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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.




A Guide to Investing for Beginners— Your Path to Financial Freedom

“Investing is the process of laying out money now to receive more money in the future.”

Most people think they need thousands or millions of dollars to start investing. The good news is you don’t. We will discuss how to start investing if you are new to the whole idea.

There are some simple steps to follow to get started as early as today. And the sooner you start, the sooner you arrive at your destination.

In today’s post, we will learn:

  • Why Invest in the Market
  • Things to Consider Before Starting
  • 6 Perfect Investments for Beginners

Okay, let’s dive in and learn more about investing for beginners.

Why Invest in the Stock Market?

For most of us, retirement is a long way off, which we think we will do later. But today is the best time to start, and most people put it off, either because they fear what they don’t know or feel they don’t have enough money to start.

The stock market is one of the greatest places to create wealth. Of course, starting or owning your own business is a great way too, but that is not for everyone, where the stock market is open for all.

Starting to invest in the stock market seems scary and full of noise, confusion, and the potential to lose lots of money.

But investing is like anything else; once you learn the basics and understand the reasons behind the behavior, it all makes a lot more sense.

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5 Simple Takeaways from Charlie Munger’s Famous Psychology Speech

The great investor Charlie Munger is known for his mastery of “the art of worldly wisdom,” which combined with his “latticework of mental models” has helped craft his overwhelming success. Part of that includes his lessons on behavioral psychology, as he shared in a famous speech to Harvard University students.

This speech by Charlie Munger was called “The Psychology of Human Misjudgment” and was based heavily on the influential book called Influence by Robert Cialdini.

In this speech, Munger shares what he calls “24 Standard Causes of Human Misjudgment”. Many of these are fascinating, and you can read the entire list by parsing through various transcripts you can find easily online.

For this post, let’s take some of the most helpful lessons from Charlie Munger’s speech and apply them to the average investor.

Hopefully we can learn a thing or two, and apply it to find better performance in the stock market and our overall investment portfolios.

1—Incentives

You can’t start a conversation about investing and Wall Street without mentioning incentives. It’s no secret that one of the biggest problems about Wall Street is that many of the advice-givers and advice-takers have interests (incentives) that are not aligned.

This conflict of interest can cause the advice-taker to earn very suboptimal results, and it can happen naturally because of misaligned incentives rather than overt malicious behavior.

One easy example of the insidious nature of incentives on Wall Street is the world of hedge fund managers and their “2-and-20” fee structure.

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Cash Vs. Stock Acquisitions: What’s Driving The Bus?

If you aggregate all of our stock-only mergers (excluding those we did with two affiliated companies, Diversified Retailing and Blue Chip Stamps), you will find that our shareholders are slightly worse off than they would have been had I not done the transactions. Though it hurts me to say it, when I’ve issued stock, I’ve cost you money.”

Warren Buffett is the best capital allocator in history, arguably. He prefers to buy companies using cash because he understands that it reduces ownership in his company for shareholders when he uses stock.

He likens it to acquiring a .350 hitter in baseball, an excellent acquisition; for a .380 hitter, not such a great acquisition now.

How a company purchases or merges with another company impacts the returns for shareholders, not only in the short term but also in the long term. Learning the ins and outs of the different types of acquisitions will help us anticipate impacting our investments.

In today’s post, we will learn:

  • How One Company Buys Another: The Basics
  • What is a Stock and Cash Acquisition?
  • What Are the Pros and Cons of A Stock Vs. Cash Acquisition?
  • What is a Mixed Deal in Acquisitions?
  • Investor Takeaway

Okay, let’s dive in and learn more about cash vs. stock acquisitions.

How One Company Buys Another: The Basics

Simply, mergers and acquisitions are when two companies decide to combine to form one company. The reasons for these combinations are multifold, but the main goals are revenue and/or cost synergies.

The combined companies can grow revenues faster through many different ways, combining products, product innovation, reaching new markets, better supply chains, marketing, and many more.

There are also reductions in costs, such as eliminating duplicate positions, reducing inventories, and better distribution, among others.

An acquisition happens when one company purchases another, either with cash, stock, or a combination of the two. With an acquisition, there is no change in management, and typically, there is an adoption of a name, either the acquirers or acquirees or a new name altogether.

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The Canadian Investor Podcast Share Their Investment Checklist

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

  • The top checklist ideas with Simon and Braden from the Canadian Investor.
  • Different metrics and items to look for in the financials.
  • The importance of knowing what you own, looking for great businesses, and how to value those opportunities.

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

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Transcript

[00:00:00] Dave: All right, folks. Welcome to Investing for Beginners podcast tonight. We have a very special episode. We have two of our friends from the Canadian investor, the top Canadian investing show, and actually, one of the best-investing shows out there, period, wherever it is in the world.

So we have our friend Braden, who’s been back a few times, and then we also have his partner, Simon Belanger, with us tonight. So they are here to talk to us about investing and share with us some of their wisdom. Hey guys, you want to say hello and tell us a little bit about what’s going on.

[00:00:31] Braden: Dave, thanks for the intro and the kind words on the show. Thanks for having us on; like you said a yeah, me and Simon do host the Canadian investor podcast. It’s everywhere you get your podcasts. We talk about Canadian businesses, US businesses, things we see in the market, and a happy chat tonight.

[00:00:50] Simon: Yeah. Yeah, exactly. Thanks for having us on really excited to be here. Obviously, I’ve listened to your podcast quite a few times, and of course, the times of Braden’s been here excited to be around and talk about some of the things we look at when we look at specific companies.

[00:01:07] Andrew: Thanks for joining us. Why don’t we dig into that?

So you guys recently did an episode that I thought was interesting on investment checklists and checklists are nice for investors. No matter if you’re a beginner or advanced because it can ground you and make sure you’re thinking of the different parts of buying the stock. So can either one of you start with what would be some of the first good ideas for somebody who is trying to build a checklist?

[00:01:35] Simon: Sure, I can start. The first thing I will definitely look at is probably the easiest thing to look at when I find a company. I will look at the market cap. So for those of you who are starting out, the market cap is basically what the value is. So you simply take the number of shares outstanding, and you multiply it by the share price, and then you get the market cap.

The reason why I like to look at the market cap is just an easy metric to quickly look at it. Yeah. Sense of how large the company is. Obviously, it may be different depending on if it’s a company that said that more value company versus a growth company. But for me, that’s always the first thing I’ll look out just to get a quick sense, whether I’m dealing with,

[00:02:15] Andrew: Yeah, it’s a going, can you give ranges of this is a market cap that’s big, this is smaller and what’s somewhere that.

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The Two Main Types of Quantitative Stock Analysis Described

Quantitative analysis for stocks means finding the value (or “valuation”) of the stock using numbers. There are two main types of quantitative valuation methods for stocks—relative and absolute valuation.

Both relative and absolute valuation metrics use numbers only, making them purely a quantitative analysis.

Both have already been defined, so we don’t have to reinvent the wheel on them.

And both can be used objectively, which is a major benefit of quantitative stock analysis. The only subjective parts of numbers-based valuation are the inputs, which for absolute valuation models can be estimated or projected instead of directly copied from historical data.

The difference between the relative absolute valuation methods of analysis are the following:

  1. Relative valuation is used to compare the value or pricing of companies to each other
  2. Absolute valuation attempts to find a specified intrinsic value of a stock

Let’s cover the important concepts behind relative and absolute valuation so that you can use either to analyze stocks with numbers.

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Debt Financing Vs. Equity Financing: The Grudge Match

CEOs have one job, to deploy company capital in a way that grows the company. To do this, they have a choice to make, use debt financing vs. equity financing? Whichever choice they choose goes a long way towards the continued profitability of their company.

Ratios such as return on equity, capital, or invested capital help investors find great capital allocators. They can tell us how efficiently the company uses its assets to grow cash flows. The structure of each company is unique, and the use of debt financing vs. equity financing will depend on each company’s capital structure and where they are in their life cycle.

Warren Buffett waxes eloquently in his shareholders about the benefits of looking for great capital allocators and assessing those by looking at efficiency ratios such as returns on equity or capital.

Buffett believes that successful investments result from a strong, underlying business, with the value stemming from the ability to generate growing cash flows each year. He tries to find management that can deploy their capital efficiently that offer greater returns for shareholders.

In today’s post, we will learn:

  • What is Debt Financing?
  • What is Equity Financing?
  • Pros and Cons of Debt Financing vs. Equity Financing
  • Is Debt Financing Riskier Than Equity Financing?
  • Investor Takeaway

Okay, let’s dive in and learn more about debt financing vs. equity financing.

What is Debt Financing?

Debt financing is a company’s process to raise funds for working capital or other capital expenditures by offering debt to individual investors or institutions. These debt offerings come in bonds, which the company offers in exchange for the investor’s money. These bonds guarantee a full return of their invested capital, along with regular interest payments.

For example, an investor might give a company $1000 for a company’s bond; in return, the company guarantees the return of that $1,000, along with an interest payment every six months for the length of the agreed investment, typically 10 to 30 years.

Once the investor buys the bond, they become a creditor of the company, with the company’s promise to repay the initial capital ($1,000) plus interest payments on that debt.

A common use of debt financing is in the area of mergers and acquisitions. Many companies will offer bonds to investors to raise cash to complete an acquisition. The company’s cash from the investors is used to purchase another company to grow for various reasons, such as increased revenue, larger reach, or better products.

Debt financing involves a cost, and that cost comes from the interest payments to bondholders. That is the cost for the company. If Microsoft offers a bond to investors at an interest rate of 3%, then those 3% interest payments are the cost of debt financing to Microsoft.

It is also the hurdle rate the company must achieve to have a successful investment, whether an acquisition, capital expenditure such as buying equipment, or additional R&D.

If the company’s return on investment or capital is less than the 3% it pays in interest payments, the investment can be considered a failure.

With current interest rates so historically low, there has been an uptick in debt financing through the markets as more and more companies turn to cheap financing to finance their growth. Because the interest rates are so low, companies can offer bonds at low-interest rates that entice investors to grab for yield while offering companies cheap cash to fuel their growth.

That is why it is important to keep at least a cursory knowledge of the current interest rate environment. As rates continue to remain low, many companies will potentially gorge on too much debt financing, and it is important to keep an eye on that activity.

Use measures to check that like the:

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Quotes about Inflation from Famous Investors – What We Can Learn

The most successful investors in the stock market probably know a thing or two about inflation. Of the many great quotes about inflation from these investors, perhaps no single quote sums it up better than this one from Charlie Munger:

“I remember the $0.05 hamburger and a $0.40-per-hour minimum wage, so I’ve seen a tremendous amount of inflation in my lifetime. Did it ruin the investment climate? I think not.”

The problem with inflation is that it reduces purchasing power for everyone. In other words, with inflation, a dollar today doesn’t buy as much as a dollar tomorrow.

That said—there is still money to be made even with inflation.

Charlie Munger has had to deal with inflation all of his life, and yet he still earned fantastic returns in the stock market for himself and his shareholders.

In this post we’ll look at some famous quotes about inflation, and use them to improve our own investment returns by learning its implications on business and the stock market.

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Stock Market Cycles: How to Analyze and Profit

“Warren Buffett tells us, “The less prudence with which others conduct their affairs, the greater the prudence with which we should conduct our own affairs.”


― Howard Marks, Mastering The Market Cycle: Getting the odds on your side

Stock market cycles, represented by the bear and bull markets, ebb and flow through time. Investing during different market cycles presents different issues, and understanding the different stock market cycles and their impacts on our investments is crucial.

Many believe there is no risk to investing during good times until the market turns for the worse. But the converse of that is true; some of the best times to invest are when times are the worst. If we look at the stock market history, there is ample evidence of stock market cycles and how they move. Often, a bear market leads to a bull market and vice versa.

In today’s post, we will learn:

  • What Are Market Cycles?
  • What Are the Four Stages of a Market Cycle?
  • How Long Are Market Cycles?
  • Timing Market Cycles, Pros, and Cons
  • Investor Takeaway

Okay, let’s dive in and learn more about stock market cycles.

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IFB208: ETFs and Dividends/Fees, Plus How to Navigate Changes in Financials

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

  • How expense fees and dividend yields work for ETFS, and whether they change over time.
  • An example of a set it and forget it type investment portfolio using ETFs
  • How to examine financials for irregularities or any other changes from the past to present using CTRL-F function.

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

SUBSCRIBE TO THE SHOW

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Transcript

[00:00:00] Dave: All right, folks. Welcome to Investing for Beginners podcast. Tonight, we have episode 208, and we will discuss a great list of questions we got recently. And so, without any further ado, I will go ahead and read our first question.

So I have hi, Andrew. I’ve been listening to your podcast each week since I began investing in January; I’ve learned so much from your podcast. I have a few questions about ETFs that I’m hoping you could answer here or on an upcoming episode, does the expense ratio of an ETF ever change, or is it locked in for each share I buy? Similarly, does the dividend yield of an ETF ever change? Thank you, Joseph. Andrew, what are your thoughts on Joseph’s question?

[00:00:43] Andrew: So let’s start in case some of these are beginning just to tune in an ETF is an extreme exchange-traded fund, easy for me to say easy. And it’s a group of stocks bought into a single fund, and you can buy one share of it.

It gives you ownership of those stocks. The most common ones you’ll see are as a market index ETF. Let’s you buy the entire stock market in the basket. So when you buy an ETF, you have to pay an expense fee. So if you are, let’s say you bought an ETF that bought the whole stock market. So that fund would give you whatever those stocks values are, but they take some of it for themselves.

Cause it costs money. For them to deal with paperwork, to deal with the regulation and all of the administrative costs that go with collecting a bunch of people’s money and using that to buy stocks in a group, in a vehicle called an ETF that all costs money. So there’s an expense ratio for that. Does that change, or is that locked in, you have a long-term trend of exchange to answer Joseph’s question?

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“There is Always a Bull Market Somewhere.” Or is there?

Brand new investors might look at a rising stock market and all-time highs as a potential indicator that stocks are expensive. However, new investors should consider the quote I heard from the popular Jim Cramer when I first started investing—that “there is always a bull market somewhere”.

If there’s always a bull market somewhere, then this implies that a bull market is not universal. Some stocks might be in a bull market at the same time others might be in a bear market.

Taking that logic further, if not all stocks are included during a bull market, then there are some stocks that are probably cheap, even when the market is at all-time highs.

This is contingent on the assumption that there indeed is “always a bull market somewhere”. With this post, I’d like to examine this statement and whether it’s true most of the time or not.

To start, let’s dive into the shoes of a beginner, through their lens following a strong couple years in the stock market (2020 and the middle of 2021). Here’s part of an email we received from a podcast listener which we can examine with a deep dive here:

“Even through COVID we are right now I feel at a high point in the market just based off of how well the housing industry is doing and I bought some SPY stocks in Feb and am up like 19% or a ridiculous amount, so when the market is at a high point or even at the peak do you usually still see many of these companies that are valued below their intrinsic value or do they tend to rise with the rest of the market?”

Thanks,

Ben

Going back to the idea of a bull market, if the companies tend to rise with the rest of the market then it would imply that near all-time highs, all stocks are in a bull market.

There’s some truth to that statement—a rising tide tends to raise all boats.

That said, when looking for value during an extremely high “tide”, then this idea would be increasingly impossible if all stocks rose together during bull markets. Because if during a bull market all stocks rose together, then during a bear market all stocks would have to fall together.

If all stocks were to fall together, then during a bear market you probably couldn’t make the statement that there is, in fact, always a bull market somewhere.

I’d like to take a look at some recent history of the stock market to try and apply some practicality to this idea.

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Everything You Need to Know About M&A Synergies

“Why do mergers and acquisitions carry such a high degree of risk? In almost all cases, the seller, who has operated the business for years, knows much more about it and its weak spots than does the buyer.”

Companies allocate more on mergers and acquisitions (M&A) than any other option for capital allocation. For many businesses, M&A is the most important and expensive choice to pursue their strategic goals. M&A activity since 1995 has averaged over 8% of market capitalization globally, and in 2021 that activity has only accelerated with $1.9 trillion in the US and $3.8 trillion globally.

As the bull market continues, M&A activity will continue to bloom as M&A activity tends to follow market trends. And as the enthusiasm for deals continues, the two most popular buzzwords around M&A, revenue and cost synergies, will continue to swirl.

As we will discover, most M&A activity fails, with only 1/3 of all deals proving to be successful for both the acquiree and acquired. The basic idea is that M&A creates value for shareholders, but typically to the seller’s benefit.

In today’s post, we will learn:

  • The Two Types of Synergies
  • Analyzing Cost Synergies
  • Analyzing Revenue Synergies
  • The Reality of M&A Synergies
  • Investor Takeaway

Okay, let’s dive in and learn more about M&A synergies.

The Two Types of Synergies

Synergy is the idea that a combination of two companies will perform better than the sum of the parts. In M&A terms, synergy is the potential benefit both companies will achieve by combining their powers and is often the driving force behind the merger or acquisition.

Many CEOs and boards of directors believe if they can combine two companies, they will create greater efficiency, scale, or revenue growth than the separate parts can produce.

These different synergies are believed to be achieved through greater:

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