then there's another fun category called the capital loss. If you lose money on an investment and you recognize a loss by selling, this is considered to be a capital loss. And a capital loss is
typically deductible, and it can be used to offset other income
from a capital gain. There are limitations to what you can deduct from your taxes. So again, talk to your tax advisor. But based on the current tax rules, you can deduct $3,000 of capital losses from your taxes each year, and anything above and beyond that can be deducted in the following years. So where this becomes
relevant is oftentimes you'll find that investors
will unload a position in maybe like November,
December, or January. So where this comes into play is sometimes you'll find investors unloading positions in
November or December that they've held onto all-year, they've been waiting to see what they do. And if it ended up being a losing position and they changed their mind, a lot of people sell their
crap in November and December and take a loss to offset
capital gains for that tax year, or potentially take a small loss to offset some of their other income. So I don't recommend it. It's still a loss, you're
still losing money. But just understand that if
you do lose money on a stock, it will offset your total capital gains. Anyways, guys, there, you have it. Thank you so much for
sticking around here. I really hope I added a ton of value here
to you guys in this video. Like I said, there's no pitch, there's no course, nothing
like that here, guys, this right here is as close as it comes to a
full-blown course for you. I really hope this helped you out. If you wanna help me out in return, number one, maybe share
this video with a friend, or if you happen to be on stock trading forums or discords, pass the video around, that way, other people can see it and learn from this resource. I'm also gonna give you guys
a couple of bonuses here if you want them. Number one, the entire
slide show presentation is available for free
right now for download. You don't even have to
sign up for anything. That's gonna be down in
the description below if you want a full copy
of this presentation. Also, as I mentioned, I'm putting together a free resource updating you on the most
current best stock promotions. If you're looking to get some free stocks for signing up for a brokerage, I'm gonna update that at least every month with the most current promotions to make sure you, guys, are getting the best of what's available. There's a lot of free stock offers there. Like I said, companies like Robinhood and M1 Finance, they're also looking to
grow their customer base, and they're all competing with each other. I also have links to that full video on how I pick my stocks for beginners. That's a good supplement to this, as well as a full 50-minute video, specifically on my style
of dividend investing. I invest with M1 Finance,
that's the brokerage I use. I also have a free training
down below in the description that will walk you through step-by-step how I got started with my six figure
dividend stock portfolio. And then lastly, guys, if you're looking to do some research on different investing apps out there, hop on over to investingsimple.com, and we'll be sure to help you out with navigating you towards the best app based on your needs. But thank you so much, guys, for sticking around. If you made it to the very end, drop me a comment with
your favorite color. I'm always curious how many
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