Stock Market For Beginners 2023 | How To Invest (Step by Step Tutorial)

so in this video I'm going to share everything that you need to know about the stock market how to start investing some of the best practices mistakes to avoid and everything else that you need to know about the stock market so this is a full complete tutorial I know it might not be exciting I'm not jumping around on the screen and changing frames every three seconds this is really I want you to treat this like you're taking a class and so I recommend taking out a pen taking out a piece of paper and I think over the next hour or two you're going to learn so much about investing and hopefully you can take this information and use it for the rest of your life so I want to applaud you for being here because I know there's a lot of other things you could be doing right now at the moment but my goal here is to really help you get started investing in the markets so here is an overview of everything that we're going to be talking about in today's video feel free to skip around if you'd like to but we're going to try to talk about all these different things here first of all going over what is a stock starting with the very much the basics and then going more in depth sharing some of the best and investing apps you can potentially use the different types of accounts to set up the different strategies for investing and then going into some more in-depth things like understanding the differences between mutual funds and ETFs looking at different stock market sectors how to pick winning stocks where to gather information from and then going really into the weeds and trying to find out what all of these different financial ratios are how to determine whether a stock is a buy or a sell and all of those fun things here today so I will leave timestamps down below as well as show notes some other resources down below if you don't have the time to watch the full video you can check them out down below in the description now I need to make one big disclaimer here I'm not a financial advisor I'm a guy on the internet and I truly enjoy talking about investing I've been investing for over a decade now and my videos have helped millions of people start investing in fact every year I make an updated stock market tutorial we've had over 3 million people watch both of those previous videos and they found them to be very very be helpful and so what I'm not going to be doing in this video is telling you which stocks to buy I don't have hot stock tips for you you're not going to become a billionaire overnight after watching this video but really it's for the core principles of understanding investing so thank you for joining me on this and let's go ahead and get into this video so the first thing that I want to talk about here today is actually understanding risk and return potential okay so when thinking about investing a lot of people have this idea of becoming rich of making millions of dollars but you have to understand that that the core principle of investing should be to focus always on increasing potential reward while limiting potential risk so I want to just show you this this quick chart here of understanding this right and this is what I always do is I focus on losing money and if I focus on losing money I limit my downsides and this isn't just me this is what most investors do is is you know you have to make sure that you're not gambling we'll talk about this more in just a minute here but you can see that lower risk Investments tend to have lower rewards as well so for example if you go to the bank and you put your money in the bank they might give you one percent interest on your money maybe two or three percent interest on your money uh and that's pretty low return and why is that well because the risk is very low as well right your money's in the bank it's relatively safe it's very very safe right and so because you're not risking a lot you're not getting much in return now on the flip side as we go up on this curve well it's not a curve it's just a linear curve in this uh example here a linear line but as you go up into higher risk categories say for example uh stocks or even like penny stocks for example you have much higher risk but also potential for much higher reward and so you need to find out where you want to be on this line and we'll talk about more about this later throughout the video but my goal and most investors goals should always be how do we increased potential reward increase potential returns while limiting our risk right and we want to create that spread there low risk High returns that's always going to be the goal of investing um because sure you can have high risk High returns but there's also a lot of downside to that as well okay so let's talk about Average stock market returns you can understand what you could potentially expect so historically over the past 100 years in the United States the stock market has returned somewhere between eight and ten percent per year now last year in 2022 the stock market was down about 20 percent depending on what you invested into so you would have lost money if you invest in 2021 today you would probably have less money than you have than you had in 2021 and so I want you to be aware of this that there are ups and downs with investing it's not all up right there's going to be times when the markets come down pretty considerably in March 2020 the stock market crashed about 40 percent uh in 2008 2009 the markets were down about 50 percent people lost half of their life savings when they invest into the stock market so there is a lot of risk and I want you to be very aware of this but historically we have seen some pretty good returns in the United States now I want to remind you that just because it rained last week doesn't mean it's going to rain this week and there could be a time where the stock market might not have very good returns I don't know if that's going to happen I don't have a crystal ball to tell you exactly how it's going to play out over the next five or ten years what the stock market is going to do but it is good to know that over time the markets generally do go up over this long period of time now that's not always going to be the case for example if you look at countries like Japan the the stock market in Japan has pretty much been flat for the past 30 to 35 years really since 1989 the the stock market in Japan has been down so there are times where you know depending on what country you're investing into you might not have exceptional returns like in Europe the stock market has been pretty flat in most European countries for really since the early 2000s and it's been really only the United States and China India some other countries that have had some really kind of outsized returns over the past couple of decades but here's just a quick chart of some different countries and how they have returned over the past 120 years or so and you can see that for example like some countries like Italy and Austria Belgium Germany France these are very developed countries they've been around for such a long time and so their returns seem to be a little bit lower because they've had less economic growth less GDP growth compared to somewhere like the us or you know looking at like Australia for example had really great stock market returns over the past 120 years but it doesn't matter where you live if you're in the United States or outside the United States you can invest into really anything any country you know I'm in the US but sometimes I invest into companies that are in China or in Japan or not or in Australia so it's just good to understand how the markets look globally so in the next slide I'm going to share what a stock is and how it operates but first I want to make it very clear to help you understand and make sure that you are not gambling and that rather you are investing and I think this is a big misstep that so many people make when they start investing into the stock market it was one that I made when I first started way back in 2009 when I started investing was that I was basically gambling I I would read a Blog article about stocks that were going to Triple in value and then I would just go and buy those stocks based off of one blog article and effectively what I was doing is walking into a casino and just gambling my money in the stock market and I think a lot of people do this you know I I like Wall Street bets it's very entertaining it's very entertaining uh it's it's a big Reddit Forum but at the same time most people on that platform are are just gambling their money right um and so the goal here for investing should be to focus on logic based Investments rather than investing with your emotions you know if you get very excited and your stocks are going up people tend to buy more they keep buying more this is what happened with like the crypto bubble in 2020 and 20 2021 the Bitcoin was at sixty five thousand dollars people said man it's gone up 500 it's going to keep going people dumped in all their money at the top up and then they lost so much money so humans are very very emotional creatures and you should try to focus on limiting your emotions and not letting your emotions take control over your decisions when it comes to investing always focus on logic rather than emotions and try not to move too quickly on some of your Investments and I also need to say this again look this is not Financial advice okay you could potentially lose a lot of money so please do your own research on all of this um because I am just a guy on the internet all right but be careful also of following the crowd right this is what happens with a lot of stock market bubbles like what we saw with the.com bubble in the early 2000 the late 90s into the early 2000s also like the crypto bubble the meme stock bubble there's just been so many times for people and gamble their money you never want to gamble and here's the thing I want you to do anytime you're about to buy a stock ask yourself this am I investing or am I gambling and I ask myself this every time and sometimes I catch myself I say you know what I'm gambling I'm buying this stock got a whim because someone told me about it or I read a quick news article and I just have a gut feeling and I'm buying it right I say you know what oh I'm gambling and so I stop myself and I make sure that I'm making a logical decision just something to think about okay so let's talk about what a stock is um a stock it can feel pretty confusing but when you understand this basic concept it's actually relatively simple it's basically just a piece of a company that you own right so I'll give you the like formal definition here but stocks represent ownership in a publicly traded company so when you buy a company stock you become a part owner of that company so if a company has 100 shares and you buy one of them you now own one percent of that company it's true like if you buy one share of Apple you are a partial owner of Apple right if you buy one share of Coca-Cola you own part of that company it's a really amazing thing and it's such an empowering feeling this is why I love investing and why hopefully you will get into investing as well because you can actually own parts of these companies that you use every day right and so these stocks are bought and sold on some of the major stock exchanges like the New York Stock Exchange there's other ones all around the world as well but the New York Stock Exchange is certainly the biggest I'm sure you've heard about it if you've been to New York you've been on Wall Street then you've seen it and it's it's pretty cool I would recommend going to Manhattan and checking it out you can walk through and and see everything I actually had the chance to go there earlier year this year and be on the floor of the stock exchange and it was just a really cool experience overall but these stocks they're bought and sold on exchanges most big companies that you use you know whether it's like Nike or Pepsi or Walmart like most big companies are publicly traded most big companies do have stocks not all some are private but I would argue that a good majority of them are public and so stock prices they fluctuate based on demand for the shares of a stock so if a lot of people want to buy Apple stock the stock price is going to start going up and if a lot of people don't want Apple stock and they want to sell Apple stock then the price goes down so the stock price is dependent on supply and demand some basic economics if you understand supply and demand curves but just understand that that that is what a stock is it's just a piece of a company that you own okay and you can acquire many many shares I've been buying shares for many years and you can sell them like that as well okay so that's the basic of what a stock is Now quickly I want to just go a little bit more into this on why stocks exist like what's the purpose of them and the biggest reason for why stocks exist is because it helps company to raise capital or to raise money so if you are a private company and you say you know what we need some extra cash we need to come up with some money they tend to have something called an IPO an initial public offering where they come onto the market and investors can invest into the company and it basically is like a liquidity event for the company I don't want to throw around too many big words for you if you're a beginner but just know that uh the reason for publicly traded companies is because it allows them to raise capital a lot easier they can issue more shares and then also it helps them grow in a lot of ways as well so those are the big reasons for it for having stocks other like companies have other options for raising money for example bonds the bond market is very different than the stock market and that's more about like debt um I have a full Bond tutorial it's about 50 minutes long you can go check that out I'll leave a link to it down below in the description or you can just check it out on the YouTube channel here but that's the purpose for why stocks exist now if you want to just get into it right away um here's some of the best investing apps that you can use right now there are some promos where you can get some free stocks if you sign up for some of these different accounts so I personally think that MooMoo is the best option for people in the United States for starting investing and I will talk about the people outside of the US in just a minute here but if you're looking to open up a brokerage account start investing start buying a couple of stocks here and there then I think MooMoo is one of the best bets there's also a company called Weeble that's very similar I'll leave a link to both of them down below in the description and then if you're looking for a retirement account maybe you want to set up like a Roth IRA or a traditional IRA then you can do that through something like M1 Finance which I think is also a pretty cool platform and they are based in Chicago so right now moon was giving away up to 15 free stocks if you sign up using the link Down Below in the description you can also use this QR code right here if you're watching this on your computer you have your phone available you can just scan this QR code and download the app and get started investing on something like MooMoo up to 15 free stocks I don't know how long the offer is going to last depending on when you're watching this video it might already be expired or they might increase or decrease the amount of potential free stocks that you can get but I wish that this was around when I started investing because when I open up my first account I think it was E-Trade I didn't get any free stocks for signing up I just you know bought one share of Cedar fare for 12 and that was it so this is a cool way to get you started investing and getting some free stocks up to 15 I think it depends on how much you fund your account um so I'll leave that linked up down below or you can just scan that QR code right here I'm also an affiliate with them so it helps support this channel if you use that link I get a little bit of some money for sending people them our customer members but it helps support this channel you know I don't have any courses to sell you this is all free information so it just kind of helps me support this and make more videos right so if you're outside of the United States what are the best investing apps I think the internet interactive brokers is probably the best option all around just because they're available in so many different countries they have so many different features available so I will leave a link to interactive brokers Down Below in the description as well if you are outside of the United States they're also available in the United States as well but they have some really cool features and actually some like big Traders use interactive brokers so yeah would definitely recommend it I will leave a link to it down below if you're in Europe you're in Australia you're in Canada uh anywhere else in the world it could be available I think there are some countries where it's not but you can just click on the link and check it out and see if it's available in your country or not um if you don't want to go with interactive brokers you can go with things like Quest trading Canada trading 212 in the UK um also things like etoro is available in a lot of countries as well of course all laws are different in countries so in the United States you know you have different brokerages than in Europe versus Australia versus India versus uh Pakistan or uh you know if you are in South Africa right there's there's going to be different brokerages in every country so if you still don't know which brokerage account to sign up for then you can just do a quick Google search for your country and probably find some good options for investing accounts there okay so let's talk about the different types of brokerage accounts this applies for people in the United States we have individual accounts we have joint we have education personal accounts custodial and then retirement accounts so let me explain the differences between these so an individual account is just kind of like the standard investing account that you would set up if you just want to buy and sell stocks this is like the normal one for just you uh you have to be at least 18 years old in the US to sign up for one of these but it's pretty straightforward this is the one that I do a lot of my investing through it's just a regular individual brokerage account now another option is a joint account this is going to be for people who are married so if you have a spouse you want to have one together this could make sense to have a joint uh investing account we also have things like educational accounts also known as like a 529 plan so this is really useful for you know if you have kids who are young you can put money into an educational account like a 529 and invest that money and it has certain tax benefits to it um where you know like if you're saving money for your child's college education then there are some good benefits to it from a tax perspective go ahead and look into that more if you'd like to custodial accounts this is actually the first account that I ever opened because I was I think I was 11 years old or I was 12 years old when I first started investing I had a school project in seventh grade we learned about the stock market and I came home I said Mom Dad I like numbers um they didn't really know anything about the stock market I love them but they didn't know anything about the stock market and I said like hey I want to like buy a stock I don't know I was a weird kid I like numbers I have no idea how I ended up doing that like got really lucky but I couldn't open an account when I was like 11 or 12 years old so I had to get them to help me open up an account luckily my parents were very supportive with that so they said okay sure and they set up a custodial account now technically it's the parent that owns this account but the child's name is on it as well so if you are under the age of 18 talk to your parents about this they can potentially help you set that up it's technically like they have control over it but your name's on it as well and my parents let me invest into it on my own with like fifty dollars this is also great like if you have a kid who's you know a teenager and you want to teach them about investing you could set up an account for them with a custodial account now not every brokerage has that available but some do some don't so you also have retirement accounts things like IRAs right traditional IRA Roth IRA the only difference between these two is that with a traditional IRA um you don't pay the taxes now you pay the taxes later when you pull money out of it after you retire and then a Roth IRA you're paying taxes up front in the account but then when you pull money out of the investment account years down the road after you're 59.5 years old uh there's no tax on it right so it's it's pretty cool both of them are good you just want to run some numbers to see if you want to open a traditional or a Roth IRA account and then also things like a 401k there's also like different things like if you are a teacher I forget what the the classification on that but there's a lot of different types of retirement accounts but these are some of the most popular ones that are out there so those are different types of brokerage accounts let's talk about some different investment strategies this is probably one of the most important parts of this video there's really I see four different types of investing strategies in the stock market so we have fundamental analysis technical analysis behavioral analysis and then sort of like a passive dollar cost averaging strategy that seems to be very popular especially these days so let's talk about each one of these different strategies so fundamental analysis is certainly my favorite strategy for investing if you're familiar with a guy named Warren Buffett he's probably like like the the father of value investing and basically the whole point of this and and and the goal of of value investing and using fundamental analysis is to analyze companies financials right you're looking at their balance sheet you're looking at their cash flow statement looking at how much income is coming into the business you're looking at all of their numbers and you're determining whether this company is healthy and has long-term viability or whether maybe you want to avoid it because it doesn't have enough money coming in or a variety of other different things you want to look at Okay so what you're looking for is a difference between True Value and what the stock is trading for at the moment and so there's some really good books on this I will share books later on in the video but there's a book called The intelligent investor by Benjamin Graham it's one of the best investing books I highly recommend that you read it it's going to help you so much and this really focuses on fundamental analysis so I have a full video showing people how to analyze different financial statements I think it's probably almost an hour long I made it last year on my YouTube channel so I will link to it down below as well and that'll get really into the details on analyzing some different financials but you're looking at all these different financial ratios you're running a lot of calculations and then you're trying to find a situation where maybe the markets are undervaluing a specific company so like say Coca-Cola for example you look at all the numbers you run all the ratios you do all this math and you've determined that you know this Stock's trading at forty dollars but really it should be trading at the fifty dollars you think it's worth more uh because of the underlying financials of that company now fundamental analysis is very much a long-term Outlook this is not day trading you are probably if you're doing fundamental analysis at least buying stocks to probably at least own them for at least a few months more likely years sometimes 10 or 20 years or even more when people do fundamental analysis it is by far the most popular type of investing for the stock market today um and it's certainly worked out for a lot of investors like Warren Buffett so you can go check out that video if you want to learn more about like specifics of understanding how to conduct fundamental analysis but the other different type of investing is going to be known as technical analysis and this is where you see a lot of day Traders people who are looking at charts they're doing like swing trading they're buying something you know they see a red candle they buy they see a green candle candle they buy right so they're doing all these different things with short-term Trends now I'm going to be honest with you this is not my favorite type of investing there's a couple of reasons for this the biggest one is because it's very time intensive having to sit at your computer and trade stocks all day long uh it's almost like a job in itself I've done it in the past and you know I've made some money I've lost some money on it um but having to sit and do this all day from Market open to Market close is just it's not my favorite thing to do I also think that a lot of people who try to do heavy Tech analysis and try to do something like day trading a lot of people end up losing money you know I have a couple of friends who make money by day trading um but it's it's pretty rare I would say like the majority at least and I'm I'm guessing on this number but at least 80 percent of people lose money when they're doing something like day trading but nonetheless technical analysis can be helpful for finding times to enter a position so what I like to do is I like to combine fundamental analysis with technical analysis when I buy stocks so I will look at the overall charts I'll look at how the stock price is looking and the setup on it um over the past couple of days or over the past couple of years it'll help me find a better entry point in my position but then once I buy it I end up holding it for more than just like a couple of hours I'm usually holding it for at least a couple of months or sometimes a few years as well um so the whole point of like technical analysis it's really dependent on supply and demand of shares in the short run um so yeah it's it's not my favorites uh there's a really good book actually it's just tactical analysis for dummies I I don't think I I don't think I have it here with me right now um but it's it's a great book just to get you started with it and understanding some of the basic setups on technicals I think I might make a full tutorial on technical analysis and understanding like day trading and other things along those lines but like I said it's not my favorite uh type of investing and I I really wouldn't recommend it also be careful with things like technical analysis uh when you're watching YouTube videos because a lot of people in this in this category on YouTube are a little bit I don't know how to say it nicely a little bit scammy they're going to sell you a lot of courses tell you that you can get rich by doing this so just be careful like a lot of those courses are just complete garbage and are a waste of time so that's just my personal opinion on it but I wouldn't spend too much time uh trying to do something like day trading okay so we have something else called behavioral analysis also using things like social signals I really love this strategy and I use this quite a bit um so behavioral analysis is instead of only looking at the the fundamentals and only looking at like the financials or only looking at the technicals you're taking into account humans and human emotion and something known as like the greed uh fear Index right and so humans are so interesting where we we buy and sell it all the wrong times like if if you look at the the the pandemic that we had back in 2020 when it started the stock market crashed like 40 percent people were so scared and so you can use something like behavioral analysis to realize hey when people are really scared this might be a great opportunity to enter the markets and there's a famous quote by Warren Buffett to be fearful when others are greedy and be greedy when others are fearful I want you to remember that maybe even write it down be fearful when others are greedy and greedy when others are fearful you know in 2021 when crypto was at all-time highs and when a lot of stocks were going through the roof and you know like carvana stock was up like the 20 000 or something ridiculous I was pretty fearful and I was worried about a lot of these stocks being overvalued while the rest of people were extremely greedy and were buying the top of the market so you want to be kind of in a way think about being opposite of what a lot of people are thinking right so if if the markets are really scared maybe you want to be actually a little bit uh greedy in a way okay so this is what behavioral analysis is all about and finding things that maybe are not reflected in just like the fundamentals right so one of my favorite investors is a guy named Chris Camillo um and he's always buying stocks that are so like ridiculous that you would just think you know don't have any chance like he was buying Crocs way back in the day before they had this massive uprun because he understood behavioral analysis he was running studies on his own he was going into like Crocs stores and looking at how many people were going in the door and like literally counting them to figure out if Crocs was going to have a great year and they ended up having an amazing year and he made a lot of money from it um so I I think he has a book as well that you could probably read I forget what it's called um but yeah behavioral analysis is one of my favorites it's looking at humans and and understanding what they are doing especially emotionally investors are so emotional and if you can kind of inverse them or understand how they are acting and reacting then you can actually end up making a lot of money on using something like behavioral analysis so now the fourth strategy for investing is something called dollar cost averaging and as I said earlier this is one that has become very popular especially over the past 15 to 20 years so the entire point of dollar cost averaging is actually to take a very passive approach on investing it's to say all right I'm going to invest a certain amount of money every month or every week regardless of what the stock market's doing and this is kind of taking the approach thinking that the markets are rational that um like everything's already factored into a stock price and therefore I might as well just invest whether the markets are up whether they're down I'm just going to routinely invest into the stock market a lot of people do this through things like index funds where they'll just buy like the S P 500 or some other different types of indexes um and so the good thing about this is that it's it's very very passive I mean you can do this like in your sleep like you just have money going into the stock market regardless because you look at the stock returns over the past 100 years and you say well they've gone up eight to ten percent per year so if that continues to happen then I can probably make around that range over my lifetime annually uh if I just dollar cost average passively into the stock market and this is why it's been so popular lately instead of like here's an example okay I actively trade I actively invest into the stock market every year I'm always buying selling different stocks in some years I will spend so much time I mean it's almost like a full-time job I'll be investing 20 or 30 hours a week and then at the end of the years I look at my return and I'm like okay well you know I like gained 25 and the S P 500 the overall stock market gained 26 percent I underperformed the stock market and I spent all that time right when I could have been doing something else so this is something serious I mean look there's years when you have good years and bad years like in 2022 my portfolio was up something like almost a hundred percent I tracked it I was tweeting about it you can go check it out if you'd like to um when the stock market was down like 20 I was up almost 100 percent but then other years you underperform and it's like okay well why don't I just do dollar cost averaging it's seen as a much safer route it attempts to kind of like neutralize that short-term volatility um and give you some level of stability if you are doing dollar cost averaging and also the benefit to dollar cost averaging is that you'll probably end up buying at the low points when you know uh like you would be too scared to do that otherwise like if the markets crash 40 very few people can go in and actually buy it's hard to get the guts to do that but if your dollar cost averaging you would just automatically be doing that um the downside to dollar cost averaging though is that yes you can actually end up missing some of those great opportunities right I had a lot of cash on the sidelines in early 2020 and so I was able to like swing in and just buy up a lot of different stocks in February and in March and in April and May of 2020 um because I wanted to increase my buys because the markets were down quite a bit but I want you to remember this quote as well time in the markets beats timing the market okay time in the market beats timing the market um it's it's a quote that I really love to hear okay so that's a strategy there so those are the four different strategies fundamental analysis technical analysis behavioral analysis and then something like dollar cost averaging which is passive what's going to be the best option for you I don't really know I don't have the answer I really use all four of them together I combine them right I do some dollar cost averaging like in my retirement accounts in my IRA accounts my 401k I do dollar cost averaging into index funds it kind of gives me like this safety blanket of like some stability and then I use technical analysis to find entry points after I've done fundamental analysis I use behavioral analysis as well I recommend you learn about all these different types of uh strategies for finding good stocks to buy okay so let's move on here to the next section here where we're actually talking about active versus passive investing uh the difference between these and then also which one I would recommend so active investing you're you're conducting research you're reading reports you're reading financial statements uh you're trying to identify those risks identify the potential areas where maybe other people are missing something they're not seeing something that you see they're not understanding like the big picture of something right like if you actively invested into Tesla 10 years ago you would have beaten the markets considerably if you were just paying attention to what was happening I certainly wasn't I didn't invest in the Tesla 10 years ago but the people who did made millions of dollars because they were looking at a place where other people were not looking where other people thought it was overvalued but they were True Believers in Tesla and Elon Musk and the vision right and so they made a lot of money and they ended up beating the markets that's always going to be your goal is you want to try to beat The Benchmark which is the S P 500 which is an index fund I'll explain what that is in just a minute okay passive investing you're using something like dollar cost averaging um going into diverse asset classes and funds to kind of mitigate that risk and kind of smooth out that that curve there so that you can sleep a lot better at night I will say active investing can be stressful I've had times where I I almost broke where I was in so deep on active Investments and there was so much risk involved and it it gets stressful and it can actually affect your personal life don't let it get to that point okay be careful make sure that you don't invest anything more than what you cannot afford to lose if you're actively investing in trading um and if you want that like ability to sleep well at night and just like passively invest then that might be a great option for you as well there's there's no right option I mean active investing a lot of people lose money some people beat the markets it's tough but it is possible okay so I want to share these five different indexes with you um these are the biggest ones in the United States so we have the Dow Jones Industrial Average you've actually probably heard this like these terms being thrown around over the years I know like you know even like if you're just walking down the street and you hear someone say oh the Dow's down 500 points today right or they say the Dow's down a thousand points today I mean so you hear about this and they're referring to this index now the Dow Jones represents about 30 companies these are known as like Blue Chip stocks big companies um ones that you've heard of like apple or general electric or I think GE actually just got thrown out of the Dow but nonetheless these are really big uh companies that are stable and seen as very very reputable companies but it helps kind of like when you bundle these companies together these indexes the purpose of this is to kind of give us like an overview of how the markets are dealing on any given day so if you want to see hey how's the stock market doing today you can't just look at one stock because you know that could be different than all the others you want to look at the indexes so the Dow represents about 30 companies uh the S P 500 rep represents about 500 companies in the United States this is my favorite indicator it gives you a better overview of how the stock market is doing on any particular day or any particular year so the S P 500 right now it's sitting at about 4000 last year it was sitting about 4 500 so it's down since last year um and we'll see where it is I don't know when you're watching this video I have no idea where it will be um it could be lower could be higher I certainly hope it's higher um but we'll see and then the NASDAQ uh is more so in the tech space so a lot of fast-growing tech companies are bundled into the NASDAQ and once again these are all just indexes they're just tracking all these different stocks they're not actually like investing into them they're simply just tracking them to give you an overview of how the markets are doing and then we have the Russell 2000 which is comprised of a lot of small U.S publicly traded stocks all right and then we also have the vix vix which is a volatility index and basically what this is going to tell you is um how scared the markets are on any given day so if the vix is low like right now it's about 20 which is pretty low I mean it's it's it's not extremely low but it's pretty low so I can look at this and see okay vix is 20 the markets are you know maybe a little bit concerned but they're not too worried if you see the vix Spike to 30 40 50 60 it means that the markets are very scared there's probably a lot of volatility either the markets are up like five percent a day or they're down five percent a day and so the vix can be all over the place it's just a good uh way of looking at like how much volume how much volatility is there right now at the moment and that's what the vix is useful for okay so let's move on to next thing here and I just want to quickly talk about stock market sectors so there are 11 major sectors in the stock market and what I recommend doing is actually just becoming an expert in two or three of these different sectors looking at all the different companies in those sectors we'll talk about how to find specific stocks like later on in this video but we have things like energy materials Industrials consumer discretionary Consumer Staples Health Care financials Information Technology telecommunications Services utilities and real estate 8. so those are the main sectors most stocks are going to be bundled into at least one of these different sectors now if you're wondering which sector performs the best well it's totally dependent on the year for example over the past decade or so the technology sector has really been one of the best fastest growing sectors but then recently in 2021 2022 we actually saw a big shift where energy was I think the best performing sector in 2022 but energy underperformed for like the past decade right and then all of a sudden they had this great couple of years right so understand the different sectors and find ones that you really kind of gravitate towards like for me personally I love investing into the energy sector I love understanding materials and Industrials maybe I'm just a boring person but I can go really in depth on like the steel industry or the helium shortage or all these different random things about Industrials and materials maybe for you you might be very focused on real estate or for financial companies or health care companies I suggest finding one Niche that you're kind of already skilled in like if you are a nurse or a doctor maybe you understand the healthcare industry better than other people I certainly don't have a good understanding of it so I kind of just avoid it all together and I don't really invest into those areas that I don't understand fully all right so mutual funds versus ETFs versus index funds what's the difference between these uh it can be easy to kind of confuse these and you'll also see people using these terms interchangeably but they are different so a mutual fund and an ETF the difference between these two is that in ETF it stands for exchange traded fund so mutual funds have been around for about 100 years or more and they are updated at the end of every day a lot of mutual funds are actively traded so they're like baskets of stocks that are um actively manage sorry uh so most mutual funds are actively managed um and so they're like a bundle a basket of stocks that a manager is putting together and they're saying okay I'm gonna buy all these different stocks and you can invest into that mutual fund um a lot of these you'll see through something like Vanguard or Fidelity or Schwab they offer a lot of different mutual funds the the minimum investment for mutual funds is usually a bit higher for a lot of them starts around like a thousand to three thousand dollars for a minimum investment into mutual funds now an ETF an exchange traded fund is actually pretty new I mean you really didn't see a lot of them until sometime in the 1990s and then they've been more and more and more recently and the difference between the ETF and the mutual fund is that an ETF tends to be more of a passive uh tracker of the markets so you can buy like an ETF of the S P 500 and it tracks the S P 500 Index or you can buy a Dow Jones ETF that tracks the Dow Jones and it's relatively passively managed so the fees tend to be really low on it all right and then an index fund could either be an ETF or a mutual fund um and it's it's just one that tracks the overall market so there's a lot of cases where an ETF is an index fund right uh you'll see that a lot so hopefully that cleared it up for you um what's the best one what's better mutual funds or ETFs uh you know this this is really up to you there's not a huge difference I end up investing into ETFs because they are very tradable and they're updated real time throughout the day whereas mutual funds are only updated at the end of every uh trading Day so a lot of people prefer ETFs these days I certainly prefer them um but it's hard to go wrong with like either one of them just be careful on the fees mutual funds and ETFs have something called an expense ratio take a look at this this is the annual uh amount that you're paying for someone to put this fund together to manage this fund right so I'll I'll just throw up a screenshot here of like some very popular ETFs and you can see the expense ratio for each one of these different ETFs and so like if you have one that is at one percent that's really high that means one percent of the money that you invest into that every year is going to be taken out in expenses right for managing the total amount of money that you have in that every single year so you want to be careful I tend to only invest into any type of fund that has an expense ratio lower than uh 0.75 percent and even then that's pretty high if you want to get something like an index fund that tracks the S P 500 you can go with something like voo or spy both of these have very low expense ratios where the fee is very very minimal um so yeah there's there's hundreds of different ETFs and index funds maybe even thousands of them that you can invest into and they track all kinds of different things all right so is probably the part you've been waiting for how do you pick winning stocks how do you find them so my best advice for this is to focus on what you know especially if you're just getting started you're a beginner investor then I want you to really focus on the area that you already have a deep understanding of and you might be thinking okay well I don't know anything you know maybe I like I feel like I don't know any space but I can almost guarantee you that you do you know if if you're a trucker you probably understand the transportation industry better than 90 of other Americans right uh if if you're a nurse you probably understand the healthcare industry better than most other other people uh if you work at at Walmart you probably understand retail better than most other people right so look around at what job you have now and I want you to think about the things that you're very passionate about the things that you could sit at the dinner table and just start ranting about to your family or your friends things that you talk about all the time right you play a lot of video games maybe you understand the entertainment industry and the gaming industry better than other people I certainly don't know anything about video games so I don't invest into them right so focus on what you know this is how you're going to get that upper Edge over other people all right um and and and just be careful like like I'm very careful to not get into an industry that I don't have any understanding of this is why I mostly invest into companies in the US because I understand the US I've lived here my entire life and I'm not investing a lot into like um like say some other country uh like Sweden because I I don't understand Swedish laws as well as I understand U.S laws and so I kind of have that upper edge of understanding the United States right um the other thing I want you to do is block outside voices uh any type of hype any hot stock tips this is going to be the downfall for most people and it was for me I've made this mistake so many times right outside voices for example um reading blog articles about the best stocks to buy bad move all right uh watching YouTube videos from people saying five stocks to buy this month be very careful right be super careful because anytime people are talking about stocks telling you about like if you're watching Jim Cramer on CNBC and he's telling you to buy this stock buy that stock right um if you go back and like look at when people say these things it tends to be the top of the market not always but just be careful on this do your own research and don't just buy things because other people tell you to buy them that's the fastest way to fail at investing and it took me a while to block out people and say all right I'm not listening to anybody nobody at all and I'm doing my own research you got to do it okay there's no easy way out on this if you want to become an excellent investor so there's two different strategies for finding a stock to investing too and the first one is a top-down strategy and then we have something called a bottom up strategy for finding a stock identifying a stock stock right because there's thousands of them out there how do you find the right one to invest into um and so both of these strategies can work it just depends on on what you're looking for now the top down strategy is when you start with the big picture right you start with the macro you start with the overall the world right like where's the world heading in 10 20 30 years is it going is it in a positive direction is the world going to collapse right you look at the the big macro and then you keep whittling it down until you get to an industry or a stock that you think is going to perform the best so I start with the world how's it going to do this year next year the year after that right my predictions when I think is going to happen then I Whittle it down to countries right maybe the United States right what's the United States going to do in the next few years how is this going to play out and you keep going down into you go into a sector right we talked about those 11 different sectors which sector do you think is going to perform the best right you keep whittling it down within that sector you then find five companies three to five different companies within that sector that you think could perform well and that is when after you find those three to five companies you then run a full analysis doing fundamental analysis looking at all their financial statements and then determining out of those three to five companies which one has the best chance of of increasing in value for their stock price over a certain period of time so that's the top down strategy I kind of love this because this is what I did with like the energy industry in 2021 I thought energy was going to go up this is why my portfolio was up a lot in 2022 is because I had a lot of energy but I started with the world and I said okay what's gonna happen I think inflation is going to happen I think we uh have opened up after the pandemic and people are going to need gasoline they're going to need fuel there's going to be an energy crisis and so I started with that and then I whittled it down and I got to the point where I was buying Exxon Mobil and so some of these other different energy companies after starting with the big picture and getting down to the the small picture of individual companies right that's top down the bottom-up strategy is the complete opposite of that where you start with some companies and then you analyze the industry right so let's say that you work at Nike right well maybe you start by analyzing Nike and you start by analyzing Adidas and Puma or all the other shoe companies and apparel companies and then after analyzing those companies and comparing them to Nike you then go broader you say okay well what's going to happen with the overall apparel and clothing industry and you go even broader and say okay what's going to happen to to Consumer uh expenditures this year right are we going into a recession could that affect it how does inflation affect that how is U.S consumer spending looking over the next few years and you keep going broader right so you start small at the bottom and then you Branch out uh and and try to evaluate the overall macro environment those are two different strategies my favorite certainly is the top down starting with the big picture and then whittling it down to find the best company within the best sector but both certainly do work always though I would recommend choosing three to five companies to analyze whatever you want to invest into a company you know I invest into a gold miner last year and I didn't just analyze that one gold binding company I analyzed a bunch of other companies probably about a dozen other gold mining companies to determine the best one in that space because I had a feeling that miners would do really well that's still yet to be determined we'll see what's going to happen this year so that's my advice for how to find winning stocks um I do want to quickly talk about portfolio allocation and diversification um I I didn't have a slide for this but it's important for me to put it in here right now um so look how many stocks should you have in your portfolio should you have a hundred should you have one what's the strategy here now there's a lot of debate about this personally I like to have a very concise dense portfolio where I only want uh at most six or seven companies in my portfolio six or seven different stocks I don't like a lot of stocks in my portfolio now this ends up being a lot riskier for me but it also potentially gives me better Returns the reason why I like to have a dense portfolio is because if I have too many stocks if I have 30 stocks and I've seen people do this a lot if I have 30 stocks in my investing account how in the world am I going to keep track of each one of those companies if you're actively investing in stocks you need to be on top of these companies and you need to be aware of every time that they're reporting earnings you need to be listening on the call need to be list like reading their financial statements every time there's news coming out staying updated to make sure that you still want to hold this stock and that is still going in the right direction now I find it very difficult to keep track of all those companies if you have 30 or 40 or 50 different stocks in your portfolio now the good thing about having a lot of stocks in your portfolio is that well you know it it's going to probably uh like decrease your risk and overall you know you can probably sleep better at night knowing that you don't have a ton of risk in like just a couple of different companies but if you're looking for more risk and also want to be able to like stay on top of and track your companies better then maybe consider having a more concise dense portfolio and that's just a conclusion that I've come to that's of course a personal preference to have fewer stocks in my portfolio and I I accept the risk that comes with that all right so a big question that people have is where do you gather information from how do you find this info on a company get their financial statements understand all of this right right and so let me share how you can do that there's a couple of really important things especially like the investor relations page from that company um but like I said earlier block out analyst Reports look a lot of analysts whether they say like oh it's a buyer it's a sell or they get projected Target numbers a lot of those analysts believe it or not are bought by hedge funds or bought by big investors where they'll give them money to write articles in favor of a stock or sometimes they'll they'll make a bunch of really bad articles because they want to drive down the stock price it's it's pretty muddy it's pretty murky and so this is another reason why I say be careful of reading analyst reports and other things like that so try to block out as much of that as possible I mean you can certainly read those articles but just like take everything with a grain of salt when you are reading them because a lot of them do have an agenda they're either trying to pump the stock price or drive down the stock price a great way to gather information is on your brokerage account you're going to be able to research things like if you're using MooMoo they have so many different features like they have stock screeners available where you can go through and screen for specific different metrics and things that you want to hit like you want something in one industry or you want a company with a low p e Ratio or you want a stock that's below a hundred dollars or a small company you could do all of that on something like MooMoo or most other brokerage accounts they have built-in research platforms for also discovering more stocks to potentially invest into but by far the best option for gathering information on a company is going to that company's investor relations website so the beautiful thing about a publicly traded company is that they legally have to put out this information right it's it's like they are legally required um buy the stock exchanges and I believe by the SEC to publicly disclose all of this information about it right they're public so uh if if you just type in any company's name followed by investor relations on Google you should be able to find their uh page right so for example if we go to Google and we just type in um Waste Management investor relations we can find that right there and it's going to take us to their page where they will have all of their uh files things that they had to file with the SEC all of their latest information it's going to be on there as well as the latest news on the company this is by far the most reputable trustworthy place to find information from this is where I download all of the financial statements to get accurate ones like the balance sheet find the cash flow statement income statement I get all of those from the company's investor relations page and on that investor relations page somewhere on there you'll find something called a 10K and a 10 Q so a 10K is what is their annual statement every year a company has to come out with a full annual report they're usually over 100 pages in a lot of cases they're like basically books and this is going to have everything you need to know about the company they're going to talk about their strengths their weaknesses their projections things that they're struggling with um all of their finances everything else is going to be in their 10K this is the most important document that you need to get your hands on and it's all free on their website and then a 10q is going to be the quarterly report so every quarter basically four times per year a company needs to issue their quarterly earnings they put these out every three months and that should be available as well for you to read now there are other options as well like CNBC look I I watch CNBC I turn it on for the news um and I watch it pretty much every day I don't necessarily take the advice on there but I like to keep up with the financial news and CNBC is probably the best channel for doing that other things like MarketWatch Yahoo finance and actually Twitter is a great source for fast information about the stock market and what's happening and then one of the best places well for gathering information is just reading investing books people don't read books anymore look I've been reading about a book A Week for as long as I can remember and it has certainly helped me so much with investing I'm going to share some of the best investing books at the end of this video if you stay tuned I think it's going to be a great reading list for you to really get a solid footing on the investing World alright so if I financial statements I know I've been referencing them a lot let's talk about them very quickly we have a balance sheet we have an income statement and we have a cash flow statement these are the big three that you want to be aware of all right so I'm not going to go in depth on each one of these here today because I think this video is already going to be excessively long but lucky for you I do have a video where I talked about each one of these things in last year in a video I'll leave a link to it down below talking about how to analyze a stock and you'll learn about balance sheets income statements and cash flow statements uh in that video but if you've taken accounting classes in the past you're going to be in a really good position and if you haven't I would recommend reading some books about accounting basic accounting principles credits and debits assets and liabilities it's going to help you a lot to to understand that so let's talk about financial ratios and metrics this is going to be kind of getting more into detail in this video we're going to share about a dozen different ratios metrics things you want to look at things that I take into consideration when I am thinking about buying a stock or when I'm analyzing a company now I understand this can be a lot of information being thrown at you so don't worry as long as you're just aware of these like the goal of this right now is just make you aware of these uh ratios and metrics you don't have to become an expert on them right away it's going to take some time and that's okay all right but feel free to write these down if you find it to be helpful so let's first of all just look at some key stats here this is of Apple stock and this was I think just from cnbc's website where you can see some different information right so we have the day high day low that's just the stock price previous close uh the average 10-day volume this is going to be how many shares are bought and sold and transacted on any given day this is the average about 82 million shares bought and sold every day of Apple in the past 10 days right that's quite a few shares 52 week high 52 week low just a good idea to understand um where the stock has been recently then we have something like beta so the beta of a company stock in the simplest terms it's basically uh how this stock moves in comparison to the overall stock market right so a beta of one means that this stock kind of moves in line with the overall stock market right it's not super volatile um but it's it's also not like super slow moving it tends to kind of move with that this is the general overview of what beta is if a company has a high beta like if it's you know two or three or it's higher than that um then what that typically means is that this stock is a lot more volatile and so it moves uh historically a lot faster or or more significant than the overall stock market so you know if the overall stock market goes down five percent and a company has a high beta you might see this stock go down 10 or 15 because it's kind of like Amplified it's more volatile and then a company with a low beta like if it's like you know 0.3 or something tends to be around relatively stable that's just a very much broad overview just kind of give you like a quick and dirty understanding of what beta is I do have a video on that as well that I made like six years ago I think it was the first video I ever made that you can learn about if you want to figure out how to calculate beta but I don't use it that much to be honest um so the market cap what is the market cap this is the overall valuation of a company and how we determine the market cap is by taking the current stock price and we multiply it by the current amount of shares that a company has out there right so Apple the stock price 153.77 and the total amount of shares out there at the moment is 15.91 billion dollars you multiply 153.77 by 15.91 billion dollars and you come up with the total market cap of 2.4 trillion dollars which is the overall total valuation of Apple so what's cool about this is if you understand market cap and shares out standing then you can realize hey like if I own one percent of uh 15.91 billion shares then I own one percent of Apple stock uh the dividend we'll talk about this in a future slide I also have a big video on dividend investing that you can use as a resource but Dividends are basically like a cherry on top cash payment that companies give to you basically like a portion of the profits that a company uh has at the end of the quarter or sometimes at the end of the year they will just give you cash for owning the stock like literally just free money it's amazing so Apple gives you 92 cents per year per share that you own of the stock so if I own 10 shares of Apple stock every year they're going to give me 9.20 and this fluctuates they they set the dividend every quarter based on how their profits are looking but it's it's pretty awesome like I I have dividends that are paying me thousands of dollars per month I made a video on that as well last year um and it's literally just past Bank comes in every month uh or every quarter from these companies and it's a pretty awesome thing to have um I love dividend investing and it's something just yeah it's it's great uh you can learn about that more in that dividend video that I've made um so the dividend yield is just the percentage that you would be getting uh based on the stock price right so 0.61 percent of the stock price is what you'd be getting in dividend payments uh the dividend yield fluctuates every day based on the stock price um okay so let's talk about some different financial ratios uh things like earnings per share this is one that's very popular you'll see this uh as EPs and so earnings per share what you're doing here is you are it helps you give an understanding of what a company's profitability is all right so a company with the high earnings per share tends to be very profitable it means that they're making a lot of money and it's a good thing to see it means that they're probably cash flowing quite a bit there's money coming in the door and it's all overall a positive thing um so what I really like to see though is earnings per share growth in a company so what you want to look at is the past five years or sometimes even longer sometimes shorter sometimes quarter over quarter whatever it might be and you want to look at how is this earnings per share been doing over the past few years has been increasing or decreasing because if you see earnings per share declining every year it means that the company is kind of becoming less profitable and there can be factors for why that's the case you got to read into everything um but it's something very important to look at but I want to remind you that with any one of these Financial metrics or financial ratios it's not just like a clear thing so for example earnings per share you usually want to see it growing but I've invested in the companies that have declining earnings per share right like U.S steel I invested into last year they have declining earnings every quarter and they probably will continue I still think it's a good stock for a variety of other reasons outside of that and I understand that it's declining but I still think the stock price is going to do something different than that that's of course not a recommendation it could certainly go down don't go by U.S steel just because I own it in my portfolio but yeah you're taking that income subtracting preferred dividends from that you're dividing that by the total amount of shares outstanding don't worry about this like right now if you don't understand it I like the best like look this is a intro video for you but what you're gonna have to do after this if you want to become a skilled investor is read the books I'm going to share at the end of this video all right and they're not my books I like I haven't written them I have no gain from them for you to read them I'm just telling you you're gonna need to read those books and then you're going to get a good understanding of these this is the intro but this is not going to turn you into an expert here um because we're kind of brushing through this because we can't make a 30 hour long tutorial on YouTube the p e ratio is one that you see very very often people talk about this a lot it's the price to earnings ratio it also gives you a kind of like a quick and dirty uh overview of how this company is valued if it's valued very high or low um so what we're doing here is we're taking the share price we're dividing it by earnings per share so a high PE tends to mean that there's a lot of growth anticipated for this company or they're just not earning very much money but their stock price is pretty high in comparison uh to how much money they're actually making um so I I will compare like Tesla stock uh and Tesla p e ratio to something like Toyota uh in in the next slide but a low PE usually means that there's not much growth anticipated so going back to like U.S steel for example the p e ratio on that was like extremely low it's like one or two versus the average in the stock market tends to be somewhere between 15 and 25 historically has been a p e ratio that's been about average um lately the stock market overall has been having a pretty high p e ratio which kind of shows you that the markets are a bit overvalued maybe even still at the moment um but yeah you will learn about PE ratio as you go through on your investing Journey you'll see this a lot um but remember like I said that you can't just look at one metric or one ratio and determine whether a stock is a buy or a sell you have to take all of these things into account and nothing's going to be like the magic ratio that's going to tell you to do something all right you need to take everything into consideration so here's Tesla stock versus Toyota stock right and you can see that Tesla has a very high p e ratio 57 you know last year was like two or three hundred but it's it's still very high 57 is a very high p e ratio versus Toyota which has a p e ratio of about 10.7 now why is Tesla PE ratio so high and why is Toyota so low if you look at this you would say okay well maybe Tesla's overvalued and Toyota is undervalued right but that's not necessarily the case because guess what Tesla is innovating they're pushing for electric vehicles they're doing all these things that are very much in the future and then Toyota's still focused on making gas vehicles so that is the reason why Tesla has a higher p e ratio than Toyota they're expected to to grow faster as a company grow the revenue grow their earnings a lot faster than Toyota is so you can't really make a decision here like is Toyota a better buy just because it has a lower PE ratio maybe not there's other factors going into it so you have to like really really think about all of those but the PE Ratio is helpful for getting like a quick understanding of how a company's valued uh just from the get-go so something actually a little bit more in-depth is the price earnings to growth ratio the PEG ratio it's going to give you a little bit more information than just the standard PE so what we're doing in here is we're actually adding in expected earnings growth into the calculation as well so here's the the formula for that it's just price divided by earnings per share divided by earnings per share growth um you know you can write this down if you'd like you can also use financial calculators there's a lot of them on the internet that are free that you can plug this info in but I like to Target Peg ratios below one it tends to be my kind of area that I like but once again you know if you're investing into a tech company it's going to be higher right it's it's just going to be higher there's a lot of growth factored in um and if you're looking at these ratios for Tesla 10 years ago you would say no way I'm buying Tesla it's it's overvalued right so let's move on to the next ratio and this is more of a liquidity ratio and so this is known as a quick ratio you also see something called the current ratio they're kind of similar but basically what we're doing here is uh this is going to give us an idea of the company's ability to pay its liabilities and basically overall like how much money can they come up with in a short period of time and so this is a pretty simple one you're just taking current assets subtracting inventory from that and then dividing it by current liabilities like I said I do recommend reading an accounting book it's going to help you a tremendous amount but current assets current liabilities whenever you see the word current it just means ones that are very much in the near term basically liquid assets or liabilities versus things that might be not current like the land that they might own or equipment or other things might not be seen as current assets or cash would be right or accounts receivable would be so a higher ratio tends to mean that they have better liquidity a lower ratio means that they might have some difficulty paying some debts uh in in the future which can be a concern right um so return on Equity return on Equity you're just taking your net income and you're dividing it by the average shareholders Equity this is a way to determine how profitable a company has been and how good uh the the company's Executives and board members have been at getting returns for the company right because it's not just all about the stock price there's other factors that are involved like for example how many shares outstanding if the company's doing share BuyBacks for example right that could affect things like return on equity and this is going to be just a basic a measure of profitability in regards to this stockholder equity and this is really helpful for when you are comparing uh companies to each other it's looking at return on equity and overall return on Equity you want to see this positive like you want to see the higher return on Equity the better for the most part but there's going to be cases where you know maybe it's not good they're taking on excessive debt or profits could be inconsistent where they have massive return on Equity this year and then next year they have some pretty bad losses right there's a lot of weird things people can do with accounting and with bookkeeping that can make financial statements look a little bit misleading so you do want to be careful with that so return on assets kind of similar to return on Equity it's going to indicate profitability though in relation to the total assets so for this you're just taking net income and dividing it by total assets to determine the return on assets you'll also see people just kind of using abbreviations for this Roa right um but what we're doing here also is we're considering a company's debt as well and this really does differ greatly depending on what industry you're looking at right if you're looking at Industrials or energy it's going to be different than consumer defensive or it's going to be different than the food industry or health care or financials right so every industry is going to have different numbers for this the debt to equity ratio look this is just total liabilities divided by shareholders Equity this is going to help you understand how levered up a company is and this is one that's pretty important because if a company has a lot of debt it can be pretty concerning right if they have a very high debt to equity ratio it means that they're taking on a lot of debt but at the same time it doesn't mean that a lower one is always going to be better because companies like should use some debt sometimes if they want to fund a new project right like let's say that a company wants to build new headquarters and the headquarters are going to cost them a billion dollars should they just take a billion dollars cash right now and and build that no maybe they want to get a loan on that they want to borrow some money take on some debt for that project and I think that's totally okay so a lower ratio it tends to be less risk but also that can mean that sometimes companies like if if they're not taking on any debt that's actually a red flag to me because I think they should take on some debt uh in order to continue growth and fund new projects especially when interest rates are low like they have been uh in the past 10 years or so they're a lot higher now so it changed a lot of things but debt's not always bad just make sure that the debt to equity ratio is not too high um and in terms of what is too high for a debt to equity ratio I mean it's it's really dependent once again on the industry on the cash flows coming in the company and then also on the growth rate of that company if they're growing the revenue very quickly things can change very fast um but yes so free cash flow this is probably I would say one of the top three things that I look at is how much cash is this company producing and bringing in every year because sometimes you'll see companies that are profitable but then when you actually look at the cash that's coming in it's it's it's not right and it's all like accounts receivables or ious and all these other things um but you want to see how much money is actually coming into a business on an annual basis um so free cash flow is the remaining cash generated after accounting for cash outflows so the cash is coming in the cash is going out how much is left over that's going to be our free cash flow um and so this is what's going to be really important because this is how you can do things like issue dividends right uh pay your interest pay your debts and fund new projects and so this is going to be just one of the most important things that I look for I love companies that have a high level of free cash flow or are about to become cash flow positive because at the end of the day this is what's going to determine if a company can live another year or if a company's going to go bankrupt right there are companies where you know they they have a lot of debt but they're they're they have so much free cash flow that they're digging themselves out of that hole that's like U.S steel for example last year they were pumping billions of dollars in profit and so they're able to pay down like so much of their debt and they had so much cash coming in and that was the reason why I bought that company um so Price to Book ratio this is a great one I use this all the time basically what you're doing here is if you add up all of the company's assets the net assets of the company that's going to be the book value of a company all right so you're looking at like their inventory you're looking at the cash the company has uh the land that they own everything else you add all that up that's going to be the book value of the company all the assets that they have um so The Price to Book ratio you're just taking the stock uh price uh per share and you're dividing it by the book value per share of what it's actually worth of the things that you have so what's cool about this is that sometimes you can find companies where the book value might be um you know a billion dollars but the stock value is only 500 million dollars so you can look at this say well like literally if we just sold all the assets from this company we we could make 500 million dollars um and this is what corporate raters did back in the day if you watched this movie called Wall Street that's like what the Gordon gecko guy did um where he would like buy companies uh that had a high Book value but a low stock value and then you chop them up sell them for parts people lose their jobs it's pretty you know not good but the guy made a lot of money fictional story but uh there's actually a lot of people corporate Raiders who did that like Carl Icahn um over the past couple of decades so yeah Price to Book ratio is a really good one to look at if you see something with a high Book value and a low stock price uh that's it's it tends to be a pretty good stock now that's not always the case there's always remember there's always gonna be reasons for everything right the markets are pretty rational uh let's talk quickly about dividends so dividends as I mentioned earlier it's just a direct cash payment to the shareholders if a company has leftover money at the end of the year they might decide to start issuing dividends basically it's just a percent of the profits that the company has so when a company makes money what should they do with the cash right well they can either keep that cash and they can reinvest it back into new projects like that's what Tesla does right they don't pay a dividend not every company pays a dividend um other companies will say okay well with this money that we've made we can do something like a stock buyback program that's a really popular one that we've seen and then the third option for what to do with money that a company makes is to issue a dividend and so usually you'll see companies that have been around for a long time issuing dividends companies like apple issues a small dividend other ones like Coca-Cola issues a larger dividend because they kind of look at the money that they're making say okay well we should probably give some of this back to our shareholders we don't know what else to do with it it's better to just give it back to the shareholders instead of reinvesting it back into the business because it's already a pretty Stable Company that kind of at its maturity phase at its maturity level now dividends there's good and bad parts about this um the good thing about them is that it does create a source of passive income I'm getting a couple thousand dollars a month in dividend payments from my portfolio of all the stocks that I own and it's it's pretty great I honestly love it um the downside to dividends though is that um they are they do tend to be taxable depends where you are in the world but I pay taxes on my dividends that I get and so it's just extra tax burden and it ends up eating into my overall uh profits that I make every year from dividends but as I mentioned before uh I do have a full dividend tutorial on this channel that I made earlier this year you can check it out it's going to give you a better understanding of what they are and how they operate but they are overall pretty cool and I do like them so let's talk about some very common mistakes and stock traps that I see out there one of them is a dividend trap so dividend yields can range anywhere from you know one percent all the way up to uh 10 or 15 or 20 percent yield on a dividend stock but when you get into these stocks that have a high dividend yield sometimes it can be a dividend trap this was some of the first stocks I ever bought they were yielding like 10 percent dividends right so if a stock was a hundred dollars it was giving me like ten dollars in dividend every year and I thought it was great but it ended up being a dividend trap because it was not sustainable so if you're buying a stock and you're looking at their dividend make sure that the company can actually cover the cost of that dividend that they actually have enough cash coming in the door because uh dividend traps are very very common just be wary of anything that pays over a four to five percent dividend be wary be careful and make sure you uh read into it and make sure that the cash is actually coming in at the door for the company so they can pay you your dividend otherwise the stock price is going to go down quite a bit um another big stock trap is just relying on stock price history look if if you're looking at the charts and saying okay well the stock is down therefore it must go up or the stock is up therefore it must keep going up uh just like reading charts it's kind of like astrology uh just be careful with that all right because it's there's there's really no way of telling them and you can use some technical setups sometimes but don't rely on stock price history to determine what it's going to do in the future cognitive bias as well look like people do this all the time I do this myself where you'll have an idea you'll say I I really think the Stock's gonna do well and you'll just keep buying into this idea and thinking it's going to do well but instead what you should do is if you like a stock try to build a counter thesis against why that stock should not be bought this is what I do like if I really like U.S steel I'm going to create a full thesis on why I should not buy U.S steel so create counter Arguments for yourself and I think you're going to actually probably do a little bit better that way when you're aware of that cognitive bias and just like make sure that you don't think that you're better or smarter than other people in investing because it happens so often I couldn't tell you how many times it happens to people where they they buy some stocks they go up and they're up 500 they look around they say everybody else is a loser I'm smarter than Warren Buffett I'm the best investor ever because I'm up 500 they start to get cocky they start to think that they're better and then they get complacent and then they end up losing their shirt and they end up losing a lot of money because they got complacent so another trap is buying companies that have no competitive Advantage no moat whatsoever you always want to find a company that has like something that other companies can't replicate this is why apple is doing so well because they have the iPhone and they kind of control like a lot of things they're almost a monopoly they're getting there they're probably going to be broken up eventually by the government because they're getting too powerful but that's why it's been doing so well they have a really good moat like if you want to put something on like a phone which everybody uses you have to jump through apples hoops and you have to do what they say they take 30 of all app store or purchases and they kind of yes so they have a great competitive Advantage they don't have a lot of competition and they have a really solid moat other traps chasing gains yeah look if you're up 50 be careful like make sure you analyze and every day with a stock you have to say what I buy the stock today if you wouldn't buy it today then consider selling don't chase your gains too much and then I already said hot stock tips just don't don't don't listen to people with hot stock tips please so for example I've been talking about how I have us2 on my portfolio but if you go out and you buy it because I'm talking about it in this video that is so foolish that is the opposite of what I want anyone to do all right you need to do your own research on everything all right so how much money should you invest in the stock market the beauty of this is that you can start with literally one dollar I mean you should probably start more than that and start with like at least five dollars but you can start with very little money um you can buy fractional shares it's super easy to start investing today day and I honestly recommend that you start small you know if you just and this happens sometimes if you just inherited like five million dollars from someone be careful like don't go out and invest that immediately because because like you will make mistakes and if you have ten thousand dollars in your bank account or something don't don't just throw it all in the stock market this week take your time start small you will make mistakes you probably will lose money in your first year it's it's just it happens okay I I hope you don't lose money but I've lost a lot of money I've made a lot of money and over time you learn from those mistakes so um start small start with a couple dollars and then as you learn from those mistakes you can build up add more money into it um and the best way really is to learn through experience so how much did you invest it's really up to you I mean if you can invest 10 of of your paycheck great that's wonderful if you can do 20 that's even better I invest uh probably about 80 to 90 of my income but that's because my income is a bit higher these days uh than what it was before um but yeah 10 I think is a great number to go for uh but you know even if it's just like fifty dollars per paycheck that's totally fine anything's better than than nothing um and uh yeah so it's it's really up to you on how much you want to invest and one of my favorite things to do is play around with compound interest calculators and you can say like all right if I put in uh a thousand dollars per month for the next 40 years and it's gaining about eight percent per year how much money would I have at the end of that 40-year period and you can look at the numbers and it's really cool to see how this works um of course no returns are guaranteed um but if you were able to get eight percent returns I mean wow it really does compound very very fast so uh that's the beauty of investing bull market versus is bear Market just some quick terminology bull market is when the markets are going up bear market is when the markets are going down by more than 20 percent the way I kind of view this the way I don't mix them up is that like I kind of view like a bull is going up like if you're if a bull's charging you and it's gonna attack you it's like charging you up it's going up and then a bear Market is coming down I guess if a bear was attacking you would be coming down on you and attacking you yeah it's pretty gruesome to think of that but that's that's how I remembered it and uh it kind of helped me understand the differences between bear market and bull market um just that quick terminology all right let's briefly talk about different order types this is very important here so we have Market orders limit orders stop orders stop limit orders there's also some other ones that are pretty rare to use these are the main four that you'll see and this is how you buy and sell stocks so a market order is you're basically just telling your your brokerage account when you're on your investing app and you're on MooMoo or you're on M1 Finance or interactive brokers or Weeble or whatever um and if you do a market order it's basically just saying buy the stock at whatever price it is right now whatever's trading for right now at the moment buy it doesn't matter the price okay that's a market order I use them pretty often um it's it's good for just like making sure that you get it immediately or that you sell it immediately a limit order is going to set a specific price that you want to buy or sell the stock at so let's say that uh Apple stock is trading at 150 and maybe I only want to buy it at 140 and so I'll set a limit order at 140 the stock will bounce around 150 it'll bounce around and if it goes up to 160 it won't buy and then as soon as it dips down to 140 it'll buy it'll trigger the limit order the limit by and I will have purchased the stock at 140 or around that uh area um and then you can do a limit sell as well and then we have stop orders which are great for like let's say that you own Apple stock uh and it's at 150 and you're worried about the markets so you set a stop loss order at like 140 dollars and so if the stock goes down it automatically will trigger that sale and then a stop limit order is going to be um to kind of protect yourself from like flash crashes where sometimes stocks will go on like 30 in like five minutes for weird reasons um so a stop limit order would be let's say Apple stocks at 150 you set a a stop price at 140 but a limit at 137 so that if it goes below 137 it it doesn't actually sell it has to sell it within that range um so that's a stop limit order that that's the basics of it if it's confusing to you don't worry uh really you just have to understand Market orders and limit orders are the ones that I use the most often um but uh some of these limits and stops can be great for like if you go on vacation right and you you just like you you want to protect yourself a little bit you can set some stops or some limits um and not have to log into your investing account every day so those are the different types of orders and you can just do some quick Google searches to learn more about how to implement each one of these um but I also did make a video at one point about that I should probably link below um as well so there's also one other thing I want to talk about here which is short selling so short selling is when you think that a stock is going to go down this is actually a trading strategy that I use pretty often but I would not recommend it to beginner investors the reason for this is because there's an extreme amount of risk with short selling if you remember people talking about GameStop and AMC and all these meme stocks back in 2021 a lot of that was because short sellers were getting squeezed it's kind of long to go into I also have a video on this topic you'll notice I have a lot of videos in this catalog over the past six or seven years that I've been making stuff on this content but basically the concept here is that you borrow shares of stock and then you give those shares back later at a lower price and you make money from this transaction by betting that the stock is going to go down you make a lot of money if the stock goes down but if the stock goes up you can lose a lot of money the biggest risk for short selling is that there are infinite losses you can lose infinite money if the stock keeps going up like if the stock goes uh from from three dollars a share to 300 a share you will lose so much money exorbitant amounts of money you'll get short squeezed and you'll you'll probably end up getting wrecked and it will be disastrous and it happens sometimes you get short squeezed and it's bad um the other thing is that with short selling the most you can make is only 100 because you're betting that the company is going to go down in value the most you can make is doubling your money basically but it can be useful in some cases and I do you use it I shorted a lot of companies in 2022 back when the stock market was was not crashing but it was about to crash because interest rates were high uh or sorry inflation was high but interest rates were low it was pretty obvious that the the markets would have to take a pretty big hit uh and they did and I made some good money on it um I've also shorted companies where it went wrong okay so you're not always gonna be running that like I said I would not recommend this for beginner investors you probably should have at least a year under your belt before you even consider doing something like short selling I'm serious about that it's very risky all right um let's talk about investment taxes so uh there's two different tax brackets that you would fall into with investing of course I'm not an accountant so like make sure you do your own research on this um but if you own stocks for less than a year and you sell them uh you would fall into the traditional uh income tax brackets in the United States so less than 12 months you'd fall into this category um where it's anywhere between zero and 37 percent federal tax that you'd pay on your gains so if you're making a million dollars a year um then yeah you're going to pay quite a bit of tax on that but if if your gains are only you know a couple thousand dollars and you don't have a job and you're not making any other money then you might not really pay any tax or very minimal tax on that um but just remember that that every time you buy and sell stocks or every time that you sell stocks it might be triggering a taxable event and last year I paid a lot of taxes this year I'm gonna pay a lot of taxes too because I sold some of my stocks if you own stocks for more than a year then you would likely fall into the long-term capital gains category and so anything over a year would be anywhere from zero to twenty percent so if you are making up to forty four thousand dollars a year then you'd be paying zero percent tax on long-term capital gains and if you're making millions then you'd pay twenty percent this is one of the benefits to holding stocks for a long time that you're ending up paying less tax overall likely um when you have long-term capital gains kind of an incentive for the government to say all right we want you to hold your stocks long term and not be trading every day right um so those are investment taxes it goes a lot more in depth too you can read some books on it but that's the basics of the tax brackets that you would be falling into um now let's finally talk about the best investing books to read and then also I'm going to chat on uh the next steps for your investing Journey so the best investing books are like the intelligent investors one of my favorites I I think I have a bunch of investing books on the shelf right here um but another one of my favorites is called a random walk down Wall Street this is one of the first investing books I ever read um another one is security analysis this one is is very heavy it's like a thousand Pages it's super dense it almost reads like a textbook so I would only recommend reading security analysis if you are very serious about investing and you want to take this to the next level um because it's it's not Fluffy at all it's super dry super boring but it's going to help a lot if you want to take this serious and you're very much a numbers person and very technical and then also a book like one up on Wall Street is a great starter book for kind of helping you like determine what category what industry you should be looking at how to identify stocks Peter Lynch is one of the best investors of all time one of the best money managers of all time and so those are some of my favorite investing books that you can read I highly recommend the intelligent investor if you can read any of them and then also honestly the event the Investing For Dummies books are actually great I I love the four dummies books I think they're just a great way to get you set up you can read that technical analysis for dummies I think there's one called fundamental analysis for dummies um and yeah those are great books for everyone all right so let's talk about the next steps for your investing journey I tried to lay out as much as I could in this intro tutorial on the stock market but of course there's so much more information that you will likely need to really become an expert investor and so I I hope that you found this video to be valuable I'm going to link to a lot of other videos Down Below in the description and you can check out on my channel if you subscribe to it you'll keep up to date with more investing videos in the future and don't forget to get your free stocks on on MooMoo or on weibull I'll leave that link down below if you want to sign up for that investment account uh get some of those free stocks get started investing in the markets and I really wish everyone the best of luck you know it's it's it's it's going to be a journey but the sooner you start probably the better off you'll be long term um you're gonna have fluctuations you're going to lose some money you're going to make some money um and if if you stick with it I think you're hopefully going to be happy long term about the decisions that you've made but remember at the end of the day that you and only you are responsible for the financial decisions that you make for the Investments that you make be careful about taking like hot stock tips from everyone um and I I really wish everyone the best of luck on your investing Journey go ahead follow me on Twitter follow me on Instagram if you want to keep up with what's going on in the financial world I try to update on there as much as possible and there's a potential if you have questions I might be able to help you out potentially if you reach out to me on Instagram I can't promise I get a lot of messages also beware of scams there's a lot of fake nates out there um so I'm not going to try to sell you anything I'm not going to try to get you to invest with me or anything weird like that watch out for scams there's so many of them out there so thank you for watching the video and I'll save your body sometime in the future

Channel: Nate O'Brien

Views: 105,188

Keywords: nate o'brien, how investing works, how to invest, how to invest in stocks, how to invest in the stock market, how to invest money safely, how to safely invest money, investing, investing 101, investing for beginners, investing for beginners guide, investing in stocks for beginners, nate obrien, stock market, stock market for beginners, stocks, stocks for beginners, investing 2023

Id: g4H4Fj_NVKE

Length: 90min 27sec (5427 seconds)

Published: Mon Mar 06 2023