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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.

IFB21: The Benjamin Graham Formula for Finding a Margin of Safety

 

 

Intelligent Investor

 

Welcome to session 21 of the Investing for Beginners podcast. In today’s session, we are continuing our discussion of the Intelligent Investor and working through chapter 20. Again, this is one of the chapters highlighted by Warren Buffett as one of the most influential for him.

This is the chapter that opened my eyes with the discussion of the margin of safety. As a conservative guy by nature, this strategy struck home with me. There is much more to the chapter than this simple idea, check out our show notes to learn more.

  • Margin of Safety equals earnings yield minus bond yield
  • Amount of margin of safety depends on the market pricing
  • Using data over a period is critical
  • “Heads I Win, Tails I don’t lose that much.”
  • Roulette as an example of diversification
  • 2/3 or less of value is an adequate margin of safety
  • No good stocks, just bad prices.
  • Arithmetic is greater than optimism
  • “Have the courage of your knowledge and experience…..THEN ACT on it!”

Dave: These two chapters are Warren Buffett’s favorite of the Intelligent Investor, and they are chock full of all kinds of wisdom and great advice to help you invest better.

The first thing that he talks about is the margin of safety in this chapter, and Andrew I am going to let you chat about this for a second.

Andrew: So obviously Dave and I we love to talk about margin of safety, with an emphasis on safety. Benjamin Graham started that whole movement, which has been passed on through the generations. With many great investors put a big focus on margin of safety. [click to continue…]

IFB20: the Intelligent Investor Summary of Chapter 8 and Mr. Market

the intelligent investor summary

Welcome to session 20 of the Investing for Beginners podcast. In today’s episode, we are going to discuss chapter 8 from Benjamin Graham’s Intelligent Investor. This is easily one of the best books on investing ever written and is a classic must read for any investor serious about learning how to invest and not speculate.

Written by Benjamin Graham in the early 1950s it has been a huge influence on many investors, including the great Warren Buffett. In fact, he credits this book enabling him to create large returns for his new shareholders and was a tremendous influence on him.

  • Timing the market versus pricing
  • Speculator versus investor
  • Dow Theory
  • Characteristics of a Bull Market
  • Diversification
  • Succesful Stock Paradox
  • Mr. Market

This week we will discuss one the chapters that he says have had the biggest influence on him. Chapters 8 and 20 he credits with opening his eyes to the possibilities of making money with a margin of safety.

Andrew: This is one of Warren Buffett favorite chapters, and it explains kind of how the market works, and it gives an excellent overview of how to understand the stock market and how it can relate to investing strategy.

Dave: The first thing we are going to talk about tonight is timing versus pricing or investor versus speculator. One of the things that Graham talks about at the beginning of this chapter is that market timing is a fool’s game. There is not much that you can do about trying to time the market.

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IFB19: Portfolio Management as it Relates to Dollar Cost Averaging

 

portfolio management

Welcome to session 19 of the Investing for Beginners podcast. In today’s session, we are going to have a little different format than we have been doing. We are going to answer some of our reader’s questions on air. Andrew and I are going to take turns answering these questions, and this should be a lot of fun.

  • What kind of diversification do you use for your eLetter portfolio?
  • The importance of dollar-cost averaging
  • Can you find the intrinsic value of an ETF?
  • The importance of portfolio management
  • Learning is a constant, ongoing situation

The first question is from Jamison: I have just begun receiving your newsletter, so I have the May 31st and June 1st editions are the first that I have read and would like to follow along with your portfolio. That being said I am starting with $4,000 in my account, a traditional IRA. I would like to buy the latest dividend fortress that you recommended. How much or what percentage do your normally buy? Any insight would be much appreciated.

Andrew: Obviously, I can’t give any personalized advice, legally. Let’s just say if I was to put myself in Jamison’s shoes and what I would do with a kind of larger sum. The portfolio obviously follows a $150 a month, and that’s every single month, which is a dollar-cost averaging. What that means when buying a recommended stock from the eLetter is that you’re going to buy up to $150 worth of whatever stock that is. Sometimes a stock will trade at around $20, be able to pick-up six or seven shares. Sometimes the stock trades at $110 and is only able to pick-up one share. With that extra money, if I’m picking up one share of $100, then I have $50 to $45 after transaction fee, I just roll that over to the next month, so the next month I will have $200, and I can buy however the maximum amount shares I can and just keep going in that way. Obviously, you don’t get this sort of perfect position size where every position a perfect 5% or 7%, or 3% of the portfolio. That’s just the nature of the beast, and this is something that happens when you are running a real portfolio with lower amounts. In contrast to a fund manager who is managing millions or billions of dollars and then we have the average person who maybe listens to this podcast. They have different things that they need to worry about, and that is one of the ways the eLetter is structured the way it is because it helps put yourself into the shoes of actual people who are average with average incomes and putting their hard-earned money into the market.

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IFB18: Your Path to Financial Freedom Explained

 

financial freedom

Welcome to session 18 of the Investing for Beginners podcast. Today we are going to talk about financial independence and some ideas to help you achieve that.

  • Understanding what financial freedom is
  • Finding the motivation that inspires you to achieve your goal of financial freedom
  • Creating income that you can live off of without having to dip into the nest egg
  • Setting a budget first is paramount to any success
  • Following the course and setting up automation for everything financial
  • Utilizing the tools available to you for budgeting, automation, and staying on target

Andrew: Obviously the tagline is your path to financial freedom and I think it’s important to explain what that is and obviously our podcast is focused on beginners. It is a good starting point if you can understand exactly the kinds of things financial freedom can give you. Then number one you can have the motivation to want to continue and to put in the work of establishing that base when it comes to the knowledge of how to invest.

Establishing patience, the wisdom from other successful investors that we have seen. And taking that responsibility upon ourselves instead of letting some professional manage the money for us. So if you can understand what financial freedom is then, it can help push you along the path to becoming a better investor. Honing your skills and maybe even finding a passion for it like Dave and I have.

My idea of financial freedom and what’s accepted around, if you want to call it the financial community is this idea that you save enough money where you can live off of the income from your investments without having your investments shrink.

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IFB17: Cash Flow Statement: Operating Activities, Investing, and Financing

operating activities

Welcome to session 17 of the Investing for Beginners podcast. In today’s session, we will be discussing a very interesting topic that is near and dear to my heart, an in-depth analysis of the cash flow statement. If you are not an accountant, never fear because this will help explain some of the terms and give a better explanation of how they function.

In today’s session we will learn:

  • What a cash flow statement is
  • How it relates to the other financial statements included in the companies 10-k
  • Breaking down the sections of the cash flow statement
  • Highlighting some of the important line items to look for
  • The differences between free cash flow and net cash

In this session, we are going to talk a little bit about Berkshire Hathaway, in honor of the recent annual meeting that they hold every year. We will look at how Warren Buffett, the master, lays out his cash flow statement.

Andrew: I think it’s important to understand where the cash flow statement lands when it comes to the financial statements in general. Every company needs to submit an annual report, and this is any company that is listed on any us stock exchange, they are all regulated by the SEC and are all required to submit what’s called a form 10-k. Which is an annual report, it shows the past three years of financial data on the income and the cash flow, and then the last two on the balance sheet.

When you hear these different statements that we are referring to. there are three major ones that are broken down into an income statement, which let me explain in a simple way what each of these three mean.

There is an income statement, balance sheet, and a cash flow statement. A great way to understand what happens on a business level is to compare to how it happens on a personal level because we all know how the personal level of finances work because we all live it. When you look at an income statement that’s the same as looking at someone’s tax return. What’s going to be on an income statement is how much money somebody makes as a salary from their job. Simple enough, really when you look at companies in the stock market, it’s the same way. It’s calculating how much they are earning every single year; it factors things like taxes, other accounting terms like depreciation and interest and all those types of things.

At the end of the day, you have this thing called the bottom line, and that’s the called the bottom line. Or another way to say profits, and it’s the bottom line on an income statement. That tells you how much a company earned, what their profits are and it’s the same way with you in your life. How much you bring home from your job, you can think of your gross income as what the revenue row is on the company’s income statement and then however much you pay in taxes. Then you have a net income, and that’s the same as the net income on the company’s income statement.

The next one would be the balance sheet if you think about a balance sheet for a company it is the same as a persn’s net worth. If you the person would add up everything you own minus all of your debts that gives you your net worth. Let’s say you have a spreadsheet; you have your house on there, the resale value of your car, and then maybe a couple of brokerage accounts, maybe a savings account or two, maybe a couple of retirement accounts. Then you have your debts, credit card, student loan, home equity line of credit and add all those things up on a spreadsheet they make your assets minus your liabilities which equals your net worth.

For a company it is the same way. They have a balance sheet, and there are all these different rows and columns, and all these different numbers. If you look closely enough, you will see it has the same concept as if you were making a spreadsheet at home. You have a row that’s called total assets, and then you have a row called total liabilities. Then when you subtract the total liabilities from the assets, you get what’s called shareholder’s equity. And that can be seen as the same as the net worth of a company.

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