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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 21,000+ 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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The Pros and Cons of Redeemable Preferred Stock

I recently wrote a post about the pros and cons of preferred equity, but did you know that there are actually is a type of preferred equity that the company can decide to pay you off for your shares?  Let me tell you all about redeemable preferred stock!

First off, if you’re unfamiliar with preferred equity, I really encourage you to go read my post about it that not only will give you the 101 but also will leave you with some tangible takeaways that you can implement to invest in preferred stock.  I think starting with that article will give you a great baseline to be able to comprehend this info, but that’s just my opinion!

The Basics of Redeemable Preferred Stock

Redeemable Preferred Stock is stock that give companies the option to “redeem” their stock and effectively retire those shares.  Now, the price that the company has to pay is a price that is predetermined at the time of those redeemable preferred stocks being issued, so there isn’t an opportunity for some manipulation to occur.

Typically, the company has to buy these shares back on a certain date, with the first opportunity being around 5 years.

The benefits for a company are really pretty significant.  By the company having the ability to buy back these shares at a pre-determined price, if they can buy back the shares at a price that is lower than the current share price then they’re instantly going to be better off.

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Get Rich Quick? NOPE! Instead, 3 Steps to Quickly Getting Rich

One of the biggest mistakes that I see with new investors is that they start off with a mindset that they can get rich quick.  Sure, you might get lucky and hit it big with a couple stocks, but that’s not going to make you get rich quick.

The question that I ask is – Why do people have this mindset? 

Honestly, it’s simple – people are lazy.  People want to do the least amount of work and get the best results possible.  I mean, I also fall into that camp, but who doesn’t?

If my retirement number is $2 million would I rather steadily invest over 30 years or just hit the freaking lottery?  Of course, I want to hit the lottery.  I want the money now.  I don’t want to have to be dedicated.  I want all of the results and 0 of the effort.

The dream.

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How to Use Jensen’s Alpha to Measure True Investor Performance

Measuring investment returns is something that everyone looks to do when they start investing in the markets. The search for “alpha,” or market-beating investment returns, is the goal of every investor.

One of the easiest ways to determine your investment return or alpha is the Jensen’s Alpha method. The use of this formula will enable any investor to measure their returns versus its portfolio and the market.

Mohnish Pabrai has returned fantastic returns over his investing career, one of my favorite investors, a 16% return from 1995 to 2015.

The stock market returns, including dividends over the last 100 years, have been over 10% annually, which is a great benchmark for long-term investors to try to achieve.

A tool like Jensen’s Alpha can help us determine our results against any benchmark.

In today’s post, we will learn:

  • What is Jensen’s Alpha?
  • Jensen’s Alpha vs. Sharpe Ratio
  • What Does a Negative Jensen’s Alpha Mean?
  • How to Calculate Jensen’s Alpha with Real-World Examples

Okay, let’s dive in and learn more about Jensen’s Alpha.

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3x ETF = 3x Gains? Evaluating the UPRO Stock Price History

I’ve found myself going down a bit of a rabbit hole lately with some of these leveraged ETFs and it’s really been taking up a lot of my time!  I thought, “Ok, Andy – just sit down and do the math yourself”, so that’s what I did – let’s take a look at the history of the UPRO stock price!

Like I mentioned, these leveraged ETFs are something that I have known about for a little while, but I never really understood them truthfully.  I have continuously heard people say that they’re not meant to be long-term investments but my simple (stupid) mind always thought, “If the stock market historically goes up, why would I not want 3x those returns?”

Well, the returns are 3x the DAILY returns rather than the annual, so you can get in trouble with major swings from day to day because a loss will always be a larger dollar swing than a gain will be. 

I recently wrote about three of these leveraged ETFs that I evaluated at a high-level recently but they only covered the history of the ETF.  I think it was a great entry into leveraged ETFs, though, and highly recommend that you check them out if you’re brand new into this topic.

The thing that I hated about the ETF history was that I felt like I just was missing out on the opportunity to actually be able to get the truth behind the story because the ETF history was just barely 10 years old.  While that’s great, that’s nothing compared to the actual data that I can gather on the S&P 500 from Yahoo Finance, so I just decided that I was going to take things into my own hands.

Rather than just taking the simple route and comparing the history of the actual ETF, I wanted to actually compare some more substantial data to uncover if these 3x ETFs were good investments or not.

To do so, I chose to compare UPRO vs. the S&P 500.  Personally, I think that the S&P 500 is the most representative index to benchmark your performance against, so I felt that it only made sense for me to compare a 3x S&P 500 ETF vs. the S&P 500.

Now, as I mentioned, since there is no actual ETF data that goes back to 1928, the main assumption that I made when doing this comparison is that I took the daily return for the S&P 500 and then multiplied it by 3.  After all, that is the goal of UPRO, so I am just making the assumption that they were able to perfectly match this 3x return.

So, it all comes down to this – if you had actually invested $1,000 into the S&P 500 on 1/3/1928, you would then have $201,866.55 – that’s a pretty nice return to turn $1,000 into over $200K!

But, if you had invested that same amount into UPRO, your total would be $269,164.24!  Might not seem like a massive amount more, but that’s an outperformance of about 35% solely based on the total amounts that you would have. 

Does that seem more than you were expecting?  Less?  Maybe you were thinking it would be higher since it’s a 3x ETF?  Well, this is why it’s really important to make sure you fully understand how the ETF functions. 

When you’re getting 3x the daily returns, you’re going to have some really high highs and some really low lows…

Take a look at the graph that I have charted below:

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IFB179: Interview with Jeff Desjardins of Visual Capitalist

Announcer (00:02):

I love this podcast because it crushes your dreams of getting rich quick. They actually got me into reading stats for anything you’re tuned in to the Investing for Beginners podcast led by Andrew Sather and Dave Ahern. Step-By-Step premium investing guide for beginners, your path to financial freedom starts now.

Dave (00:33):

All right, folks, we’ll welcome you to the Investing for Beginners podcast. This is episode 179. Tonight, we have a special guest with us. We have Jeff Desjardins from Visual Capitalist, founder and editor in chief of this fantastic visual magazine slash website slash book that he just put out, and it’s got all kinds of great information infographics. I mean, it is fantastic. I’ve been lucky enough to be a subscriber to his stuff for over two years now, and I enjoy it. So, Jeff, thank you very much for coming on. We appreciate you taking the time to talk to us tonight.

Jeff (01:09):

Absolutely. Thank you. I didn’t know that you have been following us for a couple of years. That’s fantastic to hear.

Dave (01:15):

Oh yes. Yep. I came across your stuff from Preston Pysh from the Investors Podcast. He recommended at one of his shows a while back and, I looked it up immediately, and I was like, wow, this is awesome. So yeah. That’s great stuff.

Jeff (01:29):

Yeah. Preston’s awesome. Yeah. I like his stuff; his podcast is fantastic.

Dave (01:34):

Oh yeah, absolutely. Absolutely. So we have some questions here we’d like to ask you, and then we’re just going to have our conversation. So I guess maybe I’ll ask them the first question here if that’s all right. Where did you get the idea of linking all of this data into a visual resource? How did you develop this idea in terms of the book or terms of the website as a whole book, yeah? And the website, I guess, kind of how they all fit together?

Jeff (02:04):

Yeah. So from our perspective, our reason for being is that there’s just massive amounts of data that exists in the world, and it’s, it’s growing at unprecedented rates. So for us, we’re trying to make sense of that and to simplify a really complex world and get people to get a better understanding of, of this, you know, this crazy world that we live in.

Jeff (02:30):

And so over time, you know, we, we started taking concepts within markets and investing and, and kind of boiling down to these, these visual elements. And then as time went on and as we did more, you know, we really found a niche and an audience that that really got what we were doing. And yeah, the book I would say is the combination of this, which is, you know, we live in uncertain times, you know, it’s a, it’s a cliche, but I think it’s by the amount of information that’s out there and it makes it hard to know what’s actually happening in this world. And so we thought, you know, we have this great, we have great experience in dealing with these complex topics. So let’s boil it down to the, you know, the things that are the most fundamental and most foundational to give people a starting point, like a place where they can go and say, okay, well, what is true about the business world going forward? What is true about markets going forward? And we show the trends that I think are pretty hard to debate against, you know, things like rising debt or, you know, some of the trends around ESG, for example, like these are things that are speeding up and they’re not going anywhere. And if you’re going to have a fundamental understanding of markets, as people listening to this podcast are looking to have, you know, this is going to be a good starting place for that.

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Dividends Are Old and Boring. Why Does Apple Pay a Dividend?

One of my favorite stocks, and likely a favorite of many others, is Apple (AAPL).  Apple just seems to be a company that everyone loves but something that many people don’t know is that if you own shares, you’re actually collecting a pretty steady Apple dividend every quarter. 

“But Andy, aren’t dividends only for old companies that are really just cash cows?”

Nope!

I’ll be honest with you – I have flipped back and forth in my mind many times about my thoughts on dividends.  Some people will use them as steady income streams for retirement or as a source of passive income, but I still have probably half a decade left of investing so I have a different mindset about dividends.

There really are a couple trains of thought that I think about:

1 – dividends are guaranteed return.  Not in the sense that the dividend is guaranteed, but once you’re paid that dividend then it’s money that the company can never get back from you.  Let me give you an example:

  • You bought 10 shares of a company whose share price was $100/share for a total investment of $1,000
  • That company pays a 4% dividend, or $4/share, on an annual basis (meaning $1 quarterly)

When you’re paid that first dividend of $1, then that is a locked-in, guaranteed return.  You can never have that dollar taken away from you, so even if the stock goes completely to $0, you’ve really only lost $99, of 99% of your investment.

Sure, that’s still less than ideal, but if you’ve invested in this stock for say, 10 years, and the share price and dividend have never changed, then you would’ve been paid $40 in dividends so you’re only down 60%.

I know that 10 years of the share price and dividend never changing is no realistic, but for illustration purposes, that’s why people love dividends – it’s investing with a margin of safety.

2 – I am looking for companies that have a long runway for years and years of growth, so why do I want them to take money out of their pocket to pay shareholders?  I should want them to reinvest those dividends back into the company!

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What is a Good Net Profit Margin? 25 Years of Data from the S&P 500

Healthy margins are a telling signal of a healthy business. But what’s considered a good net profit margin can vary depending on the industry, and depending on the year.

In my mind, it’s difficult to understand what constitutes a good net profit margin (also called “net margin”, or “net income margin”) when you have no context.

So in this post, I’ll do three things:

  1. Explain the basics of net profit margins
  2. Show the average net profit margin for the S&P 500 over the last 25 years
  3. My favorite part: Reveal a shocking truth about net margins

There are all sorts of profitability margins which describe pretty well how a company is controlling its costs and making a profit. My colleague Dave Ahern already wrote an excellent post on the 3 main margin ratios, which can be summarized as the following:

  • Gross margin
  • Operating margin
  • Net margin

If you are a beginner, I highly recommend going through that article first. As someone with more experience with financial statements and accounting, I’d like to offer a quick shortcut that really helps me understand each of the ratios, and recall them.

Each of these margin ratios can be calculated using a company’s income statement.

First, let’s separate the main expenses that every company has to face as a part of doing business.

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Residual Income Valuation Method – CFA Level 2

Valuing a company using the residual income method is an interesting technique not many retail investors are aware of which is covered in CFA Level 2. Value investors will enjoy the residual income method because of its starting point at book value before going on to add the present value of expected residual income.

This article will discuss the logic and calculations behind the residual income valuation method while also using a real-life example with global beverage giant Coke.

Before we jump into the valuation method, we need to first establish what residual income and equity charge are. The figures can be calculated on a per share level or as a company total but for use in a stock valuation, the per share figure is more meaningful to investors and is what we will focus on in our examples with Coke.  

What is Residual Income?

Residual income is the amount of earnings left over after paying for the opportunity cost of equity capital (also referred to as equity charge). Shareholders need to be compensated for the risk their capital is taking on and the “residual” income is what is left over after taking this into account.

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WACC vs. ROIC: Is Shareholder Value Being Created or Destroyed?

Measuring a business’s economic moat is a challenge, but there is a comparison using several metrics that allow us to get an economic moat idea. That comparison is the grudge match of finance, WACC vs. ROIC.

Warren Buffett speaks numerous times about his fondness for companies with economic moats. Many of his best investments, such as See’s Candies, Coca-Cola, and American Express, all have economic moats.

Those moats allow the business to raise its prices over the years, all while expanding its profits. All while reinvesting in their businesses with incremental costs, compared to the growing assets.

One of Buffett’s superpowers is the ability to look into the future and anticipate how his companies will perform. As mere mortals who don’t have that superpower, we need to find another way.

That way is the use of WACC vs. ROIC.

In today’s post, we will learn:

  • What is WACC: An Overview
  • What is ROIC: An Overview
  • What is the Difference Between WACC and ROIC?
  • Measuring Economic Moat

Okay, let’s dive in and learn more about WACC vs. ROIC.

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3x ETFs – High Risk, High Reward

Recently I read an article in one of my favorite unbiased news publications, the Wall Street Journal, and they talked about triple leveraged ETF and why it was a horrible investment.  Until that time, I had never even heard of these 3x ETFs so it made me curious to learn more about them!

First off, what are 3x ETFs?  3x ETFs are meant to basically triple the returns that you might expect of a particular ETF. 

So, let’s take the Nasdaq for instance.  You can invest in an ETF that is meant to mimic the returns of the Nasdaq like QQQ or you can invest in TQQQ which is meant to triple the returns of the Nasdaq.

Now, triple is triple, so you’re getting triple the returns and triple the losses as well.  Initially, I have two thoughts that come to mind:

  1. wow, this seems terrifying to have triple the risk
  2. wow, this seems amazing to have triple the opportunity

See how those two can be directly contradictory of one another?  You’re going to love the up days and you’re going to hate the down days.

In the past I have talked about how I am a huge risk taker and love to get risky with my money.  That doesn’t mean that I just want to gamble it away, but I am willing to strike out for better odds of hitting a homerun, but that’s solely because I am 30 and hopefully will have 50+ years remaining in my life. 

Right now, a huge win can set me up for success more so than a huge loss would set me back, but I make sure that every risk that I take is extremely calculated and not something that I am just doing on a whim.

At first my mind thought, “well, the stock market historically has always gone up, right?  So, why would I not want to just sit there and take three times the gains as long as I can hold the stock for the long-term?”

Well, there are a couple of reasons:

1 – The Compounding Effect

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