Learn the stock market in 7 easy steps. Get spreadsheets & eBook with your free subscription!


Let’s find YOUR path to financial freedom…


  • 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.

[continue reading…]

Balance Sheet Item: Book Value of Equity and Its Individual Components

“Price is what you pay; value is what you get.”

Part of the process of evaluating a company for investment is determining the value of its assets, liabilities, and equity. Most of us are familiar with assets such as accounts receivable and liabilities such as debt. But how many of us understand equity and how to determine the value of that equity?

The book value of equity tells us how much we are paying for our investment because, as owners, that is what we “own.” When the company repurchases shares, it is buying back its equity, which helps improve our ownership value. Dividends are distributions of the equity of the company to shareholders.

Both of these methods are great ways to generate shareholder returns, but let’s look a little closer at a company’s equity to get a better sense of what we own and its value.

In today’s post, we will learn:

  • What is the Book Value of Equity?
  • Market Value vs. Book Value of Equity
  • The Parts that Makeup Equity
  • How to Calculate Book Value of Equity From the Balance Sheet
  • Investor Takeaway

Okay, let’s dive in and learn more about the book value of equity.

[continue reading…]

Letter to My Future Self – Investing in the Next Bear Market (‘20 Lessons)

Dear Forgetful Andrew,

It’s really hard to remember the details when too much time passes. So I’m writing to you now so that hopefully you don’t forget what’s most important when the next bear market comes around.

We just exited through one of the fastest bear markets and recoveries that the stock market has ever seen.

Looking back, I guess it was really a correction, but while we were in it, it looked and felt like a bear market. The entire world was upended by a virus, and the unprecedented lockdowns created (what seemed like) eternal uncertainty. Not just in the economy, but with everyone’s personal lives as well.

Fast forward from the correction, the scare from the temporary freezing of the bond market, and the sky-high surge in unemployment, and now the world has proven it can adapt.

Humankind found a way to adapt, have an economy, and survive, like it never had before.

And perhaps that’s lesson #1 for the next bear market:

  • Humans are extremely good at adapting to “the end of the world”

A little over 12 months since we had the pandemic scare, we’re still in the throes of a pandemic, but vaccines have been rolled out and we are rebuilding.

The macroeconomic environment is showing signs of inflation, with the prices of homes, timber, and even corn skyrocketing in recent months. The Fed has committed to keeping the Fed Funds Rate low, and fears about rising interest rates abound.

We just saw the 10-year Treasury cross above 1%, then 1.5%, which triggered a sell-off in the once impenetrable tech growth stocks.

Some policy makers think we should raise interest rates to cool off the roaring hot, rebounding economy—it’s impossible to know what’s going to happen next.

And that’s been the theme throughout 2020 and early 2021; everybody has had their ideas about what’s going to happen next but nobody knows for certain.

With all of the uncertainty that comes with a crisis, we get a tsunami of noise. During uncertainty, we crave explanations and projections.

We want chaos neatly boxed and organized. We want to know that things are progressing back to the plan.

Like the Joker said, “nobody panics when things go ‘according to plan.’ Even if the plan is horrifying!” and, “Upset the established order, and everything becomes chaos.

Things brings lesson #2 for your next bear market:

[continue reading…]

Lessons After 40+ Interviews of the Greatest Investors with William Green

Welcome to the Investing for Beginners podcast. In today’s show, we interview William Green of Richer, Wiser, Happier:

  • Takeaways from the book on life, habits, and processes
  • Discussion on cloning, finding ideas, and how to win in the markets.
  • How to fashion the life you want to live and discover what is important to you

Check out the book here, Richer, Wiser, Happier.

For more insight like this into investing and stock selection for beginners, visit stockmarketpdf.com

SUBSCRIBE TO THE SHOW

Apple | Spotify | Google | Stitcher | Tunein

Transcript

Announcer (00:02):

I love this podcast because it crushes your dreams and 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 with a step-by-step premium investing guide for beginners. Your path to financial freedom starts now.

Dave (00:00:33):

All right, folks, welcome to investing for beginners podcast. Tonight, we have a very special episode. We are honored to be joined by renowned journalist William Green, who has written for, among many other publications, Forbes time and the new Yorker. And he recently came out with a fantastic book. It is awesome. It’s called Richer, Wiser, and Happier, and he talks about some of the world’s greatest investors and kind of how they win in life and the markets. So he’s here to share some of his insights with us, and there are many of them. So let’s start by maybe talking about my personal favorite and being the first chapter in the book. So that was kind of appropriate. Is Monish Pabrai. Monish is one of my favorites, and there’s some great stuff in there. And I wonder if you could tell us a little bit about Monish and his personality and kind of what kind of came through for you as like what his keys to life are?

William (00:01:30):

Sure. Absolutely. When I, when I first started working on this book about five years ago, which I’m embarrassed to say that it took me so long, but it’s it was a pretty monumental task. The first person I went to travel with actually was managed. And I knew from spending a lot of time interviewing him in the past that, that he’s pretty special and that he would give me a way of exploring a really important idea, which is the idea of what he calls cloning, which you could call replication or mimicry modeling, something like that. But what he’s basically doing is he’s reverse engineering, what people who are smarter, wiser, more experienced have already figured out, and then he’s replicating it with, really, for Monish. So attention to detail. And this struck me as a really fascinating idea because most of us really are obsessed with the idea of being original.

William (00:02:27):

And here was this very brilliant guy, a guy with an IQ and a hundred eighty, basically saying I’m actually just going to figure out who the smartest players of this particular game of investing are, and then I’m going to reverse engineer them. And so it all started fo for Mohnish in, I think, 1994, when at the time he was running a tech company, it was a tech consulting company. And I think he, it was pretty successful. He had something like 150 160 employees. He ended up selling the company for about $6 million, but he, he was basically, whiling away some time in Heathrow airport. And he opens a book by Peter Lynch, and he reads about Buffet for the first time. And he sees that Buffet basically had been compounding money at 31% a year for 45 years. And Monish, who’s very mathematically oriented, understands the implications of this.

[continue reading…]

Qualified Dividends are Your Way to Minimize Tax on Reinvested Dividends!

Long story, short, the answer is yes – you are going to have to pay taxes on reinvested dividends. While there are a ton of advantages to having your portfolio set up for Dividend Reinvestment Plans, or DRIP, tax avoidance is unfortunately not one of them. But don’t be discouraged – if you buy and hold, you’re going to be just fine!

As they say – nothing is as certain in life as death and taxes and guess what, that certainly applies to your dividends as well. The good news is that even though you’re receiving a dividend, which is technically considered a form of income as your stocks are paying out a portion of their earnings directly to you, there are actually ways that you can avoid paying your entire income tax rate and save a little bit of cash – you just need to be knowledgeable and understand how to take advantage!

Like I mentioned, you are going to have to pay some tax, but the question is, how much tax are you going to be on the hook for?

Well, that question is one that comes down to one overarching question – are the dividends considered qualified or ordinary? Chances are, you have no idea, and that’s completely fine! Let me breakdown the key differences for you.

The way that I would think of it is that all dividends are considered ordinary, but some meet certain qualifications that then therefore make them qualified. So, they’re all dividends but can become qualified if you meet certain criteria.

To be a qualified dividend, they must:

  • Dividends must be paid by a US Corporation or a qualified foreign corporation
    • Since you’re likely buying shares of a company on a publicly traded brokerage platform like Fidelity, Schwab, TD Ameritrade, or even Robinhood, you’re going to be completely fine.
  • You must hold the stock for at least 60 days during the 121-day period that includes 60 days prior to the ex-dividend date, the ex-dividend date, and 60 days after the ex-dividend date
    • So, if the ex-dividend date is on 7/1, then the 121-day window would range from 5/2 (60 days prior to ex-dividend date) to 8/30 (60 days after the ex-dividend date).

The rules are not that hard to follow, truthfully, especially if you’re a long-term investor like we are. Even if you were to buy the day prior to the ex-dividend date (so you got that dividend!) and then held on for the long-term, you’d still qualify because you held the stock for the 60-day period after the ex-dividend date.

Now, the question that is likely coming into your mind is what the impact of this really is to you. Well, first let’s look at the Ordinary Dividend Tax Rates in 2021, otherwise known as your normal income tax rates:

Hopefully none of this is a surprise to you! Now let’s look at the qualified dividend tax rates in 2021:

[continue reading…]

2009 Bankruptcies Feature: Monaco Coach Falls to a Black Swan Event

Newsflash—even profitable companies can suddenly go bankrupt. Unlike many of the 2009 bankruptcies, Monaco did not have much debt on its balance sheet. It was obligations that were hidden outside of the consolidated financial statements which led to their demise.

Most analysts and investors focus on a company’s consolidated financials when it comes to evaluating the risk of a business.

This makes sense because nobody in the world has time to read every word of every single annual report, at least not in any given year.

We need shortcuts to help us filter bad companies quickly, which is why there are great risk evaluation formulas such as:

However, just because a company scores great in all of the standard risk measurements doesn’t mean that the company is safe.

Any company can be wiped out with what Nassim Taleb called a “black swan event”, which are unprecedented changes in our very random world which don’t follow historical norms.

We’ll see very soon how a low historical default rate led Monaco to take on huge downside risk—which didn’t seem risky at the time because such an economic collapse hadn’t happened before.

This is a reason why conservative leaders of companies such as Berkshire Hathaway’s Warren Buffett like to keep cash on the balance sheet, and limit their obligations.

Critics might call Buffett too conservative, and say he is wasting cash by letting too much of it sit on the balance sheet, but so far his track record of survival is 100%. Sometimes a “pretty good” outcome in the business world is better than “extremely efficient”, especially when too much efficiency and not enough of a safety buffer (or “margin of safety”) leads to big downside risks from a black swan event.

Let’s be clear—no business can control the chances of a black swan event.

Nowhere was this more evident than the pandemic of 2020. How were restaurants to know that they would be shut down, and see their once reliable cash flows completely evaporate due to these lockdowns?

Restaurant owners and other affected business owners couldn’t have known that this would happen, and those who didn’t leave huge cash buffers and/or minimal exposures to debt and lease obligations had no chance against the pandemic.

Sometimes it is better to be safe than sorry, and as we’ll see with this 2009 bankruptcy feature, Monaco and its 5,000+ employees were themselves affected by their own black swan—the Great Financial Crisis.

[continue reading…]

How an ROIC Tree Shows a Company’s Growth Drivers and Capital Efficiency

Corporate officers are in the business of allocating capital. The goal for each CEO is to return an attractive return on its capital. All companies create value for their company and shareholders when they earn a return above the opportunity for other capital allocations. One way to measure those returns is the metric ROIC, and an ROIC tree helps you understand the inputs for that ratio.

Many of the great CEOs are great capital allocators, such as Warren Buffett, Jeff Bezos, and Steve Jobs. They were able to create better opportunities for their companies by allocating their capital in amazing ways. Those capital allocations allowed their companies to grow at tremendous rates, along with creating life-changing products and systems.

Understanding the different drivers of value and how they impact the company’s capital allocations helps investors see what drives its growth.

In today’s post, we will learn:

  • Return on Invested Capital Refresher
  • Building an ROIC Tree
  • Finding the Value Drivers with an ROIC Tree
  • Investor Takeaway

Okay, let’s dive in and learn more about the ROIC tree.

[continue reading…]

Depreciation and Amortization – A Complete Financial Statements Guide

Buying businesses and equipment for operations is a part of business, and using both depreciation and amortization is how companies account for those purchases.

There has been a lot of ink spilled on the benefits or harm done by considering depreciation and amortization a “non-cash” expense. Some consider these items as non-cash because we add them back to earnings to calculate free cash flow, where others consider it an expense. After all, you spend actual cash on the purchase.

With the rise of intangibles and their occupying more assets of a company’s balance sheet, we need to understand their impact on revenues and how they pay for that growth. Investments in hardware are investments, as is buying a business to enhance your products. And how we account for that working capital is important to understand the company’s path to increased revenue growth.

In today’s post, we will learn:

  • What are Depreciation and Amortization?
  • What is Depreciation and Amortization on the Income Statement?
  • The Importance of Amortization
  • Cash Flows and the Impact of Depreciation and Amortization
  • Investor Takeaway

Okay, let’s dive in and learn more about depreciation and amortization.

[continue reading…]

How Do You Know When To Sell a Stock?

I’m telling you, sometimes the stock market can be brutal. It’s very easy to get excited about a stock and buy it with the hopes for great profits. It’s very hard to know when to part with it. So how do you know when to sell a stock?

This is a question that is old as time in the stock market.

If you ask an investing great, he/she will likely say something to the effect of “the best time to sell a stock is never.” In fact I think Buffett said that one already.

But the reality is that sometimes our stocks don’t always work out.

And the reason for that is because the business world is so unpredictable and competitive. The great thing about capitalism is that competition creates better products and services, which leads to great profits and wealth; the bad part about capitalism is that competition constantly tries to take what you’ve built and is destructive to current players.

The other side of this is knowing when to sell a stock to take profits.

If you’re never taking profits from your stocks, are you ever actually benefiting from saving and investing your hard earned money, or is it just giving you a high score on a piece of paper (wealthy on paper)?

Maybe, and maybe not.

There’s a lot to unpack in the question of knowing when to sell, and I’ll try to cover as much as I can here. We’re going to try and answer this question by talking through these key points:

  • Knowing When to Sell to Avoid Losses
  • The Basics (and Flaws) of the Trailing Stop Loss
  • When To Sell? It’s In the Fundamentals
  • When to Take Profits? A Very Personal Question

First, let’s talk about the dark side of investing—losses.

[continue reading…]

IFB195: Stocks with Multiple Tickers, Keeping Dry Powder for Corrections

Welcome to the Investing for Beginners podcast. In today’s show we discuss:

  • Thoughts on different classes of stock, such as B shares
  • Reading through proxy statements and what to information you can learn.
  • Different ideas around keeping “dry powder” in the event of market downturns.

Today’s sponsor: NordVPN and their special offer for our listeners of one month free with a 2-year subscription.

For more insight like this into investing and stock selection for beginners, visit stockmarketpdf.com

SUBSCRIBE TO THE SHOW

Apple | Spotify | Google | Stitcher | Tunein

Transcript

Announcer (00:02):

I love this podcast because it crushes your dreams and 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 with a step-by-step premium investing guide for beginners. Your path to financial freedom starts now.

Dave (00:44):

Welcome to the Investing for Beginners podcast. Tonight. We have episode 195 tonight. Andrew and I are going to read a really good list of questions we got recently. So I’m going to go ahead and start reading the first one, and then we’ll just do our usual give and take. So here we go. Hello Andrew. Hello, Dave; I love your podcast. Weren’t so much, but I still have a problem investing in certain companies. Many companies have several different stocks available. How do I decide which one to buy and where I can find a good resource, which helps me understand the differences between these stocks. Recently, it got interested in Viacom, they got three different stocks. BIAC Vic EI and BI ACP. What are those? Why do they have them? And how can I decide which one to get? Cheers, Timo. Andrew, what are your thoughts on Timo is really good question about Viacom. I know, you know, a little something about the company.

Andrew (01:42):

I do know a little bit about them. They had that huge blow up lately. But before we get too off track on that, the reason you see different tickers for different companies is because there can be different classes of shares for a company. And so it can be confusing cause there could be like sometimes two classes, sometimes three classes and all that. The easiest way to think of it is a very common one would be where they split these classes into voting and non-voting shares. So let’s take Viacom as, as a good example here. The first two tickers, you mentioned via C and VIAC are the two classes of shares. One is voting. The other is non-binding. So class a is the VI a C a that one is a voting stock and class B is non-voting. So what does that mean by the, the non-binding basically as part of running the company and the governance of a company, the shareholders will have the authority to vote on certain issues. So every company has like a CEO and then they have the board of directors and then you have the shareholders.

[continue reading…]

Handy Andy’s Lessons: How to Save $5000 In a Year!

Saving money might seem like an impossible task but I promise you, it’s not. It doesn’t require some insane sort of intelligence or some master plan to save a little bit of money and I am here to show you the way – let’s learn how to save $5000 in a year!

$5000 might seem like some random number that I pulled out of a hat but trust me, it’s not. According to PayScale, the average person works 13 years and 2 months of their life. Isn’t that nuts?? That seems like so much of your life is spent at work and guess what – it is!

But let’s do a little bit of a calculation and please understand that I am making some pretty major assumptions here:

  • If you work 13 years and 2 months, that means that you worked a total of 115,341 hours (13 years and 2 months = 158 months. 158 months * 30.417 days/month = 115,341).
  • Chances are, most people do not actually work only 40 hours/week. I know that I don’t, and I know many others don’t as well, so I am going to assume the average work week is 50 hours/week. This means that you will work about 2600 hours/year.
  • 115,341 total hours/2600 hours = 44.36 years that you will work at that rate of 50 hours/week.

If you save $5000/year for 44.36 years you will have $221,800!

BUT! If you had simply invested that money instead at an average annual return of 8% (the S&P 500 is above 10%), then you would have much, much more than that…

Like $2 million

Look below:

[continue reading…]