Stock Market For Beginners 2021 | How To Invest (Step by Step Tutorial)

hey everyone welcome to the stock market for beginners complete tutorial in this video we're going to be going through step by step showing you exactly how to get started investing in the stock market now unfortunately this is not something that we can learn overnight but we're going to dump as much information as we possibly can within this video as you can probably tell it's a pretty long video here that we're delivering today so i do urge you to treat this like it was a class or like you're reading a book and you're really trying to consume as much information as possible so i recommend taking out a piece of paper taking out a pen feel free to pause throughout so you can write things down i have a pretty large presentation that we're going to share with you on investing basics and then we're going to get more in depth as we go on throughout the video and we're going to try to keep this in an orderly fashion but feel free to skip around maybe perhaps you already know some of these things so you want to go to the parts that you're really interested in i will leave timestamps down below in the description in this video so that you can skip around and also feel free to check out some of the resources and links that we have for some of the different stock brokerages down in the description as well so i am incredibly excited that you're getting started with your investing journey and we've had a lot of people request a video like this where we go more in depth on actually how to invest into the stock market and what i've seen is that people sometimes like to get the low hanging fruit they don't want to know how to invest in the stock market they just want to know what to invest into this is how most people tend to work so the fact that you're here watching this video learning how to actually do this rather than just listening to other people tell you what stocks to buy i think this can really be a valuable asset that you can hold for many decades to come so a couple of quick notes before we get really deep into this one of them be careful with scams there's scammers everywhere impersonating me they're going to like reach out to you there's all kinds of stuff like that we have nothing here to sell you there's no course there's no upsell you don't have to worry about that i know sometimes it's annoying when i'm halfway through a video and suddenly somebody says if you want to know all the information buy my online course or my book or something there's none of that you can learn everything about investing for totally free online or at your free local library i'm a huge advocate for that so don't feel like you have to pay somebody to learn how to do this i never paid a single penny to anybody to learn how to invest and i think it's been going pretty well so one more thing that we need to note here is that i'm not a financial advisor i'm just a guy on the internet sharing things that i've learned things that i've done but i'm by no means trying to be some type of stock guru to tell you that i'm the best investor of all time there's there's nothing along those lines i'm simply just a guy sharing some information and hopefully you find some value in it and if you do make sure you drop a like on the video subscribe to the channel so that you can see more videos like this and let's get started with the first point when talking about the stock market and getting started with it okay so i'm gonna be going through this presentation i found it was a lot better to do this rather than just have the full screen of me talking i'm just gonna be up in the corner here and run you through this presentation and like i said i really do hope you are taking some notes on this or at least screen shotting or starting to remember some of these things that we discuss in this video so one of the first things that we want to focus on is looking at risk and return and trying to increase that gap between risk and return now what i mean by this is how do we mitigate risk how do we lower risk as much as possible while increasing potential returns as much as possible so if we can increase this gap so we lower risk and we increase potential returns that should be the focus and sometimes i see people who maybe are going for high risk but low return investments so you always want to be taking those two into consideration how much risk is involved and how much potential reward is involved with any particular investment that we are thinking about making now let's first just quickly go over some of the average stock market returns so we can get a better understanding of where this type of investment might fall uh in comparison to maybe other types of investments like real estate or gold or cryptocurrency and so the average stock market returns over the past 90 years for the s p 500 we'll explain all that later on exactly what that means but it's been about 10 percent per year over the last 90 years now this data can vary depending on which stocks you're looking at but generally speaking the overall stock market in the united states has grown about 10 percent per year now this is not accounting for inflation which can run anywhere between two and three percent per year on average now this is very important to realize here that these are historical returns this by no means is going to show you what's going to happen in the next 90 years we really don't know and we could see that the average stock market if you take all stocks together and you combine them and you look at the average growth or the average decline we really don't know what it's going to be in the future but generally speaking because society tends to move forward we will probably see over a very long period of time the stock market is likely to go up but of course nothing here is guaranteed so you can see both these charts here uh the green and red here is going to be the returns by year so some years the stock market might grow 30 or 40 percent in other years like what we saw in 2008 we saw the stock market decline about 40 percent in one year so this was a pretty large decline so it's going to fluctuate a lot um and what you'll learn with investing is that you do need to have some thick skin uh when we say this i mean that sometimes you want to be able to hold your investments through a lot of turbulent times i have some friends who sold a lot of their investments at the peak of the pandemic last year in 2020 when it was april and their stocks were down 40 or 50 percent and they got scared and they sold and they sold and now they look back a year later and they think wow i really probably should have just held through some of those turbulent times so there's give me a lot of turbulence and the goal here though and what i'm going to be sharing with you in this video is how we can make sure that we're able to sleep well at night because every night when i go to bed i sleep pretty well i'm not too worried i'm not too stressed and sometimes people will get too stressed over the stock market because they're over leveraged or they're buying on margin or they're doing something risky that maybe they shouldn't be doing so we're always going to be focusing on mitigating that risk but i wanted to show you these average stock market returns and this is historically speaking of course okay now we want to talk about investing versus gambling now this kind of goes along with what we were just saying with when you're making investments our goal my goal specifically is to always focus on using logic rather than emotions when i'm making investment decisions and the number one thing that i ask myself before any time that i make an investment is i i say nate am investing or am i gambling and this is always a question i ask right before i click the buy button or the sell button i ask myself am i using logic or am i using my my gut feeling am i going off of my instinct am i going off of what somebody uh told me my friend sent me a dm and said hey make sure you buy this stock right now so i'm always asking myself am i making an investment or am i gambling because there is a massive difference between those two and i really urge you to please catch yourself right now especially if you're just getting started with investing catch yourself and make sure that you're making logical decisions rather than ones based on emotion where somebody says that maybe a stock's going to blow up and you're going to triple your money in in two hours just be very very careful with that and also the dangers of following the crowd i try not to follow the crowd as much as possible because if everybody's flowing towards one opportunity maybe perhaps we end up in a bubble and this is what we saw with something like the dot-com bubble it's a really fascinating bubble that happened in the late 90s early 2000s where essentially almost any company that put com at the end of their name would suddenly see their stock double or triple in price in a matter of days because everybody was super excited about the internet but this brought brought upon a massive bubble where stocks were incredibly overvalued and so we'll go more into that a little bit and talk about the dangers of bubbles and following the crowd in general um and that's just something that i wanted to share with you on how we can limit our emotions the best way to do this is take our time i don't like to make rash investment decisions uh and of course you know maybe throughout this video here when we're talking about the markets maybe you will disagree with something and that's totally okay some of this is based off of my opinion like you know not following the crowd i think can actually pay off pretty well um but you know you don't have to take everything exactly literal from what i'm saying here and i i think you know where i'm going with that just kind of show that i'm not a total professional i'm not telling you that this is the specific way to invest there's a lot of different strategies for investing and people have uh succeeded with those okay so now now we're gonna get into talking about what a stock is specifically and i'm going to read this off here and then we're going to go more in depth so a stock represents ownership in a publicly traded company so when you buy a company stock you become a part owner of that company so let's say that a company has 100 shares of stock and you buy one of them you now own one percent of that company and this is one of my favorite things when you understand what a stock is i remember the first time i learned what a stock was i think it was a sixth grade or maybe a seventh grade project where we had to learn about the stock market and once i learned that i could own a part of a billion dollar company and i could have a stake in that it was just one of the most exciting things that i realized that you know i remember when i was in sixth grade or maybe with seventh grade i was it was 2009 um and going around just saying hey i own a little tiny piece of google i own a very small fraction of walmart or waste management or coca-cola and this was just a really fun thing to be able to think about when i laid in bed at night thinking that i am a part owner in one of these companies so that is essentially what a stock is they are bought and sold on stock exchanges um and so we'll talk about some of the best stock brokers and the ways to buy this specifically but it's pretty easy to buy and sell now this is all based on supply and demand so you know if if i have shares of stock and you want to buy shares of stock then i can sell those shares to you and we can transact that way through a stock broker which like i said we'll talk about more uh in the coming minutes now we do need to understand why companies issue stock uh and and what's the purpose of this why why would this actually have to happen and so they can actually raise money and so a company can raise money by issuing stock maybe you hear about ipos i know coinbase just had their uh new listing and they raised a ton of money a lot of money has flown it flooded into coinbase because of their ipo and this happened with a lot of other companies as well so why companies issue stock it's so that they can raise money typically um but we let's look at the difference between stocks and bonds you probably hear people talking about bonds they're not really very attractive right now in 2021 a lot of people don't really want bonds because they don't have a lot of payoff at the moment that might change it definitely did it's totally different from what it was in the 80s or the 90s but stocks versus bonds with stocks you actually own a piece of a company so you're getting a share of the revenue you're getting to show the profit you own part of that company but with bonds if if you are buying bonds you don't actually own that company you're just lending money to that company and then that company's paying you back with maybe a little bit of interest on top so that's the difference between stocks and bonds hopefully i could clear that up and if you have any questions along the way uh and you're a little bit confused feel free to just leave some comments down below and i'll try to respond to you if i can just watch out for all the scammers and in the comments section there's a lot of them you can also just send me a dm on instagram and i'll do my best to respond to you but sometimes i do get a little bit busy so hopefully you can understand that okay so now that we understand what a stock is it's just a really tiny fraction of a company that you own now let's talk about how to buy stocks and so there's a lot of different ways to buy stocks if we look historically we go way back in time if you wanted to buy a stock you would have to find a way to talk to the company and buy the stock you'd have to go through a stock broker maybe to your bank we're talking way back like 100 years ago it was not super easy to buy stocks then as we progressed through times then we started to see where you have your stock broker on the phone and when you think of maybe a movie like the wolf of wall street and the people on the phone with their stock broker that's what happened for a pretty long period of time if you wanted to buy stocks you would call your stock broker and they would make the transaction for you they would buy it for you they would sell it for you now we've moved into the digital age we're starting really i would say in the mid 2000s we saw this big surge of stock brokerage firms online where you don't have to talk to a broker you can just click a button press a button on your phone and you can buy or sell stocks extremely easily so all right so let's talk about some of the best u.s brokerage firms and then we'll talk about some of the best ones in europe as well don't worry i know i have a lot of european friends so i'm not going to forget about you also asia australia canada it really does depend on what country you're in and i don't know if i know all the best brokers in every country in the world but i will give you some good uh ideas of ones that you can use to buy and sell stocks with so if they're if you are in the us here are three ones that i would suggest using you can pick from these three i'll leave links to each one of them down below so you can explore them and decide which one you want or you can even open up multiple accounts and try them out and see which one uh you think really is the best platform to buy and sell stocks the first one would be something like robinhood not necessarily my favorite but it's one of the most common so i wanted to include it in this list then we have public very similar to robinhood in a lot of ways but they have a social feature onto it as well so you can see what i'm buying and selling on that app on public and then m1 finance is my other favorite investing app as well and m1 finance is really great for long-term investments like if you're starting a roth ira and you want to have this for long-term investments then m1 finance is probably my go-to for that so out of those three which one would i personally prefer this really depends on the promotions that they're offering so sometimes they offer a free stock or some type of freebie if they are i will leave that link down below as well with some of the best features and some of the best options available to you at the moment and i'm recording this video in 2021 here i don't know if things are going to change i will link to the best broker out there because sometimes things happen with certain companies they have problems and so i will keep that updated as much as possible now let's talk about if you are doing some passive investing and you want to invest in the stock market but you don't want to think about what you're buying you just want to kind of like set and forget and sort of do this passively i would suggest using something like wealthfront so with wealthfront you're not actually buying and selling individual stocks it's more so mutual funds and etfs and long-term investments and you're just telling them that you want to either be risky or not risky and you can give them a couple of different options when you plan to retire a couple of different options like that and then wealthfront can help invest your money for you they take a really small fee so i'll leave a link to them down below as well they're a really great company i've worked with them for a pretty long time uh and and so that's an option as well wealthfront for that passive long-term investing and then the other three hood public m1 finance but there's also other options on top of that like weeble and some other ones as well that we're not going to have time to talk about in this video so hopefully i can make a review of some of my favorite investing apps as well if i remember to do that then that would probably be pretty good for you now let's talk about the best international brokers if you're outside of the united states what should you be using here's the basic rundown etoro it's pretty nice i like etoro and it's available in a lot of countries so i would suggest something like etoro if you are outside of the united states and you're looking to start investing they also offer a lot of crypto investments as well in certain areas so make sure you read into the fine print see what's available what's not available in your specific region or country but etoro is pretty nice um other options if you're in the united kingdom something like trading two on two is seems to be a great one in canada we see a lot of people using quest trade if you are in australia there's some great ones as well that i will link to and there are some other ones on top of that like dejiro and revolut and a couple of others uh in europe as well so i will you know what i'm gonna make another video for european investing apps as well and for some of the other ones globally because i know this is one of the most common questions that i get and you could probably fix this by doing a google search but i promise you at some point this month i'm going to make a video just for all of my international friends who are looking to invest in what brokerage firm that they should use to start investing with if you don't see it down in the description below um so that's what we're gonna do for that so those are the best brokers that you can use now let's talk about the types of brokerage accounts we have individual accounts we have joint accounts we have retirement accounts like ira accounts and then we have custodial accounts so an individual account is probably the simplest account it's the one if you just want to buy and sell stocks you can do that through an individual account it's pretty straightforward then we have joint accounts a joint account is let's say that you have a spouse and you want to make an account together with somebody and you can do that through a joint account now we have retirement accounts like iras if you're going to sign up for an ira and you want to put some money aside for retirement i would suggest using m1 finance or wealthfront i'll leave links to both of those down below as well but those are both great companies for setting up some type of ira or a roth ira we do have videos on those specifically as well if you're confused about what an ira is it's an individual retirement account i do suggest having one of them although of course i'm not a financial advisor i'm just a guy on the internet and then we have custodial accounts which is also a great option for people who are under the age of 18 because if you're not over 18 you're not going to be or sorry let me correct that if you are under the age of 18 then you can't sign up for these brokerage accounts like robinhood or public you can't sign up for them on your own you're going to actually have to have somebody who is 18 or older sign up for them and create a custodial account with you this is how i started investing at a younger age because i talked to my parents and they were didn't really have a lot of understanding about what the stock market was but i learned about it in school i thought it was really interesting i was a weird kid i don't know i just was like a bookworm and so i was interested in it um and i had them help set up an account so technically it was my father who was on the account um and so i this is not legal advice i i can't tell you if you are under the age of 18 you're gonna have to have your parents do it for you but you can consult with them and maybe talk with them and they can make the transactions and trades for you that that's what i did uh when i was younger so those are the different types of brokerage accounts if you're outside the u.s you might see some different options as well i don't know if i can help you with that because i don't know the specific laws in your country they certainly do differ depending on where you are okay now let's talk about investing strategies there are four primary investing strategies out there at the moment and some people will argue that there's really only three but i like to include four here to give a better uh understanding and analysis of each one of these so we have fundamental analysis technical analysis behavioral and then we have dollar cost averaging and each one of these has pros and cons to it and we'll go over each one of these so that you can decide the type of investor that you want to be this is a very important question you want to ask what type of investor do i want to be what are my goals do i want short-term growth do i do i want to become a millionaire overnight probably extremely unlikely or am i looking for long-term growth maybe 10 20 30 years so that i'm set for retirement in my family set when i'm older and i don't have to worry about how to pay my bills so you want to think about your investment strategy and you can learn more about this maybe through a number of books that we'll share later in this video as well but let's talk about the first one which is the most common which is using fundamental analysis this is also commonly used for value investors and when i think of value investors or fundamental analysis i think of warren buffett which is this guy right over here i think he's almost in his 90s by now he is a little bit old but he is one of the best value investors of all time and he uses fundamental analysis in order to determine if a stock is undervalued or overvalued and this is the whole goal of investing we're looking for investments that perhaps other people have overlooked and we're looking for companies to invest into we're looking for stocks to invest into uh that are undervalued so we're comparing their true value and we're looking at their true value of what we believe it should be by looking at the fundamentals by looking at the balance sheet the income statement the cash flow statement we're looking at the fundamentals of a company and the health of that company and we're determining whether or not the stock is undervalued or overvalued and there is a vast array of ways that we can make this determination but this is going to be the primary focus in this video we'd like to use fundamental analysis i would suggest it or at least understanding how to do fundamental analysis on companies because this is going to be how you are determining whether a company is healthy or not i sort of use a lot of these different ratios and financial metrics it's similar to if you're going to the doctor and they're going to take your heart rate they're going to take your blood pressure they're going to look at your temperature they're going to take a look at some of those important vitals that's similar what we do with fundamental analysis we're looking at what's the blood pressure of a company what's what's the temperature of a company so we're examining it the health of the company and that's just a little analogy hopefully to help you understand that a little bit but it generally is for long-term outlook and that's what we use fundamental analysis for especially when we're doing value investing um and so that's going to be the one that we're talking about in this video which we will really delve into uh in the latter half now there's another strategy and it's known as technical analysis now technical analysis is typically what you might associate with when you think of a stock trader when you think of somebody who has five big monitors and they have charts everywhere and they have the bars with red and green and you see that they're trading stocks sometimes penny stocks sometimes they're doing a lot of swing trading but generally speaking when we use technical analysis it tends to be when people are looking to make short-term trades rather than long-term investments and this isn't always the case but it tends to be what we see i would still definitely recommend learning about technical analysis because it can help you get into certain investments at certain times so i do look at the technicals of stocks and i look at the charts to see when would be a good time to enter into that particular position or that particular stock but generally speaking i don't spend a lot of time with technical analysis because i'm more so focused on those those long-term investments and with technical analysis it can take up a lot of your time if you are a day trader or a swing trader i don't have anything against this and i honestly have a lot of friends who make money doing day trading but there's a couple of problems that i see with it and the biggest one is that it tends to take up a lot of time you can't just sleep and have your investments grow you have to be analyzing these charts and paying very close attention so it's not really my cup of tea but if it's yours then that's totally great just watch out for a lot of the people selling their technical analysis stock trading courses online somewhere you don't need to do that you can just pick up some books or watch some free videos on how to understand stock charts more specifically okay so now let's talk about behavioral analysis and using social signals this is my favorite way to determine whether a stock is something that i should buy or if it's something that i should sell and behavioral analysis it's relatively new but what we're doing here is we're looking at human psychology and we're thinking about groupthink uh within financial markets so so there is so much cognitive bias that happens within the markets and so what we're doing here is we're making the assumption that there's a lot of irrational actors maybe we think that the market is not totally going to be efficient and that not everything's priced in but maybe people act in fear this certainly does happen look at a lot of market crashes in the past we've seen stocks go down 80 or 90 because people were scared for no other reason for the fact that humans are very emotional creatures and we can end up making money if we are able to understand and really disassociate from logic and from emotion and we're able to separate those two this is what a lot of behavioral analysis can really help with and i'll give an example about a stock that i invested into using social signals was a company spirit airlines which a lot of people make fun of the airline because it's a very budget airline but i bought this back in october and it's more than doubled since then no sure i've made some bad investments as well but i used a lot of social signals and behavioral analysis to make this investment and make the decision that this was going to be a good investment for me to make um and so for social signals we'll actually uh talk about this when we get into the how to find winning stocks segment uh that should be maybe in 20 minutes or so on exactly how we use those social signals now we also have the fourth strategy for investing which is known as dollar cost averaging and this really does have some upsides a couple of small downsides but it's one that i think most people tend to actually use when they invest in the stock market now dollar cost averaging you are neutralizing the short-term volatility by putting money into the markets or maybe into one particular stock but usually into large amounts of groups of stocks like index funds or mutual funds or etfs and people do this they put money in maybe once a month or every couple of weeks but they do this periodically so that they can sort of level out where they're putting money into the markets so the great thing about dollar cost averaging is let's say that if you are dollar cost averaging you're putting money into the market say once per month you're taking your paycheck and you're putting it into the stock market once per month well maybe if there was a huge it was at the top and you were doing this and it comes down well you were still putting money in all along this whole time now if you weren't doing dollar cost averaging let's say that you had a million dollars you just inherited a million dollars that's great isn't it let's say that you take that million dollars and you don't dollar cost average you just dump it into the stock market on one day and that one day happens to be uh in august of 1929 and then for the next three years you watch that million dollars turn into 80 000 because you put it in at the wrong time so dollar cost averaging helps smooth things out that's why a lot of people do like it and i would say the best thing about this is that it tends to be a pretty passive investment meaning that you'll probably sleep pretty well at night knowing that over a long period of time the markets tend to increase over a very long period of time that's not a promise though just remember it's not a promise anything can happen with the markets and there's a common saying that time in the market beats timing the market uh and and so this is one of my favorite quotes as well to remember and how difficult it is to really time the market the only downside though of doing this dollar cost averaging passive investment strategy is you might miss out on some buying opportunities i remember back in march of 2020 if i was just doing dollar cost averaging i would not be putting very much money in when the markets had just crashed 40 i saw a lot of deals that i could invest into and so if i was just doing the dollar cost averaging i would be conservative and i would only put in a couple thousand dollars but instead i thought this was a little bit of an opportunity so i dumped in a lot of money it turned out that it worked out pretty well for me so that is one of the only downsides there is that you might miss out on some of those opportunities when you see stocks maybe dropped a lot and people are panicking and you're running towards that another one of my favorite quotes from warren buffett is to be fearful when others are greedy and greedy when others are fearful so when everybody's running away when everybody's panicking this might be a buying opportunity not always but it might be so you want to make sure you do your research on that so those are the four different strategies for investing we have fundamental analysis technical analysis behavioral analysis and dollar cost averaging hopefully you wrote down those four because maybe you want to use a collection of these four i actually use a collection of these four all the time and i would say just learning about each one of these and maybe using each one of them when you make investment decisions now let's talk about active investing versus passive investing we just introduced dollar cost averaging so let's talk about the benefits and the downsides of each one of these now first of all we have active investing and this is a strategy that i use for most of my money this is conducting research this is identifying risks and you're trying to beat the stock market you think that you are better than the stock market or that you're maybe capable of finding better investments rather than just dumping your money into a big index fund that kind of tracks the overall stock market so that's active investing the problems with active investing it takes up a lot of time i spend at least 10 to 20 hours per week looking at the stocks that i own and making sure that everything's running smoothly reading a lot of their financial statements looking at the news for those companies so that i can make decisions and steer my ship of money which isn't that big but so maybe my small boat of money and i'm trying to steer it in the right way uh and with active investing you know it might be a problem because you might have rocks everywhere and you're trying to navigate with your little boat uh trying to make sure that you manage your money properly so it could be pretty risky you might end up losing a lot of money if you do active investing but over time i think you really do learn a lot and you could potentially be the stock market now passive investing you're probably using some type of dollar cost averaging this is typically into diverse asset classes and funds to mitigate risk so you can put them into index funds or mutual funds or etfs and this might contain 500 different stocks or a thousand different stocks or two three four thousand different stocks that you are putting your money into and it kind of spreads out among all of those different stocks and the way and the reason why people do this is because uh if you are dollar cost averaging passively into a lot of different companies it's seen as a pretty safe investment because let's say that one of the 500 companies that you invest into let's say that one company goes bankrupt well you have the other 499 companies to maybe uh continue the upward trend or at least kind of stay in business so that's kind of the whole idea versus active investing where maybe you only have five different stocks one of those companies goes bankrupt maybe your portfolio your investment portfolio just dropped 20 or 30 percent because you were too heavy into one specific company okay so these are the three major indexes in the united states we have the dow jones industrial average we have the s p 500 index and we have the nasdaq these are three terms that i'm sure you've heard at some point in your life people throwing them around saying that the markets are down 300 points today or the s p dropped 4 percent today uh and so if you've heard these terms people talking about this whether you're just walking down the street and you hear somebody say this or you're at thanksgiving dinner christmas dinner and uh somebody's rambling about how the markets are up a thousand points or or something is down that's generally what they're going to be referring to is probably one of these three indexes now these indexes are great for using as a reference point for how the overall stock market is performing so the first one here is the dow jones now this contains about 30 companies these are very large corporations in the united states a lot of these are referred to as blue chip stocks so it's a lot of companies that you are probably familiar with and if you want to know the exact companies inside of the dow jones you can just do a quick google search to see uh what companies are inside of it but the dow jones it's not actually one stock it's not one company it's just a way of measuring uh how overall the stock market is doing so it's not actually a thing it's just almost like a thing of your imagination it's just a way of measuring it's it's a way of tracking how well stocks are doing um and so then we have the s p 500 index which is made up of 500 companies in the us these are also very large companies in the us i i know tesla was just added to the s p 500 so we have a lot of different companies within this but this is probably going to be the best way of gauging how the stock market is performing so if somebody was going to ask me how have stocks been over the past year i would use the s p 500 index as a reference and i would say well if the s p 500 index was up 20 percent last year then it's kind of safe to say that the overall stock market was probably up about 20 last year so it's probably one of the best ways of measuring how the u.s stock market is performing on a day-to-day basis and over a long period of of time as well now we have the nasdaq the nasdaq is more it's generally going to be in a lot of technology in i.t so you're going to see a lot of companies like apple or google in the nasdaq and the nasdaq was really really big back in the dot-com bubble in the late 90s early 2000s when all these companies were something.com we had yahoo so think of the nasdaq when you think of that you're probably going to be associating that with a lot of tech companies a lot of internet companies or software companies are probably going to be in the nasdaq but it's a great way to measure how tech is performing as well in the stock market all right so let's take a look at the 11 major sectors in the stock market i recommend really focusing on a couple of sectors and we will talk about how to find stocks specifically how to find great companies but what i would do you have 11 different primary sectors in the stock market i would focus on the ones that maybe you already have a pretty good understanding of maybe you have a lot of hobbies in something like financials you're already really interested in real estate perhaps or talent telecommunication telecommunication i.t real estate right we have all these different ones here we have energy materials industrials consumer discretionary consumer staples health care financials information technology telecommunications services utilities and real estate so i would suggest kind of focusing on a couple of these 11 don't try to become a jack of all trades and understand every single thing that's happening within the us economy it's going to be really difficult to do that so for me i tend to focus on just a couple of them so when you look at something like energy people might be thinking that this is probably a lot of solar companies or windmills but actually a lot of energy is going to be typical companies like exxon mobil and british petroleum and shell and so all of these are going to be very diverse but every industry is going to have a different set of standards when it comes to what is a good or bad financial ratio or metric which is the next segment here when we talk about how to actually find good stocks and winning stocks okay now i want to just briefly talk about mutual funds versus etfs versus index funds what's the difference the good thing is that if you accidentally use one of these three terms interchangeably it's not going to be the end of the world they are very similar but there are still some differences that you want to be aware of now mutual funds tend to be actively managed uh they tend to have a little bit higher fees than something like an exchange traded fund which is what etf stands for and i really don't put a lot of money into mutual funds uh they're also not updated until the end of the day whereas an exchange traded fund is going to be updated at any given moment simultaneously so it's going to be always updating throughout the day as certain etfs are bought and sold so an etf generally does like to track index funds so you can buy an etf of something like the s p 500 you can buy an etf of the dow or you can buy an etf of the nasdaq so it's a great way to invest into the overall stock market if you wanted to say you know what i want to invest my money into the s p 500 which is going to hold a lot of different stocks because i want to play it safe maybe i want to do this passively i don't want to have to think about what i'm doing with my money and then you put it into an s p 500 index which is going to be an exchange traded fund and so you can do this uh has pretty low fees one ticker for that just for an example here would be voo so if you just typed in vo into your stock brokerage app you'd be able to find this index fund which is going to be an etf that would be in that category so hopefully i didn't just make that more confusing to you but exchange traded funds tend to be the ones that i like to invest into mutual funds you're going to have to have a little bit more money a little bit higher of a barrier of entry to them sometimes you need a thousand dollars or three thousand dollars in order to buy into a mutual fund so overall i do prefer to have etfs which are also very similar to index funds although you could have mutual funds that also are going to mimic index funds um hopefully i'm not making that more confusing to you if i am feel free to just do a quick google search on mutual funds versus etfs now let's talk about how to find winning stocks this is going to be getting really into the details here we're going to talk about a lot of different financial metrics ratios income statements balance sheets it's going to get really detailed so i do argue make sure you are writing this down or pausing so you can really let this marinate and think about as we go through this video now how do we find winning stocks this is my perspective this is how i find winning stocks people are going to have different strategies somebody might tell you to do something completely different and that's okay so this is not a prescription for you this is simply what i do because i'm not a financial advisor which i already said a couple of times throughout this video now how do i find winning stocks i like to focus on what i already know things that i already understand i think this is a great starting point for anybody getting into investing so what i think you should do is i would take out a pen take out a piece of paper and write down five of your hobbies or five of the things that you feel like you might have more knowledge than the average person about maybe you are really a car person and you love cars you understand them very well you you understand everything about the car market maybe write that down as one of your strengths something that you might know more than the average person about if i had to do this uh back when i started investing one of the things that i started to look at was a lot of agricultural companies because believe it or not i did a lot of agricultural stuff and i was into farming and i understood a lot of the different ag companies that were out there and so because i had somewhat superior knowledge on that industry that was one of my strongholds and you can actually you know make this for yourself if you don't know if you if you're sitting there thinking that you have no knowledge about any industry or any sector you don't have any hobbies you're not good at anything which i'm sure you are trust me you are um but if you're sitting there thinking you're not good at anything then go ahead and just pick a couple of different categories say i'm going to learn a lot about amusement parks or i'm going to learn a lot about the soft drink industry or i'm going to learn a lot about the camera industry and so you can start to learn more about those but focus on what you know and focus on specific industries specific topics so that you're not trying to just be a jack of all trades because if you're trying to be a jack of all trades and you're trying you're going over here and you're looking at the swimming pool industry and then you're looking at home builders and then you're looking over at uh some new technology companies and you're looking at crypto companies you're going to be all over the place i try not to do that try to focus on what you know but also i always do my best to try to block outside voices or hype look if you're on discord forums you're on tick tock and you're getting your stock investment advice from tick tocks be careful with that because a lot of people have agendas and even if you are googling a company let's say that you're thinking about investing into coca-cola stock and so you google coca-cola stock and maybe you find an article about coca-cola stock and it says this stock is definitely a great company you should buy it blah blah blah here's why i'm buying it okay it's good to read that and to understand their points but remember everybody probably has an agenda and maybe that person who wrote that article about how great coca-cola stock is maybe that person has a large amount of coca-cola stock and they want the price to go up so just remember everybody might have an agenda for themselves and so focus on yourself and your money when you're making investments and try to block out as many outside voices as possible when you are making investment decisions that's going to be a very important step because if you're just following everybody you can end up at the top of a bubble like if you're buying you know tesla at multiple thousands of dollars and maybe perhaps it's in a bubble i don't know if it is uh then you can end up losing a ton of money because everybody's hyped up and everybody's excited about it and you're following the crowd following the herd now this is how i find winning stocks i focus on macro trends and then i focus on the micro afterwards so look at macro trend this is how i found a company like spirit airlines back in the fall back when covid was still raging and we had no vaccine there were a lot of problems airline stocks were down a lot from what they were in the previous year and so i was looking at the trends of the airline industry as a whole and so i was looking at the macro trends i was looking at the big picture when we say macro versus micro macro means big picture right so think of macro economics it's going to be the whole economy it's going to be large industries and then micro is looking you know under like a microscope it's looking at the very specifics of maybe certain specific companies and so identifying macro trends one of them was hey you know what it's the fall of 2020 when i had this thought i thought you know what uh i think airlines have a really bright future there's gonna be a ton of pent-up demand for airlines in next year because people couldn't fly in 2020 a lot of problems with the pandemic obviously and so i was looking at a macro trend saying the airline industry is going to see a massive increase in people who are wanting to fly so once i identified that macro trend i then said now i need to look at the micro so i know the airline industry is probably primed it's going to be doing well in a couple of years so let me now look at the micro and find five different companies in the airline industry and analyze each one of those five companies and so this is called a top down strategy where you start with macro then you get into the specific companies you can also do a bottom-up strategy this is not really as common but maybe you are analyzing one company let's say that you start with one company like you find peloton stock and you're interested in buying peloton stock and you then start with that you analyze that company you think you know it has really good fundamentals then you can branch out and look at its competitors you can look at the industry as whole so you can start micro and go macro although i would prefer to start macro and then go micro uh hopefully that's not confusing you there but that is how i find winning stocks that's how i identify three to five companies within any specific industry that i might be interested in and from those three to five companies i'm going to do a deep dive i'm talking many hours per company that i'm spending reading all of their financials analyzing the company and then from those three to five companies i'm probably only only going to invest into one to two of those companies and sometimes none of those companies but generally one to two of those companies out of the three to five that i will pick to analyze in a specific industry so that's one of the ways that i would suggest finding winning stocks um but how do we actually gather information how do we analyze this company and that's what we're going into at this moment here so first thing we're doing we're blocking out analyst reports like i mentioned in the previous slide blocking out analyst reports they usually have an agenda they're usually hired by somebody i see this all the time where there's an analyst who says that oh you know this stock is definitely going to go up 20 or 30 by next quarter and then you start to dig into it and you realize that you know that person who's writing the article has some type of connection with somebody at that company and it's all just kind of a big fraud in my opinion so i wouldn't put too much weight on analyst reports you can certainly read them because they might have some information that might be useful for if you're going to buy or sell a stock but try to block out some of that or at least not take it too literally now also where can you get information from you can get it from your brokerage research features so if you're using robinhood you're using public you're using td ameritrade or any brokerage firm that you're using this is a great way to just find stocks look at their charts look at some of the basics and maybe find some of their financials on those but it's not the best way to find stocks using your brokerage research tab that you might have available to you by far the best place to find information regarding a stock and a company as a whole is going to be their investor relations page so i will go over an example of a company so you know let's just look at spirit airlines for example we will look at their investor relations page and we'll delve into it this is the best way for you to find information the easiest way to do this is just type into google the company that you're thinking about followed by investor relations so what we'll do is just type in spirit airlines investor relations and then we will probably be able to find their investor relations page on this they're going to have annual reports which is also known as a form 10k they're also going to have 10 queues which is going to be their quarterly reports that this company is going to be putting out now typically the annual reports can be hundreds of pages sometimes two or three hundred pages long it's basically a book about everything about that company uh some of their issues some of their problems some of the things that they think are really going to be good for the company so definitely read that it's going to be free to download most likely a pdf version of that somewhere on their investor relations page you're going to see this listed as form 10k or annual report for last year and this is going to be the most crucial part of any investment that you make is reading this and you can also find your news on cnbc or marketwatch or yahoo finance you know i probably prefer cnbc over these but even with something like cnbc you know if you're reading too much into the news you're going to notice every other day cnbc says something differently like on a friday they might say that the the stock market's going to the moon and then you know the next day on saturday their articles about how the market's going to crash tomorrow so they kind of flip-flop because they're just you know they're news companies so they want to make money they're they're making money based off of clicks so don't take that too literally either but i do like to just check up on cnbc sometimes they watch it uh the closing bell and some other different things if you have television then you could watch some of their cnbc uh and just kind of get a bit better understanding of what's happening in the market so that you're at least up to date uh in the news and then also investing books i'm going to leave a lot of investing books for you to read you can find these at your free local library you can buy them on amazon for 10 or 15 one of my favorites is called the intelligent investor by benjamin graham who is viewed as the father of value investing one of the best investors of all time so pick up some investing books as well because this is not something that is learned overnight this is not something that we're going to watch a two-hour video about investing and be expert investors with it's going to take time and there's two ways to really learn how to invest in the stock market and one of them is through reading books and watching videos like this and the other one is through experience and i want you to remember that because experience is something that you can't just have very quickly it's going to take time it takes a very long time so mixing those two is the best way to learn okay so that's how we gather information there's other places you can gather from too as well plenty of other websites as well that you can utilize to gather information now let's talk about the financial statements there are three major financial statements that we can use when we are looking at companies and their fundamentals we have the balance sheet we have the income statement and we have the statement of cash flows or the cash flow statement and each one of these is going to show us a lot within the company peel back the layer and start to really look at the fundamentals what is the income of this company how much money is flowing in how much money is flowing out how many liabilities does this company have do they have a lot of debt do they have a lot of creditors are they have a lot of accounts receivable if you had any accounting class if you took any type of accounting class in college or even in high school then this is going to really be a lot easier to understand luckily i had a lot of accounting in college and so i would actually suggest reading an accounting book as well so you can get a better understanding for how these things work but i don't think it's terribly difficult to understand these it might look a little bit like hieroglyphics at first but once you understand the basics of it then you'll be able to translate that and use it and use that information for many many years to come all right so we're getting started here looking at financial ratios and metrics let's start off with some of the metrics that you'll see uh this is actually just a screenshot from cnbc of spirit airlines and this is a lot of the stuff that's underneath it that you're going to see so we're going to dissect each one of these for the key stats and then we'll talk about ratios and profitability but for key stats we want to just go over a little bit of this here some of it might seem obvious others might look a little bit confusing so we'll highlight each one of these now key stats here we have the open we have the day high day low and previous close these should be pretty self-explanatory this is just the price so it spirit airlines opened at 35 and 51 cents it peaked at 37 and 12 cents at some point throughout the trading day today um which goes from 9 30 a.m to 4 p.m uh eastern time but you know different markets have different times so if you're in california it's going to be different if you're over in london it's going to be different so make sure you research that as well and then we have the day low so it bottomed at 34.40 and it closed yesterday at 36.01 so that is the key stats for that then we have the 10-day average volume of the amount of shares that are transacted 2.84 million so from that you know we see 10-day average volume is 2.84 million shares being transacted and shares outstanding we have 97.81 million shares this helps gauge a little bit of volatility to kind of look at you know how much is moving here uh is there a ton of stock being moved around are people buying a lot right now are they selling a lot right now so it helps just kind of understand a little bit about volatility looking at the 10-day average volume of shares being bought or sold now we have the 52-week high 52-week high date 52-week low and the low date for that so this just helps us kind of understand the range of where the stock has been in the past year we can also use the stock chart for this so i don't really spend a lot of time looking at this but let's look at the 52-week low wow 7.25 cents and that was back in may of 2020 when it was really really low because of the pandemic um so now it's you know gone up five fold or so since then at least uh at least fourfold but anyway those are just some of the basic uh metrics that we can use then we have beta beta is a nice little uh thing that we can look at which is going to help understand a little bit about volatility of this specific stock now i do have a full video showing you how to calculate beta i think i made this back at least four years ago now so it's it's kind of an old video but if you want to learn how to calculate beta it's pretty simple what we're doing here is we are comparing the stock price uh how much it's fluctuating in comparison to the overall stock market which is going to be the s p 500 uh in most cases so we are comparing the volatility of this stock of spirit airline stock we're comparing that with the volatility of the overall stock market and that's going to help determine what the beta is of this stuck now let's simplify this and make it easy for you to understand a beta of one is going to be what the stock market is in terms of volatility of how much it goes up and down is it going crazy swings is it shooting up 50 and then dropping down 80 the next day and then shooting up 100 the next day so those are the questions that we have with beta and this helps us determine how volatile a stock is so with a beta of 1.74 it means that spirit airline stock moves more dramatically than something like the overall stock market if the beta was below one it would move less on average than the overall stock market so hopefully you see kind of how that can be used a beta of one is average above one is going to be a little bit more volatile maybe more choppy bigger swings of up or down could be either way um and a beta below one is going to be more stable so you know something like cash would have a beta of extremely low because it wouldn't really move at all right so that's how we make that determination for beta you can go ahead and check out that video if you really want to get into how to calculate beta but usually you can just see it presented there for you now we have market cap the market cap is going to be a simple calculation this is market capitalization i love looking at this because this is kind of the overall value of the company so as a whole spirit airlines is worth 3.62 billion dollars and how we determine the market capitalization it's a very simple calculation we look at the shares outstanding the total amount of shares of stock which is 97.81 million and we multiply that by the stock price which is about 35 or 36 dollars so we take 36 multiply it by 97 million and that's going to give us the market cap or the market capitalization of 3.62 billion dollars so that's how we come up with that number there and then we also have the year-to-date change which is going to be pretty self-explanatory as well if you remember this from like high school math probably it was just new minus old divided by old it's going to give you the percent change of a stock all right and now we can talk about all of these different ratios and profitability so let's get into these here um i really do suggest writing these down we're going to give you the basic understandings of each one of these but we could probably spend two to three hours on each one of these ratios and the the benefits of it and how to use it uh so we're probably not gonna spend a couple hours per we're probably just gonna you know focus on maybe five to ten minutes on each one to give you the basics of it and then i would highly urge you to go and do deeper research on each one of these ratios because this is how we actually determine the well-being of a company and determining whether we're going to buy this stock so let's start off with the first one here which is earnings per share it's a very basic calculation we're just taking net income uh subtract preferred dividends and then we're looking at the common shares outstanding at the end of the period might sound kind of confusing but when you actually start to look at it it's really not terribly confusing on how to calculate earnings per share luckily also this is usually information that you can just see by googling it or finding it within this company's information on their investor relations page on what their earnings per share is so you don't have to do a lot of these calculations they're already done for you but this is going to be an indicator of this company's profitability uh so how much are they earning per share um and so in a higher earnings per share tends to show greater value this isn't always the case though you know sometimes if the earnings per share is really high there could also be some red flags as you'll notice with a lot of these different financial ratios so you really want to focus on earnings per share growth and this is something that i'm always looking at is looking at historically over the past quarters over the past years how has earnings per share it has been growing has been declining this is something that you're really going to want to pay attention to very closely now let's talk about the price to earnings ratio the p e ratio it's probably i would argue to be the most common ratio that people talk about when they refer to stocks being undervalued or overvalued now this helps gauge the valuation of a company so a high p e ratio is going to show that there's a lot of growth anticipated for this company and i'll give you examples of this in the next slide we'll compare tesla versus general motors two companies that are in the same industry they're both in the car industry but they have very different p e ratios price to earnings ratios a low p e is generally seen as having lower growth anticipated and so as you can see here you want to find companies that have a lower p e ratio but you think should have a higher p e ratio now hopefully that makes sense that what we're saying because you want to find companies that don't have a ton of growth anticipated but really there is going to be a lot of growth right that makes sense so uh a p e ratio of 15 would mean that the current market value of the company is equal to about 15 times its annual earnings this is a really simple calculation you just take share price and divide it by earnings per share so how do these two stack up here when we're looking at pe and how can we actually use this let's make sense of it here so we have tesla stock and we have general motors stock now the p e ratio here you'll see ttm this means trailing 12 months and then you also see the forward pe which is ntm which is the next 12 months a little terminology there that you might want to write down but let's look at tesla stock p e ratio compared to general motor stock p e ratio now the trailing 12 pe ratio here is 1225.99 for tesla stock now i'm going to give you a little uh tip here that the overall p e ratio of the average stock market tends to be roughly uh in the teens sometimes in the 20s i think right now it's in the 30s so the average company's p e ratio is about 30 something right now this fluctuates based off of you know where the stock market is are we in a bull market a bear market um but a p e ratio of 1 225 is a lot and this doesn't mean necessarily that the company is overvalued it just means that there is a ton of growth expected for tesla stock and if tesla doesn't have that massive boom if tesla doesn't sell a ton of cars if they don't have this massive growth and actual revenue in sales and profits then it might be a problem and i'm not saying the tesla is a good buy or a bad buy i'm just pointing out here that a higher p e ratio is going to show there's a lot more growth anticipated for tesla compared to general motors now most people think of general motors and you know it's gm right um they're not this revolutionary company right now at the moment they don't have electric tons of electric cars they don't have all these things that tesla has and so their growth is a lot lower in terms of anticipation so people aren't expecting general motors to grow a lot and that's why their p e ratio is 13.53 so the goal here with p e ratios is to try to find those companies that have a lower p e ratio but also you think should have a higher one you think it should be higher because they should be able to um you know really perform well so that's kind of the balance there but overall p e ratio it's not just one thing that you can look at and say this is undervalued or overvalued you can't do that it's just a basic ratio and there's so many different ratios that we need to take into account to determine whether or not a company is undervalued or overvalued because both of these here tesla and general motors i really can't tell you just based off of this information that we're looking at here i can't tell you which stock is going to perform better over a period of time because we don't have all the information yet all right so now we have the price earnings to growth ratio this i like to use a lot more than just the general generic p e ratio because we're also factoring in expected earnings growth into this calculation there are some problems with this so one of those problems being that this is going to be dependent on what you think the earnings growth is going to be you have to make some projections you have to extrapolate a little bit on the data and try to make some assumptions so that's the problem with this price earnings to growth ratio um but i do like to definitely use this it's a pretty simple calculation it's price divided by earnings per share and then you're dividing all of that by earnings per share growth that you're getting a lot of people like to target this ratio below one although of course you know it might fluctuate dependent on the industry if you're in tech versus if you're looking at utility companies like electric companies or coal companies or gas companies compared to you know apple and google and and netflix you're going to see different price earnings to growth ratios all across the board so it really is dependent on the industry that you are looking at but write this one down as well some some people just call it the peg ratio price energy growth ratio is going to be a very important one to look at uh and you can learn more about that if you read some books uh hopefully we're just kind of getting the gist of this to you here but generally speaking yes lower is going to be better but if it's too low or too high there could also be some red flags in there okay let's talk about the quick ratio this is a great way to look at the liquidity of a company basically this company's ability to pay its debts pay its bills this is going to be extremely important sometimes companies they might be you know making money they might be growing really fast but maybe they're not able to cover all of their bills maybe they don't have enough cash flowing in and so this quick ratio helps us understand their liquidity which is basically you know how much money can they come up with and for how long could they last if they cut off their revenue um and so a higher quick ratio is going to show that they have better liquidity and a lower quick ratio is going to show that they might have a little bit more difficulty paying off their debts but as always what you're going to see with a lot of these different ratios just because a higher ratio might means that they have more liquidity which is generally seen as a good thing it could become a problem or a red flag when it gets too high when you see that this quick ratio is getting really high it might mean that this company is not using their assets properly they're not reinvesting back into the business maybe they're just sitting on tons of cash and instead of sitting on that cash maybe they should be taking that cash and pumping it back into research and development or maybe paying dividends or doing something with that cash besides just sitting on it so you see with the point here where just because there's a higher quick ratio doesn't mean that it's going to be overall like a great thing there tends to be sort of a balance there on what you want to see with a quick ratio there's also something known as a current ratio i didn't make a slide for it because it's pretty similar to quick ratios but you might see that come up when you are learning more about investing and looking at these um ratios that help you to look at the liquidity of a company it's just current assets minus inventory divided by current liabilities you could also do the current ratio which is just current assets divided by liabilities or current liabilities okay so now let's take a look at return on equity um this is going to be a very crucial uh thing that we're going to want to look at here so this is measuring profitability in regards to stockholder equity now return on equity is best used when comparing it to similar companies so if you're taking the return on equity of a utility company or you're looking at the return of return on equity of general electric and you're comparing that to tesla it's going to be very different it's going to be very very different so make sure if you're using this you're kind of using this in comparison to other companies that are very similar to it because it's going to help gauge uh the actual health of that better versus if you're comparing it to the overall markets or you're comparing it to you know apples comparing apples to oranges or something you know totally different make sure you're comparing apples to apples and oranges to oranges when you're doing this now higher return on equity is generally a positive but of course not always because sometimes this can actually be from a couple of things like excessive debt they have tons of debt this could lead to what looks like a higher return on equity or also sometimes profits might be inconsistent maybe a company's not seeing revenue for a long period of time then all of a sudden it all comes in at once this could end up skewing some of this return on equity uh especially for quarters and it might end up kind of messing up some of the data so it's not the best measurement but it is just another one that we can add to our arsenal to understand if this is going to be a good or bad stock to invest into and so the equation for this is just net income divided by the average shareholders equity now if you're getting confused from some of these terms i do apologize it is something that probably does take a long period of time to comprehend and to learn so don't feel uh discouraged from this you know i learned a lot of this in accounting way back in the day so uh i i do apologize if i if you feel like i'm going too fast here but hopefully you're at least getting the basics of this and then over time over the next couple of weeks you'll go more in depth and you'll learn more about exactly you know what average shareholders equity actually refers to um let's move on to the next point here which is return on assets now return on assets it's very similar to return on equity except in this case you are also considering a company's debt load this is very important and this is why i do like it over just using return on equity kind of reminds me of like how you have the p e ratio and then you have the price earnings to growth ratio um so you have those ones where it's like the pe and then the upgraded one where you get more information that's kind of how it reminds me of return on assets versus return on equity you're getting more data you're getting more information and a little bit of a more accurate figure rather than just like a quick and dirty little number that we made with return on equity now this is going to indicate profitability in relation to total assets and it does totally differ based off of the industry that you are looking at but this equation here is going to be net income divided by total assets so it's a pretty simple calculation that you can make and from that you can make determinations if you think it's high or low especially compared to a lot of the companies in the same industry as the one that you're looking at so what i would do is you know if i'm investing into an airline stock back in the fall which i did i looked at each one of these different ratios i looked at return on equity return on assets the quick ratio the current ratio i was looking at the price earnings the growth ratios looking at the p e looking at earnings per share looking at all of those and seeing how they're growing or seeing if they are declining now let's talk about debt to equity ratio and i i apologize if you feel like i'm hitting you with too many different ratios and terms here but i want to lay the groundwork here so that you can really succeed with investments and be able to talk the talk uh when we are looking at this okay so the debt to equity ratio this is going to be indicating a company's financial leverage essentially uh how is this company financing its operations how are they paying their employees are they bringing money in are they do they have a lot of revenue flowing in are they able to use that revenue to pay their employees and to pay for their r d to pay their taxes to pay everything else or are they borrowing this money um so a debt to equity ratio is going to be uh one of my favorites for looking at um the health of a company and how much debt this company is using to finance its operations now there are going to be some companies that are going to have higher debt to equity ratios but it's seen as sort of okay because they're pretty established companies sometimes utility companies for example might have higher debt to equity ratios because they've been around for a long time they have a pretty high credit rating they're able to borrow money at a low cost and so they might have higher ratios but generally speaking higher ratios aren't associated with more risk not always a bad thing but they are seen as having more risk if some company you know is up to their neck in debt they have tons of debt could be a problem especially if maybe revenue starts to slip revenue starts to decline and they have interest payments they have to make this could be a big red flag and a big problem and a lower ratio is seen as less risk overall with debt to equity this equation here is just total liabilities divided by total shareholders equity so it's a pretty simple calculation that you can make for the debt to equity ratio all right so now let's take a look at free cash flow and so what we're doing here with this is we're looking at the remaining cash that's generated after accounting for the cash outflows uh and this is going to be the reason why we're calculating this or we're looking at the free cash flow is it shows this company's ability to pay for other expenses that they might have so for them to be able to repay their debts maybe get on top of their debt pay their dividends offer higher dividends perhaps if they have more free cash flow paying off off interest and a variety of other different expenses that might come up so having more free cash flow can definitely be a bonus for a company um and so the way that we're going to calculate this might look a little bit confusing but we're going to take the cash flow from operating activities adding interest expenses deduct tax shields on interest expenses and then what we see here it says capex that's capital expenditures um you don't have to worry too much about that right now maybe perhaps you can learn more about free cash flow at a later time because this might look a little bit confusing to you at the moment but that's okay uh because we'll learn it with time now this is going to be an important one so just make sure you write that down so you can learn more about that later now let's talk about the price to book ratio pb uh would be the acronym for that so we're comparing a company's market cap to the book value of that company and so it's a pretty basic uh way to calculate this as we take the market price per share and divide it by the book value per share book value it's basically just going to be the net assets of the company and from what a lot of value investors they like to see a price to book ratio under one although to be honest uh it's kind of difficult to find something like that today in today's market with the current uh uh valuations of a lot of companies and you know stock prices are kind of lofty now we've been in a bull run for it feels like we've been in a bull run since 2009 we had the little crash back in 2020 but for the most part stocks are up quite a bit since then so uh finding a price to book ratio under one if it's possible uh but sometimes a lot of value investors these days you know they're still okay with something in two range or even three range but generally speaking we do like to see that uh on the lower end seeing that price to book ratio and if you wanted to calculate the book value per share it's just total assets minus total liabilities divided by the total number of shares outstanding so that's price to book ratio make sure you're writing that one down as well at least the formula for it um most of these ratios you can actually just find online and you don't actually have to calculate them yourself but it's good to have that understanding and comprehension of how to actually calculate these now let's talk about dividends i see a lot of dividend investors people who hear about dividends they're interested in them let's dissect what a dividend is how to get them and our views on dividends offered by companies for their stock so a dividend is a direct cash payment from a company to its shareholders and it's almost a view it like a cherry on top so let's say that you are invested into apple now apple might pay you a very small dividend uh and this is usually based off of each share they're going to give you a certain amount of money per share every quarter or sometimes every year sometimes monthly it really depends on when this dividend payout structure is um but they're gonna give you a very little bit of money money for every share that you own of that stock and it's almost like a reward it's like a thank you um and it's a way of the company taking the money that they're making and when they have the money that they've made at the end of the quarter at the end of the year they make decisions and they say what should we do with the profit should we reinvest this profit should we put it back into research or should we pay it out as a dividend to our shareholders and so some companies choose to pay out dividends to their shareholders there are pros and cons to this the good thing about this if a company is paying you a dividend sometimes this can be uh you know two or three or four percent we've seen dividends of 10 um per year on a stock which sounds really nice um but there are pros and cons to this so the good thing is yeah sure you can get some money you can get this cherry on top some cash payments or dividend reinvestment uh from these stocks from these companies a lot of older companies like coca-cola or pepsi might pay dividends that average about three to four percent um but the downside to this is that a company is looking at its money it's looking at the money that's making and it's deciding that instead of reinvesting this back into the company it's best suited to just pay people dividends and and pay them little bits of money so i'm kind of conflicted on this and i have to be honest investing four dividends strictly i don't know if it's a great move financially over a long period of time because it could end up hurting a company's growth if they never reinvest back into their business and they're only paying out their dividends they're giving away all their profit to their shareholders all the time it could be somewhat problematic so you see where that kind of goes uh in hand there and that's why it's good and bad i would simply view these cash payment dividends as a little cherry on top a little bonus if you can get it um but i want to warn you against a couple of different uh potential issues and one of them is called a dividend trap and so this is the next slide here where we talk about common stock market traps now a dividend trap was i think the first real major trap that i fell into when i first started investing and this is why i like to think that it's smart to start very slowly in the stock market because if you jump into the stock market too quickly you take your life savings you dump it into something you might fall into one of these common stock market traps there's a lot more that we could have added to this list but i only included a couple here uh today in this video but one of them in the first one that i fell into was a dividend trap where i was looking at a dividend of stocks and i would find stocks that had dividends that were paying 10 or 15 yields annually um and the problem here is that they were unsustainable dividends the dividend was too high for the stock to be able to pay out and it was unsustainable so that was one of the first stock market traps that i fell into if you see a stock that has a dividend that looks really really high i would be careful i would be a little bit worried about that um because it's probably really high for a reason it could be a dividend trap so i like to pick stocks if if i'm investing into a stock and the dividend is more than six or seven percent annually uh that's going to be a big red flag for me and i'm gonna say you know what's the reason for this um why is the company not cutting their dividend uh they should be saving money and you know that that could be a lot of money that they're paying out unless they're growing very quickly it would just be very confusing and a lot of red flags if the dividend is too high so don't fall into that trap those were the first few companies i invested into some of them worked out a lot of them went bankrupt because i didn't know what i was doing also common stock trap here is relying simply on the stock price history i'll give you a great example of this look at any of the cruise lines like carnival cruises or caribbean cruise or a royal caribbean or norwegian cruise lines these cruises if you're simply just looking at their stock price and making a judge off of uh you know okay let's say that the stock price is at eighty dollars right now but before the pandemic last year the stock price was at 120 and you're looking at saying well it's still below what it was previously and i think it's going to come back up don't do that because if you're just looking at the stock price you're missing certain things like maybe the company has issued more shares of that stock that can dilute the stock and make your stock not worth as much or perhaps companies are raising corporate debt um and it could not you know be reflected in the stock price uh i don't remember which company it was but one of the cruise lines i think most of the cruise lines to be honest were raising money uh bonds they were issuing bonds at coupon rates of like 15 so they have interest rates of like 15 that they're paying uh and they did all of this and it might not be necessarily reflected in their stock price so just because a stock price is lower than what it was previously doesn't mean that it's actually going to be a better deal overall so just please don't put too much thought into just looking at that stock price chart if you're looking at the charts also a common trap here cognitive bias right if everybody else around you is saying yeah invest into the stock that is a very very common trap that we see look at tesla hey i have tesla stock but if you're looking around everybody's saying yeah tesla's going to the moon tesla's going to be the next you know trillion dollar company it's going to be a massive company but look if if you're looking at a company like tesla um you have to realize there's going to be risks involved with everything and so there's cognitive bias here where people might think that yeah tesla's going to be a 10 or 20 trillion dollar company but you have to ask about certain scenarios that might happen like what if god forbid what what if elon musk uh something happens to him and he's not the ceo of tesla anymore suddenly that price of the stock is going to come down very very quickly uh because elon musk is kind of the face of tesla and so you see kind of these things that we have with cognitive bias but also going too heavy potentially into one specific stock be careful with that i like to diversify if you have your life savings in one company let's say you're an enron employee in the 90s uh if you're familiar with enron um then you'll know that they went bankrupt and they had a lot of problems and a massive scandal if you were an enron employee or you were just so bullish on enron that's all the stock that you had was in that one company and the company goes belly up i mean imagine if you had all your life savings in uh lehman brothers or bear stearns back in the last financial crisis or let's say that you had your life savings in papa john's pizza back in 2017 and then there's a big scandal right so stuff happens make sure that you are diversified at least to some level uh in terms of individual stocks i like to hold anywhere between 10 and 20 individual stocks not too many because then i i kind of it's going to be difficult for me to keep track of all of them but not too few to the point where i'm not able to sleep at night because i know that if one company you know gets caught with their pants down or they end up having some big issues i could end up having some big issues myself so finding that right level of diversification and then also another trap here is hey make sure you you are looking at this company's competitive advantage or their moat what does this company have that's very difficult for other companies to mimic to imitate to copy and if they have a moat this is definitely going to be a benefit for you and for investing into that company if they have patents if they have trademarks if they have certain uh intellectual property or physical property that's worth a lot of money that's going to be difficult for other companies to copy then this can definitely be good you know look at something like walmart for example what's the competitive advantage or the moat for walmart well they actually have quite a bit one is that they're really well established already but they're able to keep their prices so low because they have so many people buying and so they have a lot of competitive advantages and moats all around the board let's look at tesla because we've been talking about them so much what's the moat that tesla has well sure they're really far ahead with their car and the technology but also they have superchargers all over the country no other car manufacturer ford general motors toyota they don't have the amount of charging stations that tesla has and this is a serious moat and this is one of the reasons why they are so much further ahead than any other car company in the electric space i mean you have tesla superchargers in almost every part of the country especially on some of the big roads like route 80 or route 70 and a lot of the big roads have those chargers all over the place that's a great moat that tesla has and it's extremely difficult for other companies to catch up with something like that so pay attention to those notes and those competitive advantages that makes it difficult for other companies to compete now let's talk about how much should you invest this is obviously not a question that i can answer for you i can't tell you that you should take you know 82 of your money and put it into the stock market and i can't tell you what to invest into of course but the question of how much should you invest here's what i would suggest i would suggest starting with something that you are willing to lose that you can part with and that you can say confidently that you don't need this money especially not in the short run because the stock market can fluctuate a lot and if you are trying to invest and you're trying to quadruple your money by next week because you have to pay your rent don't don't do it just just forget all the stuff that you watched here because if you're trying to put your money into a slot machine basically in the markets and trying to attack extra money very quickly this is probably not the best move to make um but how much should you invest start with something that you can afford to lose i started with fifty dollars if that sounds good to you then i would start with something like that as well because like i said earlier there's two ways to learn one through information like this watching things reading books but also through experience and it's really hard to put a price tag on experience it takes time you're going to mess up you're going to have bad investments you can have some good ones hopefully but you're going to have bad investments you're going to have slip ups you're going to make mistakes i made so many mistakes and especially in the first few years i'm so happy that i didn't have a lot of money when i started because if i did i would have lost a lot of money so start small start with fifty dollars start with the hundred dollars maybe a thousand dollars i don't know what financial position you're in but please if you're sitting on a large amount of money go consult with a financial advisor they can help you a lot more than just me a random guy on youtube um but consult with the financial advisor if you are sending out a lot of money or start really small start with a very small percentage of your money and maybe start doing it every month very slowly learning more as you go and then you build that skill over time that's how much you should invest i can't tell you specifically but i would start with under a thousand dollars all right now real quick let's talk about bull market versus bear market what's the difference between these two um the way that i learned this it's kind of a stupid little way to learn but a a bull market i view this as a bull it's charging forward it's going upward so a bull market is when the stock market is growing over a multiple quarters it's growing over a period of time and then a bear market this is like i said kind of a foolish stupid little way that i learned this but uh i was told that it's kind of if you imagine like a bear coming down and attacking somebody uh that's a bear market a bear market is going down a bull market is going up and so if we have multiple quarters where the markets are going lower and lower that would end up being a bear market i would suggest learning about the multiple bear markets and bull markets over the past 100 years and you can read about what caused each one of those sometimes it can be a very intricate situation sometimes it can be interest rates that are are rising too quickly sometimes it can be uh that there are massive banking problems like what we saw in 2008 right with a lot of the banks almost failed and the governments had to bail out the banks all around the world because the banks were over leveraged the banks were getting greedy and they were making some really bad decisions um so that was the cause of the last financial crisis the one that we had here with the pandemic what caused that quick little bear market what happened there right so each one of these um you're going to be able to you know look at bull markets bear markets and get a better understanding for what has caused those we have been in a bull market from i think it was uh really like 2009 until 2020 which i believe might have been the longest bull run in history if not then it was the second largest bull run in history they usually don't last that long it's very difficult to predict when a bull market or a bear market is going to happen um but obviously most investors would want to be in a bull market unless you are doing short selling which maybe you want a bear market at that point which we'll talk about short selling in just a second here let's talk about market order types these are the different types of orders that you can have i do have a video on this as well so i will link to that video if you want to see a full video talking about these market order types the first order is just it's called a market order so if i want to buy a stock i can say i want to buy 100 shares of this stock at whatever the current price is at the moment and the price can fluctuate a lot it depends on who's selling and how how much they're selling so this is this is bidding you know this is like you're going into a market and you're trying to buy something you're kind of fighting other people to buy it as well um and so the price can fluctuate a lot you're putting in a market order for x amount of shares and you say i don't care what the price is i'm just buying it at whatever the current market price is today that's a market order it's the most common i would argue probably 70 percent of orders placed in the stock market are probably market orders um then we have limit orders so this can be uh maybe perhaps if you want to buy or sell something at a certain point you know say that you want to buy a stock once it hits a certain price point once it hits 10 then you can do that by placing a limit order and you can also do that on the flip side as well maybe you want to sell a stock when it hits a certain point you can do that with limit orders stop orders very similar but on the flip side i recommend just watching the video that i made about it if you want to learn about those because it's kind of difficult to explain just here with a blank slide i probably should make a couple more slides for this and then there's also stop-loss orders and trailing stop-loss orders so for example if you wanted to set a trailing stop-loss order it can just follow your stock let's say your stock price is going up and up and up and you have a stop-loss order trailing stop-loss order following it and then if it ever dips below a certain price point it can automatically execute that trade without you having to be there so you could be you know taking a poop or something or you could be picking your nose and suddenly it gets triggered with one of these stop loss orders or stop order or a limit order uh it can get triggered at any given moment when that stock price hits the certain point that you set within your brokerage account and then it can be executed without you even having to be there you could be out in the woods somewhere without any wi-fi and this could execute the reason why i like to use things like stop-loss orders is for that very reason if i am camping you know sometimes i might be off the grid for a week and i don't want to have to worry about some of my stocks going to zero um and so i will set trailing stopwatch orders or stop orders in general so that my stocks can automatically sell uh in case they start to drop too quickly they can sell and i don't have to worry too much about losing all of my money so that's the reason why we use some of those different market order types once again you can go check out that video that i will link down below if you want to learn more about market order types now let's look at short selling explain this a little bit we've had a lot of questions about short selling i also have a video about this that i will link in the description below that will give a better explanation it's like a 10 minute video probably that goes over this but here's the four basic uh steps of short selling uh maybe you heard about gamestop right the short squeeze the big short squeeze that happened back in january of 2021 um short selling you're basically betting against a stock you think that a stock is going to go down and so if you think a stock's going to go up yeah sure you can buy the stock you can buy the shares of the stock but if you think it's going to go down how do you make money on that there's always a way and it's called short selling so it can be pretty dangerous it can be pretty risky so you probably shouldn't do it right away but i've done it a number of times and it's worked out sometimes it's not worked out sometimes step number one you're going to borrow shares of a stock so let's say that i think walmart stock is going to go down i i think it's going to go down i think maybe amazon is going to beat them or whatever target's going to take over who knows let's say that i think walmart's stock is going to go down so what i can do i can borrow shares of walmart stock from somebody let's say i borrow 100 shares of walmart stock from my friend and i then take those hundred shares that i just borrowed from him and i sell those shares okay so i borrow shares i then sell those shares i don't own them this sounds really weird right you'll see how this all comes together i borrow these shares of stock i then go and sell these shares then i wait for the stock price to drop i then buy those shares at a later date hopefully at a lower price and then i return those shares to the person that i just borrowed them from i really do hope that makes sense that's the simplified version of how short selling works but read over these four steps really quick right i'm borrowing shares of a stock and then going and selling those shares to somebody else then i'm buying those shares back at a lower price and then giving those shares back to the person that i borrowed them from in the first place and when i give those shares back to the person that i just borrowed them from it could be a week could be a month depends how long i'm going to give them a little bit of interest on top so that they can you know that's the reason why they rent me their shares in the first place so that's how short selling works that's a very simplified version of how it works but hopefully that does help you understand uh the functions of it you can do this most likely within your brokerage accounts i know most brokerage accounts allow you to do short selling you want to be careful with something called naked short selling people can end up getting in a short squeeze where you can end up losing a lot of money that's why with melvin capital with gamestop massive craze you should read the wikipedia on that because it was an absolute insanity for the weeks in in january of 2021 i i barely slept so that was pretty fun um but that's short selling now let's quickly talk about investment taxes um you're going to have two main types of tax in america keep in mind this is for the united states and also of course i'm not an accountant i'm not a cpa so please consult with your tax advisor i'm not a tax advisor i think i just have to say that uh so we have short-term investments if you are holding your stock for less than a year and you sell it you might be subject to these rates here so you can see anywhere between 10 and 37 percent uh that you might be taxed at on a federal level you'll probably have state tax you might have local tax uh and this is of course for america if you're in europe i don't know what your tax brackets are going to look like might be higher might be lower um this is for short-term investments if you are investing for less than a year so if you buy a stock and you sell it uh after a month or after a day or after three months that's a short-term investment you're taxed at your regular tax rate whatever you're paying uh for any other type of income that you might be making then we have long-term investment this is known as long-term capital gains tax and this was something that i believe was really kind of implemented back i think right around the dot-com bubble which is one of the reasons why the dot-com bubble also happened with a lot of vc money flowing in that's getting off topic here let's talk about long-term uh investments if you're holding stocks or assets for longer than a year then you might end up getting taxed at these rates zero percent if your income is zero dollars to forty thousand dollars that's pretty nice uh fifteen percent if you're in between forty thousand and four hundred forty one thousand four hundred fifty uh and then twenty percent long term capital gains tax on anything over four hundred forty one thousand four hundred and fifty one dollars or more you're gonna be taxed at that 20 percent rate this is once again at the federal level you're probably not state tax i know pennsylvania throws out an extra 3.07 then i might have some local tax on top of that if you're in california you might end up paying an extra 13.3 percent so these are the tax rates i love tax law i would suggest reading some books about taxes it's fun maybe i'm weird i don't know if you like taxes too but if you do join my tax club i don't have one but it'd be fun to start okay now let's talk about some of the best investing books so i have a couple here i've actually given away most of my books in general because i like to adapt sort of a minimalist lifestyle so i used to have dozens and dozens of investing books um one of the best though that i would definitely suggest reading is called the intelligent investor it's really great for fundamental analysis it's great for value investing if you're kind of a warren buffett type of person it was written by benjamin graham who was the mentor to warren buffett who i think is one of the richest people in the world for many years he was the richest person in the world uh probably has you know close to 100 billion dollars right now and he gives a lot of it away too but he just keeps making more it's kind of crazy um this is a great book read the intelligent investor i highly recommend that you need to read this you can also read another book called security analysis this one is more so kind of like a textbook it's going to feel really dry to people who don't like reading in the first place so i don't know if i'd recommend that to people who don't like reading but if you're a bookworm like i i personally enjoy reading textbooks and this one has more of a textbook feel to it a little bit more dry and it's a massive book i don't have it with me but it's it's like massive huge and i think it's a little bit more expensive too you might pay you know close to 60 for security analysis but i would recommend that one as well but then honestly you know i love these four dummies books these are great books people trash talk for dummies books all the time i don't know why i love these whenever i'm getting into a topic this big one right here investing for dummies if you read this cover to cover you are going to be so well positioned for investing and just in general to understand the terminology to understand you know it has all the different financial ratios in here so this is a basic for dummies book it was uh 29.99 us dollar so not bad i wouldn't be ashamed to read something like this and then they have you know different versions like technical analysis if you want to get really deep into that they have one for fundamental analysis i recommend those as well some of my other favorite books though for investing i would say is a random walk down wall street this was written by burton mulchio he's a really really amazing economist and he essentially presents in this book that the markets are almost random and that a monkey could throw darts on a dartboard and perform just as well with stocks as a person who spent 30 years in the markets so that's his consensus and he really kind of drives that point across very interesting read i would suggest reading a random walk down wall street but also i would suggest reading a book called one up on wall street um which is another great book uh that that i think everybody should read and you can get more technical i i would really personally suggest reading some some books like accounting books for example so you can understand the financial statements a lot better but those are some of my suggestions for some of the best books that you can read alright so we've gone through quite a few things in this video i really hope that you have gained quite a bit of value from this and you've learned something new here today but let's talk about the next steps going forward let's give you a quick little plan of what i would personally suggest doing if you want to start investing into the stock market and i would start off by starting with a very very small amount of money something that you're willing to lose 100 200 300 whatever you can afford but something relatively small because the truth is you might end up losing it you might make a lot of money but you might lose it as well so start with a small amount of money and then every month i would suggest reading one book per month pick something from a big list you can just google best investing books and you'll find some great ones or send me a message on instagram i'll try to get back to you and respond with some of my favorite books it gets a little bit difficult with just you know more views and everything so understand if i can't respond to you but pick one book per month read that book and after six months of getting your feet wet maybe putting in a couple hundred dollars per month in the stock market combined with gaining so much knowledge from reading free books at your local library i really think that you can be set up for success this of course is not a promise this is not a guarantee i've seen people lose money in the stock market please don't treat it as a casino it's something that you can make money with but you need to be really diligent about how you're doing it and use logic rather than emotions so i will leave some of those links down below to the resources as well as some of the stock brokers that i would suggest using keep in mind some of these are affiliate links so it means i might get a small amount of money or commission for you signing up for some of these brokerage companies this just helps keep my videos free so you don't have to click on those links but if you are going to sign up for one of those accounts i really would appreciate it if you would use one of those links if you found some value in this video so thanks for watching i really do wish you the best go ahead follow me on instagram if you want to keep up with what we're doing make sure you subscribe to the youtube channel here for more videos and i will see everybody in next week's video

Channel: Nate O'Brien

Views: 231,167

Rating: 4.968514 out of 5

Keywords: nate o'brien, stock market for beginners, stock market, stock market explained, stock market for dummies, stock market basics, investing in stocks for beginners, investing for beginners, investing in stocks, investing 101, investing apps, investing for dummies, nate obrien, stocks 2021

Id: J3fAI3al08Q

Length: 98min 59sec (5939 seconds)

Published: Fri Apr 23 2021