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  • The median age in the U.S. is 36.8
  • The median income in the U.S. is $51,939
  • The average 401k match is $1 for $1 up to 6%

A 36.8 year old investing 10% of their $51,939 income with a $3,116.34 match:
With just average stock market returns of 10% would have $1,114,479.31 by retirement.

Join 15,000+ other readers who have learned how anyone, even beginners, can easily make this desire a reality. Download the free ebook: 7 Steps to Understanding the Stock Market.

Investing for Beginners 101: 7 Steps to Understanding the Stock Market

Welcome to this 7 step guide to understanding the stock market. I’ve created this easy-to-follow Investing for Beginners guide to simplify the learning process for entering the stock market.

By leaving out all the confusing Wall Street jargon and explaining things in simple terms, I’m hoping you’ll find this as the perfect solution, if you are willing to learn.

Before we get started, here is a breakdown of the 7 categories for the official Investing for Beginners guide.

1. Why to Invest?
2. How the Stock Market Works
3. The BEST Stock Strategy and Buying Your First Stock
4. P/E Ratio: How to Calculate the Most Widely Used Valuation
5. P/B, P/S: The Single Two Ratios Most Correlated to Success
6. Cashing In With a Dividend Is a Necessity
7. The Best Way to Avoid Risk, and Putting it all Together!!

Why is investing so important?

Let’s imagine a life without investing first. You work 9-5 for a boss all your life, maybe get a couple raises, a promotion, have a nice house, car, and kids. You go on vacation once a year, eat out regularly, and attempt to enjoy the finer things in life as best you can.

Now since you haven’t invested, you get old, become unattractive for hiring, and live with a measly social security allowance for the rest of your life. You might’ve made good money when you were young, but now you have nothing to show for your lifetime of work.

Now let’s say you did save some money for retirement, but again this money wasn’t invested and won’t be invested.

Let’s even stay optimistic and assume you saved $1400 a month for 26 years. This would leave you with $403,200 to live on, which on a $60,000 a year lifestyle would only last you 6.72 years. You’re retiring at 65 only to go broke at 71 and you’ve been a good saver all your life.

Well then what’s the point of saving you may ask? Now let me show you the same numbers but add investing into the equation.

The Power of Saving + Investing

Again, lets say you saved $1400 a month for 26 years. BUT, this money was invested continuously as part of a long term investment plan, solid in the fundamentals you learned from this investing for beginners guide.

Now, including dividends in long term stock market investments, I can confidently and conservatively say that you can average a 10% annual return on these investments.

The same $1400 a month compounded annually at 10% turns your net worth into $2,017,670.19 in 26 years!

But the story gets even better.

With this large sum of money at your retirement, again conservatively assuming a 3% yield on your dividends, you can collect $60,530 a year to live on WITHOUT reducing your saved amount.

investing for beginners

Answer: Compounding Interest

By letting the power of compounding interest assist you in saving, you leverage the resources available in the market and slowly build wealth over time.

It’s not some mystified secret or get rich quick shortcut; this is a time tested method to become wealthy and be financially independent, and it’s how billionaires like Warren Buffett have done it all their life.

For those who don’t want to think about tomorrow, I can’t help you. But tomorrow will come, it always does.

Would you rather spend the rest of your life with no plan, dependent on others and unsure of your future? Or would you rather be making progress towards a goal, living with purpose and anticipating the fruits of your labor you know you will one day reap for years after you sow?

The choice is yours, and only YOU will feel the consequences of that choice.

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Top Investment Publications for Serious Stock Pickers (It’s a Short List!)

If you listened to Episode 154 of the Investing for Beginners Podcast and you’re anything like me, some of the things that Andrew and Dave might’ve hit you pretty hard.  Since COVID-19 has really been in full effect, I have found myself avoiding the news and in turn has left me seeking for some legitimate investing publications to continue strengthening my investing education.

During the episode Andrew and Dave talked about how they have gotten off some major time suck apps such as Reddit, Facebook and even trying to limit Twitter, and I’ve never felt more in line with anything that they have ever said. 

At the beginning of the year, I put a 20-minute limit on my Twitter usage every day and most days I hit the limit.  Since COVID, I almost never hit it at all.  I just don’t want to be on Twitter.

Maybe it sounds bad but I just can’t take it anymore.  I can’t take all the doom and gloom in the world.  It depresses me and it has affected me in other ways too, including my desire to even listen to podcasts.  I used to listen to literally 2-3 podcasts/day and now I don’t even listen to that many in a week!

I feel like my investing efforts have slacked and maybe that means that I am leaving some money on the table, and that’s just unacceptable, so I really think that this podcast was the most perfect timing ever.

Andrew and Dave really talked about three top investment publications for serious stock pickers, so I took the time to really check them out and wanted to provide my opinions on them – let’s check them out!

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Top Financial Twitter Accounts to Follow for the ‘Roaring’ 2020s

If you’re like me, which I hope that you are not for your own sake, then you get most of your worldly information from Twitter.  For better or for worse, that also includes any investing information, so let me share my favorite top financial twitter accounts!

I’ve previously talked about some awesome Instagram accounts, YouTube channels and top blogs, but why haven’t I talked about my favorite Twitter accounts? Well, I don’t have a good reason, actually.  I mean, I already told you that I get all of my news from Twitter, so I might as well share!

Well, fortunately for you, I have a perfect mix of accounts (in my own eyes, obvi) of comedy, very simple and useful information, and then just pure quality information.  Why are we wasting time with all this nonsense – let’s go!

Straightforward Information

I have two accounts that are super straightforward with their info but they’re both super useful.  The first one is Dividend Cut (@dividendcut)

I have notifications setup on this account to alert me every time that they tweet.  As you can see, all that they’re tweeting is anytime a company is cutting their dividend. 

The reason that I like this is because it’s a mental note to me when I see the notifications and when I see shocking cuts, I am then prompted to check this out even further.

The next account that I like a lot is Earnings Whispers (@ewhispers).  Earnings Whispers gives great information leading up to earnings calls and while I will never make a decision to buy or sell a stock solely based off the quarterly earnings of a company, I definitely do pay attention to those earnings.

They create some really cool earnings calendars so you can see what is upcoming that week as well as some good technical charts:

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Value Shmalue – Welcome to Dual Momentum Investing! (Ch. Review)

Lately I’ve been taking a deep dive momentum stocks and I have going down a major momentum stock rabbit hole since then, so I figured, why not do my next book review on momentum stocks?  Well, sure enough, if you Google “best momentum investing books” then ‘Dual Momentum Investing’ comes up, so let’s go with that book!

Not going to lie, I am a value investor.  I am continuously challenging myself to think differently than I have in the past, and I know that many of you are value investors like Andrew and Dave are as well, so I’m going to be coming at this entire review from a skeptical view and really trying to play devil’s advocate with things.

I think that playing devil’s advocate is a great way to learn in many different areas of life as long as you do it politely and don’t ruffle any feathers, but I’m just writing a blog so who cares!

Sure, the title might be a bit more click baity like some of my other articles about checking your portfolio daily and how if you’re dollar cost averaging then you need to stop right now, but oh well – that’s the point!

So, I’ve digressed enough – let’s get going!

As I mentioned, I’m going to review the book ‘Dual Momentum Investing’ by Gary Antonacci, and the book isn’t cheap by any means as it’s sitting on Amazon with a price tag of $44 and change , so we shall see if it’s worth it!  And if not, that’s why you get to read all of my reviews 😊

Does Buy and Hold Indexing Work?

The book starts off by Antonacci talking about the World’s First Index Fund and why it worked.  No, it wasn’t Jack Vogle like you might think.  It was actually a woman named Dee.  Dee was married to Bob, one of the best stock pickers in the business.  Dee picked her companies by doing the following:

  • She was very patriotic so she bought every company that had ‘U.S.’ or ‘American’ in the name, such as U.S. Steel, U.S. Silica, American Airlines, and American Electric Power to name a few
  • Then she literally just let these companies ride. 

And guess what?  It worked!

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Why a Global Diversification Strategy is ESSENTIAL for Stock Market Investors

Investors rightly focus on reducing risk. After all, investing your own hard earned cash is not a light matter. Sector diversification is talked about a lot, but what about international and global diversification?

Such a diversification strategy is essential—especially in a world that’s increasingly undergoing globalization.

It’s not just a good thought experiment. Legendary investors like Jim Rogers, creator of the Rogers International Commodities Index, and George Soros of the Quantum Fund have made their bread by trading internationally.

Soros used leveraged bets like going short the pound ($10 billion worth!) to eventually achieve returns believed to be over 30% per year, and Jim Rogers famously used his travel experiences riding a motorcycle halfway across the globe to buy cheap stocks in beaten up countries like Austria and Germany, doubling his money in both instances in a very short time period.

But global diversification isn’t just for traders.

Long term buy and hold investor billionaires like Warren Buffett have made outsized gains by buying U.S. stocks with international exposure—a fact quietly going unnoticed by this popular national hero figure.

But it’s not just examples of success that model the importance of global/ international diversification.

Some of the biggest risks implied with investing capital in a globalized economy (which isn’t a new concept by the way), have erased what should have been great gains for many investors—and it’s again not talked about because it’s no fun to talk about the losers.

The Lack of Global Diversification Has Caused Catastrophic Losses

I’m no economic historian, but I am on a bit of a history nerd kick right now and have uncovered some interesting discoveries around investing in the global economy.

The plight of U.K. Investors – I was really curious about trying to find the best U.K. investors of the last century, as America has so many that have become like celebrities these days: Buffett, Peter Lynch, Carl Ichan, Ray Dalio, and others.

I was shocked to find that I couldn’t find any notable famous figures that have done extremely well over the past several decades. Even a simple Google search returns only newer British investors, and none over the late Nineteenth century.

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Irrational Exuberance: A Book Review

Irrational exuberance refers to extreme behavior enthusiasm, often compared to the stock market and investor behavior. Typically, it means that investors are excited and driving up stock prices regardless of the fundamentals that would support those increases.

Irrational exuberance is the perfect analogy to illustrate the market reaction to the current Covid-19 pandemic, with many companies stock prices rising at crazy rates regardless of the fundamentals of the company.

A perfect example of this is Tesla, which has crossed the $1000 a share earlier this year, despite still losing money and producing fewer cars than any of the other big car dealers.

Irrational exuberance has become associated with bubbles and the creation of unsupported asset prices. All of which leads to those bubbles popping and leads to further market panic and “blood in the street.”

In today’s post, we will learn:

  • The Origin of the Term “Irrational Exuberance”
  • Robert Shiller and Irrational Exuberance
  • Key Takeaways from Irrational Exuberance
  • Common Criticism of the Book

Ok, let’s dive in.

Origins of the Term “Irrational Exuberance”

Irrational exuberance is a term that came into the consciousness of investors from a speech given by Alan Greenspan in 1996. Greenspan was the Fed Chairman at that time, and the speech is known as:

The Challenge of Central Banking in a Democratic Society

An excerpt from the above speech which contains the most famous phrase:

But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade? And how do we factor that assessment into monetary policy?”

The speech was given in the mid-90s, which was the onset of the dot-com bubble, which is the perfect, textbook definition of irrational exuberance.

To breakdown irrational exuberance a bit.

Irrational exuberance is undue economic optimism, which is widespread. Think about Bitcoin mania a few years ago, everyone who had never expressed any interest in investing was asking questions about Bitcoin.

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Valuation Basics: Market vs Book Value – and The Argument for Both

When performing a DCF valuation, the equity analyst must make a distinction between using market vs book value for debt when calculating the weighted average cost of capital (WACC).

The easy way, of course, is to just use book value of debt from the company’s balance sheet and be done with it—but this can lead to unbalanced weights for the WACC calculation. It’s a quick shortcut, and seems harmless, particularly when analyzing companies with low leverage.

However, using this lazy approach can be dangerous in either understating or overstating the cost of debt in the overall WACC equation, which will ultimately distort the discount rate used in the valuation process.

Market value vs book value is a simple concept. Take equity for example.

Market value of equity = how much the equity is worth in the market. In the stock market, this means the market capitalization.

Book value of equity = how much shareholder’s equity is on the books for the business. This doesn’t necessarily equal market value, as various equity/ assets can have different earning power and value.

Oftentimes these two metrics are used as a comparison to approximate the expensiveness of equity (such as a common stock) in a simple ratio called the Price to Book Value (P/B) Ratio, calculated as (Market Value / Book Value).

Now let’s look at the difference between market vs book value of debt.

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IFB159: Trailing Stops For Value Investors and Aggresive Investing In Your 40s

Announcer (00:00):

You’re tuned in to the Investing for Beginners podcast. Finally, step by step premium investment guidance for beginners led by Andrew Sather and Dave Ahern. To decode industry jargon, silence crippling confusion, and help you overcome emotions by looking at the numbers, your path to financial freedom starts now.

Dave (00:38):

Welcome to the Investing for Beginners Podcast episode 159 tonight, Andrew and I are going to pick some time out, and you’re going to talk About some listener questions that we got recently. We’ve got some fantastic ones as always. And so we thought we would take some time and answer those on the air for you guys. So I’m going to go ahead and read the first question. It’s in two parts. So I’ll go ahead and read the first part of the question. We’ll answer that. And I know we’ll come back to the second part.

Dave (01:00):

So the first part is, hello, Andrew. My name is Tim, and I started investing in January of this year. I’ve been listening to the investors podcast around episode 42 now, and have been very grateful for the advice that both you and Dave have shared as it has helped me get a broad understanding of the stock market and the confidence to get my feet wet. I’ve also appreciated that I choose your podcast. I chose your podcast and ebook to get started as all the metrics and strategy of value investing general makes sense to me as a nerd who likes numbers, yay.

Dave (01:32):

The ratios and rationale behind them make so much sense. So the first question is listening through the podcast so far, I’ve heard both you and Dave talk about the importance of setting trailing stops to stop your losses before they get too far down, which makes sense at the time I am 27 years old, and I’m, it makes sense to hold for the longterm and not to buy and sell all the time. Both of these strategies seem to clash heads a little bit in the current environment of a stock market collapse. From what I have learned, I would think that the trailing stops are when the market is relatively stable, and stock is still hitting the trailing stop that you are talking about—otherwise, everything you need to be sold. And then the compounding of drip would not take effect. Also, I know that I have not lost money until I finally sell, from listening to some of the more recent episodes. It seems at times like those, it seems at times like these, that it is about whether you trust it and the research you’ve done in choosing a good company, is this the correct way to think of things? Or am I missing something? Andrew? What are your thoughts?

Andrew (02:36):

Yeah, this is a great question, Tim. So it kind of comes down to one of those ideas where it sounds nice, but in practicality, it’s not the greatest strategy depending on how you’re approaching the stock market. So this is something that I covered in June the June 2018, eLetter issue, where up until that point, I had split my portfolio into two sections. I had a regular portfolio section and a dividend fortress portfolio section. So the dividend fortress section never had any trailing stops. The regular portfolio ended up having those. I found as time went on that I was being forced to sell out a company’s a, I didn’t want to sell out of. And for all the reasons that you mentioned here, I mean, you lose the compounding of drip—you lock-in that loss. And if anything, sometimes when a stock drops, it makes you want to buy more and you, you become more confident in that investment, not less. And so the following stop kind of takes a lot of your freedom away. So I think it’s good, it’s a good way to kind of get some training wheels on when you’re first starting a trailing stop, how it works in practicality is you have a certain percentage that you’re comfortable with.

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The Big Guide to Little Dividends

Dividends are one of the best ways that companies can return value to shareholders. Share buybacks have become all the rage in the investing world, and dividends have been pushed to the back burner. But this underappreciated method of investing creates wealth over time like no other with the power of compounding.

I thought with this post, I would create a guide about dividends to give you a one-stop-shop to find out everything you might need or want to know about dividends.

Not all companies pay dividends, and they have their reasons for doing so, but the companies that do are regarded as shareholder-friendly. Even though Warren Buffett doesn’t pay a dividend with Berkshire Hathaway, he invests in companies that do pay a dividend.

Buffett understands the power of compounding and how dividends can grow the wealth of both shareholders and companies. Buffett has shown over the years that he can compound Berkshire’s money at rates that are difficult to replicate elsewhere and has arguably earned the right not to pay a dividend. But that is an argument for a later day.

Items we will learn today:

  • What Are Dividends?
  • Dividend Metrics That Matter
  • The Impact of Compounding and Dripping
  • The Best Dividend Paying Stocks

Ok, let’s dive in.

What Are Dividends?

Put simply, dividends are payments made from a company to the shareholders or individuals that have purchased shares of the company. Any owner of the stock of the company, individual or fund, is eligible to receive dividends from the company.

Not all companies pay dividends; some of that will depend on where they are in their life cycle. Typically young companies will not pay a dividend; rather, they will reinvest any cash flow back into the business to grow the company.

Examples of this might be Amazon, Google, Facebook, and Netflix. These companies are still in the growth at all costs stage and are using any extra money to grow the company. Our discussion today will not delve into the right or wrong of this idea, rather how we can benefit from the companies that do pay a dividend.

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Cash Flow Statement: The Final Stage of a 3-Part Financial Model

Forecasting the cash flow statement is the final stage in developing a 3-statement financial model in what was a linked and iterative process. The figures on the cash flow statement will in large part be driven by the changes in amounts on the balance sheet as well as certain non-cash income statement items. As we talk about cash movements in and out of a business, the general rules investors should keep in mind are laid out below.

General Rules for Cash Flow Movements

  • Growth in assets year-over-year on the balance sheet will be associated with a cash outflow as money is spent to acquire that assets. A basic example of this will be the cash outflow associated with purchasing new fixed assets or inventory.
  • Growth in liabilities and equity year-over-year on the balance sheet will be associated with a cash inflow, as cash is received or saved in return for the liability or equity in the business. A basic example of this would be the cash inflow from issuing debt or the cash saved from not paying suppliers of inventory immediately.
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How to Save For Your Short-Term Financial Goals

We spend a lot of time talking about saving and investing for retirement but one topic that we don’t touch on much is the importance of saving for your short-term financial goals. Well, I’m here to show you how to do that and that the value of investing early will pay dividends for you in the future!

I feel like I can speak pretty well on this topic because I was in this exact situation recently.  Just a few years ago, my wife and I lived in Lincoln Park, a very expensive neighborhood of Chicago, and we were paying out the you-know-what in rent each month. 

In addition to that, we had only been out of college for a few years so we had student loan debt, credit card debt (because we were dumb), car loans and others! 

PLUS, I was saving for an engagement ring, which then led to us saving for a wedding, and we were also saving for a home as my company moves us every couple of years and we wanted to buy a house in our next location.

In short – we had no money and we needed to pay off what we owed as well as trying to save for what we wanted.

It was really, really tough.

The first thing that you absolutely have to do is cut your expenses.  While there is a finite amount that you can cut your expenses, it is absolutely the easiest and quickest way to create additional money in your cash flow. 

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