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Welcome to Investing for Beginners podcast this is episode 75. Tonight Andrew and I are going to answer some listener questions. We got some great questions in the last few weeks and we wanted to take a few minutes to go ahead and answer those on the air for you guys. So Andrew why don’t you go ahead and start us off there big guy.

Andrew: all right sounds good. I’m going to start us off with wasn’t the question but it was a cool comment and it’s great to hear and hopefully some of you guys can relate to where she was where she is now give you some inspiration so this is from Shannon she says:

Hi Andrew, just wanted to say thank you so much for the podcast I was left feeling pretty powerless following my most recent meeting with my financial adviser who handles my retirement account. So I vowed to learn more about investments and that is when I came across your podcast I’ve learned so much and started my own account in addition to my retirement account and I’m having so much fun. I love that it is a constant and endless learning process I am surprised at how many of my female friends are in the same position I am and really know nothing about where their money is going. Anyways I just wanted to say thanks for giving me some power back over my money thanks Shannon

That’s really cool to hear and hopefully other people who might be struggling or feeling hopeless can find the inspiration to try to learn something and get yourself from feeling powerless to feeling excited.

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Welcome to Investing for Beginners podcast this episode 74. Tonight we’re going to talk about potential investor problems when examining the history of the market. Andrew has been on a bit of a history bent lately and I’m a big fan of history and I love learning more stuff about what has happened in the past. Because that can always help us in the future when we make decisions those who fail to learn from the past are bound to fail in the future.

So go ahead and starting off Andrew why don’t you go ahead and talk up to us a little bit about short time periods are valueless.

Andrew: yeah so I think this is a nice kind of follow-up to last week’s because we kind of examines the same type of thing right. a lot of studies academic studies about the stock market are looking at what happened in the past and let’s see if we can find a trend a correlation and maybe use that to have better success in the future.

And so we kind of focus in on like the acted the academic part of the particular problems that can arise when you’re looking at particular studies and then how they’re doing that.

Now we can kind of look also how people like you and I the average investor might do kind of similar things and this is particularly common with beginners if you’re not putting thought into this and how it can affect what kind of decisions you’re making then  you might not even realize you’re making these kinds of mistakes.

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Welcome to Investing for Beginners podcast, this is episode 73. Tonight Andrew and I are going to talk about Wall Street study pitfalls, this is based on a book that Andrew is a big fan of by James O’Shaughnessy and we’re going to talk a little bit about some of the potential pitfalls that you may run into.

We’re going to start off by talking about data mining and I think the easiest way that I could explain this was a metaphor that James used in the book and he talked about if you’re in Grand Central Station which is obviously a very large place with lots and lots of people around.

If you find a specific area that has let’s say you go into one too but where one of the trains is running and you see 75 percent of the people there are blonde then you would be potentially thinking that hey everybody in Grand Central Station is 75 percent blonde and that’s not actually the case.

It just happens to be at that particular time at that particular place that you find that and so the data mining is something that if you’re doing Studies on different Wall Street things you different factors of looking for let’s say you want to buy stocks on a Wednesday every 16th month well that’s not necessarily that’s data mining because you feel like you have to only buy stocks on a Wednesday on the 16th of the month.

And that’s it could lead to a lot of pitfalls and okay that means dude but I mean.

Andrew: that’s now uh that’s part of I think having tests that look at history you have to be very careful I think when it comes to studies in general and I’m sure you can extrapolate this to things outside of Wall Street and it’s very easy to take facts and weaponize them and make them sound like basically a way to advance your own agenda and you can manipulate statistics to do that.

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Earnings growth is the life blood of Wall Street. You see this with the obsession of earnings season and analyst projections and estimates. However, when beginning investors try to make these calculations themselves, they can get really tripped up when it comes to negative growth.

Half of the time the calculation for negative growth is straightforward, and the other half of the time it isn’t. So it’s extremely important to know how you can make the wrong calculations for negative growth and instead make sure you’re accurately portraying the correct figures for your earnings growth calculations.

After all, you want to be buying stocks that are growing earnings over the long term– as these will have the ability to pay out increasing income streams in the form of dividend payments, which can compound fantastically over the long term. Oh yeah, and great earnings growth also tends to lead to great gains in share price.

I know that the formula for negative growth can be misleading. I know it for an absolute fact because I’ve received several emails asking for help with it.

This blog post will outline some parts of those emails, which perfectly show where the confusions in growth calculations with negative earnings can appear. I’ll also walk you through my answers to these great questions, and hopefully give a good guide for investors looking to calculate earnings growth on their own.

How to Calculate Earnings Growth

Before we can differentiate between negative growth and positive growth, we need to know how to calculate growth in its simplest form. Here’s the most basic way I can think of to explain this.

Say you have $100. It grows to $125. So it’s now $25 more. $25 is 25% of 100, so you got 25% growth.

The formula for this is (present – initial) / initial. [continue reading…]

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Welcome to Investing for Beginners podcast, this is episode 72. Tonight Andrew and I are going to talk about shareholder yield, this is a term that I came across when I read a book by Meb Faber. One of my favorite podcasters, he’s a quant investor that runs a ETF that he’s a fantastic guy really interesting super smart and sometimes he can be a little technical.

But he’s very interesting and he wrote some great books that are on Amazon and quite a few of them were actually free. So the book that we’re going to talk about tonight that we’re going to reference let me rephrase that is actually free and I will put the link to that in the show notes. If you guys want to check out a little more deep dive into what Andrew and I are going to be talking about tonight that’ll give you an opportunity to check that out so well then further ado Andrew once you go ahead and start us off and talk a little bit about shareholder yield and capital allocation.

Andrew: yeah so shareholders yield a metric it’s a good kind of description for a metric where you’re essentially looking at a CEO management of a company and seeing how are they allocating capital. You have earnings that you get right profits up that these companies have and as we’ve mentioned in previous episodes two to three episodes ago these companies have various decisions that they can they have various purposes that they can use this cash that they have for.

And so shareholders yield is a measure to evaluate that and it can identify companies if there’s a high shareholders yield can identify companies that are really rewarding shareholders giving a lot of that cash and giving it back to shareholders and it doesn’t have to be in the form of a dividend that’s why it’s different than like the dividend yield.

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One of the drawbacks to investing with Robinhood for the dividend investor is that they currently (as of Sept 2018) don’t offer automatic DRIP with their positions. A Robinhood DRIP would be a fantastic feature for users– especially considering that many of the investors who use their platform are beginners.

There are many benefits to DRIP that can lead to serious long term gains over the long term. And while Robinhood can be a great place for investors to start (especially because of the no fee commissions), the loss of potential return from no DRIPs on stocks can more than negate this initial benefit.

However, many investors might have accounts with Robinhood already and an outright liquidation into a new brokerage account might not be the best choice. It really depends on the person.

This blog post will talk about some of the implications for investors considering moving away from Robinhood, or even just getting into DRIP investing in the first place. Hopefully this will give you more clarity and information on what this means for your results and empower you to make the right decision for your finances.

We covered the basics and the pros and cons of the Robinhood platform in episode 39 of The Investing for Beginners Podcast. You can listen to it right here, or read the transcript here.

That discussion spurned additional concerns for a listener who wanted a Robinhood DRIP in place for their current investments. I’ll show case the question and my answer, which can apply to many of you who may be faced with the same problem. [continue reading…]

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Welcome to the Investing for Beginners podcast episode 71. Today Dave is taking a break and I am taking over the reins. We have an interview for you today with somebody who has a really unique take on investing and it’s a cool little mix between investing and entrepreneurship.

We have Greg Elfrink from Empire Flippers and what his company does is provide an outlet and a unique investing possibility and approach where like I said it kind of mends these two ideas of investing and entrepreneurship. And it quite literally is something that wasn’t available before the internet.

This is something very new a new type of investment opportunity and for somebody who is particularly like me because I’m super passionate about entrepreneurship. I’m type A going to go out and spend way too many hours of my day kind of hustling and trying to make a secondary income and some of the who’s familiar with the online space is definitely this is a resource that you might be able to find useful for being creative and finding other investment opportunities.

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Welcome to Investing for Beginners podcast this is episode 70. Tonight Andrew and I are going to discuss risk, we’re going to talk about all the different types of risks there are with investing and we have a very interesting show coming up for you.

So without any further ado I’m going to turn over to Andrew and he’s going to start us off.

Andrew: yeah so when I think about risk and when many people define risk and whether you talk to investment advisor you talk to maybe an individual investor who is more experienced and kind of understand what the risks are when it comes to investing your money.

Well there’s kind of like three major ones so we’ll discuss each of those and it’s very important to talk about risk and think about risk. If you go back to the very basic definition of an investment which I always love to refer to when I’m talking about dividends.

But if you say investment 101 what is that it’s essentially money that you put it you put money at risk and in order to be compensated for that risk you have a reward you have gains you have an income stream and that’s essentially what an investment is.

And that’s no matter how what kind of investment you’re making that’s going to be how it works even if you do something like as simple as lending money to somebody and charging them an interest rate there’s going to be risk there. There’s risks that you lose all your money because some of the skips town and then they don’t pay you those payments right.

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Trying to determine a reasonable valuation of shares for a stock you are considering can be equated, in some ways, with the way and strategies many people use when they go hunting.

I had my first hunting experience back in early 2017 with a friend who was a seasoned hunting enthusiast. I found that the basic approach was fascinating and also very intuitive. From what I understand, there are two busy hunting seasons in the place where I hunted in North Carolina– deer and turkey.

For both occasions you tend to use a shotgun. But, the type of round you use is dependent on what you are hunting. For turkeys you use a round that functions more traditionally like a shotgun. One that sprays wide. For deer, the round tends to be more compacted.

Here’s the logic behind it, and it makes sense for building an idea of the valuation of shares for a publicly traded company.

Turkey are small so you don’t need a big bullet. You just need to hit one with a piece of a bullet. The spray gives you a better chance. With a deer, you need a much more powerful bullet. A little bullet fragment won’t do it, so you need as much firepower to take it down. Of course, you’re consequently more likely to miss.

When I pick stocks… and especially when it comes to price valuations… I prefer a more spray type round.

Let me explain.

Finding the valuation of shares for a stock is a way to calculate whether a stock is cheaper or more expensive than it is really worth.

For example, if you’ve calculated the share valuation of a company to be $20 billion and the market cap of that stock is $10 billion right now, you’re gonna want to buy.

The pitfall I see in any price valuation is taking a more sniper, or concentrated, approach– by only honing in on one or two ratios to calculate valuation. This becomes a problem because the market tends to regulate certain valuations over time.

For example, sometimes you’ll have a couple of years where buying low P/E stocks would have out-performed any other strategy. Other years this could be low P/B stocks, or high cash flow stocks. But, if you buy based on a wide set of price valuations, specifically by using all 3 financial statements, you’re increasing your chance that the stock is truly a low valuation as a whole. [continue reading…]