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HEY! DID YOU KNOW…

 

  • 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 7,200+ 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.

IFB03: Doesn’t a Stop Loss Contradict Buy and Hold?

 

 

Stop Loss

 

When you are looking for advice on how to buy stocks, you will find thousands of articles on the internet. All of them touting the various ways to buy stocks to make money. But what about selling a stock? Crickets. There is not much out there to tell you when to sell. Having an exit strategy when you sell is almost as important as your buy strategy. This is where having a stop loss is so vital to your success. What is a stop loss? It is a set point that you establish as your base point for selling a stock if it starts to fall. The best advice I have seen is setting the stop loss at 25%. Setting the stop loss point here helps eliminate some of the guesswork. And it avoids any impulse sells in a case of sudden movement down.

In today’s session, we will discuss the stop loss and much more.

  • Setting Trailing Stops
  • Yahoo Finance for Stop-Loss alerts
  • Portfolio maintenance
  • Selling stocks to limit your portfolio to 25 stocks or less
  • Best strategy to buy stocks, dollar amount or share amount
  • Dividend reinvestment program or DRIPs explained
  • Lump sum investing or dollar-cost averaging
  • Investing outside the US

[click to continue…]

IFB02: Why Timing the Market Wrong Doesn’t Matter that Much

Dividends

One of the scariest things about investing is buying a stock at the absolute wrong time. Guess what? Timing the market wrong doesn’t matter that much. What is much more important is the time in the market. You read about all the stock market millionaires. Or billionaires. Guess what they all in common? It’s time in the market, not when they purchased the stock. Or at what price. So timing the market wrong really doesn’t matter.

Welcome to the show notes for Investing for Beginners. In today’s session, we answered questions from Braden. A beginning investor from Canada. He had some really great questions for us today. And the focus of the show was on several subjects. First being dollar cost averaging. This is a great investment idea that can help smooth out your returns. And help get you started in the circumstance that you don’t have a lot of money to start with. Fun fact. If you invest in a 401k through work. You already do this!

Next focus item was valuation metrics. These are the numbers that are used to help determine the value of a company. Numbers can be scary for people. But Andrew does a great job of explaining how they work. His ebook helps lay this out. In a very easy to understand way.

  • Fees associated with dollar cost averaging and how to minimize them with this strategy
  • DIY brokerages moving to free ETF trades and will bigger brokerages offer this as a way to keep their customers
  • Explain in more detail the metrics P/E, P/B, P/S, and D/E and what are good standards for these numbers?
  • Talk about the importance of putting your money in the market
  • Recommendations for options using stocks that pay a dividend but it isn’t enough to buy a full share.
  • How to utilize DRIP compounding

I have to say that the quality of questions that we have been receiving is awesome. They have been insightful, thoughtful and probing. Certainly not what you would expect from beginners. They have made us think and delve deep into our answers to help make sure that we cover all aspects of their questions.

So let’s take a look at the Q/A.  [click to continue…]

IFB01: Optimal Portfolio Diversification for Sectors and Individual Stocks

 Investments

One of the most difficult ideas for beginners is the idea of diversification. If you read any investing publications they all talk about it. But they often don’t discuss the optimal diversification for sectors and individual stocks.  There is so much conflicting information regarding diversification. And how to set up your portfolio for maximum benefit. In this episode, we will tackle this question and much more.

 

  • How to monitors your stocks one you have purchase them?
  • How to use the Value Trap Indicator to find stocks?
  • What sources do you use to find stock ideas?
  • What is the optimal portfolio diversification for sectors and individual stocks?
  • What is the ideal number companies to own?

Welcome to our first session of Investing for Beginners where our goal is to help you become a better investor.

The idea of this podcast started with Andrew Sather, from einvestidingforbeginners.com who has and had lots of success in the blogging and podcast world, with his awesome website and blog and being a founding member of “The Money Tree Podcast”.

When Andrew first became interested in investing he looked around and noticed that there was no real voice to help beginners. There are tons of blogs and podcasts about investing but very little for the beginner. This gave him the idea of starting his own blog to help others that were just starting out. And he did just that, with his blog, podcasts and his wonderful book “The Value Trap Indicator” he has created a place that beginners can go to get premium advice to answers those questions.

He recently asked me to help him start a podcast to spread the word about what he and I are most passionate about, and that is helping others succeed in the investing world and create a better life for themselves and their families.

Our mission with this podcast is to take the time to answer questions of beginners that are just starting out or maybe someone who has been at it for a while and is frustrated with their lack of success. It is never easy and we don’t claim it ever will be. But we believe that everyone can do it,

In our first session, we will be discussing some questions from one of Andrew’s readers. His name is Mason and he just recently graduated from college and has started his new career.

He has some great thought provoking questions for us and it was a ton of fun helping answer them for him.

So here we go. [click to continue…]

Net Cash: Simplest, Most Crucial Part of the 10-k’s Cash Flow Statement

Unfortunately, specific information on how the derive the net cash from a 10-k’s cash flow statement is practically missing from the internet right now. Let me debunk all of the confusion and options surrounding cash and cash flow analysis, explain the definitions, and tell you why I think the popular opinion of using cash flow to determine intrinsic value is flawed.

net cash

There’s various definitions of net cash online, like Investopedia’s “total cash – total liabilities”, or Business Dictionary’s “cash on-hand – current liabilities”.

You can see that immediately, the specific definition of net cash is debatable. We see a commonality between the top two results on Google, but the fact that there’s a discrepancy between either representing total or current liabilities means the definition of net cash may be different depending on who you talk to.

It’s not like net income, which everyone defines as revenue minus expenses. Or shareholder’s equity, which is specifically defined as total assets minus total liabilities.

Also understand that net cash is a different definition of net cash flow. Net cash flow refers to the change in the cash balance between 1 year to the next. I understand this is starting to get really confusing, especially because the word “cash balance” and “net cash” aren’t actually on the 10-k annual report for every company. Let me take the biggest company right now, $AAPL, and show you their cash flow statement and define these terms based on that.

cash flow statement example

Now, when I say cash balance, I’m talking about the “cash and cash equivalents, beginning of the year” and “cash and cash equivalents, end of the year”. You can use either one of these, depending on which year you are looking at. Notice the beginning of the year cash balance for 2016 is the same as the end of year cash balance for 2015. This makes sense, we are just reporting how much cash a company has “in the bank”, or the cash balance.

Net cash flow is the change in the cash balance between the beginning of the year and the end of the year for the same year. You can see they put this number as “Increase/(Decrease) in cash and cash equivalents” on the 10-k, near the bottom of the page.

Another way to calculate net cash flow, which is a good sanity check to help us understand exactly what is going on with the cash flow statement, is to add all 3 of the following metrics:

  • Cash generated by operating activities
  • Cash used in investing activities
  • Cash used in financing activities

Now let me explain each metric in the simplest of terms. [click to continue…]

Are High Net Tangible Assets Better Than Goodwill on a Balance Sheet?

There are two important sub-metrics for investors to understand on a balance sheet: net tangible assets and goodwill. Both of these figures make up part of a company’s total assets.

The question here is twofold. Does it matter much if a high number of assets on a balance sheet come from net tangible assets vs. goodwill? And is one preferable over another? As is usually the case in debates like these, I form my approach by thinking through the logic rather than relying on what an author said about it.

net tangible assets

Let’s first define these terms. At its most basic definition, an asset is something of value that (usually) produces an income stream. These are typically things like inventory and factory plants, but I say usually because things like cash also count as an asset.

Now, assets on a balance sheet can be either tangible or intangible. A tangible assets refers to one that is physical. It’s the assets we typically think of, like the ones mentioned above. But there are also intangible assets– things a company own that contribute to producing a revenue stream but aren’t physical or have a concrete value.

Examples of intangible assets are things like intellectual property, copyrights, and brand recognition.

Intellectual property can be very significant for a cutting edge technology company who dominates an aspect of their field due to a certain methodology or patent/ manufacturing advantage.

Copyrights can be very important to an entertainment/ media company whose revenue is mainly generated from certain shows or movies. The shows or movies don’t have a physical value but produce an income stream.

Brand recognition usually falls under the goodwill category on a balance sheet. This can be significantly important for a food company, whose products are generally indistinguishable in quality from its competitors yet loyalty to a brand leads to an unproportional amount of revenue vs. competitors.

It’s obvious that the reliance of intangible assets to a company’s balance sheet can vary for each company’s unique situation or which industry they are in. So knowing this, does it really matter if a company’s assets are mostly tangible or intangible?  [click to continue…]