Yeah, I said it – this stock market basics PDF really does make investing look so easy that a caveman could do it! Maybe that needs to be the next Geico commercial…
It might seem like I’m oversimplifying it but I’m really not…
The first thing that you need to do, obviously, is to look at the PDF. That’s a pretty dang easy step to do.
If you’re like me, you might immediately look at the page count and think, “wow, 32 pages?” and then exit out. That would be a big mistake for a few reasons:
1 – It extremely simply to read and is not a huge “time suck” that you might expect with that many pages. It’s also not a normal PDF page but more similar to a PowerPoint Slide.
2 – The information is extremely valuable and it’s more concise than I have literally ever seen it with any other publication.
3 – Would you really not read a half hour to set yourself up for a lifetime of success? I don’t know about you, but 30 minutes to get me to early retirement seems like an easy choice.
So, what types of things should you expect to learn while reading the PDF? Well, let’s take a look at the table of contents:
Honestly, what in that table of contents sounds like fluff? The answer is none of it.
Andrew explains how the stock market works, the reason why you should be investing (Rule of 72 Exercise), the best strategy to buying your first stock, some extremely important factors needed for success, and then putting it all together! To me, that’s pretty comprehensive.
I don’t want to go through all of the topics and give spoilers, but I do really want to key-in and focus on a couple that are really important to me.
First off, the reason why you need to invest. The answer is simple – compound interest. As Albert Einstein said, “Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn’t, pays it.”
But what even is it? Well, it’s simple – basically, if you earn 10% interest on $1000, then you made $100, right? Well, if you keep all of that money in your account and earn another 10% the following year, then you made $110 that year because you had $1100 in your account instead of the $1000 that you started with.
This might not seem like a huge deal because it’s only $10 more than the year before, and I would agree with you. But it becomes a huge deal once you get years and years down the road.
Let’s see what happens if you invested only $1000 and then earned 10% annually and never invested another penny:
In 30 years, which is just investing from say age 30-60, your $1000 is now worth $17,449. And that interest that was just $100 in Year 1 is now up to earning $1,586 in Year 30!
You know how it took you 30 years to get to $17,449? Guess how much longer it would take to double from there?
That’s why it’s important to start early, because the sooner that you start, the better off you’re going to be in the future!
“Andy, is 10% really a realistic number?” Well, believe it or not, the S&P 500, which is an Index for the largest 500 companies in the US, has given you better than 10% on average since its inception!
But if you want to be conservative, I don’t blame you at all. Personally, I like to use 8% to be safe. How long would it take for me to double my money at 8% returns?
Well, let’s use the Rule of 72 that Andrew talks about! Basically, you’re going to take 72 and divide if by the annual return you’re planning to get, which in this case is 8%.
So, 72/8 = 9. That means in 9 year, your money will double:
Ok, I’m $1 short, but you can see that for planning purposes it gets us there.
If you’re not yet motivated to invest because of compound interest, I have 5 insane compound interest examples that anyone can implement and relate to with simple changes like packing your lunch or cutting the cable cord.
The next thing that I really want to focus on from the PDF is the Best Stock Strategy and Buying Your First Stock.
You might have heard before that the stock market is “risky”. That could not be further from the truth.
“But Andy, what about the tech crash, or the housing market crash of 2008, or even COVID-19?”
Guess what, my friend – did you know that the stock market is currently right around all-time highs (as of November 2, 2020)? So, as long as you never sold out of your stocks, then you continued to make massive gains through all of those time periods. See?
The market has a 100% success rate of going up in the long-term! And that’s why we are all long-term investors instead of short-term.
Sure, the stock market can be very volatile, but again that is why we will be holding for the long-term with the goal of retiring early – not a goal of making $100 for a vacation.
Andrew goes on to talk about some specific methods such as not listening to the noise of the market and dollar cost averaging, but the most important thing that he says, in my mind, is to just go get your feet wet.
You see, when I was first starting investing, I kept getting paralysis by analysis. It was information overload. I kept getting so stressed thinking I was making a massive mistake by picking a company and then it would inevitably go bankrupt, right?
Well, you can sit there and read and study as much as you want, but it’s not actually going to stick until you have some skin in the game.
And now that so many brokers are $0 commission, you can easily buy just one share of a company, or even a fractional share if you don’t want to buy an entire share of a more expensive company like Microsoft and pay $0 in fees! That’s a huge reason to just get in and get your feet wet.
It might sound silly, it might sound risky, it might sound foolish, but it’s not. Buy a share (or partial share) of a company that you already know a little about the product. Maybe Chipotle because you love their food, Apple because you have an iPhone, Mac and an iPad, or maybe Ford because your family loves Ford vehicles. It can be anything, but just be something you’re familiar with.
Once you own some of that company and have some skin in the game, things will start to click. You’re going to be naturally more interested in what you read and learn and you can apply it.
Don’t know what the P/E ratio is? Don’t worry, Andrew talks about it in the PDF as being the most-discussed Valuation Ratio, and then you can immediately go apply that education to Ford, because YOUR hard-earned MONEY is at stake, right?
Trust me – it will start to click. This was my strategy and it’s interesting to see it’s Andrew’s too, and Dave Ahern’s as well, truthfully.
If it worked for us, it will work for you – you just need to trust it and jump in!
And now we’re off to the third topic that I really want to dive in on…The Buy Low Strategy.
Chances are, you have heard that when it comes to investing, the general goal is to buy low and sell high, right? When you do that, you’re maximizing the gains that you have on your investments. Unfortunately, many people are very bad at this.
The reason that people do this is because of a few reasons:
1 – they have unrealistic expectations of what investing means
People think investing means that they can get rich quick. That is not what it is. It’s about creating long-term wealth by investing in great companies.
You shouldn’t use it to try to create some extra income. You should go in with the goal of investing for the long-term.
2 – their investments are purely speculation and have no financial backing whatsoever
This is one that really bothers me – people solely invest on speculation. I do like to invest on speculation, but for 10% of my entire portfolio or less. You need to look at some of the financials like Andrew talks about in the PDF with P/E, P/S, and P/B. And if this is something that seems too complicated for you, then you definitely should check out the Value Trap Indicator that will help teach you the fundamentals and do the heavy lifting for you.
3 – people let their emotions get in the way
Many people let their emotions get in the way and they’ll buy a stock like Tesla when it’s on a huge run up and then when there’s a correction, they will sell. They will literally buy high and sell low – the exact opposite of what you’re supposed to do.
They just want to jump on the bandwagon but when things get tough, they can’t handle it anymore and they sell. I have done this before and have almost always regretted it.
It’s impossible to completely avoid emotions when investing but understanding how they impact you is something that you can plan for, and it’s something that I try to manage by looking at my portfolio daily.
Andrew talks more in-depth about how the way that he really likes to find companies that classify as “buying low” is to use the P/B ratio and it’s something that James O’Shaughnessy has talked about as well.
Regardless of your investing strategy, Andrew’s stock market basics PDF really breakdown the logic of different valuation ratios to teach you to buy low and sell high, and as I mentioned, that’s just one thing that I love about the PDF.
If you’re not sold at this point that you need to at least look at the PDF, then I don’t know what else I need to say. Personally, I get nothing from you looking at it. I mean, the PDF is completely free lol. I am just invested in your future and I think that investing is one of the best ways to get you to financial freedom.
No lie – the PDF is one of the first things that got me investing. I had already started prior to reading it, but it really helped me overcome some of that fear of the unknown. Yes, it’s not an entirely full, 100% comprehensive of everything you’ll ever need to know about investing, because that would be impossible. Instead of 32 pages, that would require 32 million pages.
It’s a perfect introductory PDF that is going to get you started on your investing journey. It’s what’s going to get you to shift out of park and to put the car into drive. Yes, you’re not going to know everything, but you’re going to understand compound interest, the importance of investing in the market, and some of the very basic fundamentals that will help you start to identify undervalued companies that you can invest in.
Maybe you don’t get 10% returns. Maybe you make some mistakes and you only have 5% returns. But guess what – that’s 4.99% more than you’re going to get in your savings account. And even more in my case as I was earning .01% with my Fifth Third account, which is why I switched to Ally for a high-yield savings account!
Our goal at einvestingforbeginners.com is to get you started on your investing journey and get you to put down those initial building blocks that allow you to continue to build. We’re creating a foundation from scratch with the podcast, the blog, the VTI, and the various newsletters like Fat Pitch Fundamentals and the Sather Research eLetter, but do you know what?
It all starts with the Stock Market Basics PDF, plain and simple.