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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 13,800+ 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.




Having the Mindset for Success When Your Stock Drops

2018 has been a year full of scary headlines and big drops down in the stock market. If you’ve been an investor during this time, I’m sure you’ve seen multiple days where your stock drops in value much more than you would’ve liked.

Of course the invention of the internet has proliferated the potential for overreaction on every day of big stock drops.

Twitter can be especially bad. A 1% drop in stock prices can set the Twitterverse ablaze, with people and articles popping out of the woodwork to give their bad opinions. But if you follow the right people, you can get good perspective that helps you think in a more profitable mindset.

For example, instead of over dramatizing the 1% drop and creating worry and dread like the media, the Twitter accounts I follow were sarcastic, funny, and making comments like @michaelbatnick:

“S&P 500 tumbles at the open to +5.9% for January.”

Wow.. good point… the market has been crushing it since 2009. Compare that what happens when you Google “S&P 500”:

“What’s behind the stock market’s biggest one day drop since August”

With a picture of a guy in a suit (looks like he works on the trading floor) with his balding head buried into his hand in tired frustration.

stock drops

Glass half full vs. not, right?

Anyways, let’s talk about the big picture instead of little picture. When a stock you own sees a price drop, it can be very good or very bad. But you have to be thinking long term.

The difference is in the impact of long term business results.

When a stock drops, a lot of the time it’s because something happened that was less favorable. Like with Apple earlier in the year, iPhone X demand dropped (according to headlines) “because of lower demand because of the $1,000 price point”.

It’s not necessarily bad for the long term. If it’s a temporary hiccup, but Apple continues steady growth, then that looks like a chance to bargain buy.

But say people are straying away from Apple because Androids are now the “cool” phone. In that case the demand is a symptom of lower revenues and earnings to come. That’s where it’s bad.

You can never tell with certainty which of the two cases it’d be for every (or any) company. It may get harder with industrial stocks or b2b businesses.

That’s why we need to differentiate from a numbers standpoint. It’s the only way to be able to analyze any big stock drops– which is how to increase chances that we’ll be more right than wrong.

I’ll give you a couple more examples.  [continue reading…]

IFB78: The Value in a Stock with a Competitive Moat

competitive moat

Announcer:                           00:00                     You’re tuned in to the investing for beginners podcast. Finally, step by step premium investment guidance for beginners led by Andrew and Dave, to decode industry jargon, silence crippling confusion, and help you overcome emotions by looking at the numbers, your path to financial freedom starts now.

Dave:                                    00:35                     All right, folks, welcome to investing for beginners episode 79 tonight. Andrew and I are going to talk about moats, competitive, both business advantages, all the things you look for in a great business, and we’re going to talk a little bit about some of the ins and outs of those as well as some things to look out for and how you can find great companies with moats. So Andrew, why don’t you go ahead and start us off and talk a little bit about moats.

Andrew:                              01:00                     Yeah, let’s do it. Shout out to Warren Buffett, right? He kind of came up with this idea. What’s a moat, other than the margin of safety. I don’t know if they use that for the margin of safety metaphor also, but you know, uh, I’m assuming most of you don’t have castles and don’t have a moat. So we’ll explain that real quick. Uh, if you had a castle, your try the defendant against attackers who might be pounding at your walls. So if you build a moat and you fill it with water, they’re going to have to, although I guess swim across and you can pick them off.

[continue reading…]

IFB77: A Stock Selling Theory: Three Strikes and You’re Out

stock selling

 

Dave:                                    00:35                     Welcome to episode 77 tonight. Andrew and I are going to talk about a stock selling theory. Three strikes. You’re out. Andrew has some thoughts on selling a stock and you wanted to share them with you, so we’re going to go ahead and start us off. Andrew, why don’t you tell us your ideas.

Andrew:                              00:53                     Should I really? Does anybody want to hear them? I think they do. Okay. I will. I’m God this cold email today. I want us to share it because it’s inspiring. A email from Renee says,

Dave:                                    01:08                     I just got into investing maybe 10 days ago and they’re already listened to around 10 podcast. Keep up the good work.

Dave:                                    01:14                     Those are the kinds of things I love to hear. It fires me up a 10 day brand new investor. That might be. That might break our record as far as recorded record of being public. I don’t know if some of these beaten that. That’s pretty cool. It is. So keep those coming. Uh, that fires me up to get me a recording on an episode like today.

Andrew:                              01:40                     But you know, we want to talk about selling a. We talked previously in episode 65 a. If you go back and listen to the archives, I talked about how my approach evolved a bit. When I went back, I looked back at the history of some of the buys and sells I made through the Eli, their portfolio and Ivy. I used to break up the portfolio into two portions. I had the regular portion and the dividend fortress portion. I still have those two sections kinda a segregated off, but I had trailing stops on the regular portion. And in episode 65 I talked about why I no longer use trailing stops.

Andrew:                              02:33                     Kind of a cliff notes on that was I found that because the way I picked stocks is very, very conservative, very, very much so. Margin of safety, emphasis on the safety. A lot of these companies with strong balance sheets, maybe not explosive growth that leads the market, but Kinda just plugs along slowly but surely and quietly creating profits and with them is that grow over time and trading at prices that make them not popular. Right? So already by that, by that kind of definition, they’re not going to have momentum at least a start. And so what I found, looking back at some of the stock picks I had, I had several where if I would have not, you know, if I would have not applied the trailing stop if I were the let the stock run, than I would have actually had much higher performance. And that was a pretty consistent trend I noticed through several years of data. So, uh, coming up on, oh, I just hit the four year anniversary for the leather. So it was about three and a half years of data when I looked at that. So I kind of wanted it to look at that again. [continue reading…]

How to Evaluate a Stock and Its Current Price in the Market

A big part of learning how to evaluate a stock is determining whether the stock is trading at a good price or not. You could buy a stock with the best business in the world but still get a terrible return on your investment if you pay too much.

This is something that unfortunately gets forgotten by many investors who buy individual stocks.

how to evaluate a stock

The mindset needs to shift from “buying now and selling to someone else later” to “buying a business at a reasonable price and holding for the long term”. The former requires impeccable timing while the latter provides much more room for error.

When buying stocks, it’s imperative to utilize a system that predicates its success on the general principles behind it rather than the investor’s skills. After all, Warren Buffett was quoted as saying “Investing is not a game where the guy with the 160 IQ beats the guy with a 130 IQ. Rationality is essential.”.

To figure out what makes up a great price, and how we can use that to evaluate a stock, it’s important to first consider what sets prices in the marketplace as a whole, and then clarify it inside of the marketplace known as Wall Street’s stock market.

The Economics of Price (101)

What makes the price of something?

Last I checked, there’s no book somewhere that definitely sets the price for any one item. There’s no Kelly Blue Book for a loaf of bread, or a dozen eggs, or a gallon of milk.

Even the Kelly Blue Book for a car can be wildly inaccurate and depend on many other factors like the condition of the car and the used car market.

The price of something depends on supply vs. demand. It’s the sweet spot where two people (or a person and a business) can agree to swap goods or services.

Demand plays a huge role. What happens when a store goes out of business? and why? [continue reading…]

Index Funds vs. Stocks: We Need to Talk About Investor Behavior

Today’s investor has a lot of options for investing money. Index funds vs. stocks vs. bonds vs. alternative currencies. The list goes on.

With lots of research confirming the superiority of stocks over dividends for the very long term, many investors are approaching the stock market but in very different ways.

indexing

Many books, experts, and financial advisors recommend buying index funds (through ETFs) rather than trying to pick individual stocks. However, the behavior of the average investor has suggested a different view– with the many resources and services available out there to support an investor trying to pick stocks.

Both methods have pros and cons.

Indexing is relatively new to the world of investing while the ability to buy individual stocks has been around since the before the 1900s.

In this blog post about index funds vs. stocks, I’ll briefly introduce what an index fund/ ETF is, and talk about what makes it distinct from individual stocks. I’ll talk about why indexing is a common recommendation for the average investor.

I’ll highlight some of the emails I’ve received from readers, who know I advocate picking stocks and challenge that viewpoint. Finally, I’ll get to the crux of the issue and take a deep dive to consider which approach can give the most optimal returns and if it is feasible for the average investor.

What’s an Index Fund?

Much like a mutual fund, an index fund is a basket of stocks grouped together that an investor can purchase outright. This is commonly done through an ETF.

The most common index fund is a market index ETF like ticker symbol $SPY, which holds a basket of all of the stocks in the market (commonly defined as the S&P 500). Instead of an investor having to buy all 500 stocks of the market individually, the investor can purchase an index fund comprised of all 500 stocks.

This has multiple benefits.  [continue reading…]

IFB76: Market Outlook and Predictions

 

market outlook

Welcome to Investing for Beginners pocket and this is episode 76. Tonight Andrew and I are going to do something a little different for us, we’re going to talk about some fun predictions. We’re going to go off the radar and off the range a little bit and talk about some upcoming predictions we think might happen and so we can give you an idea of what kind of great prognosticators we are now.

Well let’s talk a little bit about some stock market stuff maybe a baseball thing or two and just kind of have a little fun so Andrew why don’t you go ahead and start us off a little chat a little bit.

Andrew: all right you mentioned baseball obviously we’re recording this and there’s a game on so before we get into the stock market stuff I want to know who do you think is going to win the World Series this year?

We have to give a context if you’re listening this in the future right now there’s the Dodgers the Braves the Rockies and Milwaukee yes that that’s kind of crazy that’s./ I don’t remember the last time they were in the playoffs with I don’t know where that is just kidding killing and then I’m al there’s Boston New York that’s turned out to be really cool series they were always big rivals.

[continue reading…]

How the Mr. Market Metaphor Helps Investors Buy Low and Sell High

The stock market is a very emotional place. Why? Because it is made up of humans beings. Fear and greed are felt and then played out, which is why you’ll see irrational bull and bear markets. Warren Buffett’s mentor, Benjamin Graham, tried to explain this phenomenon with a fictional character he called Mr. Market.

Graham used the Mr. Market metaphor to not only explain why the stock market behaves emotionally, but to discuss how investors can capitalize on these exact characteristics.

He tells the story to show exactly how stocks can become mis-priced, trading at prices that may be cheap one day and expensive the next. Investors who understand this can buy the stocks that are underpriced and sometimes sell stocks that become overpriced, to profit from the market’s madness.

Who or What is Mr. Market?

Graham described a character he called Mr. Market in his bestselling investing book, The Intelligent Investor. You are the owner of a very successful business. Say you have a man who has bipolar disorder. His name is Mr. Market.

Now because Mr. Market is bipolar, he gets really extreme mood swings. Everyday he comes up to you and offers to buy your business at a price. Some days he’ll be in a very good mood and offer you a high price for your business. Others he’ll be very depressed and offer such a low and unfair price.

mr. market

All along the way, you still own a successful business. That fact doesn’t change from day to day, but the prices that Mr. Market quotes does.

You wouldn’t sell your successful business to Mr. Market at a low price just because he is in a bad mood. Maybe you would decide to sell if the price is high enough, because you understand what your business is worth and that you’re getting a good deal.

This is exactly what happens in the stock market with investors and traders. Stocks represent ownership pieces of a public corporation. A business. Wall Street quotes prices on these businesses every single day, and the price quoted can vary wildly depending on the market’s “mood”.

You can see evidence of this exactly by looking at a 1 year chart of a stock. Many financial websites quote a 52-week high and 52-week low, and the difference between the 2 figures can be quite high. Yet in a one year period, it’s very unlikely that the actual value of a business is changing that rapidly.

The business world moves much slower than Wall Street, and that’s just the nature of the market. This creates pricing discrepancies to a business’s intrinsic value.

Why does Mr. Market Behave This Way?

You might be skeptical about this metaphor by Ben Graham. After all, the market is a very large place made up of some of the smartest people on the planet. How could it make such bad pricing mistakes all the time?  [continue reading…]

IFB75: Listener Q&A on Weed Stocks, What to Do When Your Stock Crashes

stock crashes

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.

[continue reading…]

IFB74: Potential Investor Problems When Examining the History of the Market

investors problems

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.

[continue reading…]

IFB73: Wall Street Studies Pitfalls

wall street studies pitfalls

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.

[continue reading…]