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Welcome to the Investing for Beginners Podcast. In today’s show we discuss a few diferent topics: How DRIP investing worksThe power of dividends over a long periodShareholder yield, the growth of share buybacks plus dividends 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. A step-by-step premium investing guide for beginners, your path to financial freedom starts now. Dave (00:32): All right, folks, we’ll welcome you to the Investing for Beginners podcast. Tonight is episode 184, and we’re going to return to a subject we have not talked about in a little bit. We’re going to get you all jazzed and excited about dividends. Yeah, that’s it dividends. So I’m going to turn it over to the Drip King himself. My friend, Andrew, we’re going to start talking about some dividends, Andrew, take it away. Andrew (00:52): The only thing I can promise is there’ll be one person excited about dividends, and outside of that, there’ll be no more promises because when it comes to the stock market, dividends are not the most exciting thing. And I get it right, especially in the market environment. Like now you have an IPO like door dash to go up 50% in. How, how, how, how fast are they going? 50% Dave, you should take five days, five whole days. Andrew (01:20): Okay. So obviously, old folks like me who invest money in the old way, very boring way. I don’t know what they’re doing. And you know, you see these big gains and, and crazy price appreciations from a lot of different stocks. And so it can become very hard to get excited. When you look at a dividend-paying stock and you see a yield of, you know, 2% or 3%, and you compare it to some big return percentages, and you’re like, I don’t get it. Why, why they get excited about 2% a year? And so I want to try to break that down, make it simple, and hopefully give my viewpoint on it. So you can maybe conceptualize it for yourself. And as you apply it to your portfolio and see those numbers grow, and you start to see it accelerate over time, it doesn’t happen overnight. Andrew (02:15): But as you start to see it, do that, then you can start to get why dividends are so exciting. Particularly if you can link that in with the right type of company and the right businesses, if you can get in with the best businesses, they’re the ones who are going to give you the most bang for your dividends. So dividends very simply when you buy a stock, you’re buying part ownership in a business. As an owner, you get dividends, which is a part of the profits that accompany makes. And when they distribute those profits to the shareholders, that comes out in a dividend. So if you go on Yahoo finance, or, you know, it’s like been so long since I’ve been to any other as a basic financial website, I don’t know what the other ones would be. Just Google finance even exists anymore. Dave (03:08): Oh, that’s a good question. I don’t know. I haven’t used Google in years, right? Andrew (03:13): So I know they used to have a great platform. They don’t anymore, but I would assume whatever platform you use, you should be able to look up a stock ticker. And on there they’ll show you, you know, stock price. And a lot of times, you’ll see dividend yield. And so what that dividend yield is telling you, is that okay if I’m buying a stock at $25 a share, and if the dividend in yield is 2%, well, I’m going to pay 25 bucks to get this stock. And I will get 2% of my capital paid back to me as a dividend. And that will be over a one-year timeframe. And in general, that will continue. And it tends to grow over time if you pick the right companies. So that 2%, what gets exciting about it, is not that you got, that you made 2% on your money for a year. Andrew (04:04): That would be a pretty bad return. What gets exciting is what that can do over the life of your investment. Because, you know, if you buy a stock and it goes up, let’s say 15%, you have to sell it to get that 15% gain. And then you have to put it somewhere else if you want to make more money on it; what’s great about dividends. And the dividend-paying stock is, let’s say we’re investing something small, like $25. You just put that $25 in once. And then you get a steady stream of payments year after year after year. And many, many companies grow that. So, you know, if you get a small little bit your first year and then the next year, a little bit more, and then the next year more, and that grows, grows and expands. That’s something that’s very, very cool for something you did once and didn’t have to do ever after that. Andrew (05:00): And, and what becomes magical is when you start to reinvest it. So I wanted to give an example; this was the best performing stock I’ve had in the e-letter portfolio. So far, the best stock I’ve ever bought husband Microsoft. And, you know, I wish I did that for the leather too, but I can’t cry over spilled milk. So I bought this stock, LRCX; it’s a technology stock, and I must’ve bought it. I think it was 2015. Yeah, 2015. So when I bought it, I bought two little bitty shares, and I paid; I’m looking at my brokerage account. Now I paid $146 and 77 cents for two shares of Lam Research. And so the very first dividend I got from this company was 60 cents. So I, I, I get people who say all the time, you know, they don’t understand why something is so small. Andrew (06:03): It can be so exciting. And it’s again because as time goes on, these dividends grow in scale. And if you reinvest the dividend, you’re like putting more F more fire into the flame and allowing it to grow. And what that does is it creates a force. It’s called compound interest. So you can picture it by saying, like, if you were in a white winter land and you were trying to build a snowman, and you built a nice little snowman, and then you decide you want it to get bigger. So you started pushing the snowman and started rolling it, and then you pushed it down the Hill and saw it, saw it roll down the Hill. So what you would have to do to get it started is you would have to put a lot of effort into first building the ball and then rolling it down the Hill. Andrew (06:58): But as it continued to roll down the Hill, it starts to accumulate more and more snow. And then, as it gets bigger, that acceleration goes faster and faster. And that’s what compound interest does. And that’s how dividend reinvestment can work too. It’s, it’s called drip for short. And all you’re doing is you’re just collecting the dividends. A stock pays you. And then you’re just putting that money back and buying more shares of that same stock. So again, I started with a 60 cent dividend; as the years went on, that started to grow, and the company was growing. So they started to pay a higher and higher dividend on that. So if I got paid 60 cents, the first time I got paid, I’m looking now in each year, you know, so I got two dividends in 2015 because I bought this thing and around the beginning of the year. Andrew (07:53): The first year I got a dollar and 20 cents, and then the next year, it was $2. The next year three, the next year six, and then I bought another share by the next year it was nine. So you see how I’m getting the same number of dividend payments, right? I’m getting four dividend payments. It’s the same stock, but because I have two forces working together to grow the dividend payment and grow the number of shares I have, which allows me to get more of a dividend payment, you start to get this big compounding effect. And so, over the life of my investment in Lam research, remember I was just $150. I collected $23 and 24 cents in dividends. When I ended up selling the stock after a lot appreciated it, those shares that I dripped ended up netting me $37 and 96 cents on top of the, what was it, four or $500 I made in total from selling the stock. Andrew (08:55): So I a huge return. And so you can see how much the dividends I received in total. What I got when I saw the stock at the end was much more. And that’s because even though you’re, you’re getting dividends in the amount that you sell those dividends for. After all, you’ve reinvested into drip shares becomes that much more, and you can see how that small first baby, 60 cent dividend can turn into something like almost for the dollars worth of drip shares because I let the thing compound over time. I added another share in; I think 2018, and the company did well and kept em and kept raising their dividend over time. So that was just one kind of simple example of where I got excited about dividends to see it in action. And I didn’t even hold the stock all that long. This was only a, what is it? Three, four, or five-year period. Imagine this on a 10 or 20 year period. And you could see some drip shares. Maybe I can; maybe I can update on my one, share Microsoft. I bought it, and we can, we can talk about it in 15 years. And, and I bet you, we would be talking about multiples of whatever that first dividend payment was. Announcer (10:22): What’s the best way to get started in the market—download Andrews ebook for free@stockmarketetf.com. Dave (10:30): Yeah, that’s amazing. Yeah. I mean, listening to that story, it gets me excited thinking just about the fact that you made all that money for literally doing nothing. You bought the company, and you held onto it, and you made all that money. And for the $150 of the original investment, if you left that in a savings account, you would have made 14 cents or something, those lines, you know, so that’s, again, just the power of dividends. I was thinking about one of the companies that I bought not too long ago, that’s a REIT, and it pays a dividend of $2 and 65 cents a year. And so I bought ten shares. So at the end of the year, I’m going to make $26 from that company for literally doing nothing. And if I take that same investment and put it in the savings account and just leave it there for a year, I’m going to make 10 cents. And so just the power of dividends. And we’re not even talking about any sort of reinvestment in the compounding you were talking about. I’m just talking about one simple investment for a company, one company that I will make just that little bit amount. And the more you invest in the company, obviously the more I would make. But I think that just illustrates just the kind Dave (11:54): Of the power that you can get from, from those kinds of things. And I mean, think about what you can buy for $26, what you could buy for 40 bucks. I mean, that’s, those are, that’s not, it’s not chump change to start with those things. And as you said, as it grows and builds, and its compounds, it just illustrates the power of dividends again. And another thing that I wanted to throw out there is we talk a lot about total returns and what kinds of returns people can make in the market. And by and large, over the last a hundred years, the stock market has returned between eight to 10%, depending on who you talk to. And of that percentage, around 2% is from dividends for that period. So those big numbers and it’s, it has a huge impact. And the other bonus that I guess I haven’t thought about until just now is it’s free money, that the company is willing to give to you for the privilege of owning a piece of that business and who doesn’t want free money. Dave (13:00): I mean, it’s, I do. I mean, I work hard for my money, just like everybody else does. And if somebody else is willing to give me a little bit extra, I’m going to be right there to partake of it. Andrew (13:12): Yeah. Sign me up to, obviously; I’m, I’m, I’m a hundred percent on board with it. And depending on what study you look at and what timeframe they’re looking at, I’ve heard studies when they look back after, like a really bad bear market or a stock market crash. And if you look at the periods right before that returns are actually, the returns from dividends are higher than the returns from the stocks because they’ve done so poorly. Not only does it give you high returns over life, but it also provides a shield when the market’s not doing as well. Dave (13:46): Yeah. That’s a great point. And thinking along those lines, the rate that I was talking about, the dividend yield or the return on that is around six or 7%. So even without share appreciation or the company growing the stock price, I’m still making six or 7% just from the dividend alone, which I’m guaranteed to get. And so, again, that’s just another bonus on top of buying a great company. And, Oh, you mentioned Microsoft, you know, they pay a dividend, they’ve paid a growing dividend for a long time, and it’s another bonus of investing in a company like that. Andrew (14:26): Yeah, it is. What what’s sad though, is, you know, there’s, there’s been a move away from dividends, and it’s something that I think again, going back to call myself and the old folk or a boomer, it’s something that companies used to do a lot in the past. And as time has gone on, particularly in the last two to three decades, companies Have moved away from paying dividends. And so, to be clear, it’s not as easy to be a Dividend investor, as it was, say, 50 years ago, where you could throw a dart at the wall and Get a company with a, with a pretty juicy dividend. You have to look a little Hardware nowadays, and you have to be careful because a lot of times the rates, your example, and the rates are an exception because they’re, they’re a special kind of investment vehicle that is Made to pay dividends. So you will see high yields on those just in general. But you know, when you look at other stocks during a bull market that has high yields, 4%, 5%, 6%, there’s a lot of Value traps gathered within that because when a company’s yield gets so high, a lot of times that can be Because people don’t like the stock in a lot of times, People don’t like a sock for a good reason, it’s because the business sucks. So you have to be careful not to chase yield while you’re looking for these things. But you know, You also want to make sure you’re getting a decent yield too. Dave (16:03): For me. I, I, I don’t think because of my timeframe so long I don’t care so much, even if it’s like a 0.6% yield, I don’t, I don’t care do particularly bad about that, but I do want to see it grow over time. And that’s something that I prioritize when I look at my investments. Yeah. That’s a great point. So one of the things that I guess I wanted to touch on with a thought that I had about the dividend yield and chasing the yield is that companies out there pay nice dividends and have done it consistently. Like you were saying, the flip side of that is the challenge of finding good companies that pay a great dividend, a company that Springs to mind are at, and T it’s not a value trap. Dave (16:51): It’s not necessarily a company that’s in jeopardy of going out of business per se. But one of the things that I know that frustrates the heck out of people who invest in the company is that there doesn’t seem to be much share appreciation, and it pays a great dividend. It, it, it encourages a lot of income investors to, to partake of, of owning that company. But I think what frustrates a lot of people that have bought that company is that the shares don’t appreciate that the price just doesn’t seem to go up much, and it’s kind of trades within a range of, you know, $28 to $34 give or take, and it doesn’t fluctuate much. And so there isn’t a lot of growth in that realm. And so I know that frustrates a lot of people, with the income investing part of it. So you mentioned something just a moment ago about how dividends have kind of decreased in importance, Andrew (17:50): I guess, or focus on, in the capital allocation section of the world. So I guess I talk a little bit about that. What do, what do you mean by that? So, you know, if you go to the basics of what a company can do with its money, there, there’s, there are several options. So, so a company makes a profit, they can let the profits sit as cash in their balance sheet. They can take those profits. And like I said, they could give them back to shareholders as a dividend. They can repurchase shares, and they can also reinvest in the business, whether that’s buying more assets or acquiring another company for future growth. But, but those two things right there, the dividends or the share buybacks, are both ways to help shareholders and increase total return for shareholders. So as a shareholder, if I get a dividend that gives me an instant return, that’s a tangible return. Andrew (18:56): I have this cash that’s back in my brokerage account; share buybacks work in a somewhat similar way in that they reduce the shares outstanding. So what that means is, is the pie, your, your part of the pie gets a little bit bigger. Because everybody, all the shareholders are getting this, this little bit of the pie, that’s a little bit bigger. It causes, it causes growth because of things like earnings per share, which is what the market tends to price stocks on. At least most of the time that that rises as, as a company buys back shares. So you get a return as a shareholder because you’re getting that growth. But that’s, it’s not as tangible. It’s not as visible, and it’s not as instantaneous. So there’s a lot of good things about share buybacks, and there’s a lot of good things about dividends. Andrew (19:55): But what we’ve seen is in the past couple of decades, wall street has cheered the idea of share buybacks. And they like to see very aggressive share buybacks. And it does, it does result in really high earnings per share. So like creates this self-perpetuating loop of high stock prices. And so companies continue to do it because wall street likes it. And there’s no problem with that. But at a certain point, when a company spends too much on buying back shares, they can start to do things that are not constructive to the shareholder. And it’s like lighting cash on fire in a way if they’re buying these shares back at two high prices. And the reason for that is because, well, you know, you took, you took this dollar that should have been mine in the dividend, and you used it to, to kind of prop up your metrics. Andrew (20:57): I get that; that helps me. But if you only propped up against your metrics by like 2% that you could have given me a dollar and dividend, and that would have been like a 6% boost to me, then you’re not as a shareholder. And as a manager, you’re not aligning with what’s good for me because you’re only earning a fraction of what I should have been able to earn on that. And so that’s kind of what can happen on the opposite end, as the dark side of share buybacks. And, you know, we have seen that at some companies. I remember Dave, you probably, you long forgot about it, but I remember you did a blog post about some companies that were, that were destroying shareholder value through that. And so while there’s a lot of good things that companies can do when the market in general starts to move away from dividends and replace it with either too expensive share buybacks or too expensive acquisitions, where they’re swallowing up these other companies, but paying obscene prices for them, then, you know, over time, shareholders will not get as high as a total of a total return. Andrew (22:06): And it comes to light when you have bear markets, and crisis is where all of a sudden, these companies realize that these things that they pay money for aren’t worth anything. And then you’ll see huge losses, huge crashes, all that whole SEF, self-perpetuating cycle, upwards collapses like a house of cards downwards. And it it’s, it’s not; it’s an unfortunate place to be as a shareholder. And so that’s why when you’re buying these companies, you have to look for that balance between, you know, giving a good amount and dividends, giving a good amount in share buybacks, and then making good capital allocations in other ways. And so there’s, there are different metrics to help you do that. And that’s something that if you’re digging deep into companies, it’s worth looking into, I guess, tell me a little bit more about that. Dave (23:03): I’m curious to know more about, I guess, some of the metrics that we could use to give us an idea of whether the company is doing right by us or not. Andrew (23:15): One is shareholder yield. And so this is something that was mentioned by med favor, and we talked about it. We did a whole episode on it, IFB72, but basically what it does is you’re trying to look at a. It’s so similar to how, you know, when you calculate the dividend yield percentage, you’re looking at what’s the dividend, the company is giving me how much am I paying for it? And then what’s that percentage of return I’m getting year after year after year for the shareholder Andrew (23:46): Yield, there’s a similar equation. I don’t want to get into the specifics, but yeah, I would say episode 72 would be a good spot to learn all about that. Okay. Yeah. That’s great. So I guess along those lines, you mentioned the blog posts that I, that I wrote a while back, I do remember some of the companies there was a Boeing McDonald’s and Caterpillar we’re all guilty of manipulating share prices via buybacks because it benefited the CEOs as well as other management. And if I’m not correct, if I’m not mistaken, I think all three of the leaders of those companies have all been fired since it became apparent that they were manipulating things such that they benefited from that. And the way that they benefited from that was their stock compensation was tied to different metrics. And one of the metrics was earnings per share. Andrew (24:51): And so as earnings per share increased because of the buybacks, as opposed to the actual performance of the business, then the CEOs were able to get stock options, which they were able to increase the price of because they were able to, as Andrew said wall street loves earnings, and they love earnings that go up. And so when earnings go up, generally the stock price that goes up most of the time, that’s so 2019 anyway. But so that’s how the seed used buybacks to their further gain. And so I guess that’s one of the things when you’re doing some research on any company is trying to look at some of those aspects to determine if, like Andrew was saying, their interests aligned with us, the shareholders, or with themselves. You know, would you find people who are doing those things for themselves, then that’s probably not going to be the best investment for you in the long run. Andrew (25:56): I’ll try to give an example, and let’s be clear like this isn’t a real-world example, but I’ll use it for illustration purposes. Let’s say we were running McDonald’s as an example, and McDonald’s had all this cash, and so what they could have done with it, let’s say they identify Chipola at an early age, you know? And so I think they did have to pull it. Maybe that’s a bad example. Let’s say Chick-fil-A, let’s say they saw Chick-fil-A and could have invested, or they could have bought, they could have bought that company at a reasonable price and decided not to, and instead, they decided to buy back shares. And then let’s say there was another opportunity to expand to, you know, some booming city in Florida, but it was going to Andrew (26:44): Be pricey. You know, they weren’t going to see a return on that investment right away. Instead of doing something smart for the longterm and opening the restaurant in this new expensive city, they decided to buy back more shares because that would prop stuff up for them immediately. And so a company that continues to do things like this, yeah, they’ll grow, but they won’t grow like they should have because they didn’t make good investments with the cash that they had. That does eventually come back to bite the company, and then you can get into situations. Like I believe Dave, at least one of them I think was, was, was borrowing money to make these share buybacks. And that’s, that’s a whole other thing. Cause now you’re mortgaging your feature to get these immediate boosts to EPS. Andrew (27:35): And that’s, that’s just not a good way to, to treat the shareholder. So, you know, that same boss makes a dollar. I make a dime if managing makes a dollar and shareholders only make a dime; something’s not right there. And, you know, being somebody who’s focused on dividends, not to say it’s going to fix all your problems or anything. Still, a lot of times, pain, a healthy, rising dividend can force management to be more prudent with their cash to allocate for the shareholders. And so you, you do get a sort of nice effect built into buying dividend stocks when that restriction is making companies double, you know, cause because another thing that at least before 2020 and 2021, another thing that wall street didn’t like to see was when the company would cut their dividend. And so when you have that restriction as, as a CEO, you’re, you’re going to try hard to, to, to manage money wisely. Andrew (28:46): So you never deal with a situation like that. So that’s where there can be another benefit of dividends. And, you know, I, I hope I do like buybacks, and I think with low-interest rates and everything, I think there’s a lot of great buybacks happening right now. It’s tough with so much capital around this stuff for companies to find good returns on their investment. I get all that. And I do think there’s, there’s a lot of good buybacks happening right now, but you know, I would like to see some sort of a, a movement back towards dividends because I think in a lot of cases, especially with matured companies, they’re all there. A lot of times, it isn’t another good place for that cash. So if that’s the case, you’re going to want to see that money, come back to you and, and you know, we’ll see what happens, but these are things to keep in mind. Andrew (29:37): If I go back to the basics of what investing is, it is receiving something for the money I’m putting out. And like Dave said, and he said it so eloquently and simply, it’s free money. And, and, and it, it comes at the cost of you putting your money with them. But it’s, it’s something that investments do. They work for you and create income streams, and that’s what the dividends are all about. And so if you can remember that when it comes to your investments, you can save yourself from a lot of heartache from companies and managements who won’t even think twice to pay a dividend, and shareholders do and will get burned. And they always do. It’s nice to be in situations where you’re; you’re sticking to stuff that’s more consistent and reliable over the long run. Andrew (30:32): It’s, it’s a lot less of a headache that helps you sleep at night. And if that’s not a definition of a margin of safety, I don’t know what is. Dave (30:41): all right, folks will with that, we are going to go ahead and wrap up the conversation with this DV. I hope you enjoyed our discussion on dividends and buybacks. They are a great advantage and something you should take advantage of when you can. Like I said, and as Andrew reiterated, it’s free money or who doesn’t want free money. So without any further ado, I’m going to go ahead and sign us off, go out there and invest with a margin of safety emphasis on the safety. Have a great week. And we’ll talk to you all next week. Announcer (31:09): If you enjoyed this content, seven steps to understanding the stock market show you precisely how to break down the numbers in an engaging and readable way with real-life examples and get access today@stockmarketpdf.com until next time, have a prosperous day. The information contained is for general information and educational purposes. Only it is not intended for a substitute for legal, commercial, and or financial advice from a licensed professional review, our full disclaimer@eainvestingforbeginners.com. The post IFB184: Boring Dividend Advice From A Boomer appeared first on Investing for Beginners 101.

In Wondery’s newest series, Business Movers, host Lindsay Graham dives deep into the inner workings of some of the most successful companies of all time. From the origin stories of their famed leaders to the million-dollar idea that catapulted them to success, how exactly did these companies grow from an idea and a dream to multi-billion dollar corporations? Hear the landmark decisions, the scandals, and the stunning triumphs that made them who they are. First up: Walt Disney. Listen at http://wondery.fm/investing_movers The post Introducing Business Movers appeared first on Investing for Beginners 101.

Welcome to the Investing for Beginners Podcast. In today’s show we discuss a few diferent topics: How to invest in 40s, with an aggressive mindsetAsset allocation and BondsHow Roth IRAs work and options for early withdrawalsHaving dry powder for special circumstances 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. Step-By-Step premium investing guide for beginners. Your path to financial freedom starts now. Dave (00:32): All right, folks, we’ll welcome you to the Investing for Beginners podcast. This is episode 183 tonight. Andrew and I are going to read some great lists for questions we got from our guests. And we’re going to go ahead and do our little give and take. So I’m going to turn it over to my friend, Andrew. And he’s going to go ahead and read the first question. Andrew (00:50): Thanks, Dave. Let’s get into them. We’ve got some good ones. So this one says, I was hoping you might address this on the podcast. I keep reading about how asset allocation is an investor’s most important decision, but nobody agrees to do it more specifically. My question is about bonds. I’ve read suggested allocations everywhere from 0% to 80%. How much should I dedicate to bonds? If it helps, I’m for the two and have about 250,000 investments. Dave (01:20): Thanks, Matt. Well, that’s a great question, Matt. And yes. So you are correct. Nobody does agree with it on how to do it. There are as many opinions about this. As blog posts and people give opinions about this, there is a lot of detail and a lot of data out there on the range of things. Here are some of the thoughts, which is the way I look at it. You have to boil it down to your risk tolerance is really what it comes down to; bonds, by and large, are considered safer air quotes, safer investments, mostly because of the nature of how they work. And they generally have a lot less volatility, and they also have a lot less growth potential. Stocks by far are going to earn more money over the long-term than bonds will. Dave (02:17): However, bonds have less volatility and help anchor a portfolio and help you the weather when times are tough, because generally, when stocks go down, bonds do well and vice versa. It doesn’t always work that way. But as a general rule, that’s kind of how it goes. Now, the old school method used to be a 60, 40 split was kind of what many people would always kind of suggestions in that. What that meant is you would do 60% in stocks, and you do 40% bonds. And a lot of that comes down again to your risk preference and your risk tolerance. Because generally again, going back to stocks, they can be more volatile, and there’s a lot more risk of drawdowns of a company going bankrupt and losing your capital that you invest in the company. So there’s more risk associated with buying stocks than there are bonds generally. Dave (03:24): So that’s why they usually have a skew such as a 60 40 mix. That used to be the kind of the standard cookie cutter. Everybody goes with that. And then you kind of go off of there. Some things have changed over the years, and the portfolio that I have is what I do is I, I go around 70 30. And so I go about 70% stocks and 30% bonds. Now I’m 54. So I’m quite a bit older than Matt is, but I also have greater risk tolerance. So I’m comfortable owning stocks because of the nature of the companies that I buy. I’m not buying super-aggressive, very volatile companies. I’m generally buying more, I guess, risk-averse type companies, not boring companies, but some of our boring, I’m not going to lie, but some of them are great companies. Dave (04:22): Many of them are great companies, but the point is that I build on the risk that I want with the companies that I buy. So there are different aspects of asset allocation, but I want to focus on bonds for this part of it. So one of the things that I was taught when I was in the banking world was to go with a bond house, asset allocation based on your age. So, in other words, if you’re in your twenties, having zero to very minimal bonds was recommended because you had a longer timeframe to invest. And the stock market is going to do great over a long period. And if there are bumps in the road, you have time to overcome those bumps in the road as you get closer to retirement. And the recommendation generally is to start allocating more and more of your portfolio to bonds or fixed income to help offset any of those fluctuations that may happen in the stock market, because nothing would suck more than, as you get closer to retirement to have all of your stock portfolio crash three days before you retire. Dave (05:38): And it’s happened to people before. And fortunately, it hasn’t happened to me. I’m not retired yet, but anyway, it is something to consider. You know, being 42, you know, I’m not a licensed investor. So take this for what it’s worth you’ll. My suggestion would be to go with whatever you’re comfortable with. And if you are comfortable with being a little more aggressive and having a bigger portion of your investment portfolio in stocks, maybe go something like 80 20. And if it’s something that you’re a little more conservative and you’re a little more nervous about how things are going, you can always go 70, 30, or 60 40 kinds of, depending on again, going back to whatever your risk tolerance is. The biggest part of that is making sure that you don’t just buy one bond; a great way to do it is looking at bond ETFs and having maybe a basket of those and having two or three of those kinds of things. Dave (06:41): And some of that kind of stuff can help kind of, I guess, even out everything w what you’re looking to try to do is kind of smooth out the returns and everything is you don’t have to it just because this is something you decide right now in a couple of years when maybe the market conditions change, you can always adjust it then too. So it’s not something where you just decide I’m going to do 80% stocks and 20% bonds. And that’s the way it’s going to be until you’re done. You don’t have to, that. You can adjust, you can, you could move things back and forth as you wish. So there is a lot of flexibility. So I hope that helps answer your question, Matt and Andrew, did you have any thoughts on this? Andrew (07:21): high, the follow-up question for you, which you kind of touched on a little, but what kind of things went into Your decision to go 70, 30? And based on what you said near the end, it sounds like just because that’s your allocation now doesn’t mean that’s written in stone, but what about your specific situation? I guess your risk tolerance made you pick 70, 30 versus something like 60, 40? Was it market-driven? Was it completely investor Profile Driven? What, what, what do you think it was for you? Dave (07:55): For me, it was probably more investor profile-driven than it was necessarily the market conditions per se. Right now, the market is heated, obviously, but for me, where I am in my financial world is I just, I wanted to be more aggressive. I didn’t have as much money set aside for me. And so I felt like I needed to be a little more aggressive to try to catch up, but by the same token, because I am closer to the end than you are, Andrew. I wanted to have a little bit more allocation to bonds to help balance out any fluctuations are drawdowns that might happen in the long-term. So, you know, my, my idea is I’m not going for the 25% a year kind of thing that Warren buffet did when he was a young guy, young lad you know, I am, I am okay with, you know, doing less than that, understanding that my, my goal is different than some other people’s. Dave (09:02): And so it, for me, it comes down to, I guess, investor preference, is it to say the timeframe too, to have like a ten year or 20-year timeframe versus like for the year timeframe or 50-year timeframe, does that factor into that a lot more than maybe some of the other stuff? Oh, yeah, for sure. Because I, because again, I’m, I’m farther along in my path than, than I would want to be. I mean, if I were 25, I would be in all stocks, and I wouldn’t even think about it, but because I’m older, I want to have, I guess I want a hedge against something happening that would take a longer period to recover. One of the issues that many people struggled with during the great financial crisis was a huge drawdown, and the market was down for several years before it started to recover. Dave (09:56): And as we’ve talked about in the past, some companies still haven’t recovered. It took years, you know, almost a decade for a company like Microsoft and Coca-Cola Cisco to recover from the.com boom. I don’t; I didn’t want to, I don’t want to be in that position. So if something like that happens, you know, God forbid, four years from now, and it goes on for another ten years. I don’t want to be in that position. And by allocating more of my portfolio to bonds helps me ensure that I won’t be in that same position. I like that. I think it gave us a good insight into your brain and how you’re thinking about it, and why that allocation makes sense. Thanks. Thanks. I’m trying to do a lot of research and read a lot and try to think about all these things to help myself and other people because that’s what we’re here for. Dave (10:50): All right. Let’s move on to the next question. Hello. Can you talk here on your podcast about investing and wanting to be able to take money out of an account before agent 65? I know Roth IRAs are super beneficial for tax reasons, but what if you want to take out money out of your retirement account before you’re 65? Investing in an individual brokerage account makes sense for that enjoying the information you provide. Thanks, Andrew; what are your thoughts on that question? Andrew (11:21): So let’s break it down quick. So a Roth IRA shields you from a tax perspective so that you can put money into it. And then when you take money out, you’re not going to be taxed on the gains. Now, like the person who asked the question eloquently, Roth’s problem is you can’t take money out before the age of 65. So there are a few rules to keep in mind with the Roth. Number one, you have to wait until you’re at least 59 and a half, which is, Andrew (11:54): I don’t know, kind of an arbitrary age in my opinion, but you have to also have money in there for at least five years. And if you don’t make those two requirements, then you pay an early withdrawal penalty, which as of the date that we’re recording, is 10%, and you could also pay income taxes on your gains. So, Dave, you pointed out to me before the show, there’s a difference between the taxes you would pay on the Roth. For example, I’m going to steal the example that you had; if you bought a stock like Disney, say $150 in your Roth IRA and say, it went up to $200, and you sold it. So if you’re taking that money out early, before the age of 65, you’re going to be taxed, not on the $200 that you sold to that, but not the $50, which is the gains you made on that stock. You’ll get income taxes on that. Plus the early withdrawal penalty of 10%. Andrew (13:00): If you’re looking at another option, the individual brokerage account is an option, which is kind of like opening a checking account. You just open the account and then put money into it. You can then buy stocks, sell stocks, collect the dividends, all those sorts of things, and not have to worry about rules about when you take it out. You know, you don’t have to wait until retirement, but the problem with that is you’re going to face capital gains taxes. You’re going to face dividend taxes. Depending on how much you make determines what your dividend rate, your tax rate is and your income tax rate. So also how long you hold the stock. So if it’s less than a year versus one year or more, then that’s going to change your dividend tax rate and your capital gains tax rate. So some positives and negatives too, obviously, if you want to invest, but you also want to have money to spend now, then having either retirement account can feel like it’s kind of controlling you or having a brokerage account can feel like you’re not making much because you’re being taxed on it. Andrew (14:17): There are a few good things about the Roth that you can use the money for early. So if you are paying for education expenses, if you’re paying for a first home, if you’re paying for expenses for a birth or adoption, those can, those can qualify as exceptions that don’t fall against the early withdrawal fee, and those, all those taxes that go along with it. But other than that, if you do want the money early, you probably don’t want to put in a Roth. Suppose you’re looking at money that you want to spend in the next two, three, five years, that you probably don’t want to have it in the stock market. Anyways, because, as Dave mentioned in the first question, the stock market is so volatile, and you can have stocks crash and not recover for even a decade or longer. So if you want to pull money out soon, you probably don’t want to put it into stocks. Andrew (15:19): And maybe you look at something more conservative like you could do a short term bond or, you know, short term bond funds, or you can put it into treasury bills, you know, lots of different options. You don’t have to buy stocks. And so, if you’re looking at shorter periods, that’s a way to do it. Then again, you know, if you have a lot of extra money and you don’t mind paying a dividend tax, you know, you collect your dividends and your regular brokerage account, make sure you put some aside so you can pay for your taxes at the end of the year. That’s a good way to go to, you know, really can’t go wrong there. But those are the things to keep in mind when it comes to wanting to take out money early and not necessarily wanting to put everything into a Roth, or if you have more money outside of a Roth, those are all things to keep in mind. Speaker 4 (16:12): What’s the best way to get started in the market—download Andrews ebook for free at stockmarketpdf.com. Dave (16:20): Those are all great points. I don’t have much to add to that cause that’s a great answer. Andrew (16:25): Cool. Well, let’s, let’s move on to this last one. This one ties in nicely to what you were talking about earlier. A lot more questions about this lately. So must be something on people’s minds. This is from Phil. He says, hi, Andrew. I’ve just started listening to your podcast, which I am enjoying to start investing in the new year when my compensation has returned to full. My question is, I’m arriving late into the investing scene. I’m 42. When I listened to the podcast, you’re often talking about 20 somethings, and I can see the longer-term benefits for those guys that as they have an extra 20 years on me in terms of growth, my question is, what would you suggest for someone who’s starting later in life? I’m sure that is a more in-depth conversation, but there’s one I’m interested in hearing your views on for context. Andrew (17:11): I am a UK citizen living in Dubai. So I have some tax advantages that some of your listeners do not am. My compensation being later in life, is probably on the more generous side. Anyway, I would be interested in hearing your thoughts. So it goes to what you’re saying earlier, but you know, sort of a different conversation. So why don’t you start us off, Dave? Dave (17:31): Okay, thanks. That’s a great question, Phil, and, and this is something that over Christmas break I was having with my family because my two younger sisters were asking me a similar question. So I guess by them asking me this, I Dave (17:50): I can help answer Phil’s question, I guess, with my thoughts. So here are some of the things that I have been thinking about and have thought about. So I guess the, again, it comes back to your, your risk tolerance, and I’m gathering that he feels like he can be more aggressive. And if that’s the case, then probably what I would do. And this is what I’ve done is find a few companies that you think have long-term prospects. That can be kind of your anchor, if you will. So for me, I looked at some different companies that I felt were going to be around in 20 years and have good growth prospects and will be solid, stable companies. And then I start building around those. So, in other words, I pick companies that I think are good; great companies can make a lot of money. Dave (18:50): They pay dividends, they have good growth prospects, and our solid financial companies have great balance sheets, a lot of cash, a lot of free cash flow, and all the great things that we want to see. And they’re going to be around for a while and have been in businesses that are not going to go anywhere. And so I bought two or three of those, and those are the kinds of things that I suggested to my sisters. And then, from there, you can start building out. So if those companies are more on the, I guess for lack of a better word are more on the conservative side. In other words, they’re not going to be the huge monster growers that you’re, you, you can see in, in the stock market today that, you know, they’re not the Airbnbs and the snowflakes, and anything else that you want to could want to add to that list, but it doesn’t mean that you can’t take fliers on some of those as well. Dave (19:50): So, in other words, if you have this great portfolio and you have two or three things in your portfolio that are going to be a great basis, and you can build around those, then you can start taking some chances with some other things. For example, you know, some of the things that I was suggesting to my family were things like maybe something like a company, like a Microsoft, or maybe a Facebook or something along those lines. These companies are great companies that have great financials for me, they’re too expensive, but they’re not for my sisters. And they feel comfortable taking a chance on something like that. For me, it’s, it’s not my, not my cup of tea, but by expanding your horizon and taking other companies that you feel like can grow at a little faster clip than your base says, but your base is still kind of the safe, secure ones. Dave (20:45): Then, your portfolio will be a little more aggressive, and it’s going to grow maybe a bit faster than a standard recommendation would be. Now there’s nothing wrong with just going out and buying. I wouldn’t say just that there’s nothing wrong with going out and buying ETFs or index funds that match the S and P 500, for example, the S and P 500 Bay, which is 16% this year. So that’s nothing to sneeze at. So buying something like that, that is, is, is great as well. Suppose you want that to be your base. And then you build on that; that’s actually what my sister-in-law has done. She has built a portfolio using some ETFs, and now she’s in branching out and trying to look at some other stocks, individual stocks, to build on that. So those are the kinds of things that I have done. Dave (21:35): And those are the kinds of things that I’ve been recommending to my family to help them kind of get started because my middle sister is closer to my age. I won’t say her name cause I won’t say her age because I am a gentleman, but she is feeling the same way she wants. She feels like she’s a little bit behind, and she wants to catch up. So she’s trying to be a little more aggressive. And so those are, those are the kinds of things that, that I would recommend is sticking more with stocks and going lower on the fixed income. And then just trying to find a great base of things you want to build around and then start branching out from there. And I’ve bashed Tesla on here more times than we could count, but in all seriousness, if you want to throw a 1% or half a percent of your portfolio at a company like that, for, by all means, go for it. Dave (22:27): There’s nothing wrong with doing something like that because it makes you feel good that you see something going up like that, but you’re not risking your whole portfolio on it by the same token. And that’s where I get concerned about companies like that. So I guess those are some of my thoughts. What are your thoughts, Andrew? Andrew (22:45): My thoughts would be in the range of being somebody with a longer timeframe; I guess I’m still pretty conservative for knowing that I have, let’s say, 35 years now to screw it up. Right. I, I still like to buy companies, you know, maybe, maybe to a fault. I, I don’t like the idea of being lavishly loose with hard-earned money. And that goes for myself and for the people I give recommendations through to, through the newsletter. And so, for me, it’s about paying a fair price or buying a stock at a discount. So what it should be worth. To me, that is the same conversation, whether we’re talking about ten years, 20 years, period, or for the year. And so the thing to keep in mind about the stock market, you know, next year, we don’t know what’s going to happen. Andrew (23:46): It could crash 50% next year in three years, the same thing it could crash. The Sierra could crash next year could crash in three years. And really, we don’t know as each year goes by, but the longer that the years go by, the less of a chance you have to lose money because the stock market does eventually recover. And we’ve seen that over time and time. Again, sometimes it takes ten years, 13 years, maybe two or three years, or in the case of 2020, something like five, six, seven, eight months. But the stock market does tend to recover even after big recessions and bear markets. And so if you’re in long enough, then you’re going to have a good chance to recover; that all being said, you know, so I don’t think the timeframe necessarily needs to factor into the kinds of stocks that you’re going to buy in my mind. Andrew (24:42): The timeframe doesn’t matter so much when it comes to the stocks you want to buy; you always want to buy a good company at a good price. And as Dave said, you want to have the financials there who want to be a strong company, with good prospects for the future. But, you know, having that limited timeframe, starting later, I think an allocation to bonds does sound really like a good idea too because, with a limited timeframe, you don’t have as much time to screw it up as like maybe I would have with a 35 or 40 year kind of frame. So in that sense, you do want to have some of that wealth intact. And when you do have that wealth in bonds and have a good allocation there, you have fire power to attack when the market is down. Andrew (25:32): And that’s something I think that’s even more critical as you get closer to 65 or wherever your retirement goal is. And I think that’s another benefit to putting stuff into bonds if you can get the timing right. You can use some power, some like dry powder and some, some new allocation to stocks when they’re down, then that could be a benefit to be kind of starting from behind because it’s almost like your conservative nature gave you more opportunities. I can’t tell you if that’s really how it’s going to play out or not. We don’t know what the market will do, but those are just some thoughts, and those are really good thoughts. Dave (26:11): And I agree with that. The idea of having fresh powder is fantastic. And I know that’s something that honestly when COVID hit, and the lockdown started, and the market tanked, I wish I had had more because there were so many opportunities at that time to find great companies that now I wish I had had more, more powder too, to choose. And the ones that I did choose done well, but I just wish I had had more powder at that time. And so there are going to be times when the market is going to go down and having all of your money in the stock market at that time, depending on what it is that you’re trying to do is, you know, it’s, it’s obvious you want to have money in the market, but having opportunities when they do present themselves to take advantage of those is really, really how you can make a lot of money in the stock market. And that is, think about it as like when you buy socks, you know, like Warren Buffet likes to say, he likes to buy stocks. Like he likes to buy stocks when they’re on sale. So that’s kind of where that comes down to. But I agree with what Andrew was saying. You need to stick with what you’re comfortable with and what your risk tolerance is. Dave (27:32): When I talked to my family, for example, my sisters were both telling me they wanted to be more aggressive. And so when I think of that, I think of more aggressive kinds of companies. Still, I also would recommend for me, and anybody else that’s not wanting to be that is having some sort of allocation towards bonds because that will help offset anything that might happen in the future. And like Andrew said, we don’t know when that’s going to happen. It could happen tomorrow. It could not happen for another 12 years. We don’t know. And anybody that says they know they aren’t, they don’t know. But my point being is, is that it’s, it’s always great to have an idea of a plan. And it doesn’t mean that, as I mentioned earlier, it doesn’t mean that the plan that you have today doesn’t have to be the plan that you have five years from. Now, if a situation changes, you can change your plan as well. So it doesn’t have to be written in stone, and you don’t have to take it to the mountain. So you just need to have a plan and then work on your plan. And if things change to change plan, you know, Andrew (28:34): He did a great job of having dry powder for the recent crash we had to tell Andy Schuller. He wrote a post about that on the website. So this is something I think we should share because I had never thought of it before, but it’s pretty brilliant. So he talks about having a rainy day fund, and basically, he has this money set aside. It’s not so much for a rainy Davis, Like an opportunity fund. And so what he does is when he saw the market go down and he took this money that could, I guess it could be for a rainy day or could be, For example, now I’m not doing him nearly enough justices as he wrote about, but like these kinds of unexpected expenses. So basically, this rainy day fund that works as an opportunity fund. Andrew (29:22): And he essentially made his whole Roth contribution for the year, right at that time when stocks were really, really low and just was able to capitalize and do very well for himself. And you share the bottle on the blog. And I thought that was inspiring and a good thing to keep in mind, because for me, I’m always thinking, you know, maybe a dollar-cost averaging method is great, which it is, but at the same time, if you have extra money stashed somewhere, keep that in the back of your mind. When you see an opportunity, you can fund them more money and take advantage of the market when the market gives you what you want. Dave (30:01): Yeah. That’s a brilliant idea. I wish I had thought of that for sure. I’m going to make a plan for that right now. So that’s a great idea. Thank you for sharing that. That’s awesome. Dave (30:10): All right, folks, we’ll that is going to wrap up our conversation for this evening. I wanted to thank everybody for sending us those great questions. Those were great questions. I appreciate it. So without any further ado, I’m going to go aside as off you guys go out there and invest with a margin of safety emphasis on the safety, have a great week. We’ll talk to you all next week. Announcer (30:29): We hope you enjoyed this content. Seven steps to understanding the stock market shows you precisely how to break down the numbers in an engaging and readable way with real-life examples. Get access today@stockmarketpdf.com until next time have a prosperous day. The information contained is for general information and educational purposes. It is not intended as a substitute for legal commercial and or financial advice from a licensed professional review—our full disclaimer@eainvestingforbeginners.com. 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Welcome to the Investing for Beginners Podcast. In today’s show we discuss the basics of OTC (over the counter) stocks and the best free tool for stock market data. Buying and selling OTC stocks is not the same as investing in known entities, and understanding how that world works is the key to success. Check out last weeks episode on penny stock investing with Timothy Sykes for guidance. The free tool, quickfs.net is the best tool out there for seeing long-term (10 years) financial data. Having access to this free tool allows you to see the performance from a higher view, allowing for better questions and deeper analysis. 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. A step-by-step premium investing guide for beginners. Your path to financial freedom starts now. Dave (00:33): All right, folks, we’ll welcome you to the Investing for Beginners podcast. Tonight, we have episode 182, Andrew and I will read three great lists of your questions, and we’ll go ahead and do our usual. Good. We’ll give a date. So I’ll go ahead and read the first question we have. Oh, by the way, happy new year to everyone. This will be coming out around the beginning of the new year, so I hope everybody had great holidays and enjoyed the new year. And I think we all will say hallelujah, that it’s 20, 21, and 2020 is behind us. So hopefully, everything will go great this year. Amen. All right, so let’s go ahead and read the first question. So I have Hey Andrew. What are the ups and downs of buying an OTC stock? Andrew (01:18): Alright, so OTC stock stands for over the counter stock. If you listened to our episode last week with Timothy Sykes, we talked about penny stocks. And so, a lot of OTC stocks can be penny stocks. They might; I’m not sure if all OTC stocks are penny stocks, but a lot of OTC stocks can be penny stocks, but not every penny stock is an OTC stock. So what’s a penny stock. What’s an OTC stock. So a penny stock is any stock that’s trading at $5 or less. And so you’ll see that on the ticker on a financial website, wherever it is. And that’s how you define it as a penny stock. OTC is something where you actually can’t trade it like you normally would through ally or a third fidelity where you can just click and buy shares or click and sell shares. You have to get on the phone and go through the whole process. Andrew (02:19): And so for one, it’s, it’s, it’s very inconvenient to buy an over-the-counter stock OTC. Secondly, it is not regulated parlay at all. There’s usually very little transparency and the regular sec regulations that you would have for a stock. If it was listed on the NYC, New York stock exchange, or the NASDAQ, those listed stocks have regulations by the sec. So they need to present financial statements. They need to get those statements audited by professionals; the OTC stocks don’t necessarily have those same regulations, restrictions, or requirements. And so it can be problematic for you as the investor because the management of those stocks can do whatever they want. And you don’t have a lot of recourse on making sure that management is attempting to present the correct information to you. And there’s just really little oversight. And so you don’t have a lot of protection in that sense because it’s over the counter. Andrew (03:33): There’s not going to be a lot of liquidity in the stock. For example, if you’re the trade Apple or Tesla or Google or something like that, it would be very easy for you to log into Fidelity or Ally and put, buy, or put sell. And you’ll immediately have somebody on the other side to either sell your share from you, sell you a share, or buy a share from you in the case of stocks, where there aren’t a lot of people trading them, you could be trying to sell a stock, and you have no buyers whatsoever on the other side. And so that can be problematic if you’re trying to get in and the fair price or get out at all. Finally, from the interview last week, Timothy made a great point where he mentioned how many penny stocks don’t become great companies. Andrew (04:31): Many of the great companies you see today were started as great companies. They IPO those great companies. And so it’s very rare for something like a penny stock to become something that you’ll eventually see in the S and P 500 and become from an OTC stock to something that’s 500. I have never heard of that personally. And I don’t see it as being a very common thing that happens. So obviously, being somebody like me with my values, investing for the same term, wanting these businesses to be safe, reliable, and, you know, growing decently over time, the OTC market is just never, never in my sphere whatsoever. And so, you know, I guess I didn’t really, he asked for the ups and the downs. I didn’t present any ups, but I guess you could say that similar to a penny stock, there can be many benefits if the stock pops. Andrew (05:33): Many of the factors that make it speculative and risky can also work to its upside because there can be huge swings and big fortunes made in very short periods that you won’t see in quote-unquote, the regular stock market, the S and P 500. You know you, you have to realize that there are both sides of it. So you can, I’m sure you can make a big some very quickly the question behind whether that’s in line with what you’re trying to do and how possible it is to do that repeatedly, consistently, those are all different questions, but hopefully that presents the basics behind an OTC stock. Dave (06:17): It does, to me in it, I learned something listening to you talk about it. I frankly didn’t know a lot about the OTC stock, because like you said, it is not an area I play in at all. And so it’s just one of those things where it’s out of sight, out of mind. And I haven’t honestly paid much attention to it. Still, I guess one thing that I think about that after talking to Timothy last week would be that if you’re going to go into this type of field and look at investing in some of these kinds of companies, you’re going to want to do your research. You’re going to want to do some homework and figure out what it is is the advantage and disadvantage of these particular companies. As he mentioned last week, if you’re not, you’re just gambling; you’re just basically going to Las Vegas and putting some money down and hoping that it goes up or down. Dave (07:08): And I guess that would be my advice. If you will, if you’re going to look at something like this, do some homework and figure out if you already know, then Hey, more power to you. But if you don’t, then I would recommend you at least do a little bit of research before you start plugging away at something like that. Yeah, I agree. Yeah. Thanks. All right, so let’s move on to the next question. So I have a hi guys. Thanks for everything you do with the podcast. My question is related to moving stocks from a taxable account to a Roth IRA. I started investing in the USA in 2020. I’m Canadian, aren’t they all, but I moved to California at the end of 2019 on a work visa before knowing that the Roth IRA was a good option for a non-citizen. I started investing in a taxable income earlier this year and had not had to sell stocks until now. I just realized how much taxes will eat up profits quickly, even with long-term capital gain taxes. I have now contemplated selling all of my air quotes, newer stocks, three to five stocks that did not have much time to grow in my taxable account, and opening a Roth IRA and buy those stocks again before the new year is up. What are your thoughts? Andrew (08:23): Thanks for the question. This was from Nick, actually from the secret Facebook group we have for VTI spreadsheet clients. So great to get the question and happy to pitch in a couple of thoughts. I like the idea. So, you know, essentially having some money that wasn’t a taxable account, moving it to a Roth IRA so that you can get the tax benefits of saving for retirement and utilizing that vehicle. And I also like the idea of selling the newer stocks, which maybe haven’t gone up in value as much. And so you won’t have to pay as many taxes on it as you would, maybe something you bought two, three years ago. I don’t see a problem with it. And I would say the only other thing I would add would be that in the first three, maybe four months of the year, I know for sure the first three may be the maybe April too, you’re able to contribute, and kind of backdate it. Andrew (09:28): So it still applies for the last year. So if you’re talking about January of 2021, you can still make a contribution to your Roth IRA for 2020. Your brokers should have that option for you when you put contribution to pick the tax year. And so they give you an extra three to four months to contribute. In case you didn’t have a chance to reach your maximum contribution in the year prior. So that’s something to keep in mind too if you just don’t want to touch the money. And maybe you’ll; you’ll make some savings from the first couple months of the year, throw that into 2020, and then finish with 2021, or, you know, you could do it all at once too. I know many of us to like to chomp at the bit on getting money into the market right away. And I get that, but those are kind of some of the options and some of the thoughts I had, Dave (10:21): I would agree with all that. And I think it’s a great idea for him to start putting the money away Now and get everything lined up the way he wants it now. So it’s not something he has to play with a few years down the road when maybe those other positions have gotten larger than he really wants to deal with the tax implications, or even just losing the extra compounding that he could lose from those companies. So if those were still great investments now, as they were, then I, I, I don’t see any, I think it’s a great idea. And he also mentioned that I didn’t do; I didn’t read that he wanted a dollar-cost average, another $500 a month into the account, and when he has excess, put it in a taxable account. And I think that’s all that sounds, so he sees he’s definitely on the right path. Andrew (11:11): So I think Nick’s doing a great job with that. So let’s go to the last set of questions. Andrew (11:18): This one says, greetings, Andrew; I very much appreciate your email newsletters book and podcasts like you and Dave. I am also a big baseball fan and a big fan of statistics and baseball, also called sabermetrics and fantasy baseball. One of the things that helped me a great deal was absorbing as much information as I could from people who study baseball for a living; I eventually was able to identify my favorite analysts and then take their interpretations and use them to build my own in selecting the finding players in this way. I am approaching finance and investing very similarly. I am Like a baby suckling for the first time, trying to get as much information as I can. The biggest thing I’m trying to work on right now to calculate my surnames is to press the book from raw data to find the required information. And the 10 K some places also differ from how to calculate the PE some say it’s simple pricing to earnings, and others say it is price divided by earnings per share EPS. And I’ve also seen other formulas, but I’m ignoring those for now because I like your approach of focusing on the seven fundamental pieces of data. Maybe Dave, first on the price earnings, can answer and speak to this question first before we go further. Dave (12:36): Yeah, absolutely. So let’s see. I guess the price to earnings is it can be a tad bit confusing. So the way that I calculate it is I take the price of the company. So whatever the company is selling for. So let’s say the selling for $20 a share. I also look at the earnings per share, and I divide that by the price per share. And it gives me the PE because that’s the price over the earnings. So if the earnings per share are $1 and the price is $20, I have a PE of 20. Now, if it’s a challenge to figure out some of those, those, those metrics, you can go into a lot of the, a lot of the financial reports at the bottom of the income statement, for example, they will, they will calculate the, they will calculate the earnings per share for you. I frankly can’t remember the last one I saw that did not do that. I was looking at a whole bunch of them today. They all list the earnings per share there for you. Dave (13:47): So if that’s something that you can find, all you have to do is go to sec.gov and woke up any of the annual reports, which is a 10 K, or work at the quarterly reports, which is a 10 Q. And they will list in there, what their earnings per share are at the bottom of the income statement, it’s right below the net earnings wine. And if they do not do that, they will give you the company’s earnings, which you would divide by the shares available. So they’ll have that right below the earnings line. So if they don’t calculate it for you, they give you the information to do it for yourself. And it’s just simple division. You take the net earnings that you see at the bottom as the profit line. And you just divide that by the earnings. I’m sorry, you just divide that by the shares available, and that will give you the earnings per share. And then you would just simply divide that by the price that it’s selling for in a market, which you can find in any website app on the phone E Yahoo finance, you can even just go on CNN, and they’ll have prices there. So the finding of the price of the company is quite simple. So that’s, I guess that’s my thought on that. What are your thoughts, Andrew? Announcer (15:04): What’s the best way to get started in the market—download Andrews ebook for free at stockmarketf.pdf.com. Andrew (15:13): You covered that well. Let’s move on to the last part of this question. He says, finally, in baseball, many websites organize advanced metrics into spreadsheets. They often charge for the service, but it’s a nominal fee relative to winning a title, which comes to the cash prize. Does anything like this exist for companies, even just for the raw numbers? I asked this because I also want to look chronologically at the last ten years of companies to make sure they are solid investments. Dave (15:43): So yes, there is a website that Andrew and I have talked about several times quickfs.net. They provide all the information that you are looking for. So they have the ratios already calculated out. It so let me back up for a second. First of all, the website is free. So to get access to 20 years of data, they have everything for free. Dave (16:09): So you will be able to see all the annual reports for the last ten years, as well as the trailing 12 months for the current year that you’re, that you’re looking at for the income statement, as well as the cash flow statement included in all that. They also have a sheet. So they break it up into four different parts if you will. The first page will be a listing of a bunch of metrics that they have calculated for us. So they’ll show things like the tenure meeting, again of free cash flow, or the ten-year gross margin median kind of thing. So you can get an overview of the company. Then they also break it down by income statement. They also have a balance sheet, and then they have a cash flow statement. And then the last page has a mixture of different ratios, as well as metrics that they’ve already calculated for you, and everything is all laid out for you so that you can see historical trends if you will. Dave (17:06): So if you want to look at the margins that the company has been operating at, you can easily see the gross margin the company has produced for the last ten years. And so it’s a, it’s a nice, easy way to see an overview of the performance over the last ten years. And I think that would fit very nicely into what you’re, what you’re talking about here. When you’re trying to analyze the company’s financial performance, it also gives you enough data that you would be able to use your calculation. So if you don’t feel comfortable with what their calculations are, or you’re not entirely sure how they’re calculating what it is that you have the ability to, to look on and see all the data for at least ten years on there you can pay extra to see 20 years data. But I, I do the ten because that works well enough for me. So I that’s, to me, the only one I know guru focus is pretty great, but they believe they only offer free five years for free. And beyond that, I think you have to pay, Andrew (18:12): I pay for quick Fs, and it is just fantastic. I can upload everything and pour that into my spreadsheet, manipulate it, and analyze it to my heart’s content and trust me, I do. And when you think about, if, if that’s part of your approach and you’re very data-driven, like I am, then similar to the idea of paying a small fee to win a title. I, I love the idea of paying a small fee to win in the stock market. And so quick Fs. I really can’t recommend that tool enough. It’s fantastic. If you want to use it for free, it’s fantastic. Suppose you want to pay for a premium and be able to get access to those 20 years. And it’s, I wish this thing were around when I first started, because I, I, I spent a lot of time having to dig through 10 Ks and pull one up, find three years of data input into a spreadsheet, pull another one up. I mean, it was, it was brutal now. I can’t even, I, I, it’s amazing how easy it is now with, with a website like that, and a very nice tool to have. And I think everyone, But they should use it. Dave (19:28): Yeah, I would agree with that. What Andrew was referring to with the data and the spreadsheets and everything I’ve seen him do it it’s impressive, folks. I’m not going to lie. I know that sec.gov allows you; they have a link in there that you can export the data to Excel spreadsheets, which is nice. But as Andrew said, you still would have to look at anywhere from two to three different annual reports. And if you wanted to do a quarterly, you’re talking a lot of downloads to finding the same level of data. So the quickFs is a nice tool. I like it because it allows me to get a really good overview of how the company performs. Dave (20:18): And you can see, especially right now, when we’re looking at 2020 to 2010, 2010 is kind of the year, we were kind of coming off a bad few years with the great financial crisis or the great recession, whichever you want to call it. And so you could kind of get a sense of maybe how a company had performed a little bit during that downtime. And it can give you an idea of, or maybe a comparison of how it’s doing today. It also allows you to see, let’s say the, you notice that the company has done well over the last few years, as far as revenue growth, you could go back and look over a longer period and see if that’s gradual. Or if it’s something that’s just kind of happened all at once. Or if it’s more of a one-off like this, these two years have been great, and the other eight have been not so great. Dave (21:07): So those are all things that you could just kind of see in an overview. And when you’re screening for companies, especially, it’s a great tool to use to help you try to narrow down some of your ideas. Let’s say that you’re looking at, you know, all, all the semiconductor companies out there, and you want to try to narrow in on which one you think is, has the best revenue growth. For example, it is really easy to skim through some of those companies and just kind of look at them as opposed to, you know, I love seeking alpha, but one of the drawbacks to them is you only have limited access to a few years unless you pay for their service. So it doesn’t provide you the same opportunity as the QuickFS does. Andrew (21:53): And, you know, we’ve talked in the past about how much we love to use. Finviz, if you’re a new listener, Finviz.com Is a free tool where you can screen stocks. You can say, I want a stock with a PE below 15 and the price to book below to show me a list of all of those. I used to use fin; there’s a lot, I guess, back before when I was doing a lot more price-based ratio kind of value investing. And now that my approach has changed, I’ve found I’m using quick Fs, way more. And I hardly use fenders now. And I think it’s better to do exactly. Like you’re saying, David, you like to get an instant download, maybe not instant. Maybe, maybe a couple of seconds, but save some time for the internet to catch up for those couple of seconds. We’re not quite at 5g yet, but you get that almost instant download of the picture of how the business is moving. Andrew (22:55): And you can see when there are dips in the numbers or where there are jumps in the numbers and where they’re doing good and where they’re staying consistent. And that gives you a way better snapshot than a random PE ratio would do or something like that. So, yeah, I, I love it. I’ve been using it more and more and more, and I think it’s, it’s essential. Dave (23:17): I would agree with that. And one of the things that I like about it too, with the w the idea of, of looking at longer periods, one of the things that when I’m looking at analyzing a company, one of the things that I try to do is I try to look at numbers. I try to think of questions that I want to answer. For example, if I’m looking at a company’s revenue, I noticed that maybe in two, 10, and 11, it was a little bit low, but they did great from 2012 through 2014. Dave (23:50): They just jumped up, and everything was great. And then it flattened out after that. And those are questions that I want to have answers to because those are ideas that you want to get around your head, get your head around, figure out what, what drove that revenue growth over that period. And why has the company not been able to sustain it? And was that a one-off event? Was there something that happened in the company that allowed them to do that? Was there something in the economy that allowed them to do that, or the environment they operate in that allowed them to do that? Those are all questions that you want to ask when you’re trying to investigate a company. We always have to think of ourselves. I like to think of myself as Sherlock Holmes, not near as smart as him, of course, but I do like to try to think of myself as an investigator, and investigators ask lots of questions. Dave (24:47): And when I’m reading through reports or looking at data like I am with quick Fs, one of the things that I’m always trying to do is ask questions. Using a resource like that allows you to get better data and better ideas. When you start digging into a company, whichever it may be, it gives you another than having your eyes move over the data or move over the words. It gives you a reason for searching for things. Often, when you’re searching for things, you tend to retain that information better. At least I’ve noticed it for myself. And so it it’s because you’re making connections. Sometimes when you’re just reading a balance sheet to read a balance sheet, it doesn’t stick. But when you’re looking at the balance sheet, because you’re trying to determine why their liabilities are so much higher than their assets, and what’s going on here. Dave (25:48): When you start really digging into it, it starts to make sense, and it sticks with you. And so those are some things that I’ve learned from trial and error and just my natural curiosity. It’s just kind of the way I’m wired. That helped me try to dig into a company when I’m looking at it. And so, again, these are all things that these are tools that you can use to help you become a better investor and anything that’s going to give you a bigger snapshot, like a quick Fs is something that you definitely, I would recommend taking advantage of when you can fin does as Andrew said is great. It’s, it’s, it’s a nice, easy tool to use for screening, especially if you’re trying to narrow down particular industries or sectors of, then it’s a great tool to give you some ideas to kind of marching orders if you will, but quick Fs as a better way to go even deeper. I think Andrew (26:45): Yeah, those, you hit the nail on the head on that, especially looking at the numbers and trying to figure out why it’s doing something. And if you start looking at it in that way, where it’s like, what what’s out of place, where’s Waldo. Why, why, why did something jump? And then you start investigating then as you said, that’s when you start to understand deeper what’s going on with the company, are you old enough to know who, where Waldo is? I had to reach into the deepest depths of my memories. That was a good one. That was a very good one. Dave (27:25): All right, folks, we’ll with our where’s Waldo. We’re going to go ahead and wrap that up for this evening. I wanted to thank everybody for sending those great questions to us and keep them coming, guys. This is a lot of fun, and hopefully, you guys are getting some great information out of all this. So again, I hope you are enjoying the new year, and thank God it’s 2021. And with that, I’m going to go ahead and sign us off. Do you guys go out there and invest with a margin of safety emphasis on the safety, have a great week, and we’ll talk to you all next week. Announcer (27:50): We hope you enjoyed this content. Seven steps to understanding the stock market show you precisely how to break down the numbers in an engaging and readable way with real life examples and get access today@stockmarketpdf.com until next time, have a prosperous day. The information contained is for general information and educational purposes. It is not intended as a substitute for legal commercial and or financial advice from a licensed professional review—our full disclaimer@eainvestingforbeginners.com.The post IFB182: OTC Stock Basics; The Best Free Tool for Stock Market Data appeared first on Investing for Beginners 101.

Welcome to the Investing for Beginners podcast, today’s episode is from the vault as Andrew are enjoying some time with our family this week. Although we are nowhere near a bear market, the ideas and processes are great to be aware of because it will happen again, someday. And begin prepared for that eventuality is part of being a well-rounded investor. Enjoy this episode from the vault and we will see you next year! I hope you have a great holidays and enjoy your time with friends and family, and that everyone is healthy and safe. 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 (00:00): You’re tuned in to the Investing for Beginners podcast. Finally, step by step premium investment guidance for beginners led by Andrew Sather and Dave Ahern. To decode industry jargon, silence crippling confusion, and help you overcome emotions by looking at the numbers, your path to financial freedom starts now. Andrew (00:35): All right folks, so welcome to Investing for Beginners podcast. This is episode 143 tonight. Andrew and I are going to talk about why investing in a bear market is really hard in case you’ve lived under a rock recently. The stock market has been up and down, mostly down a lot over the last week to two. And so we thought we would kind of talk a little bit about a bear market because we’ve officially entered a bear market territory. As of today, I believe we were down around 23% so far for the year. So that is officially a bear market when we get below 20%. So Andrew thought this would be appropriate for us to discuss this. So, Andrew, I’m going to turn it over to you and let you get us started and then we’ll just kind of go down a rabbit hole. Andrew (01:21): Yeah, I love it. Watch our timing be that this bear market recovered by the time this goes live. Yeah. I guess last time we talked about Coronavirus, it just happened to be still relevant a week later. Podcasts see you gotta you got a little tape delay, not a little bit longer than what they do with live TV these days. A little bit longer than five seconds. Yeah, exactly. Andrew (01:55): I think there’s a lot of emotions that go on and certainly regardless of how experienced you are, how knowledgeable you are and how rational you believe you are when it comes to stocks when it comes to investing when it comes to the market how disconnected you think you are versus how ingress you are with everything that goes in the stock market. I think it’s safe to say that a lot of different thoughts go in your head that you don’t usually think when stocks are excellent and you know, their stocks are slowly climbing up, and you don’t see much volatility. Looking at a situation like this with the bear market and you know, a lot of macro trends that are very concerning. We have the Coronavirus which Andrew (02:48): As of late as of today, we had the NCAA championship close. The NBA season’s been suspended. Like you know, you name it right on top of that we have interest rates, baseball based. Sorry, Dave. I know, I know. Out of everything, that was the one thing that you lamented today. I texted you earlier, I think it was like, Oh, by the way, you know the stocks down 20%, whatever, 30%, and you’re like put baseball, and it’s only two weeks, two-week delay. I think you can hold off two more weeks. I don’t know. It’s going to be tough. Well, while the rest of the world burns and you worry about your little game over there, we have other things to worry about. We have rec, so we had the interest rates go so low that there was a record low 30 year fixed rates. Andrew (03:54): So it seems that the fat is trying to do all they can to pump us out of this slowdown. That seems to be inevitable. And so we, we just, there’s a lot of fear and uncertainty that goes along with that and then all baked into it. You have this developing situation in the Middle East where crude oil dropped something like 30% overnight, and it seems like world war three could be upon us between Russia and Saudi Arabia. And so they’re fighting over oil and kind of politicking there, and it’s affecting the whole stock market as a whole. I think a lot of people would argue who are knowledgeable in the situation with what’s going on with crude that that could be having a much more significant impact on what you see with the market rather than just the current virus on its own. And then obviously when you combine the two, you get this insane concoction that is just tough to observe and be a part of as an investor. Andrew (05:01): So with all that backdrop and kind of trying to get the context in this situation we’re in, there’s a lot of different thoughts that go through your head. So the very first one, I think we got a good listener question too. I want to get to that eventually. But the very first one that I think it crossed my mind, but at the same time, it’s something that I kind of know the answer to. So I’ll say it, but I’m sure a lot of people are thinking about it. So when it, when you look at the bear market like this, it’s easy to pull up your broker to say, man, look at your different positions and see it’s possible. You might see all the losses on your portfolio. And so you might, and it depends on when you started. It depends on what moves you’ve made to get up to this point. And so looking at a screen like that, you could begin to think, well, I would’ve been better off, never invested in it at all. And you could start to figure while all this Dave (05:58): Time, you know, you see headlines in or in the media, people will say, here’s a year, are two years of gains, wiped out, you know, things of that nature. And so it can be straightforward to be pessimistic about that part of the investment performance. So I thought maybe we talk about that first and why, what are some ways we can kind of flip the narrative, so you don’t feel like you’ve wasted all of your time, all your energy and all your money on these stocks that are now crashing? They’ve, yeah, that’s a high point. And I think the first thing that you have to realize when you were looking at your portfolio when I looked at mine today everything was down for the year. Everything was down. I cannot brag and say that, Hey, I got the, I don’t know, mine’s all down. Dave (06:50): And you know, I invest a lot in banks. I think we, everybody knows that I’m a vegan financials and they have been blistered over the last couple of weeks. And they’re all down ally, Wells Fargo, JP Morgan Prudential first group. I mean, just, you name it, just wham, wham, wham, wham Prudential was down 20% today to what the percent is like. Still, you know, it’s, it’s easy to look at that I was mentioning Dandrew for me, maybe I’m a little bit weird, I just kind of seem to kind of, I can kind of disassociate myself with it and just remember that it’s a, it’s a number, and I don’t think about it in the way of like, Oh my God, I lost this much money kind of thing. Today. The way I generally tend to look at it is that it’s down, but it’ll go back up. I know it will and I, I just have this confidence and faith that it will go back the other direction at some point will happen tomorrow, probably not, but in six months, a year or two years, it will be higher than it is today and will be where I bought it at some point. Dave (08:08): Yes, it will. And I know that the water will, will rise again at some point. And if those companies are good companies, which I believe that they are, then I think that they will survive this and that they will come out better in the long run. And you know, I think you have to remember that until you sell the stock, it’s not a loss. So you keep that, try to keep that in your head. You know, when you see that it’s negative, you know that it’s down and it’s scary, and it’s nerve-wracking, and it’s freaking you out. You always have to remember, it’s not a loss until you sell it, until you, you know, paid $100 for it yesterday, and now you’re selling it for $50. Yeah. You also 50 bucks, it’s never coming back. But if you believe that the company is good and it will continue to do well you know, I told everybody that I was looking at Disney, I bought Disney twice in the last two weeks, the previous week and a half, and it’s still down for when I bought it. Dave (09:09): But I think Disney is a great company. Is it going to go through a little bump in the road here? Yep, it is. But I believe that it’s a good company and it will go back and it will recover. And I just have to remember that. And that’s where I think a lot of the attitudes and the fundamentals that Andrew and I have talked about over the last, you know, two and a half, three years that we’ve been doing this are so critical and so important, especially in times like this because those are the things that help you find a good company that will rebound. And I think the other thing you have to remember is we’re all human. Even Warren Buffet, you know, as, as great as an investor as he, he is, he didn’t see this coming with the oil. Yeah. He got out of Phillips 66 at a good time, but he also is getting zinged by, you know Oxy right now. They’re down half, and they just cut their dividend. So, you know, he’s not looking so great in that investment, but you know, he’s Warren buffet. It’s, I’m sure it’s going to do great, but everybody’s getting burned by this. So if you’re down, don’t feel bad, and remember it’s not a loss to sell it. Andrew (10:22): Yeah, that’s super key. I think something I noticed and I don’t think it comes very intuitively or it’s not very obvious if you’re doing what we preach on the podcast for one investing with money that you can afford to lose for two money that you don’t need in the short term. We have all the time in the world to wait for that stock to rebound. So just like we say that Warren Buffett says he likes to wait for the fat pitch and he’ll just keep waiting, and there’s no penalty for waiting. You can remain on investment as long as you want for it to recover until either the company goes bankrupt or you lose patients. So that’s another asset that you can kind of put in your back pocket. And if you can disassociate from the loss as Dave can, I think that’s very, very helpful as well. Andrew (11:16): The other thing is if you are practicing what we preach buying low, sometimes taking profits and selling high, if stock becomes too overvalued or if the thesis for why you buy a stock is not there anymore, it’s not one of your dividend fortress forever positions. And this is just something that you’re going to buy low, sell high. Well, over the years, as you’ve been doing this, you’ve been taking profits off the table hopefully. And so when you look at your brokerage statement, and you pull that up on the home screen, you’re not going to see the gains that you’ve had as an example right now with the market down 20 plus percent over the past couple of weeks. If they’re all positions that you’ve recently entered in, they’re all going to be negative. And so all your previous gains aren’t going to show up there. Andrew (12:09): So in the final kind of profit loss plus-minus, the situation’s going to look a lot worse than where you were. And so I think that’s another mental, I don’t know, like a, a mental deception that you could fall into if you’re not aware that, that that’s, you know, what you see on your homepage for your brokerage account is not reality. You know, you’ve had other trades before that, and it doesn’t tell the whole picture of your investments in general. The other part of that, and I think this is super, super key, and hopefully one of the more significant takeaways from this episode, this is something I do pretty regularly. I guess I don’t talk about that much. But I like to track the dividends I’ve received over time. And so when you are doing a drip, when you are receiving dividends, reinvesting those dividends and as you’re accumulating shares, and especially at a time like this when stocks are beaten up, you’re able to buy more and more shares, you’re going to see those total dividend payments to your account grow. They’ll start to mushroom over time. Andrew (13:26): And so if you look at your portfolio rather than looking at a profit or a loss perspective, but you look at these are the dividends I got three years ago for the entire year, this was last year. And then you kind of look at that year over year growth and then now you’re in whatever you got this year. That’s an excellent way to see where your progress has been regardless of where your stocks are currently trading. And so that’s something you can have a lot more control over rather than what Mr market is feeling on a particular day. And especially at a time like now whereas we record this on March 12th, there’s been moves like I’ve never seen. I mean, the stocks are moving as if their options, like multiple percentage points in seconds jumping up and down. And these are for, you know, generally conservative. Andrew (14:25): Unique events invested considered safe stocks that because of the coronavirus are just unpredictable and kind of rightly so because there are going to be huge implications here. But things like airlines, you know, cruise ships, even like the banks, right, that they have to talk about, these are all getting there. They’re trading like as if they were a Tesla or some high flying bubble stock. And so with these types of moves, you have to realize, well, I’ve been in the market for a little while, and I know this is not, this is not the daily reality, right? This is something different. So maybe looking at where those results are will show me that this isn’t an honest kind of longterm situation. It’s not reflective of my overall results. And so instead of taking that at face value and saying, man, my portfolio is down. Andrew (15:30): I’m a terrible investor, I’ve just lost money, and I’ve lost time and a waste of my time. And all this time has been for nothing. That’s not the case whatsoever. When you consider what you’ve been investing for, hopefully from the very beginning. And we talk about this, we, we, we tried to gel this in our back to the basic series, which starts on episode 43 but really at, at the most fundamental part of an investment is an income stream that you are receiving for your investments. So yes, the stock can move up and down jump 20% drop 50%, but at the end of the day, if you’re still receiving that income stream, that that investment is doing a lot of what you wanted it to do anyway. And so it’s not so much over the very, very long term. It’s not so much that you’re going to get every stock pick correct with every single one having crazy performance. Andrew (16:28): It’s a building that compound interest over time. And that’s really what’s, what’s the key here? So your compound interest is still working, and if you stick to the plan, this is where you’ll see considerable jumps in that compound interest. Cause right now you can get fantastic yields, you can buy a lot more shares. And as long as you don’t sell and panic sell, yes. If you sell, then yeah, now you’ve, you’ve erased all of your progress because you’ve, as Dave said, you’ve locked in that loss. And so regardless of how many dividends you’ve received, if that investment is at a loss, you know, you take the net of how many you’ve received in dividends and likely the loss will probably be more depending on how long you’ve held the investment. But if you continue the whole, do you believe that humanity is strong that we can survive and a pandemic, right? If the economy can get itself churning again eventually, if we can, if, if the fed can figure out and make a balance with the economy if oil will finally settle though a more reasonable place rather than a price that will bankrupt a lot of the major oil companies, all of these things, as they start to subside and things start to get back to normal, then all the people who haven’t panicked, we’ll see not only continued progress Dave (17:50): Through how their investments have gone, but likely see a considerable acceleration period in this compound. Interest stage because this is, you know, we try not to get too excited about it because there’s a lot of pain out there, but this is one of the highest potentials as far as where your investments will, we’ll see significant jumps and your results over the long term. And a lot of that has to do with the compounding. I agree with that as a fantastic point about the dividends. And I’m happy you brought that up. I, I’ve been reading a lot on Twitter and seeking alpha and different websites trying to just kind of find, you know, guidance and reassurance and just kind of help, you know, make me feel like I’m in control of what I’m thinking. And a couple of thoughts that kind of popped into my head while you were talking about the dividend part of it. Dave (18:51): So last week, we had a gentleman that was asking about creating a dividend portfolio. And we were talking a little bit about dividend aristocrats. By and large, most of those previous were kind, kind of out of the price range. They were expensive across the board. Just as a generality, a lot of them were overvalued and were overpriced, and now they’re going to start moving into an opportunity where you may able to buy some of these companies. A, for example, target today was down 12%. Walmart was down 9%. Walgreens was down 11%. Coke was down 10%. Contour brands who make a Wrangler and [inaudible] jeans were down 10%. Today. These are all companies that have been paying a dividend for 25 years plus and had been growing their dividend during that period. And by and large, most of these companies did well during the last great recession that we had in Oh seven through Oh nine. Dave (19:48): So these are buying large, reliable, stable, well-run companies that have great balance sheets are in a good position with a lot of assets, low debt, and are in good places to weather storms like this. And so those would be opportunities to buy. And there’s a; there’s a gentleman who used to ride for a blog called base hit investing. His name is John Huber. And if you’re not familiar with him, he’s somebody you should check out. He runs a saber capital, his investment firm. And now all of his letters come through there. But his name is John Huber, hub E. R. and he wrote this fantastic article a couple of weeks ago about the history of stock market crashes and how you can react to them. And one of the things that he brought up multiple times in the article, which I thought was appropriate was we as investors generally have, especially value investors, we have one, two times, maybe three times in an investing lifetime where we’re going to have an opportunity to find potential companies to buy that will create a lot of wealth for us over the long term. Dave (21:01): And if you have, as Andrew was talking about, if your horizon is farther than a year, then you are going to be in a good place. And I again, I don’t want to be super gleeful and talk about, you know, back up the truck and that kind of thing. And that’s not what I’m talking about. What I’m talking about is as a value investor, we try to find companies that are on a discount that is on sale. Everything’s going on on sale now. So this is an opportunity for us to find a great company’s value as a style of investing has struggled over the last ten years or so. And it’s a lot because there just hasn’t been a lot of great things to buy. And Warren buffet has gotten a tremendous amount of flack for sitting on tons and tons and tons of cash and not buying anything and him kind of just ignores it and just kind of keeps doing his thing because that’s, that’s what he does, and I’m going to guess if we look at his 13F filings over the next couple of quarters, you’re going to see a lot more purchases because of the opportunities that are presenting themselves. Dave (22:11): And this is when value investors can make their bank is when things like this happen because every bit there’s so much fear in the market and we are looking at a great company like a target or a Walmart or a Disney or a Hormel or whoever it may be that our great strong companies and have lots of dividends and growing dividends, and they’re going to continue to pay the dividend through this period. And that is pretty much a fact. And if you can buy those companies cheaper, you get more dividends, you get more reinvestment and over the long term, five, ten years from now, you’re going to thank me for listening to what we were talking about because this is where you’re going to make some money. Even though when you look at everything right now, it’s all negative, and it’s scary. But this is when we need to think about our principles and think about what it is we’re trying to do or what our goals are, and panicking and selling quickly is not what we’re all about and what Andrew was talking about with the dividends and the reinvestment. Dave (23:15): That is so key, and that is so vital to creating wealth for yourself. And this is the time that you can take advantage of it. And so that is something that I would encourage you to remember and try to take a lap. You know, Steve jobs talks used to talk about what people would get frustrated when they’re working on a big project. You would tell them to take a leap and try to cool the cooldown and calm down. And that’s something that I think we just need do during this period is you know, remember what you’re trying to do and remember your goals and think about what Andrew was talking about with the dividends. That is going to be your ACE in a hole as we go forward. Because even if the company is the price is down, it’s still going to be a band that dividend, you’re still getting money for that and it’s creating more shares. So when the stock starts to rebound and it will, then things will be, you’ll be in much better shape, and you’ll be like, so anyway, that’s, that’s my thought. Announcer (24:16): Hey you, what’s the best way to get started in the market? Download Andrew’s free ebook at stockmarketpdf.com; you won’t regret it. Andrew (24:27): I think it’s something that we need to pound into the head and I’m tried to remove all doubt because I remember sitting at the top of a bull market, it’s straightforward to say, you know, Oh, I wish I had a bunch of money in 2008 2009 because I would’ve backed up the truck. And I think it’s; it’s straightforward to get and get kind of stuck in that without understanding the context of a situation like that. So back then, people thought the whole financial system was going to collapse. And you had this massive kind of former blue-chip stocks collapse and now obviously sent a lot of fear through people and, and they, they just saw kind of like a different world. And so I think when you’re dealing with any bull Mark, or I’m sorry to bear market, there are going to be certain developments that come by that make it hard to buy into these stocks that are beaten up. Andrew (25:34): So let’s, let’s give an example. You have the airline stocks, right? This so something that triggered a lot of the selling yesterday. The player in the NBA was finding out he had coronavirus, and then also Trump banning traveled to Europe for a time. So this is an unprecedented thing of action that we’ve never seen before. And so rightfully so to a degree, right? So I have to be careful with my words here, but rightfully so. The market sold off on a lot of the airline stocks because logically, you can just kind of put two and two together, right? Well, there’s a travel ban on flying to Europe. Different airlines have a percentage of their revenues on flights to Europe. So now these different airlines are not going to be able to earn as much this year in profits because of this travel ban. So let’s say I have an airline that flies and it gets 20% of its profit from its flights to Europe. Andrew (26:43): So let’s say let’s take a worst-case scenario, and there are no flights to Europe through the end of the year. So to me, if I’m valuing that stock, I’m seeing, Hey, I’m seeing 20% less profit for this year, so I’m going to take 20% off my evaluation. And so that’s where a lot of the selling comes from. Right? And so that does make sense. Like we just kind of walk that through and it’s like, yeah, I think, I think I would agree that 20% less profit this year is, is, is the right target. And so that’s why you’ll see these, this massive sell-off. But what you have to, again, you have to put that ACE in your pocket is the only way that we’re able to, not even like getting advantage of over wall street, but just have like a fighting chance is the fact that we are average investors and if time is our biggest asset and the fact that we don’t have to pick a specific timeline to have a particular performance, well then yes I could be buying into a stock that is going to earn 20% less this year but still be okay purchase it. Andrew (27:56): Because I think like Dave has been saying eventually over the longterm, this is good business. And so maybe cash flows and earnings will be kind of tightened, and it’s not going to be as good as previously thought. But once it all falls out, this company should eventually recover. They should finally get to a place like they were at the end of 2019 with lots of profits, and they were buying back all these shares because they just didn’t know what to do with all the cash. Right. So, yeah, we’re not going to be at that place now because real developments are happening, and they are affecting the business negatively, and you will see that with-profits this year. But does that mean over a five 10 15 year time period that that same airline stock is worth 20% less? See, that’s where I would question that part. Andrew (28:47): And so what your most significant advantage can be as an investor who is going to compound and build this wealth over time through dividends, who’s not going to panic because you need to hit a certain number this year, right? Or you got to hit a specific performance in two years, or you’re, you’re coming up on an annual bonus on wall street, and you wanted to take that vacation next year. You don’t have to worry about any of that, right? You’re on your timeline. You get to choose, pick and choose where you’re going to buy, where you’re going to sell. And so rather than looking at the negatives of this, if you kind of look at the positives that there’s probably a lot of businesses where yes, they’re going to, they are trading lower for a reason, but at the same time the very longterm it’s okay, there’s a good chance that over the very longterm they can come out from the other side. Andrew (29:41): Then that’s where you have to make, that’s I guess the crucial part. You have to make that distinction, and so This is where com having a good understanding of balance sheets and income statements comes in because now if you can pick and choose and you can see, maybe there is one company that did re, let’s say they did well last year with profits and they had a ton of cash, but now, but you know they did it by having so much debt at the same time. Now, if they have a 20% bump in their earnings, they won’t be able to service their debt, and so there’s a chance they could go bankrupt. Now that’s a situation where this 20% loss in earnings could be detrimental, and you and you could lose everything when it comes to that investment. So that’s where knowing the balance sheet to see that I’m buying these stocks that not only have proper brand names, but they also have strong balance sheets, and so they’re not going to be pressed if they don’t earn as much this year. Andrew (30:49): That’s a huge, huge, huge, huge important part of this too is you want to make sure you’re buying strong companies and not strong companies because I see them down the street from me and that and I like them but strong because they have the financials to back them up and you have the knowledge to understand those. And so that’s really what’s going to separate like a Lehman Brothers, which was a big name or an Enron, which was another big name versus all the rest that stay. And a lot of times it just comes down to those financials. I agree, and I think Dave (31:26): Thinking about the balance sheet and thinking, that’s why Andrew and I talk a lot about these different subjects is because they are essential and they’re crucial to know and to understand how they interconnect and how important they are. And if a company is losing money, and when I’m talking about losing money, let’s say that their revenues are not covering their expenses and so their earnings are negative Dave (31:55): It starts to become a problem. It’s, you know, fine and dandy. When everything is going up, and there’s a lot of liquidity out in the market, and they’re able to borrow money and continue their operations, it’s a lot harder when a situation like this occurs, and the market is in such flux and liquidity starts to dry up because there’s no way there’s no bank in the world going to give you money if the company is struggling because they’re not 100% sure that they’ll, you’ll be able to make your payments. And so it’s very, it’s just a straight economic, you know, a transaction. I’m not going to give you the money because I’m not sure you’re going to pay me back. And so some of these companies that have been on the struggle bus as far as their earnings go, somebody like a, you know, a Tesla, for example, they’re not making money. Dave (32:45): And so in a situation like this, this is when it becomes hard for a business like that. Snapchat Uber any of those companies that have come out of IPOs recently that have been on the bagel struggle bus as far as trying to make money, they are not making enough money to pay their interest payments on their debts because they’re not making money from their income statement. And so that’s where kind of understanding a little bit about how some of those factors work on the income statement and a balance sheet will come into play when you’re starting to try to find good company bunnies if that’s something that you want to do during this period. And that’s why studying these aspects of the financials of businesses can be a valuable tool in a situation like this. It’s not only trying to find a company that’s undervalued, but it’s also trying to find a company that could be in trouble in a situation like this. Dave (33:45): And Andrew mentioned, and he and Ron also said Lehman brothers sometimes when, you know, when we go through a time like this, it can be, I know, again, I don’t want this to sound bad, I don’t mean it to look bad, but sometimes a situation like this can be beneficial because it can wipe away the rot. It can get rid of companies that really shouldn’t be doing what they’re doing. And Wayman brothers were in a horrible spot as was Enron, and they were being run by people that were not doing ethical things, and they were taking advantage of the situation. And we’re running unprofitable companies that were manipulating things such that they were trying to do it for their gain. And when something like this happens, it exposes them like a Buffalo likes to say, you can always tell who’s swimming naked when the tide goes out. Dave (34:42): And that’s what happened to those companies. And I’m sure with what’s going on now and if we do slide into a recession, that there will be some companies that you’re going to see you were swimming naked and this will help eliminate them in the long run. And I, you know, it’s, I don’t want that to sound flippant or like a dismissal because people work there and losing a job as a horrible, crappy thing to go through. And all the ramifications of that is it’s never good. But sometimes there are times work; those companies just need to go away. And these are times that some of that stuff can and will happen. But again, going back to the fundamentals, understanding what it is you’re buying, and having a plan are things that can help you save you from getting stuck in some of those situations. Can I make a somewhat possibly controversial Andrew (35:38): A statement, which by the way, like the way you broke down, I think people should go back and listen to it again. Like you so simply broke down what everybody on CNBC when they bring in an expert, and they say, Hey, is this company going to make it? And then they get down into all the jargon and stuff. And really at the end of the day, it comes down to what you were saying, you know, are you going to be able to pay me? That’s, that’s the bottom line. So that can kind of boil down where a lot of these companies that are in distress which ones some sort of have an excellent chance to make it through. We want to try to avoid that as much as we can from the onset. But to give an example possibly here, like Robin hood, right? Yeah. So they came in, and they revolutionize the industry, and they kind of changed it for the better for the consumer where they did a lot of things. Andrew (36:35): You know, now we have free zero commission trading. That’s awesome. And a lot of the big players followed suit. What that’s done, the ramifications of that is it’s her, a lot of them, so if you own any of the significant brokerages, you had a lot of money taken from you because now those companies aren’t able to be as profitable. So that’s not necessarily a bad thing. That’s just kind of capitalism, right? But when you start to, if we begin to look at their financials, and I don’t know the answer to this, but if it comes down to that, they were able to, you know, how are they able to do zero commissions? And there’s if it’s because they’re just irresponsibly piling on debt to, to make that happen, that’s not sustainable. And that arguably shouldn’t continue to happen because now we’re just penalizing all the other companies who are doing it the right way. Andrew (37:33): And you’re penalizing all of those investors, right? So that’s kind of, I think, one way to think of clearing the rot and thinking of the right side of that. And then secondly, which makes me question their financials is the fact that their platform has been notoriously bad. And especially in the past six months, you don’t have to go; you don’t have to look very far on Google to see people who have screenshotted all of these different times, that Robinhood has just stopped working. You know, like while the market’s open and people have thousands, tens of thousands, hundreds of thousands of dollars of trades open and they’re trying to exit them or whatever they’re trying to do, and they’re just not able to do anything cause the app’s broken. The fact that they’ve allowed this crazy kind of margin situations that any decent financial company would not allow. So really, you know, the, it just seems like they’re kind of out of their league a little bit and maybe a little bit too ambitious, kind of like the guy who got too close to the sun. Andrew (38:43): So it’s good for those things to flush themselves out of the system because a, if they’re hurting a lot of people in the process, then I don’t think that’s good business, and it’s good again, to get that silver lining behind what, what would go on in this situation like this. I think that could be an excellent example of it being better for everybody. I agree. That’s a fantastic example. Yeah. Robin hood has undoubtedly been in the news for the last couple of weeks and not for good reasons. That’s a, they’ve been on the struggle bus lately with the app not working, and I believe they maxed out to their credit limit as well recently, so that caused some problems. Yeah. So that caused some issues as well. So yeah, it’s been a, has it been a great couple of weeks for them? That’s for sure. Yeah. Before we sign off, I liked this question. Andrew (39:43): I thought we could tackle it quickly. Absolutely. So excuse me, I’m on Twitter. Somebody reached out to me and said, I’m new to investing in a single stock, but in mutual funds with an advisor for years, dollar-cost averaging, I’m only using my Roth options. So $6,000 a year. Is it crazy for me to invest 100% of my 20, 20 Roth funds right now with the state of the market, Dave, whether you think no, I don’t think it’s crazy? This would be a time that I would be looking at trying to buy stocks trying to be in mutual funds or ETFs. Right now, it’d be a little bit scary because there’s, you know, a massive outflow from all of those with the market know, crashing, you know, the Fang stocks had been hammered just like everybody else and those are a huge aspect of mutual funds and ETFs. Andrew (40:39): So I, yeah, I would be, this would be a time for me that I would definitely be looking at buying individual stocks. I think we’ve been talking about that for the last half an hour or so. So I’m going to play devil’s advocate. I’m not going to do it just for the sake of it because I have a similar, I have a similar situation in my personal life. So I will be taking a lump sum and spreading it out for several months and several reasons. So the first couple of times the market has crashed. I’ve definitely been active and picking up positions, and I’ve done it again, and I did it again today. And each time I’ve done it, the market has continued to fall. And so to kind, I don’t know how to say this in like a PG way, but like to like not to shoot your load all at once and have nothing left. Andrew (41:42): I think it could be unfortunate for you from a psychological perspective if you’re hoping to maximize on the bottom, so to say. So I don’t know. Like I don’t think you’re crazy to invest 100% right now. I don’t think you’re insane not to invest 100% and kind of go in overtime like I’m going to be doing. It’s just; it’s hard to say, and to time, it is impossible. And so you just have to be prepared for the fact that it could drop and just continue the job and they could drop for a long time. When you look back at other bear markets, we’re not talking about like a couple of weeks. We’re talking about usually a couple of months, sometimes more. And when, where it stands right now with the Coronavirus, the domestic point of view is that it’s slowed down in China. So that’s great. Andrew (42:43): So I think that bodes well for the overall situation. However, it’s just kind of unraveling right now, and we haven’t had any sort of I think a lot more things can close down, and that can help co, and the ramifications are just starting to be felt economically. And so I think that could make this depressing time in the market continue for quite a while. And so that, that part makes me cautious and the fact that I just, as I kind of look over time, it’s, it’s never really been any one stock pick for me. That’s, that’s done the best. It’s always like I spread that as, as I’ve, as I’ve done less concentration and Mara just kind of spreading out my stock picks and diversifying more, I’ve found that those stock picks do well. And so expanding from a stock perspective in the time perspective I, I just, for whatever reason, I’m awful at guessing which stock will be celebrated in the next six months. Andrew (43:48): But it’s, the system itself is doing pretty well. So I think from my standpoint, that’s how I look at it. I don’t; I don’t think I have any special timing abilities. And so as somebody who’s trying to buy and take advantage of it at the same time, you have to be okay with understanding. You’re not going to maximize this downturn ultimately. I think it’s impossible to. So try not to freak out if you, if you buy and continue dropping another 20% at the same time. Don’t be surprised if, if this prolongs for quite awhile. Andrew (44:25): All right, folks, we’ll, that is going to wrap up our discussion for this evening. I hope you enjoyed our conversation, and I hope you were a thing or two, and I hope You go away with it with a little bit more confidence that you feel like you are under control, and you know what you’re doing. If you guys enjoy the show, please take a moment to subscribe. And if you’re enjoying the show, take a few minutes to give us a review. A five-star review would be fantastic. It helps us go up in the ratings that we can help more people. So without any further ado, I’m going to go ahead and sign this off. You guys go out there and invest with a margin of safety, emphasis on the safety. Have a great week, and we’ll talk to you all next week. Announcer (44:57): We hope you enjoyed this content. Seven steps to understanding the stock market show you precisely how to break down the numbers in an engaging and readable way with real-life examples. Get access today at stockmarketpdf.com until next time, have a prosperous day. Announcer (45:23): The information contained is for general information and educational purposes only. It is not intended for a substitute for legal, commercial, and or financial advice from a licensed professional. Review. Our full disclaimer at E,investingforbeginners.com The post From the Vault: Why It’s Hard to Invest in a Bear Market appeared first on Investing for Beginners 101.

Penny stock daytrading’s popularity has skyrocketed in recent months, and the amount of retail investors, people like us investing in the markets, has jumped exponentially. In today’s episode we talk with Timothy Sykes, one of the foremost experts in the penny stock daytrading area. He talks about: Working with a planDaytrading without a plan is gamblingLearn from your mistakesAlways expect the worst and have a plan for that outcomeAlways try to learn and be patient For more insight into Timothy’s methods, check this out: Timothysykes.com 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 got me into reading stats for anything you’re tuned in to the Investing for Beginners podcast led by Andrew Sather and Dave Ahern. Step-by-step premium investing guide for beginners. Your path to financial freedom starts now Dave (00:33): Welcome to the Investing for Beginners podcast. Tonight. We have a special guest with us tonight. Tonight. We have Tim Sykes from Connecticut. Tim is a great guy. He’s very entertaining, and he has a lot of great stuff he’s going to share with us tonight. So he has a great story. And Tim, why don’t you go ahead and tell us a little bit about yourself and thank you for coming and joining us. Tim (00:53): Sure. No, thanks for having me on; you know, I was just a tennis player growing up in small-town Connecticut when I got injured and got into the stock market. My parents gave me control of my roughly 12 grand in bar mitzvah, gift money. You know, they, they said, Hey, have fun with it. They thought that I would lose it all in the stock market. It wouldn’t be a good lesson. Tim (01:13): Instead, I got obsessed with just learning everything I could about the markets and, you know, gravitating towards trading as opposed to investing. And I turned the 12 grand into nearly $2 million before I graduated college, started a hedge fund because I thought I knew everything. And then I was number one in my category for three years, but in my fourth year, I got cocky and undisciplined. I lost 30% going too big, going for a home run instead of taping singles, which is how I had made all my money and previously, and then right around then, I was on a TV show called wall street warriors, a reality show. And because my hedge fund was down 30%, and you know, I like kind of lost all my industry credibility. I was drunk. And so I was very entertaining on the TV show because I was drunk and it every scene and people started to message me when the TV show aired and said, Hey, I want to learn, you know, how you took the 12 K and turned it into nearly 2 million. Tim (02:11): And, you know, no matter my drunkenness, I was still disciplined as a trader, especially after the loss was a better trader. So I closed down the hedge fund and got into teaching because most people who teach online are scams most traders lose. And I knew that you know, I could teach from my wins and my losses; no one in my industry talks about losses. I made a career of it since then, talking about my losses and mistakes. And now I have about 9,000 students and over 145 countries, several millionaire students and I teach rules and, you know, patterns and people can see my screen and learn. And now, you know, I trade stocks, but I donate all my trading profits to charity. Because I want to teach, you know, my students, the process. So I show all my wins. I show all my, and 2020 has been a tough year for the world, but it’s been a crazy year in the stock market. I’ve made over a million dollars this year. And I think this trend is going to continue just given a whole lot of different dynamics going on in the world. So I’m here to try to teach through my successes and failures. Andrew (03:19): Very cool story. And we appreciate the transparency, Tim. Also, thank you for joining us. So you mentioned you got on disciplined when you went into the hedge fund year four. So can you maybe talk about some of the disciplines that maybe you had, and then you lost and then hopefully, you know, I’ve learned from that, and maybe we can get some perspective on that? Tim (03:41): Yeah, a hundred percent. So, you know, I mean, I had always made good money, I guess. I mean, again, from a small town in Connecticut. So if you make like a hundred thousand $200,000 a year, that’s good money on wall street. I mean, that’s, that’s nothing. So I was very confident in my ability to make a hundred or 200,000, but when I got into the hedge fund worlds, you know, it was just being looked down upon. So I tried to, you know, go for a longer-term investment. I ignored all the quick trades that I usually did, and I got my butt handed to me. And that really helped solidify the rules that I now trade by and teach where, you know, making a hundred thousand 200,000 in a year is fine. And, you know, I really try to teach my students to aim small Ms. Small rule. Tim (04:28): Number one is cut losses quickly. So I show all my trades publicly, and you can see, I lose about a third of the time. But my losses are a hundred, $200 each, and my gains are an average of a thousand or 2000 each. So if your gains are ten times the size roughly of your losses and you win more often than you lose, you know, you’re on the right track, the problem comes in. The reason why 90% of traders lose overall is that they don’t cut losses quickly. They don’t want to take a loss. It’s not fun; it’s not good for their ego. So instead, when they have a loss on that when whatever stock they’re in or whatever investment they’re in, they get stubborn. Sometimes they double up or triple up, and they say, I have to be right. And then guess what? Sometimes the stock does come back, and they’re rewarded for their bad behavior, but most of the time, and you know, this is how I trade and teach where I’m trying to trade a process that works the majority of the time, not just sometimes you know, sometimes they’ll get the wrong lessons and oftentimes you know, they’ll lose big, and you just don’t need to lose big if you stay disciplined and keep your position small. And you know, I say like trade, like a sniper. Andrew (05:39): Okay. As a sniper, that’s a cool metaphor. You mentioned you, you trade quickly, and you cut losses quickly. How quick are we talking? Tim (05:48): I mean, sometimes within minutes, certainly within hours. I rarely hold a stock more than a day or two, you know, I’m trading low price stocks, like the stocks that pretty much everyone hates like a lot of like scammy, sketchy stocks, like The Wolf of wall street stocks. And so what I say is expect the worst out of all these companies, and you’ll never be disappointed. And I’m not looking to invest in them. I’m not saying they’re good companies; I’m just trading their volatility. And, you know, as I said, you know, normally I make a hundred thousand 200,000 per year. That’s what I’ve done over the past 20 plus years. But this year, you know, I’m up to over 1.1 million just cause there’s so much volatility. I’m trading Coronavirus stocks; I’m trading electric vehicles, stocks, solar stocks, weed stocks, crypto stocks. There are so many different sectors that have just skyrocketed. So I’m not necessarily, again, believing in any of the sectors I say, ride the hype. Just never believe it. I have a lot of little sayings. It, it keeps my students, you know, having the right mindset. Andrew (06:45): Yeah. Yeah. Most definitely. I don’t think we should gloss over the fact. You mentioned a third of your trades are not profitable. That means two-thirds of your trades are profitable, which whether you are using particularly for such a short time period, I know that the way stocks move can be like a coin flip, and even with a good technical analysis type of strategy, a win rate that high is not very common. So how do you maintain such a high win rate in your store? Tim (07:17): Yeah, so I have a counterintuitive strategy where, you know, I’m not trading stocks like Amazon or Facebook, where pretty much everyone in the world was trading that you can trade them any day. They’re very liquid. I’m specifically waiting for a low price stock to show me that it, it deserves to be, you know, traded. So sometimes I don’t even trade for a whole day that hasn’t really happened lately in 2020, just because of so many plays. But in previous years, there would be a day, two days, sometimes three or four days where there were zero great stocks in play. And what I’m looking for when I say in play is like a big percent gainer. Like the stock is up 50, a hundred, 200% because with these low price stocks, oftentimes they’re up 50, a hundred percent, 200% on some news. Tim (08:01): And that news usually takes a little while to work its way through social media. And, you know, there’s all these like chat rooms. And now there are so many people on upstarts, like Robin hood and Weeble. So it takes a little time because penny stocks, you know, the people who trade these low price stocks are not the most financially savvy. They’re not the most meticulous. And that’s why I say like, it’s like trading like a sniper. You know, if I would compare this to war, which I do, I say that this is a battlefield I’m kind of like, you know, the American revolutionary is hiding in the trees fighting guerrilla-style, and I’m picking off the British red coats one by one. And they’re all just, you know, out in the center and, and I’m hiding in the trees. So I wait for the best shot where I have patterns that I’ve known patterns that I’ve refined over the past 20 plus years. Again, it’s not an exact science; as I said, I do lose. And that’s where the discipline comes in, but the patterns that I wait for, you know, work more times than not. And it’s just a game of patience and then discipline when they are not working. Andrew (09:05): It does. Yeah. It’s a philosophy. It makes sense. And you’ve obviously had experience with it, and you found your niche in the market. So I would assume you’re a pretty big advocate of day trading in general. Are there myths or misconceptions about day trading that you feel presented unfairly? Tim (09:24): Yeah, I mean, well, I’m an advocate to some degree. I think that many people shouldn’t do it. You know, like, I, I don’t think that you should risk your hard-earned money unless you’re fully prepared. I have 7,000 plus video lessons now, so I have a whole library. And I encourage everyone to, you know, either paper trade, which is, you know, not real money. Like it’s like a kind of like fantasy money while you’re practicing or not trade at all. Or even if you are trading trade very small, because like, I can’t overestimate the fact that 90% plus the traders lose its terrible odds, a terrible industry. You can’t go into day trading and be like, Hey, I’m going to be a millionaire. The odds of it happening are very, very slim. And the odds are like zero. Suppose you’re unprepared if you don’t know the rules, if you don’t know the patterns if you don’t know what discipline means. So a lot of people just get into it, and they’re like, Oh, the stock market’s on fire, like day trading, so great. And then they get crushed, you know, like I always say, you know, there’s a little, have you seen that? E-Trade baby on the commercials where it’s like dancing, have you seen that? Andrew (10:24): It was several years ago, but I remember a few commercials. Tim (10:27): I was like, no, like there would be if that was a real thing and like the baby was trading, it would be like a black and blue baby. It would be a bloody battlefield, and it would have to be blurred out on TV. It won’t even make sense if you look at the industry stats. So I think that you know, a lot of people think that it’s easier than it really is. I think that they think that they’re going to make too much right away. You know, I have made millions of dollars, but it’s, it’s been over several years, and I’m literally working 12, 14, 16 hours a day. Not necessarily like researching new companies; there are not that many low-priced stocks; it’s really, you know, trying to stay disciplined. And a lot of this is like, you know, mindset. Like if I’m, if I’m hungover for whatever reason, the next day, you know, at, at the start of the open, like I, I probably won’t trade very well. Tim (11:17): It’s such a fragile profession. And I would; I would even not even call it a profession because again, most people in this are just gamblers, and they’re just saying, Oh, this company looks good. Oh, this stock looks good. And the odds of that, I mean, it’s just like going to a casino. The odds are not good. And the reason why casinos make billions per year is that the house always wins. Like it’s based on stats and odds. So individuals very similar, the reason why E-Trade and Robin hood are multi-billion-dollar businesses. Not because the traders are so good, but because they make money on every single trade Robin hood doesn’t even charge commissions. And they’ve in all these people into thinking that like, it’s so easy to trade when in fact they’re actually selling their orders, routing their orders to Citadel. It’s a whole nasty scheme. Like Robin hood historically has been someone who takes money from the rich and gives to the poor, but it’s actually messed up. Their business model takes from the poor and gives to the rich. Andrew (12:11): Yeah, I’ve been; I get the Bloomberg business week magazine delivered to me like an old man. I get the hard copy. And it’s been interesting watching the evolution of Robin hood and w you know, they’ve been kind of, it almost sounds like they’re remorseful to say that the average Robinhood user has actually been outperforming first. They piled into all of the work from home kind of plays. And then they’ve since moved on to the economic recovery plays. And frankly, it’s, it’s blowing a lot of the hedge funds out of the water. However, it does feel like there’s a lot of amateurs in there, and that’s refreshing to hear from someone like you, who’s obviously had a lot more experience than people who’ve just maybe downloaded the app this year, that, Hey, this isn’t some easy thing, just because people are getting lucky right now. It doesn’t mean they have systems in place that can sustainably give them success over the longterm. Tim (13:11): Yeah. I mean, when I first made my million, like I had no risk management, I was in the right place at the right time when I got started back in 99 and 2000, I was really primed to lose. I mean, I’m, I’m fortunate. I only lost a third of it, even though, you know, it destroyed my industry credibility and destroyed my ego, which actually was good at the time. That’s what’s happening here. People are in the right place at the right time. It doesn’t make them good traders. It doesn’t make them knowledgeable. And when the market shifts as it inevitably will, whether it’s 20, 21, or 20, 22, or 2023, whatever money these newbies are making, they’re going to lose it very quickly because they’re just unprepared. You know, stock trading can be very confusing where you learn the wrong lessons from your wins, and you think that you know more than you do. Tim (13:56): And then all it takes is very small market shifts and sector shifts for you to get humbled. You know, I, I have a saying, I have another saying where I say, like, you know, the more confident you are, the cockier you are, the more likely it is that you will be humbled by the market and you’ll get taught a very expensive lesson. So that, that’s just a question of when, and if you actually talk to any of the top traders or investors or billionaires that give interviews, they’re all saying, you know, this is a bubble market it’s not sustainable and, you know, newbies and people who are doing well, they just don’t want to listen. But again, they’re going to learn the hard way, unfortunately. Andrew (14:38): Yeah. Unfortunately, you really can’t; you really can’t convince them otherwise. So w we like to dive deep on our show and really get into some of the nitty-gritty behind some techniques and strategies. And, you know, obviously, we don’t want you to give away the secret sauce or anything, but okay, let’s do it then Tim (14:59): Literally anything, I will tell you my best secrets, because this is my whole business. I wanted to try to put myself out of business by sharing everything. But unfortunately, even when I give everyone the exact patterns and rules, they still somehow screw it up. Andrew (15:12): Yeah. Dave and I are the same way. And you mentioned most of the industry is not, so again, refreshing to hear from somebody else. So risk management, then are you talking about certain position sizes? Does it depend on a person’s risk tolerance? Whether it’s a student or some of you’re teaching through a podcast or a YouTube video or something, what, what are, we’ll talk about some of the risk management ideas. Tim (15:37): Yeah. So everyone is different. As I’ve learned, I mean, I’ve been teaching now for 12 years. So you have to find your own risk levels. Everyone has a different account size, different experience, level, different goals that we live in different time zones. And what I tell my students is to think of themselves as kind of like scientists, where they’re doing experiments. And they’re like, okay, on this trade, you know, I made $4. That was good, but it wasn’t that much on this trade. You know, I didn’t cut losses quickly enough. I lost like 300. So every single trade becomes an experiment, and you start learning, you know, your own sweet spot and, and you try to figure out like what you’re good at, what you’re bad at. You know, for me, I really don’t like losing more than a few hundred dollars on trades. Tim (16:17): So if anybody becomes my student, they are shocked at how quickly I exit. Sometimes I exit even when I have a profit. And I just say, you know what? This stock is not doing what I think it will; you know, when in doubt, get out. So I’m extra cautious. And, and that prevents me from having some big wins. Cause again, sometimes I cut losses, and then the stock does what I want after I’m out, but I feel no guilt because I specifically have optimized my strategy. I’ve done enough experiments, like literally tens of thousands of trades over the years, where I know what I’m good at. I know what I’m comfortable with, but one person watching this or listening to this might say, Hey, I don’t want to lose more than $50. And then somebody else says, you know what, I’m a little more aggressive. Tim (16:59): I think I can lose up to $500, but I will say no matter what, you also think sometimes the market just moves so fast. So even if you say, Hey, I want to only lose $500 on a trade. You might take a big position. Cause you’re like, okay, I’m aggressive. And then the market will move quickly against you, and you’ll lose 5,000, and you’ll be like. So, you know, there are two moving targets, finding what you’re good at and then finding, you know, what you’re good at with the markets. And the whole goal is to try to be in tune with the market and in tune with yourself. And that’s why I love trading. It’s not just about, you know, the money that you make or the money that you lose. It’s how you can refine your own process to be the best you can two years, three years, five years, ten years from now. And I always tell my students, like, think of this as, you know, endless experiments and even ten years from now. I mean, there’s no magic or perfect experiment, but again, you, you get better over time, and you start learning, you know, the ins and outs. Andrew (17:56): So out of all of that experimentation and the tens of thousands of trades, do you have any losers that, where you lost a ton of money in a short period of time that really stung and stick out to you as a good learning experience? Tim (18:10): Yeah, I mean, so again, I’m, I’m in and out so quickly these days because now I have 20 years of experience. I know my own risk levels, but the big loss that really, you know, sunk my hedge fund, where I lost a third in one trade. It wasn’t quick; it was a long-term investment. I invested in my best friend’s dad’s company. They basically invented prints at home ticketing. I got all excited about their product. They won deals with universal studios, six flags Expedia. I mean, there was a small company, but they won some big deals. They basically invented the technology, and I had not learned risk management yet. Before that, I was like batting a thousand. So I was like, I can do anything. I was actually there at six flags amusement park when Mark Shapiro, who was the head which basically invented Disney. Tim (18:56): He was head of six flags. And I was there just with the whole it was called Cygnus E transactions. I was there with the team, and he thought I was like, one of the programmers. He didn’t know I was one of the investors. And he, you know, tried out the whole printing at home technology on his phone, and we printed it at a kiosk, and he went around the group, shaking everyone’s hands, being like this technology is revolutionary. It’s going to change the world. And this is the guy who invented ESPN. So that day, I put it in another a hundred thousand dollars. I was so confident. Later on, a few months later, my best friend’s dad actually got thrown out of the company. There were all these debts. They had created good software, but the financials were just a mess. Tim (19:34): And the new CEO came in and said, okay, we’re going to clean everything up. I had a lunch meeting with him one time, and he was like, don’t worry, you’ve invested in a good company. And the technology is solid. I’m going to turn this around. And I was like, Oh good, thank God. Because, you know, I invested a lot in my head fund, and I had gotten away from my trading. I couldn’t even get out if I wanted; I had a big position. It was an illiquid stock. And the new CEO plunged the company into bankruptcy, wiping out all initial shareholders and debt holders like me. And then somehow he kept all the contracts, and he bought the company in bankruptcy court for pennies on the dollar later; it basically got sold for $80 million. So I would have made like 15, 20 million, but I learned a valuable lesson just because you like technology. And even if you’re right about the technology, that doesn’t necessarily mean you’re gonna make money. There’s a lot of things going on with these companies, especially tiny startups, where if things just don’t add up and they can easily just go bankrupt and wipe everybody out. Andrew (20:34): That is a pretty incredible story. And wow. What a way to learn that lesson? You mentioned the struggling financials of the company. Are you today looking at financials at all? I am going to assume. No, just because you mentioned how, how quick your trades are, but you know, I could be wrong. What’s, what’s your thoughts on that? Do you teach people to look at those? Tim (20:54): No. So I, I mean, I, look, I have a DVD called learned to read sec filing. So it’s, it’s good to learn how to like read a balance sheet and go through the long, like 40, 50, 70-page legal filings. But in this day and age, I just expect the worst. Like any stock I trade, I expect that they’re going to go bankrupt. And that way, I’m never surprised when something shady happens, you know, yesterday GI this little piece of crap penny stock, they they have like this magic disinfectant, which again, I just expect the worst. I think that they’re full of BS. I picture Wolf of wall street pumping this stuff, but they put out a press release basically saying like, look, our, our disinfecting light rays and UV products is going to be sold in Target and Walmart. Tim (21:40): And there’s; also, I think they said like a 35 or a $45 million order. And I was like, okay, you know, I, I don’t believe a word that you say in this press release, but I recognize that other people will. And I recognize that this is probably going to spike the stock. And I bought it, and it didn’t really do much. So I sold out; I think I might’ve made a small gain or small loss. It didn’t matter. It was basically a scratch. But the interesting thing was, like three hours later; they came out with a press release saying whoever put out the press release earlier this morning, that was unauthorized. We have no deal. We’re talking with authorities now. And I was like, I re I just was not surprised. And a lot of other chat rooms were like; this is crazy. Tim (22:17): And I’m like, expect the worst. And you’re never disappointed. And I can give literally thousands of examples where there’s a mistake in press releases, hyped up, press releases. You know, the management can just say whatever they want and a press release. And then in the sec filing and the legal filing, there are 20 pages of like risks of how the company is about to go bankrupt. Never forget. It’s not just with penny stocks. People say, Oh, well then, why trade penny stocks it’s any stock? If you go back through, you know, history bear Stearns was on the verge of bankruptcy. I think it was a CEO or CFO who was on CNBC the night before bankruptcy. And they asked them, how has everything I said, everything’s fine. Everything’s fine. The rumors are untrue the next day, bankruptcy. So, you know, corporations and management, they’re basically paid, cheerleaders. You just can’t believe a word that they say, and they’re always gonna hype up best-case scenario, whether it’s legal or quasi-legal, early illegal, I’m not a lawyer. I just literally expect the worst, and I’m not disappointed anymore. Andrew (23:18): Really. It really shows the importance of knowing what you’re doing and, and researching and, and having that skeptical mindset. Tim (23:25): I’m like a battle-tested, you know, weary general. Who’s just been in so many battles. So I’ve just seen so much stuff. And that’s why people are like, why do you still trade these, these little crappy stocks? And I’m like, I just have so much experience. I can basically see, you know, how bad they are. I can see what, how this is gonna play out. A lot of the time, I write these blog posts exposing a lot of these scams, and I say, okay, here’s like ten red flags. And the STAM keeps going for a week, two weeks, three weeks. I face a lot of hate on social media. They’re like, you’re wrong. The stock keeps going. And I’m like, just wait, just wait. And then, sure enough, it crashes. And then everyone who hated on me is like, how did you know? And it’s, it’s not rocket science. If you start seeing these companies being promoted, there might not be the Wolf of wall street anymore. But if you start seeing too aggressively hyped up, press releases if you start seeing a stock, that’s just run up a thousand, 2005000%. It always ends badly. There has not been one penny stock that I’ve traded that has actually made it. And they’ve come through. I mean, we’re talking about thousands of companies, all failing to various degrees. Andrew (24:30): So then with the minefield, that sounds like penny stock universe is, are you ever taking the opposite side of the trade where either you’re going to trade shore or maybe buy putts or do anything like that to profit from a stock? That’s basically a train wreck, a hundred percent. Tim (24:48): Usually, the companies that I’m trading are not optionable. I would love that if there were penny stock options and, and puts, I would make literally billions of dollars cause they all fail. I do try to short sell every now and then. I’ve done more of that in the past. The crazy thing about 2020 is that it doesn’t even matter if it’s a scam. It doesn’t even matter if it’s going to crash eventually. Like everything just goes up. So I’m, I’m hardly ever shorting right now. But in the past, you know, I’ve made $6 million now, total and trading. I would say probably two, two, and a half million is from shorting. Another bad thing was shorting. You know, wherein case your listeners don’t know, it’s like where you’re taking a negative position and your profit. Tim (25:26): When the stock goes down a negative position, times a negative change in stock price equals a profit. And that confuses a lot of people because you’re like, what? Like you’re, you’re selling shares. You don’t own. And for me as a teacher, even when I nailed the short, you know, a few years ago when I was more into shorting and, you know, exposing a lot of these pumping dumps, my students would be confused. And so I would sometimes like when like 30, 40, 50% gains on like a perfect pumping dub and I would get like six cancels. And I was like, w I would message them. I was like, we just nailed this stock. I’ve been warning about this for two weeks. How can you cancel? And they’re like, yeah, sorry, it’s just not for me. So it’s not even just about how much money you can make or how, how probable anything is for me as a teacher; I want to teach strategies that, you know, my students don’t feel uncomfortable with or like it hurts their head. So I mean, I teach how to spot the scams. I teach how to short sell out of my 7,000 video lessons, probably like 2000 or 3000 of them are on short selling. But right now I’m, I’m pretty much just long based. Speaker 4 (26:29): What’s the best way to get started in the market—download Andrews ebook for free at stockmarketpdf.com. Dave (26:39): That is some great stuff. So I guess some that have popped into my mind while I’ve been listening to you guys talk. So you mentioned that you’ve been doing this for 20 years. So do you feel like that there are certain time periods in the market cause you’ve been through some, you know, if you started in 99, 98, you were, you were starting right before the tech bubble, and now we’re in arguably a bubble and we’ve seen some pretty severe ups and downs? So have you seen, has that kind of affected your mindset and how you do what you do? Tim (27:15): Yeah. I mean a hundred percent. I’m, I’m always trying to adapt. If you look at stats, I mean 304 stocks follow the market. So you know, no matter what’s happening, like, like I said, right now, I see a lot of scams. I see a lot of stocks that deserve to be at zero or close to zero, but they just keep going up because they’re in the right sector and they’re in the right market. So I teach this, you know, I, I have to respect the market, even though I don’t necessarily agree with it. You know, I don’t know anybody. Who’s very wealthy who disagrees with the market for too long and, and puts money on those disagreements. I mean, the market is always right. So you have to judge that. You have to expect that, you know, I, I’m just trying to take it one trade at a time in this bubble market. I don’t know when it collapses, you know, all the trends right now with more people, staying home, all these cheaper brokers where there are lower barriers to entry all these hot sectors. I mean, I don’t see anything happening anytime soon, but who knows, you know, so I don’t try to impose my will on the market. I try to react instead of predict. Dave (28:17): Yeah. That’s, that’s awesome. So I guess kind of following through with that. So with the advent of no-fee trading with platforms like Schwab and fidelity and others, has that affected what you do. Tim (28:32): Yeah. I mean, there’s just more, literally more traders. So there’s a lot more liquidity, a lot more volatility, a lot more newbies who want to learn. So I mean, my, my education business is booming. I’ve just doubled the number of employees that I’ve had in the past few months, just to try to keep up with everything. I’m trying to record new guides that go along with this new bubble market. So I’m like, okay, here are the rules for this bubble market. They’re a little different than, you know, a slower market than we saw in two, not 2019, 2018. A lot of it is just trying to adapt and try to take advantage of, you know, what we see happening in, in, you know, again, it’s the trends. A lot of people make all these assumptions where they think they’re gonna make so much money right away. Tim (29:16): And I always remind them like, you know, my top student has made $13 million. He started at $1,500, but that’s over a decade. And he made nothing his first nine months while he was studying. So a lot of what I do is just getting people in tune with these counterintuitive rules and lessons. You know, almost no one is going to make, you know, $13 million like that best-case scenario, if you can make $10,000, you know, that’s still amazing. So you have to have the right perspective. And right now, again, like if you’re getting started, it’s going to be a very different experience, started in 2020 than it would be like in 2008, which was, you know, a tough year for the market. So I’m just trying to adapt. Dave (29:56): Yeah. That’s a, and that’s, that’s the way you have to do it because the market is, you said it’s a cruel mistress. And if you don’t, if you don’t adapt and pay attention, you die. And if you don’t respect it, it’s gonna; it’s gonna bite you in the butt big time. So I guess another question that kind of Springs to mind, so as the trading gets more popular and there are more and more, you know, as you said, the market goes up right now, does that mean that there are more companies coming online in essence to give you the opportunity to have more targets to shoot for, in other words, more companies to try to, to, to do your magic on? Tim (30:35): Yeah. I mean, there are endless companies right now in all different sectors. I mean, a lot of the times, sometimes in my chat room, like I have commentary and I’m just like, you know, looking for my favorite patterns, and I’m like a fire out we’ll fire at will. And it’s like the scene from Star Wars where there are just bogeys like everywhere. And it’s like today I made like five trades yesterday. I made seven the day before I made 10, like, you know, this is a lot of trading for me. I don’t, I, in the past years, I mean, I would sometimes make one or two trades per day, sometimes one or two trades per week, just waiting for something to be like in play and hot. And now it’s like every single day. So I’m not traveling much because of everything that’s going on. And even if, even if, you know, I could travel, I don’t know if I would, because I’m just trying to capitalize. You know, when I see these patterns that I know I feel guilty if I don’t, you know, take advantage of it. So I’m trying to take it one trade at a time. Dave (31:34): Yeah. That’s, that’s the best way to do it. And so, as somebody that is honestly was not as familiar with this style of investing and trading, it, it sounds, I got to admit, it sounds a thousand times more disciplined than I ever thought it was. And you know, the misconceptions, of course, are coming from the BDA. We, you see, as you said, the Wolf of wall street, you just have this vision of all this craziness going on and all these crazy people. And it’s, it’s, you know, I have to admit it’s, it’s far more disciplined than I thought it was. So I appreciate you telling me about this. So I guess thinking along those lines, as people are becoming new to this, how, how do, how should they, I guess, will lower their expectations because with the explosion of things like Tesla going up 700% in a year and Bitcoin and, and you just on and on and on people’s expectations now are sky-high. What if they, you know, put a thousand bucks in the market, I’m going to make $10,000 by the end of the year. And it’s just; it doesn’t work that way, as you know. Tim (32:40): Yeah. You have to lower your expectations. I mean, no different than how I say like I expect the worst that of all companies expect the worst on every trade. Like, just imagine, no matter what, how excited you are about Bitcoin or Tesla or anything. I imagine the worst-case scenario. Like what if the FBI raids, Tesla, what if Bitcoin Coinbase gets shut down for tax fraud? I mean, just, I don’t think any of that is going to happen, but just expect the worst. And if you expect the worst and you’re always like ready to exit, that really kind of protects you. Like I say, if you trade scared, then trading isn’t so scary. And a lot of people disagree with me on that. They’re like, come on; you don’t need to be scared. And I’m like, yes, I do. Okay. I’ve been there while I personally lost $500,000. Tim (33:22): I was freaking right about print. I don’t take it. And that’s what really bugs me. Like I was so dead-on about the technology, but I was just, I didn’t understand the risks. So always consider the risks. And, you know, I, in every interview I give, I say, look, 90% of traders lose, like, yeah, some of my students become millionaires, but most traders lose. And the way to differentiate yourself between those who lose versus those who succeed, it’s all about hard work and preparation. Like, you know, my top students are putting in 10, 12, 15, 20 hours per day, not just looking at the markets, not just trading, but looking back at the past, you know, I have 7,000 video lessons. I have 15 online DVDs. I have over a thousand archived webinars. My students are going through that. I’m basically a glorified history teacher. Tim (34:07): And while there’s no magic formula, you know, you can see that these patterns repeat the same stocks, the same sectors, start to heat up again, especially with low priced stocks. You know, you see the same idiotic assumptions, the same hype, a lot of the same promoters. They just changed like websites or usernames. They’re all like, you know, mysterious online. They have different username names, and then they disappear, or the party gets cold, and they pop up again. And it’s the exact same pattern. So for me it’s, it’s studying the markets very, very closely and meticulously. Like, you know, one of my favorite movies is the last samurai. If you research on the samurai, yes, they did adapt to new technology. That’s basic they got wiped out, but they were notorious for always, you know, just practicing, practicing, practicing, practicing, and that’s what trading is all about. Tim (34:56): It’s endless practicing, and it understands that practice does not make perfect, but it increases your odds of success. And that’s all you can do in any past time. So I really teach people to be obsessive, like the Mamba method, Mamba mentality, where you’re like practicing your free throws at 3:00 AM. 4:00 AM. If you follow me on Twitter, I have like these 10:00 PM study checks 1:00 AM study checks. I’m like, how bad do you want it? Because that’s, that’s the reality. If you truly want to succeed in an industry where 90% plus of traders lose, forget about making millions, like they can’t even make a dollar, the majority of traders you have to put in more time knowing the patterns, knowing the key resistance levels learning from history, you know, just where I explained my, my worst trades. I always explain my worst trades and my best trades, and all my trades. Tim (35:49): And that’s the beauty of why I’m so excited right now because never before have we had the ability to share so much information so freely. So I think education is really gonna blossom over the next few years as more people start to take advantage of it. And hopefully, instead of watching Netflix or playing video games, they start really focusing on these new tools. Like just the fact that we’re able to communicate. And the fact that people are able to listen to this, whether it’s a truck driver driving on the road, which, you know, I have some students who are truck drivers, and they should not be watching video lessons, but podcasts are okay while they’re driving. Like, what are they? I get these book drivers who are like, yeah, I’m studying. I’m like, don’t drive and study, focus on driving a giant truck that is dangerous. But you know, whether you’re a book driver or whether you’re, I don’t know somebody who’s a lager in Montana or somebody who’s in, you know, Brazil or China, like it’s, it’s crazy what the internet is doing. And I really don’t think that most people realize how game-changing this technology is. I mean, this thing is only a little over, like a quarter of a century old. So there’s a lot more coming. Dave (36:59): Yeah. I would agree with that. And I, you know, that’s the premise of what Andrew and I have been trying to do all these years is try to help educate people. And we agree a hundred percent with what you’re saying that the education is, is so lacking in. There’s so much out there that people need to know and, and learn. And if they, if, when they walk into a situation, whether it’s the trading, investing, whatever it may be, and you walk in, they’re uneducated, you’re going to set yourself up for some possible heartache. And that’s the scary thing. And you know, like you were talking about being afraid of your losers. I’m afraid of my losers. I’m terrified every time I make an investment; I’m scared to death that I made a bad choice, that this is a wrong decision, and it could end up costing me money and anybody else who listens to my money. And so that fear motivates me to always do better. And it sounds like that’s something you probably ascribe to as well. Tim (37:54): Yeah. You always have to be, you know, learning. And, you know, I say like a lot of my best students who are succeeding now in 2020, I mean, they’ve been my students for four or five years. They weren’t necessarily doing that well early on, but they stuck with their education. They learned what not to do. They learned from their losses, they learned from their mistakes, and they kept going. The biggest mistake you can make is you let your losses, you let your early failures get to you, and then you just give up, and you’re like, oh, I’m not good at trading, or I’m not good at whatever. And you don’t utilize your experiences as you should. I got started in the right place at the right time. So I didn’t have the losses at the beginning that I should have, but, you know, based on my printed home ticketing company, I got the losses, I got the necessary part of my education. Tim (38:35): And you can not have a complete education without massive failure without that, you know, box checked off where it’s like, okay, massive failure. Don’t do that again. And you learn from that pain, you learn from that anger. I mean, I was drunk for literally like two or three years afterward. I thought my life was over, but I got back to, you know, taking singles instead of going for home runs. And now this is what I teach, and I can teach for my wins. I can teach for my losses. I teach from every trade. You know, my, my video lessons about my losses are viewed three times more than the video lessons about my wins. And I love that because I’m not afraid of the losses. I’ve gotten much better at controlling them. Being a teacher actually makes me more disciplined because I don’t want to look like an idiot in front of all my students. Tim (39:21): I don’t want to, you know, display bad behavior. I want to practice what I preach. And I think more people should share everything related to their, their own journeys. Obviously, there’s sometimes oversharing. But when it’s related to your business career and in the lessons, I wish more business people. I wish more traders and investors shared everything, but they’re afraid of creating competition. They’re afraid of other people doing it. And I’m just not like, I, I love the fact that not only do I teach my students, but now several of my top students have joined my team as employees. And they give webinars to other students because they’ve learned everything, and they have their own take on my strategy. You know, I have a book called the complete penny stock course was written by one of my students. And he was like, Tim, I like what you’re teaching. Tim (40:07): I like this, but you’re disorganized. You have all these video lessons, DVDs, and webinars everywhere. Let me put it into one book. I have academic training. I was like, cool, do it. And that book has become the best-reviewed book of my entire niche. And it’s written by my student. Who’s describing my strategies, but he’s right. I am overwhelmed. I’m not organized. I wish the market would just shut down for one or two or three years, and I could collect myself, but that’s not happening. So I think if you start learning and you start sharing everything online, you start finding other people who get it. And they, you know, they can join you in your mission, whether they’re your employees or your students whatever it is, it’s actually pretty cool how you can now crowdsource information and education. Dave (40:52): Yeah, that’s awesome. I love that mindset. That’s you’re coming to me; you’re coming from a place of abundance. Like there’s enough of this to go around, and we can help people. We can help each other. And for whatever reason, Andrew and I have talked about this in the past, for whatever reason, investing day-trading, whatever it may be. It’s, it’s gotten a reputation as, as a solo sport. It’s not people don’t consider it a team sport, and they’re not; people don’t really want to help each other. I’m not really sure why that is. And I know that yeah. Tim (41:28): I mean their competitive edge. I get it. Like if you make a lot of money, you don’t necessarily want to share these techniques with other people. But for me as a trooper, I’ve, I’ve changed my business around to make it beneficial. Like it does mean no good if I made money on a trade and all my students are losing, and I’m like, haha. I made money. And they’re like, Dave (41:48): Yeah, yeah, that’s, that’s true. And I would, I would agree with that. And you know, I, I, I love the reference that you were talking about with the Mambo philosophy. And I know Andrew will love that too, cause he’s a huge Kobe fan. But you know, I think about some of the things that you were talking about, Michael Jordan Springs to mind when I think about failure and overcoming your failure, you know, he, he didn’t make his basketball team when he was in high school for God’s sakes. I mean, think about that and what he was able to overcome with hard work and effort. And if anybody has watched that, that series that came out on Netflix earlier this year about the last dance for the bowls it was, it was fascinating. And one of the things that came across to me was how hard he works. And I have to admit, I admire, you know, your work ethic and everything. You’re trying to teach people. That’s a that’s admirable. And I, I applaud you for doing that. Tim (42:41): Thanks. I mean, it’s, it’s good to have a chip on your shoulder, right? So like, you know, Tom Brady, I mean, he became the greatest quarterback of all time. He was picked 190 ninths in the draft, and he still mentions like that was like, you know, a chip on his shoulder where teams thought that there were 198 other better players than him. And that really motivated him, you know, Michael Jordan. Like if you, if you made a bad joke against him, and you know, and he would be, he would take that seriously. And he would use that as fuel. You need to reach down deep and get whatever fuel you can to really see what you can accomplish because it’s just not natural to want something so bad. It’s not natural to like work for something at midnight or 1:00 AM or 2:00 AM or 3:00 AM. I was a tennis player before getting into trading. Tim (43:23): I was the number one player in the state. I had a chance to go to nationals. I actually overworked that I probably caused my own injury because I wanted it too bad. But I was not captain of my tennis team. My number two player was captain because everyone saw that I was insane. Like we played in New Haven, Connecticut. And there’s the Yale bowl, which is a giant football stadium. And I would run up and down the whole football stadium once or twice every single day. And they knew that if I was captain, I would make the whole team do it too. And so they specifically did not vote me as captain. And I was so bitter, like literally when they were about to announce captainship, everyone was at like a team meeting. We’re all sitting down, and the coach was like, we’re going to announce the captain now. Tim (44:04): And he’s no stranger. And I started to get up, and I was not the captain. And I remember that moment where it was like the ultimate betrayal, but, you know, frankly, they were right. Like I would have, I would have been like the worst hap than ever. I would have made them all work. We probably all would’ve gotten injured. So they made the right decision. But I remember that, and that made me, you know, that really kind of motivated me to be a better trader and a better leader. You know, I don’t necessarily want to have, you know, someone who’s worse than I be voted like more popular than me like that, that really hurt. And I remember that I mean, this was a what, 1998. I mean, this is over 20 plus years ago. And I still remember that moment where there was a moment where the coach said in our next captain is, and I actually started to get up. And I was like, that was like one of the worst betrayals ever. I was, I was so hurt by that. And that really motivates you. So anytime you have a mistake, or you have hurt, utilize it, don’t block it, don’t ignore it. You know, cherish it and, and really use it to make you better at whatever you love. Andrew (45:11): Yeah. That’s fantastic advice and definitely something that everybody should pay attention to. So on that note, if listeners are interested in what you do how to learn more about you, what would be the best place to go? Tim (45:24): Yeah, go to a Timothyskyes.com. Just Google Timothy sites. I’m on Twitter, Yahoo, YouTube, Facebook, Instagram. I still need to get on Tik TOK, but I just haven’t had time to do that. You know, I filmed a few dances. I just, I haven’t, I haven’t posted that yet. But like, you know, I’m all over the place, and I love sharing everything. I mean, on Timothy sykes.com, there are over 3000 blog posts on my YouTube channel. There are nearly 2000 video lessons. So I love sharing everything good, bad in between. It’s okay. Like if your wife or husband messages me and is like, yo, you’re, you know, my, my husband is like listening to you more than, than I am. Like, it’s like, I get some messages from some crazy students where their wives or husbands are angry because they’re spending more time with me, but I’m trying to help people. And, and it’s, it’s a good thing to listen to what I have to say. I’m not right all the time. But again, I’m trying to share all the lessons. Dave (46:21): Yeah. Learning is key, and it’s great that you’re sharing that. So thanks for your time, Timothy. We enjoy our conversation and, you know, best of luck with your trading and everything. My pleasure. Thanks, guys. Stay safe. Yeah, you too. Thank you very much, Timothy. This was awesome. All right, folks. Well, that is going to wrap up our conversation for this evening. I want to take a moment to thank Tim for coming on and joining us this evening. That was fantastic. I learned a ton about day trading in penny stocks, and it is far more disciplined than I originally thought. So kudos to Tim and everything that he’s trying to teach people. So without any further ado, I’m going to go ahead and sign us off. You guys, go out there and invest with a margin of safety emphasis on the safety. Have a great week, and we’ll talk to you all next week. Announcer (47:03): We hope you enjoyed this content. Seven steps to understanding the stock market shows you precisely how to break down the numbers in an engaging and readable way with real-life examples. Get access today@stockmarketpdf.com until next time have a prosperous day. The information contained. Is for general information and educational purposes. Only it is not intended as a substitute for legal commercial and or financial advice from a licensed professional review—our full disclaimer@eainvestingforbeginners.com. The post Penny Stock Daytrading with Timothy Sykes appeared first on Investing for Beginners 101.

Investing in ETFs is a great way to build a core portfolio, plus it can allow you to invest in sector where you might not have a circle of competence, but want to get exposoure. In today’s episode, Andrew and Dave discuss some of those options plus how important the price you pay matters. A few concepts covered in today’s episode: Where to research any ETFWhat kinds of metrics or specifics to investigateHow to determine what companies are part of a ETFLooking at the importance of secular trendsDissecting the importance of the price you pay matters 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, a step-by-step premium investing guide for beginners. Your path to financial freedom starts now. Dave (00:32): All right, folks, welcome to the Investing for Beginners podcast. Tonight is episode 181 tonight; Andrew and I will answer a great list of questions that we got recently. And we’re also going to talk a little bit about a few of the things that we had in our minds. So I’m going to go ahead and read the first question and then Andrew and I will do our little give and take. Here we go, dear, sir; my question has to do with a desire to increase my exposure to a broad range of the top tech stocks through ETFs. My current major ETFs are generally large, mid-sized caps and a generalist and international all with decent dividends in the era of new returns on cash; however, with a rearrangement of S and P missing sectors, the top mega tech stock growth. So I’m looking at large-cap growth, ETS with low costs, but wonder how one chooses, which such as SCHG versus VUG versus iShares, you of which I’ve seen all of which I’ve seemed to miss 20% gains as I’ve been weighing how to choose the better of the trio or others. Dave (01:39): The dividend yield seems marginal, but that’s okay. These will be invested for my heirs, not money for me. Hope to hear her reply in the podcast at Gordon, from Iowa. Andrew, what are your thoughts? Andrew (01:52): Have a ton of thoughts on these first; let’s answer Gordon’s question and talk about some of the differences between these ETFs. So to recap, these ETFs are all growth ETFs. You have SCHG, which is from Schwab, and they call it the Schwab us large-cap growth ETF. You have VUG. This is an I-Shares core S and P U S growth ETF. And you have VG, which is Vanguard’s growth ETF. Now I took a look at these Dave, and I was talking back and forth about some of the differences. Their portfolios look very, very similar. So you have anywhere between 45 to 55% of the ETF itself and the technology space. So I’ll take the VG, which is Vanguard’s ETF. For example, they talk about using six growth factors and took the large-cap, mid-cap stocks. So talking about Andrew (03:01): Probably anywhere from 10 billion up, maybe even 20 billion could be 30 billion in market cap. So they have some of the most popular names. We’ve all heard of Apple, Microsoft, Amazon, Facebook, Alphabet, Visa, NVidia, Tesla, and Home Depot. What I found interesting was there was no Netflix on there. So I don’t know the answer to this. I’m sure it’s pretty easy to find out. You wonder if Netflix was in there a year ago, two years ago, and you wonder when you buy something like this, you have to think about how often are they changing these positions over because, you know, when you buy, let’s say you buy a Vanguard growth ETF. And based on this website here, they’re talking about how the company updates once a month. So if you were to buy, let’s say, an S and P 500 ETF, that one would relatively stay the same and would only change as the index adds or removes companies from the index with, with something, with an ETF like this, they’re saying they’re using fundamental factors. Andrew (04:19): And so that means if a company doesn’t meet those growth requirements, they’re probably going to boot it out of the index. So I think that’s something that’s just kind of to start as an observation, looking in as somebody who doesn’t generally do theme type ETF, investing something to consider that I think maybe it gets lost on people could be this idea that the portfolio is going to turn over a lot. Stocks are going to go in and out. And you might see that happen a lot more than you would think that an index should do, especially because I think a lot of people think of ETFs as like an S P 500 index or a Dow ETF or something like that, where it’s tied to an index that doesn’t change that much for me, or the year these look like they could change monthly or quarterly. New Speaker (05:17): And that would just be a feature of the ETF. Dave (05:21): Yeah, that’s a great insight into that, that ETF and looking at the, I share one, just for an example some of the things that kind of stuck out to me as we were kind of working through, looking at some of these ETFs that, that Gordon was asking us about, for example, the I-Shares one has the highest expense ratio of the three. It also seems to have the largest amount of holdings of the three, and it also appears to be the lowest as far as assets under management. And it also has the lowest returns of the three. Now, I Dave (05:58): I think the highest was the Vanguard one, which would have returned around a little over 37% for the year. So far, or Schwab, I think it was around 35. And the I-Shares is around 29, a little over 29%. So based on the, I guess, yearly returns, the I-Shares one seems like probably the loser of the three, if you will, although turning down 29.9% is still, that’s kind of hard to, to think about, but the expense ratio is, you know, it’s fractionally higher than the other two. It’s, it’s very, very small, but still, it is higher. One of the things that I think when you’re thinking about how these, all these ETFs work that was a great observation by Andrew, that Netflix was not among those companies. And I guess those are kinds of questions that you’d want to ask now. Dave (06:51): And the reason why I bring that up is that Gordon mentioned that in his question that he feels like he’s missing out on some of the tech stocks out there that are not included in the ETFs. And so he’s looking at trying to add some of these to his, I guess, mix to see if he can try to capture some of those gains that he, that he might’ve missed. Now, you always have to keep in mind with any ETF, a lot of them, I guess, I don’t know most of them. I now keep in mind. I’m going to say that I am coming from a tad bit of ignorance because I am not an ETF person. I have a vague idea, and I have more than a vague idea. I have a general idea of how they work and understand their goals; by and large, ETFs, I think, is meant to track another index. Is that correct? Andrew (07:44): Well, there, there are so many different TFS, so like this, this one is like a multi-factor, so they’re going to set in the algorithm basically, and it’s almost like the algorithm is going to pick it. Okay. Or you can have sector ETFs where they’re just going to Buy airline stocks. Dave (08:02): Gotcha. Okay. All right. Fair enough. I don’t know that this is always going to, I guess I guess my point with all this is that I don’t feel like this will fix what he’s hoping to fix. And I think that’s something that we can talk a little bit more about here in a little bit, but one of the things to keep in mind with ETFs is a lot of times, depending on how they’re set up, they may or may not get you where you want to go. So that’s something to keep in mind. One of ETFs’ advantages is that they can be a little bit of set it, forget it kind of thing, where you can keep buying into them. Now, most people are probably familiar with ETFs based on their 401ks. If they have a 401k at work, they have the opportunity to buy different things in their 401k and ETFs, as well as mutual funds are going to be probably A large portion of those choices. And so the different ETFs, as Andrew said, they have sector, and they have different ideas and goals that they’re going for, which will allow you to just kind of set it and forget it. You buy a dollar-cost average into it as you do with a 401k, and you kind of call it a day. So that’s, I guess, the strength and advantage of ETFs. Andrew (09:18): So I guess I’d like to talk about that a little bit more. Maybe you can talk about an alternative, maybe more specific to Gordon’s question. Okay. I know a great advantage of an ETF is adding exposure to something you have no circle of competence. So Andy Schuler did a great blog post on, on our website where he talked about how cloud computing was something that he wanted to be into that trend and, and get exposure into that industry and into that secular growth pattern because it’s, it’s, it’s quite obvious that consumers are using more data companies are collecting more data. All that data needs a place to be store that. Andrew (10:05): And so the cloud stocks, a lot of those benefit from that development. And so having exposure to that is away from the, to play that theme. And so Andy writes how not, not being somebody who’s just trying to learn about cloud stocks, having an ETF where you can buy that ETF rather than investing in a stock that you know nothing about. And all you know is that it’s a cloud stock. Having the ETF as a, as a, an option, there is a good way to go because it gives you that exposure without opening yourself up to the risk of not knowing what you don’t know and picking the loser or losers in industry and not getting the type of gains that you should if you just bought the broader industry. So that would be an example, whether that’s cloud stocks, whether that’s airline stocks, or even if you do believe in, in various factors like growth investing or value investing, those are ways to get exposure to those as well. Andrew (11:15): But again, you do have to take it on a case by case basis. Maybe we should mention how we did this research to do it on their own time with their own ETFs that they’re looking at. For example, to look at the Vanguard ETF, I looked at all I did in the Google VG and then added the word holdings. And so it brought me up to the website, etf.com. And there were a lot of other good websites on there. And it tells you what stocks are in the ETF and what their weightings are. So, as an example, with the VVG, again, with this Vanguard growth, it’s a pretty big difference Andrew (11:54): Because they have Apple at 10% of the portfolio, at the same time, Visa is a 1.8, 6% Facebook, another big tech growth. SOC is only at 3.9, 7%. So, you know, less than half of what Apple’s at. So you have to know that if you’re buying into this particular growth ETF, you’re getting a lot of Apple, and you’re getting a lot of Microsoft, and those are big percentages. And that’s going to change based on what the ETF is that you’re looking at. So if you’re looking at like a cloudy ETF, or even like home builders, ETF, as an example, there could be particular stocks in there that are so heavily weighted that it’s going to move the index. It could move differently than how the sector performs in the stock market. So just another factor to keep in mind. And, you know, if you’re looking at specifically trying to get exposure and they have very specific way, that could be an advantage, but also a disadvantage of looking at an ETF. Announcer (13:03): What’s the best way to get started in the market—download Andrews ebook for free@stockmarketpdf.com. Dave (13:11): That’s a great observation. I’m glad you brought that up. And the etf.com is the same place that I was looking at, the ETF that I was kind of looking at as well. So it’s a great website, it’s free, and it’s a great place for you to go and get an idea of some of the things we were talking about. You can see all the different weightings. You can see all the different sectors that are involved in, in the weightings as well. We’re talking about growth, but it’s not just growth in this particular one for the I-Shares. They have a technology sector; they also have consumer cyclical, healthcare, industrials financials, and it just kind of goes on and on and on. So it has exposure to different things beyond just the top 10 companies that may be listed. You can see every single company that’s listed in the ETF if you so choose. Dave (14:05): But of course, as you go down the list, as you get to the cost of the bottom of the 532 in this particular one, it’s going to be a little impact on the actual performance of the ETF. But this brings me to, I guess, what I wanted to mention in regards to Gordon’s question and maybe a way to help him get around this. One of the course advantages to two ETFs is the ability to bundle many companies together to give you exposure to a particular sector or an area that you’re trying to fit into your portfolio. But the other part of that is that you don’t have any control over what’s actually in the ETF. You buy the ETF, somebody else makes those decisions, and you just put the money in, and away we go. Dave (14:55): So if Gordon feels like that, he’s missing out on something that if these ETS, for example, are missing a company or two or five, that he feels like are growth that he’s missing out of, he has the ability to, in essence, create his ETF with the advent of no BS for trading that removes that barrier, that used to be there of buying companies. And it costs you a lot to buy ten companies other than the company’s actual investment. There’s no other financial outlay. So there’s that advantage. The other advantage is that you can control your weightings; however, you feel they need to be. For example, suppose you think that Amazon has greater growth potential and want it to have a bigger impact on that portion of your portfolio. In that case, nothing is stopping you from having a greater weighting in that company. Dave (15:53): And when we’re talking about waiting, what that, what we mean is, is that it has a greater portion of the percentage of the respective portfolio. For example, let’s say you have ten companies, and each of them is a hundred percent. You could maybe slot Amazon in at 25% and then accordingly adjust the other ones down to make sure that Amazon has a bigger impact on the return of that particular thing you’re trying to create. And with the other advent of, with fidelity and Schwab, I know of, for sure that offer these slices, where you can buy portions of different companies. In other words, you don’t have to buy a whole share. Let’s say you don’t have $10,000 laying around to start to try to create something like this. You could do almost the same thing with the shares of the slices. You can take $500, and you could split it up into ten different companies by $5, depending on how you want to do it and how you want to weight it. Dave (16:55): And you can include the companies that you want in there. And then every single month, if you want to add to that, that portfolio, you just add to those slices, and you build it up that way. So there are, there are other ways to go about trying to accomplish the same thing. You can get ideas. So you don’t have to go about the stress of trying to create your ETF or worrying about, Oh my God, how am I going to decide which of these companies to pick if you like all these companies, but one or two, or there are two or three other ones that you want to add to this list? Nothing is stopping you from trying the idea that I’m suggesting. And I think it’s an easy way for him to create the ETF that he really wants and still get the growth he wants because he’s going to be controlling the weightings and the companies he puts in ETF. And I think it’s; It’s a good idea. What are your thoughts on that? Andrew (17:53): I think it’s a good idea too. And I think it goes down to, I guess, what’s your goal and what do you feel comfortable with? So if you feel like you can make a decent judgment call on which companies are here to stay for a long time. As an example, he mentioned in the question these stocks will be for my errors. He implied that he wants something that he’s just going to hold, which will be these long-term growth stocks. And he can forget about them and have them return a lot of compounding returns for his heirs and, and years and decades later. I think if, if you’re, if that’s the true goal, then maybe buying whatever stocks you believe that to be and holding them would be better than doing an ETF like this, because like we mentioned, this ETF is constantly filtering stocks in and out. Still, you know, on the same token, if you believe that strongly in the growth theme, then maybe that is what you want. Andrew (19:03): Maybe you do want almost like an active manager. Who’s constantly picking the highest growers and constantly dumping those that don’t consistently keep that high growth. Maybe that is what you want, or maybe you, you want something you kind of buy and never touch. So it depends on what you’re looking for, what you believe will lead to the most success, and understanding that these are the realities of ETFs. And these are your other options and making a decision based on that. So it leads into what I wanted to talk about as a segment on the podcast already makes for a good little segue if you will, we’ve, we’ve had several episodes where we’ve talked about some of the different secular growth trends that are happening right now can seem to happen in the future. And I thought it would be helpful to provide a little more clarity on it, or maybe more ideas on how you can incorporate it into your investing. So actually want to flip the table on Dave and asked Dave when you first started looking at these different secular trends. Maybe you found one or two that you found exciting; how did you start to incorporate that into your research, if at all? And what did that look like? Dave (20:37): Ooh, boy, that’s a good question. So yes, I did find, I found different. I’ve been finding different trends among the markets Of different things that have excited me and have gotten me interested in different things. And for, for a variety of different reasons. We’ve talked a lot about this in the past, and I’ve mentioned this several times that the financials are an area that I feel like I have a certain comfort level. And does it mean I’m perfect and make all the great choices? Not always, but I feel pretty comfortable looking at a bank or an insurance company or an investment company and having a pretty good idea of where I think the company is going and what’s going on with them and, and understanding the nature of the business and how they operate and, and where the income and growth are going to come from. And so, as somebody who tries to find value ordeals, I’m always kind of looking in, in areas that generally are going to lag the market behind it. Dave (21:48): A perfect example is behind the companies that we are just talking about some of the big growth names that everybody’s familiar with, the Apple, the Microsoft, the Facebooks of the world. So the companies that I look at are more along the lines of, you know, the, I don’t know, ally bank or Wells Fargo or Schwab, or, you know, Moody’s or any of those kinds of things that kind of play in a different area. But along the lines of discovering those, I also discovered the world of real estate; now, real estate was something that I always had kind of an interest in, but I always started looking deeper into REITs in particular and trying to figure out how they tick and what makes them work. And along the lines of learning more about that particular sector, I discovered that generally reach kind of leg the market return, I guess, and not necessarily returns. Still, when the market went down in March as it did so badly, generally, the REIT sector will kind of lag the return to air quote, normal compared to other sectors of the market. Dave (23:00): That’s something that kind of caught my eye because sometimes those will be more overlooked, and it allows you to find things that are more undervalued as the market has gotten more and more heated. And it has risen by weeps and bounds over the last six, eight months. It’s been harder and harder to find things undervalued or have kind of gone unnoticed and have a chance to buy at a good price. That’ll continue to grow into the future. And so those are things that I’ve tried to focus on is trying to find different areas that may necessarily not always be in my strength, I guess, a circle of competence, but are related enough that can allow me to try to analyze them another area that I’ve been trying to try to find different ideas is looking in things like utilities particularly electricity because I feel like with the growth of all the tech stocks, there’s going to be an underlying need for more energy. Dave (24:06): There’s going to be; we’re going to need more electricity to power, all that stuff. And so I’ve been trying to word more and more about that, that sector. And I just haven’t been able to find anything interesting so far, which doesn’t mean that there are no great companies. There are plenty of them, but just that fit my needs. It’s, it’s always a challenge. And so those are all the different kinds of things that I look at. And sometimes, for me, I try to look at that sector that may not have been performing well but have the potential to do well. Not only now, but into the future. And that’s really where I feel like the investing art comes into play is trying to capture not only what’s happening now, but also anticipating what you think will happen five, ten years down the road, because that’s really where the growth is going to come from. Dave (24:57): It’s not necessarily for the next six months. It’s more about what’s going to happen ten years from now because ideally, I would love to buy a company and hold onto her for a long period for several reasons. One that’s really how you can compound your growth over the long term. And number two, it’s a lot easier if you don’t have to go out search for another company, that’s just one less you have to search for. So it takes that one less, I guess, headache off of your shoulders if you will. So I guess that’s some of my initial thoughts. So Andrew, what are your thoughts? Andrew (25:33): Yeah, I have; I have several curious though. So it sounds like though there may be a secular trend, like the electrification, for example, of cities and that higher usage, that, that seems it seems to be moving towards that way. And it looks like in the next five to 10 years, that electricity demand will be higher, not lower keeping that as a backdrop and kind of looking at stocks in that industry while it’s, it’s favorable for you, you’re still not throwing caution to the wind or, or paying any price just because it’s in this secular growth trend that you’re looking for. Is that sound fair? Dave (26:18): Oh, that’s fair. Yeah, I know. I’m a lot of the same principles and ideas that I have with anything else that I’m looking for. In essence, I guess sticking to my guns and just because it’s an area I think is going, being of value at some point right now, I can’t find anything that fits, you know, checks all the boxes. Dave (26:44): You know, it doesn’t have the, it doesn’t, it just doesn’t have the right price that I’m looking for. And that’s really what it comes down to. There’s, there are lots of great companies out there that are doing well. And there are all different kinds of aspects of the electrification of different things. And there’s, you know, there’s lots of conversation without getting into the politics. There’s a lot of conversation about the move towards green, green energy, and all those kinds of things, which I think will happen. Is it going to happen overnight? Nope, it’s not. And a lot of that is because I’ve learned through just digging into things like I know Andrew has warned about different things, digging into it, you just discover different things. And there’s lots of talk about when some of these things are going to happen, but with the electrification of different things, the tech isn’t just as there yet, and the desire is there, but the tech isn’t there yet. And so until some of those things catch up, it’s just, it’s not going to happen. But it also, by doing the research, now it gives me a head start on being able to narrow down what I’m looking for, as opposed to just kind of looking at the whole broad range, if that makes sense, Andrew (28:02): It does make sense. And that was kind of what I was getting because I have a very similar mindset I want to be involved in. You know, like the question from earlier, you, you do feel like you want to have exposure to different things, but at the same time, you have to remember that a lot of the times, the price you pay for investment makes a much bigger difference than what investment you buy. And so that’s going to be true, whether you’re talking about a company or even a company in a trend. And so the timing of when you buy into that trend, because these trends if we’re going to talk about secular growth trends, these are things that happen over a very long time to Dave’s Point. How long ago was the electric, the first electric vehicle, and then two. Andrew (28:50): And how long has it taken from that point to here? And then how what percentage of cars on the road are, they are Electric? It’s not; it was not something where a switch was flipped, and every car moved over. So, So while these trends can be very exciting, that’s something I’m constantly looking at. Like when a big thing that I’m, I’m following and learning a lot yeah. Andrew (29:18): About. And it’s frustrating because many of these stocks are so expensive that you learn about them and get excited about it. You do a simple evaluation, and you say, wow, this thing is, there’s just no way you could justify its growth. Even if it grew like Google, you know, and it had 20% revenue growth for, for four years in a row, still couldn’t justify the evaluation like this. And so you have these, these, these constraints, but it’s because it’s what the rest of wall street is doing too. And they’re all looking at these trends as well. So you want to keep these in the back of your mind, but you don’t want to pay any price for them. And I think that’s what’s very, very important when it comes to thinking about what the secular trends are, what, what things are growing, and how that applies to your portfolio. Andrew (30:10): So I’ll give you one last, maybe partying example of why the price you pay is important. So I pulled up, I’ve done something like this in the past, too, with a blog post, but let’s, let’s kind of do a different version. So I pulled up the top 10 S and P 500 components for 1999; just as a recap, 1999 was right before the.com bubble burst. Not saying that we’re there for them, just saying this is a good illustration. You had Microsoft GE Cisco, Walmart, Exxon, Intel, Lucia, IBM Citigroup, and American online, which was AOL. Now you hear that name, those names, and some of those really good Microsoft. That sounds great. You know, I would love to buy Microsoft and in 99 or Cisco or Walmart, but it turns out, you know, at Walmart’s done gray, right? They’ve, they have the amount of stores they’ve been able to grow has just been extraordinary. Andrew (31:10): Cisco powered so many routers and, and they continue to do very well. They’ve done very well for me. I’ve I bought them back in 2015, I think, and they outperform the market with them. But if you were the, by each of these Microsoft, Cisco Walmart, and you were the boom at the peaks back in 1999, Microsoft is a special case because that one is, is gone pretty much through the roof, but even, being such a unicorn-like Microsoft is and growing 17% plus a year in share price over the last, let’s say five, ten years. If you were the buyer in 1999, when it was crazy expensive and you, the hold it to today, you’d have about 9% a year on your money on this Microsoft investment. But if you look at Cisco and Walmart and you bought at those peaks, you’d be looking at something like 3%, a year, 4% a year, really bad returns when you compare it to the rest of the S and P 500. Andrew (32:09): And some of these other names, I think, don’t even need to be mentioned like GE Exxon, you know, those, those fell from grace. Intel has been okay, but that one has not performed as it did leading up to 1999. And we know what happened to Citi group in 2009 and American online AOL. And nobody uses that anymore. So the point I’m trying to make is that these stocks in 1999 are the top 10 of the S and P 500. They were very, very expensive from a valuation standpoint. Still, Microsoft not only did it ride a growth trend through the personal computing revolution, that also is riding the cloud trend and Walmart row, the trend of, you know, but we could also go on and on with these companies, they were part of great economic and secular growth trends. But even Microsoft, I think that underperforms the overall S and P 500, and it comes down to that price paid when you invested. Andrew (33:15): So you always have to keep that in mind. You always have to remember it. Yes. Research it. Yes. Try to find good companies in there. I’ve been finding them, you know, they might not always be the sec, the same secular growth trend. You want to be a part of that, but you can find different ones and find them at decent deals, but you have to flip many rocks. You have to be patient, and you have to make sure you’re going to pick at your price and not play at the price that wall street is giving you. So I think when it comes to incorporating secular growth trends in your research, those are some things I would keep in mind when I’m looking at incorporating it and finding those types of stocks to give my portfolio that kind of exposure. Dave (34:01): That was awesome. Dave (34:02): All right, folks. Well, that is going to wrap up our conversation for this evening. I wanted to thank Gordon for taking the time to write us his great question, and we hope we answered your question to your satisfaction. And without any further ado, I’m going to go ahead and sign this off. You guys go out there and invest with a margin of safety emphasis on the safety. Have a great week, and we’ll talk to you all next week. Announcer (34:22): If you enjoyed this content, seven steps to understanding the stock market show you precisely how to break down the numbers in an engaging and readable way with real-life examples and get access today@stockmarketpdf.com until next time, have a prosperous day. The information contained is for general information and educational purposes. It is not intended as a substitute for legal commercial and or financial advice from a licensed professional review—our full disclaimer@eainvestingforbeginners.com. 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Investing for the future is a scary proposition, what if I pick the wrong company, what if I buy at the wrong time? These are all questions that beginning investors ask themselves. But it doesn’t have to be that scary, there are simple, easy to choose options for those starting out that allow you to invest without a lot of work on your part, that over the long term will help you grow your wealth. In today’s episode, Andrew and Dave discuss some of those options plus how to open a brokerage account. A few concepts covered in today’s episode: Using ETFs to mimic the stock market as early investments that are low cost, and low maintenanceHow to open a brokerage accountThe basics of a discounted cash flow model (DCF) to value companiesThe mindset to approaching valuations and different inputsStaying with the devil you know, as opposed to finding a devil you don’t know. 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. A step-by-step premium investing guide for beginners. Your path to financial freedom starts now. Dave (00:32): All right, folks. Well, welcome to the Investing for Beginners podcast. This is episode 180 tonight. Andrew and I are going to get back to reading some listener questions. We’ve got some fantastic ones. And so, without any further ado, I’m going to turn it over to my friend, Andrew, and he is going to read the first question for us. And then we’ll do our little give and take. Andrew (00:52): Yeah, let’s do some give and take. I’m gonna flip the script a little bit here. So I got one question from one of my brothers, and I would like to share it. It texts to me; it’s a very, very simple thing he wanted. As beginners coming into the market, I feel that a lot of people might want to know just how easy it is to get started. So my bar, I basically said, I want to start putting into an investment, how something where I don’t necessarily have to watch it all the time, myself, like an IRA or something like that. Andrew (01:28): So what I told him, it was, it was pretty simple. What you can do is you can open a brokerage account, and you just have to make the decision. Do I want to go with a traditional IRA or a Roth IRA? Those are the two choices. The reason you choose an IRA is that it will give you tax advantages. So if you want the tax advantages, now you go for the traditional IRA. If you want the tax advantages later, you go for the Roth IRA. From there, you just open the brokerage account, and it’s something that can be done online. And within five minutes, if you’re fast enough, and it’s just a form you fill out online. And it’s something that I actually walk people through. And the book that I wrote about getting started in the stock market so that one’s called seven steps to understand the stock market. Andrew (02:16): We tend to talk about that stock marketpdf.com. You can get that for free, and that will walk you through exactly how to open a brokerage account. And so, you know, we, we started with the IRA choice and then we went down to, how do you make the brokerage account? You got it in there. And then, once you put money in the brokerage account, let the funds clear from a deposit. Then all you have to do is buy the stock or the investment. Now, if you’re just want to match the S and P 500 and just forget about it, all you have to do is buy a total market index fund. And so one simple one you could do is ticker symbol S P Y. So you would go in the website where it says ticker, you type in the S P Y or a spy, and that’s going to let you essentially buy the stock market, the S and P 500, the top 500 companies publicly traded, and that’s it, you’re done. And so really I think if somebody wanted the absolute bare-bones, get me into the market, let me just put money in and forget about it. That’s how you do it. Dave (03:29): That’s really simple and really easy. And I would encourage everybody to take that to heart and do it if you have not pulled the trigger on this yet. Absolutely. You need to do it tomorrow. It’s kind of funny as Andrew and I was talking about this very question. My sister-in-law asked me the exact same question a couple of weeks ago. She went a little bit farther and asked me for some guidance on a few specific ETFs that I was able to dig around and give her some guidance on which ones to choose. And it was really easy, and it was she was able to get started right away, which was pretty awesome. So that was, I was excited for her to bite the bullet and take the step. And I could tell already that she’s got a different appreciation for it. Dave (04:17): It’s, it’s amazing. Once you got to have skin in the game, then things become a little more real, and you pay more attention to it. And it’s, it’s really, really not hard. And I think once, once you step off the diving board and jump into the water, you’ll see that the water is really not that cold. And it’s definitely something you can do. If there’s one thing we can teach out of all of these episodes, at least one thing, it should be that, right? Yeah, absolutely. No, I totally agree. And it really, it, like Andrew said, it really only takes a few minutes, to actually go through the process of opening the account. And in many cases, depending on who you bank with, it can be as simple as opening a brokerage account with your bank. They make it very, very easy to do. Dave (05:05): And it’s something that you don’t need a lot of guidance, but like Andrew was mentioning, his PDF that he created walks you through. It is super simple. It’s very clearly outlined, and it’s something I actually use to help me when I got started. So I definitely recommend it for sure. Andrew (05:24): I appreciate that. Dave (05:26): Yeah. You’re welcome. So let’s move on to the next question. That was pretty easy. So this one says, hello, Mr. Sather, My name is Andrew, and I’m looking to get my feet wet, so to speak, in the stock market and other investments. All right, well, this will fit in. Well, he says I currently have a 401k, and I’m invested in my old employer with private company shares. My goal is to invest in the market with the hubs to be debt-free. In 10 years, I’ve been reading your stuff, listening to your podcasts, the basics of knowing what to look for when investing in the company for the term Andrew (05:58): And that’s growth. I generally understand; I think the biggest challenge for me is how to go about finding these companies to invest in and what techniques I should use to reach my goal of favoring the dollar cost, average approach. I think that’s a very basic and effective method. I can comfortably invest $5,000 and not sure what the best starting point is. Appreciate your thoughts. New Speaker (06:21): So, Dave, do you want to take a hack at that one first? Dave (06:25): Sure. I’ll take a hack at it. So, Andrew, that is a fantastic question. And I’m proud of you for taking the step and, and going through with this, this is going to be one of the greatest things that you’ll ever do in your life, and it’ll help you so much, not only in the future but also for other opportunities as well. So kudos to you for taking the plunge. Dave (06:46): So here are some thoughts. So I guess let’s, let’s kind of make this a little bit piece by piece here. So the dollar cost average approach is something that I personally approve of. It’s something that I’ve been doing myself for quite a while now. And it works fantastically in a couple of things about it that make it a great approach to use is when you’re investing, and you do it on a regular basis, it becomes a routine. And the other part of the investing becomes a routine as well as paying attention to the companies that you’re investing in, as well as doing some research and trying to search, to try to find other opportunities to invest in. But one thing that’s really great about it is, let’s say, that you have a few companies that you’ve invested in, and you really have a hard time finding another company to invest in. Dave (07:41): Well, you don’t necessarily have to find a brand new one every single time. You can put more money into another company that you already own, because that will help increase the ownership of that particular company, especially if the company is undervalued and as it grows in value, that’s just going to boost your, your value of that particular company more and more as you go along. So I definitely strongly encourage that. I think that’s a great way to go. There are pros and cons to any, any type of approach you choose. I think the biggest hurdle at the beginning is to figure out a path that’s going to work best for you. And then once you figure that out is kind of sticking to that path. So I think that’s what I would definitely encourage you to do. So as far as trying to find the best companies, that is a little bit more of a, I guess, trickier prospect; I guess at first, my recommendation would be to look at other people’s portfolios I E gurus or people that you’ve read about, heard about people that you admire. Dave (08:51): Think about some of the companies they’ve invested in, and looking at the stock market PDF that Andrew has created will help give you a good framework of companies that will kind of fit into that guideline and help you find some good companies to choose from. At first, don’t worry about having to pick the next Amazon because that’s something that we’re all looking for, and those are kind of unicorns. Those don’t come along every day. And so finding it, stressing out about that kind of thing at first, I think is something that I would try to avoid for me personally. I know that I just, I just dove in and picked a company. I picked Microsoft at the time. I thought it was a great company, still is a great company. I thought it was, you know, had some room to grow. I honestly didn’t know that much about the company. Dave (09:41): I wasn’t super familiar with a lot of the different techniques that you can use to find valuations of companies and all the ins and outs of research and all those kinds of things. But in the beginning, don’t stress about that. The more important part is, is finding a couple of companies that you’re interested in, that you feel good about, that you feel that the prospects are good for those companies and starting to buy them and starting to build your confidence. And especially as the companies perform well for you as your investments do well, it’s also going to boost your, your, your confidence and you feel like, you know, Hey, I got this, but always remember that the wall street and the stock market is a, is a, is a cruel master and don’t get too cocky. Cause it will beat you down pretty quickly without you even having to blink about it. Dave (10:25): So I guess my advice is to try to find people that you admire and you think have the same values that you do when you’re working for different companies and try to find different companies that they’re going to use. Other great choices are looking at companies that are safe, secure, that aren’t going to be super high flyers. And by that, I mean that are companies that are not going to be really risky at first because nothing will turn you off faster than to buy a company and see it explode and make all these great gains and then turn around. And two and a half weeks later, you lose all of it and more that could be very disheartening. And that’s something that I think you want to try to avoid at first. So staying away from something that’s a little riskier and a little more avant-garde at the beginning is something that it’s okay too, too, you know, throw a few bucks at something like Tesla. Yes. I admit it is throwing a few bucks at something like that. Fine. But if you put your whole investment initial investment in riskier stocks, then, then that can, that could we to trouble. And that would be something I would probably encourage beginners, too, to still stay away from. So I guess those are some of the ideas that I have. I’d be curious to hear some of the things that Andrew has to say. Andrew (11:47): I completely agree with all of that. I think looking at it and trying to find the companies that you’re comfortable Andrew (11:54): With and really taking it slow. I really want to emphasize as you first start out, try to think of it. I put it in a recent email. I wrote, then I put it this way. I think of your investing career like a city. And so, now let’s say we’re starting a brand new city from scratch. You’re going to have to build roads to make that city work. And so, you know, not one single person usually, I mean, I would assume not one single person is building every single road in that city. So it takes time to build those roads, and not every road is the most critical road. I mean, sure. A city has high, highly traffic roads with long commutes and the bumper, the bumper traffic, but that’s not going to be every road. And so if you look at your stocks and the investments that you’re adding to your portfolio, not as this needs to be the next Amazon, the next unicorn, like Dave said, maybe it’s just another road. Andrew (12:59): That’s building you along the path of becoming a better investor until one day you have enough skills to build that highly trafficked road. And so you get there and steps, you don’t get there overnight. It’s not a leap. It’s, it’s something like you got your feet wet, and then you go a little deeper, and you go a little deeper, and you go a little deeper. And so that’s why when you’re first starting out, you really either, almost all, almost only have to either start with something, you know, or you have to acquire a framework that helps you understand things in a new light. So if you, if you don’t start with what you know, whether that’s computers, whether that’s retail, whether that’s, you know, consumer products, whatever that is, it just only makes sense to start there. Why wouldn’t you start there? If, if you ready to understand how money is made in that industry, what drives the profit and the revenue, and that’s how you learn about business. Andrew (14:01): And then you just learn it over time. I mean, can you imagine trying to learn about business by finding the highest tech kind of only four supercomputers AI cloud data analysis. Like nobody can interpret that unless you’re, you’re making a serious effort to study it, and it falls within the knowledge that you’ve already built and accumulated over time. So in the same token, you don’t want to bite off more than you can chew. Try, try to start that way. Another option you have is you could find a framework to help you understand things. And so the way that’s, that’s something that I developed as I first started out as I went out and I, I tried to find the best mentors I could for investing. And it didn’t mean necessarily face-to-face mentors, but books from investors that were well-respected. And I would read some of their books. Andrew (15:03): And if I really liked that, I would continue on and generally trust what they had to say. And a lot of the stuff that you’ll read from a lot of the authors, other respected is good, good to know, and good to use and practice. And so you can, you can have a framework like that. And the programmer guy provided is something we’ve touched on with the seven steps ebook. And it starts with a simple concept, the price to earnings ratio, which is something that you’ll hear about all over the stock market. So I tried to set it up. So you get little pieces. I don’t shove it on, expect you to eat it all at once. It’s like a pizza; you’re gonna want to eat slices. Maybe in my case, maybe I’ll eat three tonight and three tomorrow, maybe that’s a lot, but that, you know, you portion it out that way. And then you move on to the next concept. And so the book has in our chapter, you move onto the second concept, the third concept. And again, it’s like the city you’re building these roads, and it’s something you tackle over time. So these are great questions. I like where Andrew’s head is here. And, you know, I think he’s he’s well on his way. I love that he’s gotten his feet wet now, and now it’s just up to continuing that journey and welcome to the journey. It’s a fun one. Dave (16:24): I agree. That’s a fantastic answer. I love it; I love the analogy of the city. Is that something you just created on your own? Andrew (16:31): Yeah. I don’t know. It came to me one of those crazy mornings I’m researching. Dave (16:36): That’s awesome. I love that. That was fantastic. All right, so let’s move on to the next question. Hey Andrew, I’ve caught up on most of the Dave (16:46): Podcasts recently, and I’ve started getting into your blog posts. One of my difficulties is knowing when a business is actually undervalued and how undervalued it actually is, especially with your day’s emphasis on a margin of safety. That’s when I ran across your DCF post. Do you always use this to determine a potential value of a stock, or are there cases when you don’t, is that what analysts use when they set their price targets, trying to get a feel for this world? Thanks again, Jason. Andrew, what are your thoughts on that? Andrew (17:17): Yeah, it’s a good question. And I would say a lot of the analysts on wall street do use a DCF model. So for those of you who aren’t aware of what the DCF model is, it stands for the discounted cash flow model. And what you’re basically trying to do in a nutshell is you look at the money that’s in front of you, and you try to determine, is this money worth more than me to put into this company? Andrew (17:45): Or is it worth more than me to keep? In my hand, Warren buffet kind of explains it, like burn the hand or burn the Bush. So you’re trying to estimate with the DCF, how much cash is this business going to produce for me over the next five to 10 years? And so if that cash is going to be more valuable for me and that business is going to provide me more of that cash compared to if I put it somewhere else, let’s say like in a bank or a CD or a government bond. And that’s, that’s really the decision there is which, which option is more valuable. So that concept is a core part of the valuation. Again, it’s pretty widely used, not to say everybody uses it. There’s there are many other valuation models. Dave’s written a bunch of great posts covering the gambit of valuation models, but just because that there’s a formula for it doesn’t mean that that’s the end all be all. Andrew (18:54): So the numbers behind that are just one aspect. And the other aspect of valuation is really the art behind the valuation. And it’s in understanding the business and how that business is going to grow. So the big part of a DCF formula is that you’re making assumptions. And one of the biggest assumptions you make is how much is this business going to grow? And so that’s not an easy question, and it’s going the answer to that question is different for every business. And so you just because there’s a DCF formula to give you a valuation number, to tell, to give you an idea of if a company’s undervalued or overvalued, that doesn’t mean that you can just blindly apply that because how the target is going to grow revenue over the next three years is going to look a lot different than how Tesla is going to grow their revenues. Andrew (19:58): Okay? Target’s not really changing their number of stores very much. They’re keeping their stores in their most. What would they have found to be their sweet spot of the type of customer that likes to spend a lot of money at their stores and their strategy with how much cash that they’re reinvesting in the business is just solely to remodel those stores and drive those same-store sales up in order to drive their growth? On the flip side, you have somebody like Tesla, who is so incredibly, their products are so incredibly in demand that they can literally barely make enough to satisfy the demand. They really can’t because you have to go on a waitlist. And so they’re just trying to scrape together any sort of cash that they can to build more factories to continue to scale the business. And so those are two very different businesses, business strategies, business models, business industries. Andrew (20:58): So you have to look at them differently. You have to make growth assumptions differently, and you have to try to figure out how they can survive. And they’re an industry and the economy and the different environments. And so that’s a factor too. There are obviously so many things you could think of. If I had to boil it down between, you know, how do you look at how to figure out how the value of a company, how does wall street tend to do it? And you look to the DCF how a good way to do it is? And it’s going to be somewhere within that mix of let’s, let’s look at it, not as a prescription, but as something that you intertwine, the art and the science and the expertise, and some common sense thinking Announcer (21:48): What’s the best way to get started in the market. Download Andrews ebook for free at stockmarketpdf.com Dave (21:57): And I agree with everything that Andrew was saying. One thing that I want to, I guess, caution people when they’re looking at DCS or any kind of valuation method, whatever it might be, don’t get so caught up in the nuts and bolts of inputting numbers, because there are, there are a few things you have to remember. First of all, as Andrew mentioned, there are assumptions that we have to make whenever we use any. And I repeat any valuation model, and there are no hard and fast rules that say that just because you come up with this particular number that wall street and everybody else that could be buying or selling that company is going to agree with you. So there’s that part of it. The other part of it is don’t get so fixated on finding the exact right number; a lot of new people to valuation get hung up on is this number, right? Dave (23:05): It really boils down to more of being in the ballpark Warren buffet and Charlie and Margaret, both like to say that it’s better to be approximately right than correctly wrong. And it all comes down to, as Andrew was saying, the art part of it, as well as the science part of it. So having an understanding of the functionality of how a DCF works and understanding how the components interact with each other and the impacts that it has on the business now and in the future goes a long ways towards understanding whether the number that you come up with is a reasonable Dave (23:46): Number. And just to kind of give you an example, if you’re looking at a company and you think that that company is going to grow at 15% a year over the next ten years, then you have to ask yourself, is this company really five times better than the economy that it’s operating in? Because when you think about the GDP of the United States, that runs between three and 4%. It so depends on where we are in the economic cycle. So if a company is going to grow at 15% for ten years, that means it’s growing at five times the economy for ten years; that’s a lot. And so depending on what the business is, that may or may not be realistic, and I’m not saying it is, and I’m not saying it isn’t, but those are just questions that you have to think about and ask yourself when you first start working with DCF or any other kind of valuation model, whether it’s a dividend discount model or an excess return model or any kind of model, those are all kinds of questions that you need to try to ask yourself, is this reasonable? Dave (24:58): Is this something that the company has done historically? Is this something that the company you think can do based on what you know about the company now, given at the beginning, you may not know a whole a lot about the company, and it’s more about the functionality of the process of using the model to try to come to a conclusion of a price. And there’s nothing wrong with that. But I think the bigger thing is trying to think about a range of prices. And this is something that I look to learn from monies per bride. One of the things that he talks about in the Dondo investor, which is a fantastic book, by the way very easy to read and explains things very, very simply, and very clearly. And one of the things he talks about in the book is using DCF to value different companies. Dave (25:46): And one of the companies that he values in the book is bed bath and beyond. And in the book, he comes up with a range of different growth ranges that he thinks that the company could possibly grow. And then he does the model and comes up with three different values. And then he looks at those values and, and he reasons based on what he knows about the company and what he thinks the prospects are, the company, which one of those values he thinks is closer to reality. And then he makes his decision based on that and a million other factors, Oh, whether he wants to buy a bed bath and beyond at that particular time. But my point with all that is is that that is something that you should do. So instead of just trying to come up with one number, try to come up with a range of numbers. Dave (26:32): So if you think the company is going to grow at 10%, then maybe you go 11% and 9% and use the same other metrics. And that will give you a range of values that you can assess based on what’s happening with the economy what’s happening with that company. And I think all those things will help you get to where you want to go. And if you’re not entirely sure about this whole DCF thing, like Andrew said, we have a bunch of posts on our website about the DCFS. I’ve written some Andrew has written a few and camera’s Smith and other contributor has written a few as well. So there’s lots of great information about the DCF on there. There are also some great resources like Uber focus has this really easy DCF model that they, you can plug in a few inputs and it kind of gives you a number. So you can kind of get an idea of what possibly the company is worth at this particular time. But this is a great question. I’m really glad you brought this up, and I hope we answered that to your satisfaction. Andrew (27:34): It’s, it’s, it’s a deep topic of talk about needing to get all your scuba DiChiera gear and get ready for a date. Yeah. I mean, if, if Warren buffet uses it and Of the industry uses it, then yeah, you should probably, if you’re going to be serious about this, you should probably know how at least the basics work. Dave (27:53): Yeah, exactly. And one thing I wanted to mention about the whole buffet thing, he’ll never say out loud exactly how he does a DCF, and Charlie Munger has mentioned many times that he’s never actually seen Warren do it, but we all gotta remember the Warren buffet has kind of like the Michael Jordan of investing. He’s in a different world than the rest of us mere mortals. And so these are things that, because he’s so smart that he could do in his head, he can look at something, and he can calculate in his head. What he thinks of the value of a company is going to be because his brain is like a computer. So for the rest of us mere mortals, we have to use, you know, Excel models and different computer stuff to give us the same kind of result. So just an FYI on that. Andrew (28:37): Dave, I don’t think that’s right. I think Buffet’s more like Michael Jordan and combined Kobe Bryant and combine LeBron James, the investing world. Andrew (28:47): Let me tell you, okay. I went to Omaha. It was like three or four years ago. And I, I sat there in the audience and listened to him, answer questions for like eight hours and the sharpness of his mind at his age and the ability for him to just make these like kinda tough calculations. And then people play them on the spot. And he just, just so adaptively just, just deals. I’m like, I can’t even do that now. And this man’s like four times my age, and he’s just flying through this. He truly is incredible, but he also doesn’t keep everything secret. He shares a lot of his information for free other than the DCF, but you know, a lot of the concepts of knowing the business and getting a circle of competence. So these are some of the things we try to distill great lessons we’ve learned from guys like Andrew (29:42): Him, Mohnish Pabrai by Charlie Munger. And so hopefully again, as you take a long path and, and think of as you’re building the city, not just a little house over time, you can start to pick up these concepts if you’re starting as a beginner. Dave (29:57): Yeah, absolutely. I totally agree with that. All right. Let’s move on to the last question of the evening; let’s see it from our friend Jason. And I said, Oh, and I know that Dave talks about knowing your reason for investing, but what do you do if a business stock catches up to its target price? Well, it’s free to hold onto it at that point. Wouldn’t that be losing out on the opportunity cost of investing in another undervalued stock, even with the taxes of realizing your gains? That’s a good question, Andrew; what are your thoughts on that? Andrew (30:27): It is a good question. And I think it comes down to what’s your strategy and what’s your goals? So I, I, in the past, I think I had a more value mindset where I would really try to focus on finding companies with a deep margin of safety. Jassen mentioned earlier in the other question about the margin of safety. And that’s really just a concept where if you’ve determined the valuation for a stock, you simply buy the stock when it’s trading much lower than that. And so, in case your calculations were wrong, the stock would there; there would be enough of a buffer in there. And the stocks cheap enough where it could, maybe you estimated 8% growth and the like, or a 6% the stock would still perform well for you as an investment because you left that margin of safety in there. So that’s definitely a way you can do it where you can always try to kind of buy and flip almost. Andrew (31:31): And I would really, I would really challenge somebody if that’s going to be their approach that you really need to be turning. You need to be turning a lot of stocks. And so there’s a lot of backtests out there. James O’Shaughnessy has a great book called “What Works on Wall Street.” He did a lot of backtests, but the key, the key, the key to those strategies is that you’re buying. And then, within a year, you’re selling again, and then you’re buying again and then selling again. So you’re really capitalizing on that difference. Or this stock is so cheap when it eventually gets back to its more regular price, then you sell it, and then you go for the cheaper. Then you just continually do that. So over time, as I developed and I found what I was comfortable with personally and what I enjoyed investing my time in, I found that I really liked to prioritize very long-term compounding. Andrew (32:26): And so what that means for me is I would rather buy a business that will compound at a much higher rate for much longer than a business that might be a lot cheaper and has a greater margin of safety on a price perspective. And the reason for that is because I’m looking to hold these things for a very long time and just kind of sit back and let the business do the work for me. I’m not going to try to turn 2050 stocks in a year and constantly find the next cheapest thing. I’m going to build slow and steady, build a portfolio of great businesses, take my time, doing it, still diversify, but really make that the focus you’re still doing valuations. You’re, you’re still, you’re not going to go out and buy something with a PE of a hundred. You’re still going to make sure it’s in a decent range, but when it comes down to it, I would rather have a better business than the better price. Dave (33:23): I agree with that. And that goes back to what Warren buffet likes to try to teach us in that it’s better to buy a wonderful price at, or sorry. It’s better to buy a wonderful company at a fair price than a cigar stock. And I think that’s kind of what Andrew was alluding to at the beginning is you’re buying the cheap of the cheap, and when it gets to its normal price, then you sell it and go out and find another cheap of the cheap. And I think the process that Andrew was talking about is, I guess, for me, as I’ve gotten more comfortable with this, this is definitely more along the lines of what I’m trying to do. Another thing to think about along these lines as well as when you are thinking about your process. And let’s say that you have a company is approaching its target price, and you start looking around, and you can’t really find anything else. Dave (34:18): Then there really isn’t any reason to sell it. I would prefer to hold onto it and see that it continues to grow, maybe until another opportunity comes along. Because as hard as we try, we’re not going to find scads and scads of opportunities every single day. This is something that Andrew and I do every day, and it’s hard. It’s hard to find great ideas every single day. And if you have 25 stocks that you’re trying to turn over because they’re coming up on their target price, that’s, it’s going to be challenged to find companies as good or better than the one that you already own. And so I guess the, to play devil’s advocate on this question if you’re looking at Trane, the opportunity cost of buying an undervalued stock was, was the opportunity cost of trying to find something better than you already hold. Dave (35:14): So it’s kind of like the devil, you know, would you rather stay with the devil, you know, or go with the devil? You don’t know, you know, that, that kind of aspect. So I think there’s definitely some validity to this question, for sure. But for me personally, I would rather follow the route that Andrew was talking about. Trying to find, spend more time, trying to find a great company. That’s going to compound mine for a much longer period of time than getting caught up in trying to sell out and find the next great company. Cause it’s, it’s hard. It’s a challenge for sure. Andrew (35:50): It’s, it’s really a great way to put it. I think we should end it there for tonight. Hopefully, we’ve given enough to on just a little, just a little bit to chew on. And, and, and you don’t try to take it all in at once. Andrew (36:02): If you’re just starting out, understand it’s a process, and you can learn it over time. Dave (36:07): All right, folks. Well, that is going to wrap up our conversation for this evening. I wanted to thank Jason as well as Andrew and Andrew’s brother-in-law for sending us some great questions. Those are a lot of fun, and I hope you guys got some great info, and we help to answer those questions to your satisfaction. If you guys have any other questions, please do not hesitate to reach out to us. We’re happy to answer them on air or in-person by email. So hopefully, we’re helping you guys out. And if you guys have any questions, send them to us; we’re here to help. So are there any further ado, I’m going to go ahead and sign us off. You guys go out there and invest with a margin of safety emphasis on the safety. Have a great week, and we’ll talk to you all next week. Announcer (36:44): We hope you enjoyed this content. Seven steps to understanding the stock market shows you precisely how to break down the numbers in an engaging and readable way with real-life examples. Get access today@stockmarketpdf.com until next time have a prosperous day. The information contained is for general information and educational purposes. Only it is not intended as a substitute for legal commercial and or financial advice from a licensed professional review—our full disclaimer@eainvestingforbeginners.com. The post IFB180: The Absolute Simplest Way to Invest for Retirement appeared first on Investing for Beginners 101.

Today’s episode is from the archive, Andrew and I hope you enjoyed your holiday weekend and everyone is safe. Please enjoy this episode redux concerning stock picking and some of the pitfalls to avoid. Don’t worry, we will be back next week with a new episode. 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 Sather and Dave Ahern. 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 (00:38): Welcome to the Investing for Beginners Podcast. This is Episode 100 Tonight, Andrew and I are going to talk about stock picking for dummies. So we have some stories we’d like to pass along to you guys, and we have some ideas that might help you along the way with picking out some stocks. So, Andrew, would you like to talk first, or would you like me to talk first? Andrew (00:58): I think your story is the better one. So maybe it’s such a perfect illustration of how, when you’re picking stocks, it’s really easy to get caught up in the numbers or get caught up in a narrative or get caught up in your biases, tore the stock. And sometimes depending on what price you’re paying with for the stock, it’s creating these expectations that you don’t realize might be unreasonable. So tell your story first. Dave (01:30): Okay. All right. We’ll do so. A lot of you know that I have been watching the videos that Professor Aswath Damodaran does on YouTube. Dave (01:41): And I’ve been studying valuation with his MBA classes as well as his undergrad classes. And it’s very interesting and very enlightening. And he was telling a story on one of his lectures the other day that I thought was kind of fascinating. And I shared it with Andrew a while ago, and we thought this would be a perfect illustration of what we’re going to talk about tonight. So what the professor related to all of us was that he had a student that part of their project is to do a valuation of a company at the end of the semester. And so one of his students presented his findings at the end of the semester, and everything was really good except for one small detail. So he called the student in and had him come in and talk to him about his, his work and everything. Dave (02:29): And the professor went over everything and said, there was a lot of great stuff in there. And he asked him why he chose the company, and the company he chose was Tesla. And so without talking about any of our biases about the stock, the young man said told the professor that he liked Tesla. I thought it was a great company, really like the Elon Musk, and had a lot of respect for him and, and those kinds of things. But the professor was like, you know, okay, great. And he talked about his numbers and all the things. And he asked him if he ever really checked himself for the numbers that he was relaying and his spreadsheets and the students said no why? And he said, well, he said, the valuation you came up with is probably not a horrible one. And he said a lot of the numbers are great. Dave (03:19): The growth rates are great. The discount rates are great. He said, there’s one small problem. He said the growth rate that you’ve put on this company to grow for the rest of eternity is a little bit out of line. And he said, and the students said, why? I think it’s a great company. I think it’s going to grow for far into the future. And he said, well, he said, the professor said, well the growth, the growth rate, you assigned it at in 10 years, it’s going to be worth about as much as the GDP of the United States and the student just kind of blinked. And then he said in 20 years; it’s going to be worth the GDP of probably North America. And the students just kind of blinked. And he said in the third year earth, after 30 years, the growth rate is going to make it larger than the GDP of the entire world. Dave (04:08): So if you want to buy toothpaste, it’s going to come from Tesla. If you want, car insurance is going to come from Tesla. If you need to go to the doctor, you’re going to have to call Tesla and get an appointment to see a doctor. You said Tesla would govern everything. And he said he looked at the student. He said so the growth rate that you assigned to the company is unrealistic. And I said, I think you meet, I want to go back and check your numbers. And the student was, of course, appropriately chagrin and went back and adjusted his numbers. But I thought that that was kind of a perfect symbolism of when you’re in glove with a company, and you try to rationalize the great things that you expect from the company because you’ve fallen in love with the company. So you’re kind of encompassing all your biases in that one particular example, one particular company. So I thought that was kind of interesting. And Andrew and I thought that that would be a perfect way for us to start. Andrew (05:07): Yeah, I think it’s, it’s, it’s great because depending on where stocks are priced, that generally tells you how much wall street expects a certain company to grow. So, Peter Lynch, we mentioned him last week. He’s a, you know, one of the best fund managers Fidelity’s ever had and one of the best fund managers we’ve ever seen just in general. And he’s written a couple of great books that are great reads, really good for beginners. And one of the concepts that he talks about frequently is the peg ratio. So, you know, the price-earnings ratio is a ratio that can relate how much a company is earning versus how much it’s priced. So if the price-earnings ratio is high, that means the stock is very expensive compared to how much it’s earning and vice versa. So he relates this PE ratio to the growth rate. Andrew (06:05): And so basically he tries to look for a company that has a peg greater than one. And so the thought process is if the company is growing more than its price-earnings ratio, then that’s a good thing. And if it’s growing less than this price to earnings ratio, then it’s not very likely that you’re going to get good returns off of it. So just to give an example here, I pulled up a spreadsheet. So let’s say we have a company that’s growing earnings at 15%, and let’s say, it’s also priced at a price to earnings of 15. So that would be a price, a peg of around, or, in this case, it would be one. So for basically what, that’s pricing in. So if you were to take earnings and grow them for 15 years, I’m sorry, for 15% year after year after year, it would take nine years for all of those earnings to catch up to the price. Andrew (07:17): So, as an example, let’s say the stock market cap was $1,500. And if the earnings were at a hundred, that would be a price to earnings of 15. So if those earnings grow 15%, you know, the next year they’re at 115, then they go to the one 32, it compounds from there. By the time you get to the ninth year, earnings will be at about three Oh five, which is three times more than where they started nine years ago. So that’s, that’s a pretty good deal. And it’s at that price where you have a breakeven. So if you were to add up all the earnings until that ninth year, then you’d get around $1,500, which is the price you paid originally. Now, of course, as investors, we don’t have, you know, you don’t get all the earnings paid to you. Our company, its user needs to grow the business and, and make those profits grow for shareholders. Andrew (08:19): And they do things like share buybacks and things like that, but it kind of illustrates. Okay. So as a typical example, if a stock has a PE and their growth rates about the same, it still takes nine years until that investment, that price you paid for, it pays off in earnings over the life of that investment. To me, that sounds like a long time; nine years sounds pretty long. Now, if you imagine the discrepancy when the price of earnings is at 30 or 50 or 100, you know, I could bore you with the numbers I’m going to choose not to this time. It’s, it’s way, way worse. And so, you know, when you’re talking about a basic valuation, something like Tesla or some other company where the price-earnings ratio is so high, they need to have that, that much growth for these investments to pan out. Andrew (09:18): And, and, you know, you, you do see the price, earnings ratios stay very high for very long periods. But eventually, if that growth isn’t keeping up with the high evaluations, you know, you hear all the success stories, you don’t hear the failure stories. And so these growth types of investments work great until they don’t. And so you’ll see them at the end of really long bull markets, like the.com bubble, where all these huge PEs were the ones who got crushed the most, and that’s happened time and time again. So my kind of example of trying to take some common sense and use that in a stock-picking approach. It’s not as, like the gray of an example, I would say, but it’s something recently that I’ve taken into consideration. So, you know, I read in a book recently where they talked about basically how much a company has grown up to now, doesn’t correlate with how much it’s going to grow in the future. Andrew (10:26): So, you know, it’s, it’s nice. And I think it makes sense in general, to try to find companies that have grown in the past, and you hope that growth continues, but it’s never a guarantee. And if you ask anybody who’s been in the market longer than let’s say four or five years, they’ll tell you that. Yeah. Like many companies that continue their high growth rates, a lot of them don’t. And so, you know, I think it helps too when you’re looking at a stock, and you’re looking at its history, you can look and see what it’s done so far, but it also makes sense to look at what’s the future possibly hold. So I don’t want to single out this company because I think it’s a great company and it’s a smaller company. I think it could maybe be a great investment, but, you know, I’m pretty picky. Andrew (11:15): And so it’s not something that I’m leaning towards anymore, but, what they manufacturers, they manufacture snow equipment. And so they’re doing a very good job of sticking to their niche. You can’t sell snow equipment in Hawaii. That’s not going to really work out too well. So they have their area of the Northeast in the United States where they sell an overwhelming majority of their, of their products, you know, that snowbell up there. And I think they do a little bit in Canada too, but, you know, that’s, that’s where they get the principal, majority of their revenues. And so I liked a lot of things about this company over the past ten years, it’s grown revenue close to double digits, pretty, you know, if you average it out year after year after year, it’s getting close to 10 digits grow, double-digit growth for revenue earnings. Andrew (12:13): It’s done even better. It’s, it’s over double-digit growth, for earnings per share. And, you know, they claim to be the number one in their market, which is all good things, all things you’d like to hear. There’s been a growing dividend for many years, and you know, the top of all of the price-earnings is decent. The price of books, reasonable prices, sales, decent things look good, and they have a lot of free cash flow. However, if you think about what the future of the Northeast holds, and then you look at some other interesting data. So something that I wanted to look at was population trends. You know, something as simple as, you know, if a state is growing, then I think that’s a good place for investment. And if it’s not, then it’s probably not. So I went and, you know, Wikipedia has a great little chart where they bring to the States, and they showed the percentage of growth and everything. Andrew (13:12): And so they took from 2010, 2019. And you know, some of the biggest States with growth were Texas, Florida, California is not as hot as it probably was in the nineties, but it’s still got decent growth. And as I looked at all of the different population, growth trends, you know, it seemed everybody was moving West or extremely South with Texas and Florida. And the bottom 10 when it came to population trends were all almost, almost all in the Northeast of the United States—so looking at a company where snow equipment doesn’t have much of a growth potential kind of as it is because you’re not going to increase more demand unless you can somehow make it snow more. It’s a; it’s a pretty consistent kind of thing. You would probably look at it as a more defensive type of investment. But when you’re looking at something five years, ten years out, you want to try to put everything and kind of ride all, all these waves congruently. If you can find as many good trends and ride on top of those. And so, you know, I look at a situation like that, and the population demographics don’t look great. And so it’s hard to imagine. I mean, yes, there will be hope, you know, you would hope to see GDP growth, population growth. But if, if it’s lagging some of the other parts of the country and the country population growth Andrew (14:52): It is already showing that it’s just in my mind, you know, if if you have an industry that’s just not going to grow sure you can grow your earnings and your revenues by taking market share. But eventually, once you’ve taken all the market share, if there’s no more growth in that market, then your options for growing the company as a whole are limited. So, you know, when it comes to this particular investment, I could be completely wrong. They could have plenty of market share they still take. And, you know, I hope they do very, very well, but it’s just one of those examples where I think you can look at a company. I got super excited about this one, but I think if you look at a company and you try to put it where your goals are. So for me, I want something five, 10, 15 years. I feel good about holding. And you know, if it’s, if it’s not, if it’s, if it doesn’t sound as great of an investment, because there are huge factors that are kind of out of their control, then maybe you’re best served looking elsewhere. Announcer (16:00): What’s the best way to get started in the market—download Andrew’s free ebook@stockmarketpdf.com. You won’t regret it. Dave (16:11): I love that idea Of looking at, beyond just the numbers and what the company is doing, but thinking about the population trends in the area and thinking about in essence, their, their niche, and how they operate within that niche. That’s a that was kind of brilliant. I’m I’m impressed. That was, that was a that’s a great example. And I got 1 million ideas per month. That’s more than most of us, so that’s good. So I guess something that I guess I would like to share as far as, when you’re thinking about picking stocks and some of the examples that Andrew was, was sharing with those four great ones. I think along the same lines of what I was talking about when you’re thinking about weighing out any sort of numbers and spreadsheet and trying to anticipate where you think the company is going some great anchoring tips, if you will, is looking at how other companies have done in your industry. Dave (17:12): So, for example, if you’re looking at somebody like, I don’t know, Verizon, and you want to see their revenue grow by 10% over the next ten years, first, you have to think about, have they done it in the past? And if they have, okay, then it’s possible that they could do this again. But then you often also have to extrapolate and think in their industry, how many more people can they get to get a new phone or to sign up with service for them is their service that much better than AT&T, T-mobile, and anybody that’s out there. And if it is, then there’s a possibility that they can do some of those things, or they can do things like Andrew was referring to and take market share away from somebody like at and T. Now that’s a very competitive market. It’s a very competitive field that they’re in. Dave (18:06): So you have to ask yourself, are those things logical? And I’m not trying to be Debbie downer and Mr negative. But when we’re thinking about putting our money out there as an investment, we have to sometimes think beyond just the numbers of the company and seeing that, Hey, the PE ratio is great and the price to book is great. And the revenue growth is great. And they’ve got all this free cash flow, and all these things are fantastic, and the price is going up, or maybe it’s kind of flat and you think it should go up. Those are all things to take into consideration obviously, but you also have to think about what are the business prospects for this company beyond when I lay my money into the market to borrow, for example, where do I think it’s going to be in 10 years? And where do I think it’s going to be in 20 years? Dave (18:53): And is that company, do I, do I envision that that company is still going to be here at that time. And those are all things that you have to take into consideration and thinking about the market cap of the company; it’s this big now, can I logically grow to 10, 10 to 15, 20% more kind of like with the example I was explaining before, we’re at a certain point, it grows so much that it can’t grow any faster. And the law of economics says that at some point, the company can’t grow faster or bigger than the economy that it operates in because then by logic, it has to become the economy. Now, some could argue that Amazon will become the economy of the United States at some point, and you know, who knows, but at some point logically, something like that has to stop. Dave (19:43): And I’m not trying to, again, I’m not trying to be negative. Still, you just, you have to think about some of those things and try to make sure that you put all those reasons in comparison to what is what you see going on and how logical you think that is—so doing some of the things that like Andrew was doing, going beyond just looking at the numbers of the company, looking at industry averages, looking at other companies in the industry. One of the things that I love about Warren Buffet is because he is so well-read, he’s become a walking encyclopedia, and he knows everything that he needs to know about this company, that company, this company, that company, so that when he’s presented with an opportunity to buy something, he instantly knows because of his experience and because of his knowledge, how that company stacks up against his competitors. Dave (20:37): And let’s not kid ourselves when we’re buying a company. And when we’re buying a stock, we’re buying a company, and we’re buying that company. It’s competing against other companies for money. Whether it’s a restaurant, whether it’s a cell phone, whether it pans out, it doesn’t matter what it is. They’re all competing against somebody else. They’re very rare cases as they’re going to be somebody that got the complete market leader and has zero competition, it just really doesn’t happen. And generally, the better something does, the more competition is attracted to that because people want to try to take a piece of that pie. And so when we’re, when we’re sitting down and picking through stocks and as part of your checklist, one of the things that you should put on there, I encourage you to do this is to think like Warren Buffett doesn’t and research the other companies and understand how those other companies balance out with the competitor. Dave (21:32): So, for example, I’ve, I’m trying to learn more about the telecom business. And so I’m reading annual reports for Verizon for at and T and for T-Mobile and then another sort of businesses that are associated with those so that I can try to learn as much about the industry as I possibly can so that if I ever decide to make it an investment in those industries, I have some sort of basis of knowledge. I’m not just picking at and T because it’s the shiny thing. I’m trying to make a, I guess, an informed decision and part of making that informed decision is having the knowledge, but also trying to ask those questions is this logical, is this reasonable? Do I, is this something that I think they can achieve? Or is it in an industry that’s older and it’s been around for a while and to expect Walmart to grow at 27%, Amazon has been, is probably unrealistic. So those are all questions that you need to ask yourself when you’re thinking about these things. Andrew (22:33): Yeah. I love the idea of reading the annual reports of competitors. I’ve noticed that some companies will be more Frank about, Hey, here’s a list of all of our competitors and others will just be like, yeah, you know, we’re in a competitive industry. And so sometimes it is kind of like putting pieces together in a puzzle. If you’re trying to get a complete industry picture, sometimes earnings reports like the presentations that can come with earnings calls, where they’ll have the slides and kind of layout the industry that can give you some clarity a little bit, depending, depending on the company. So, you know, it makes it tough because the financial data is nice. We have, at least in the States, we have the sec, which mandates everybody’s 10 Ks need to all report the same financials. There’s, there are different parts of that that companies can interpret and maybe focus more on Disclose some of this disclose some of that, Andrew (23:37): But there is a standard where everybody has to report, at least These numbers, earnings, revenues, assets, liabilities. When it comes to gathering kind of big picture data, common sense data industry data, there is not a uniform standard for that. And so sometimes you do have to kind of do a little bit of Sherlock homie, and then really just find information as you can. And I would say, you know, in the scale of like importance, Oh though maybe I shouldn’t make a judgment like that, but you know, it is, I think it is important to bring some common sense to the numbers. Warren Buffett talks about how just to have a circle of competence and to know it very well. It’s great to hear him talk about his Coca-Cola investment because he just makes it sound so simple. And I guess in a way it kind of is, you know, he says it’s the most popular drink in the world for the longest time people associated a cheeseburger and a Coke. Andrew (24:47): And those were like, just like a one, two combos. It was like a cheeseburger Coke and good times. And then, you know, I was watching this documentary on Netflix, it’s called history one Oh one. And they talked about the very first episode was talking about fast food in the United States. And they talked about how McDonald’s was United States’ major export through the eighties and nineties. And, you know, probably the decade after that, to what, so the is pretty much every McDonald’s, and you can find that was Coca-Cola. So it was interesting for me to see how first off, I guess, the other countries got excited for McDonald’s like they, they looked at it the same way. I would look at all. You can eat Brazilian steakhouse kind of mail, but it was a major export. And there was a huge, huge win for, for, you know, not only McDonald’s, but Coca-Cola, and some of the other restaurants that I followed suit from that. Andrew (25:52): And when Buffett talks about that, he talks about Coke. He talks about how it brings that emotional attachment. And he also talked about very simply he, he said, you know, I don’t know what the number was, but he said something like 20 billion let’s, let’s, let’s call it 20 billion Cokes are sold throughout the world. And so I don’t know if he said like per day, per week, whatever it was. And then, so he said, even if you raise the price of a Coke by a penny, that’s still, you know, however, many 50 million, 50 billion, whatever the number comes out to. So, you know, he, he knew those numbers very easily. They weren’t super hard numbers to comprehend. He’s just stating the facts. Coca Cola is, is one of, you know, was one of America’s most favorite drinks, and it sold a lot of it. And so they had a lot of pricing power because they were a leader. Andrew (26:49): And then they had a lot of kind of wiggle room to work with. They had lower costs through having bottlers do all the manufacturing and, and they just had a lot of competitive advantages. You could see very easily how they can increase profits just through their sheer size and from the loyalty of the brand. So, you know if investing was a hundred percent that easy, we would all be billionaires because we could just kind of look around us and see the things that we like and invest in those. It’s not that simple because I guess a lot of wall street seems to price things that way. Anyways, if you look at some of the most expensive stocks right now, you know, the Fang stocks, those are all products and services that most, everybody uses pretty much every day, but that’s not to say that stocks like that won’t become cheap one day. Andrew (27:47): And so it’s really about keeping your eye out, knowing where you want, you know, what price is, is a good price for you. So that’s where the financials come in and, and, you know, knowing how much you want to pay for earnings, knowing how much you want to pay for sales, having an idea of what that range looks like. And then once a company is there, then, you know, what’s the, what’s the longterm narrative here? What, what, what are the chances that they can continue to grow if they’ve grown already? And, you know, does that sound like a practical idea? And I think combining those two, I think amazingly isn’t done enough. I think kind of talked before how people kind of fall into two camps, but there can just be a lot of opportunity with that. And hopefully, our discussion has inspired at least one, maybe one kind of extra step for somebody who’s out there doing some research. We have Google these days. So there’s no excuse for getting data and information. And so it’s really up to us if we want to take on that kind of journey and try to be a little bit creative, be a little bit intuitive and try to find the right balance. Dave (29:08): All right, folks, we’ll that is going to wrap up our discussion for this evening. Thank you, guys, for taking the time to listen. I hope you enjoyed our conversation about stock-picking for dummies, and You guys will find a few nuggets in there that can help you guys along your way. Go ahead and sign us off—emphasis on the safety. Have a great week, and we’ll talk to you all next week. Announcer (29:31): We hope you enjoyed this content. Seven steps to understanding the stock market shows you precisely how to break down the numbers in an engaging and readable with real life. Examples. Get access today@stockmarketpdf.com until next time you have a prosperous day. Announcer (29:56): The information contained is for general information and educational purposes. Only it is not intended for a substitute for legal commercial and or financial advice from a licensed professional review—our full disclaimer@eainvestingforbeginners.com. The post From the Vault: Stock Picking for Dummies appeared first on Investing for Beginners 101.

In this gripping interview with Jeff Desjardins of visualcapitalist.com, Dave and Andrew ask Jeff about some of the biggest secular developments that investors need to consider in the decades to come. The discussion includes: How there’s more data out there today than stars in the universeWhat the massive indebtedness in the world today means for economiesHow to find the right signal from all of the noiseWhat’s the big deal about 5G, and its potential to revolutionize the world Be sure to check out Jeff’s latest book called Signals, and also be sure to subscribe to our free email list for more great tips and insights, at stockmarketpdf.com. SUBSCRIBE TO THE SHOW Apple | Spotify | Google | Stitcher | Tunein TRANSCRIPT Announcer (00:02): I love this podcast because it crushes your dreams of 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. Step-By-Step premium investing guide for beginners, your path to financial freedom starts now. Dave (00:33): All right, folks, we’ll welcome you to the Investing for Beginners podcast. This is episode 179. Tonight, we have a special guest with us. We have Jeff Desjardins from Visual Capitalist, founder and editor in chief of this fantastic visual magazine slash website slash book that he just put out, and it’s got all kinds of great information infographics. I mean, it is fantastic. I’ve been lucky enough to be a subscriber to his stuff for over two years now, and I enjoy it. So, Jeff, thank you very much for coming on. We appreciate you taking the time to talk to us tonight. Jeff (01:09): Absolutely. Thank you. I didn’t know that you have been following us for a couple of years. That’s fantastic to hear. Dave (01:15): Oh yes. Yep. I came across your stuff from Preston Pysh from the Investors Podcast. He recommended at one of his shows a while back and, I looked it up immediately, and I was like, wow, this is awesome. So yeah. That’s great stuff. Jeff (01:29): Yeah. Preston’s awesome. Yeah. I like his stuff; his podcast is fantastic. Dave (01:34): Oh yeah, absolutely. Absolutely. So we have some questions here we’d like to ask you, and then we’re just going to have our conversation. So I guess maybe I’ll ask them the first question here if that’s all right. Where did you get the idea of linking all of this data into a visual resource? How did you develop this idea in terms of the book or terms of the website as a whole book, yeah? And the website, I guess, kind of how they all fit together? Jeff (02:04): Yeah. So from our perspective, our reason for being is that there’s just massive amounts of data that exists in the world, and it’s, it’s growing at unprecedented rates. So for us, we’re trying to make sense of that and to simplify a really complex world and get people to get a better understanding of, of this, you know, this crazy world that we live in. Jeff (02:30): And so over time, you know, we, we started taking concepts within markets and investing and, and kind of boiling down to these, these visual elements. And then as time went on and as we did more, you know, we really found a niche and an audience that that really got what we were doing. And yeah, the book I would say is the combination of this, which is, you know, we live in uncertain times, you know, it’s a, it’s a cliche, but I think it’s by the amount of information that’s out there and it makes it hard to know what’s actually happening in this world. And so we thought, you know, we have this great, we have great experience in dealing with these complex topics. So let’s boil it down to the, you know, the things that are the most fundamental and most foundational to give people a starting point, like a place where they can go and say, okay, well, what is true about the business world going forward? What is true about markets going forward? And we show the trends that I think are pretty hard to debate against, you know, things like rising debt or, you know, some of the trends around ESG, for example, like these are things that are speeding up and they’re not going anywhere. And if you’re going to have a fundamental understanding of markets, as people listening to this podcast are looking to have, you know, this is going to be a good starting place for that. Andrew (03:59): That’s, that’s super cool. So thanks for joining us here today. Jeff, I had a question for you. The book was great, and you know, your visuals both on your website, that visual capitalist, and through the different infographics you guys send, I think it’s, it all looks really well. It’s very aesthetically pleasing, and I guess that’s hard to encompass on an audio platform, so people can’t see it for themselves, but I think it’s worth checking out. And your book too, that you guys most recently did, it’s called signals. And one of the things that stuck out to me about the book immediately is something that I’ve been observing more. And I think more investors need to key in on because it’s, it’s part of a massive change. And I think we see in the business world, and you kind of alluded to it a little bit. So in the book, you mentioned that there are 40 times more bytes of data in existence than stars in the universe. Just extraordinary to me. So can you explain that and how does it affect business and investors? Jeff (05:09): So the easiest way to think, to wrap your head around this, is when we’re talking about the size of the observable universe. If you think about how many stars are in the Milky Way, which is, you know, just one galaxy, I think there are a hundred to 400 billion stars in the Milky Way. And then you realize that there are billions or trillions of galaxies, and that’s, that’s all of those have massive amounts of stars. And then, so this is, you’re getting to an extraordinary number and the amount of data that we have that exist today in bites is actually it’s 40 times that amount. So it’s this huge amount of information to process, and like the universe, it’s also expanding. It continues every year. So to me, this is the more impressive statistic, which is that the different organizations that try and figure out how much data there is in the world. Jeff (06:06): There’s, you know, there’s a few of them, but what they’ve found is that in the next three years between, so between now and the end of 2023, there’s going to be more data created than in all of human history combined prior to that point. So, you know, every three years, essentially, data is doubling, right form, from the point before. And so from an investing standpoint, the challenge there is how do you know, well, how can you know that, that you really know what’s going on in the world? And a lot of these different data sources are going to conflict with one another. Sometimes there’s going to be information paralysis or analysis paralysis, where you have so much information on a particular topic that you can’t make a decision on it because there’s so much evidence pointing you in different directions that you just, you know, you can’t decide. Jeff (07:03): There are also tons of data that gets, gets taken by media outlets or financial outlets. And then they’re putting their own bias or spin on it, which creates a situation where you have to have an additional layer in your mental processing to filter that. And that requires that additional effort. So you combine all these things together, and it’s just, it’s really a tough environment for someone that’s getting started and trying to understand the basic principles of how the business world works. And so our goal is to, to find, to create some sanity in that entire environment and to, to create a starting point where people can get some basic trends and principles down so that they can eventually become more sophisticated. Andrew (07:53): Yep. It makes sense. And I, I, I get exactly what you’re saying on the one hand, from what I gather, from what you’re saying, it sounds like it’s only going to get worse as time goes on, but we also have other great resources online to help us filter that. And I think what you guys are doing is a good example of that. Jeff (08:12): Yeah. That’s going to be more of a trend going forward as well. Like not just us, but other groups such as yourselves are, people are going to be relying on, on, on people that can synthesize and process data to come out with the insights out of the end of it. Right. And that’s why companies are willing to pay so much for artificial intelligence and, and being able to process these massive, massive data that they’re building because at the end of the day, having all this information is completely useless if you can’t create some insights out of it. So that’s, that’s the business that a lot of us are all going to be in over the next or over the coming years, which is how do you make sense out of all this data and how do you synthesize the sources that are meaningful? And as our book title says, how do you find the signal in the noise? Andrew (09:04): Yeah, that actually leads me to, I think what would be a very good question. So how do you guys put that through your process? Cause I’m sure you’re, you guys are probably sifting through billions of more bytes of data than the normal person. So how do you approach that? Jeff (09:21): That’s a really great question. So for us, there are a few components to it. One of the, one of the components that, that we stick to is we’re usually looking at things from a very macro perspective. So we’re looking at what are the changes, the technologies, the new developments that are affecting society as a whole and markets as a whole. So these tend to be really large picture things like demographics or new technological changes or things that are happening in vast markets. So we’re looking at things from that really high-level perspective, so that right away narrows down some of the noise because a lot of the noise is going to be dealing with more micro or constrained topics that to us are interesting, but not relevant for what we do. The second thing that, that we do is we really try to use sources of data that we feel are not biased in a particular sense. Jeff (10:24): There, they’re really legitimate sources that most people can agree on. So that’s a lot of international organizations. So whether it’s the IMF world bank or United nations, or what have you, or it’s key think tanks or governmental sources or looking at things from investment banks or even top consulting companies like the PWCs and those of the world. So, we try and take information from various specific sources that deal with these macro topics. And then I think the third thing that we’re looking for from our perspective is because we’re so data-focused, where we really are looking for something that is when you take that data, it shows you something. So there are data points that you can use that are disparate or that are not linked together that can tell a story. Jeff (11:24): But what we’re trying to do, especially in the book, is we’re trying to say, okay, well, what is a data source that when you visualize it, when you look at it, it’s very clear what’s happening. And there’s not really a lot of gray areas. So as an example of this, one of the datasets that we to open the book, and I think it’s one of the more powerful examples of a signal in the book, is we look at median global age. So that’s just the average age of the global population. And it’s such a clear signal, a data perspective that it’s really hard to argue about because, since 1970, the median age has increased every single year up until now, and going forward until the year 2100, the global median age is expected by a bunch of different sources to continue to increase all the way up to the end of this century. Jeff (12:12): So median age is going up, and that has certain implications, right? So that’s going to affect governments is going to affect how a business works are going to affect the composition of societies and, and how we work together. So, you know, this is a very, it’s a starting point for a conversation. It’s, it’s not the whole thing, but it is something that I think is a very clear signal that you can look at and say, yeah, this is happening. And we have to, you know, as an investor or as a decision-maker, I have to make decisions that are going to be based on this data that is going to be taking this into consideration. Andrew (12:50): Yeah, that’s a really cool data point, and something that could, I’m sure, have countless effects throughout the business world and, and throughout investments, maybe to take a flip side of that example where a data point that seems to have a lot of noise, particularly lately has been the GDP numbers that get quoted in the news and due to the way that numbers reported, it made it look a lot worse and then a lot better than it really was. So is that like a fair example of noise where we should have context and signal instead? Jeff (13:27): Yeah. I mean, the lack of nuance around GDP numbers, I mean, it’s pretty astonishing. You have, on the one hand, you have people that will be saying that, Oh, you know, this is a 20 or 30% drop it’s the worst thing ever. And then you look at the next quarter, and now it’s a 20 or 30% rise because, you know, things have bounced back, but without the context that, okay, this is not, these are annualized numbers. And it’s, it’s a drop before a big increase that kind of corrects everything back to zero more or less know people don’t really think about this stuff and our media, even financial media, doesn’t do a great job of giving that context to people so that they understand what exactly is happening. Andrew (14:12): Yeah. Which, which, you know, obviously highlights how important it is, what you guys are done. Either. The GDP numbers, I think, are fascinating too. And I guess along with those lines, something that’s always kind of fascinated me is, is debt and how that’s treated. And one of the signals that you guys talk about is, is the debt loads and, and the rising levels of those around the world. So what do you think that that has an impact going forward? Not only in the United States but the rest of the world? Jeff (14:43): Yeah. So debt is a thing that people have been rightfully talking about for a long time. And it’s one of those tricky things that it can keep on building up in the background. And it only manifests itself in particularly bad ways when, when something specific triggers that. And we haven’t seen that trigger yet. So we’re very lucky, but in the background, debt is currently sitting at about 258 trillion globally. That includes government debt. That includes corporate debt. That also includes consumer debt, but it’s about you know, it’s over 300% of global GDP, and it’s been steadily rising, and this, this number is from pre-COVID. So this is not including the different stimulus that’s going into the governments or our spending. It’s not including the extra lending that people might be doing as a result of the current environment. Jeff (15:38): So yeah, debt is a really fascinating topic. And then, of course, you also have the flip side of that, which are interest rates, which have been decreasing for 700 years. And, you know, in that sense, we can afford to have this debt currently, but it’s painting a situation where it seems almost unfathomable for interest rates to increase. And if they do, then what is going to happen with that debt, right? Because if you have, so imagine a situation where eventually you have some sort of inflation, and you have to reign that in, you know, one of the only ways that you can do that is by increasing interest rates. And then you have all these people that have accumulated so much debt, and now they’re, you know, the interest costs are going up way higher than they are now. I mean, interest rates are near zero right now, so if those go to 5% or 7%, or, or what have you now, you’re talking about a very fragile situation. Dave (16:35): Yeah, I agree. And I think the thing that’s fascinating to me about that is the comment you made about it, the interest rates falling for over 700 years. And I think people don’t realize that. I think a lot of times we look to short term, and we don’t think about how that does impact everything, not just from a global standpoint, but also from a personal standpoint and the debt that we have via credit card or bank loan or mortgage or anything of that nature. If those interest rates do go up, then, you know, it’s, it’s going to hurt. It’s going to hurt a lot. And I, I worry for my daughter at some point, you know how this is all going to affect people, you know, maybe not necessarily in my lifetime, but I think farther down the road, that’s something to be concerned about. Jeff (17:18): Yeah. And it’s, it’s a kicking the can down the road syndrome for sure. Right. Which is political decision-makers are only thinking about the next couple of years. They’re not thinking about ten years from now or 20 years from now. And based on the system that we have, I mean, it’s, it’s kind of hard to blame them, right. There, they’re trying to appease people now, but it really is hard to say, okay, well, let’s make decisions that are going to make people 30 years down the road, make them better off. Right. And you have the same problem around a bunch of different things, like obvious change and things like that fit in that same box, which is like, how do you make decisions to benefit people way down the road, but debt is certainly in that camp. Dave (17:59): Yeah, it absolutely is. And as it keeps it, as it keeps going up, it just it’s, sometimes it gets scarier and scarier. And as a value investor, sometimes we get a little bit too doom and gloom. So it will, you see some of these rising debt levels, it’s easy to get scared, but on the flip side, you, you understand that it’s not just to that particular company you’re seeing it’s also happening throughout the world. So how, I guess, kind of to back up a little bit. So I w we haven’t really talked about you and how you kind of got started as an investor. I’d be curious to see kind of how you went from there to here. Jeff (18:35): So that’s a really interesting question. And so, my background in the investment industry is mainly from the perspective of working with public companies. Like originally, it’s working with public companies from the investor relations and, and like their side of, of how their image in capital markets. So that’s how I initially got into the industry probably 15 years ago. And then from then, you know, working with a variety of public companies on that capital market side I became an investor myself, and of course, I’ve been more and more immersed in the, in the markets, but really that tells you the story of, of where my fascination is, which is it’s actually the link between capital markets and investing and communication, which I found when I started that communication was really bad in the investment industry. And in markets in general, you know, people would point to their candlestick charts of, you know, here’s what’s happening, but most people are like, I don’t have a clue what’s going on. Jeff (19:40): Right. So from my perspective, I was like, no, this is a gap that really can be bridged. And we can take the, and there are so many cool stories in the history of markets and so much knowledge to be discussed. As you say, like we have a full series around, around value investing and, and Warren buffet from his story as a kid to learning through, you know, through Benjamin Graham and all that kind of stuff. And like, these are, there are so many stories to tell, to give people the context around what is a super fascinating and interesting industry. But I feel like people haven’t done a great job of telling those stories maybe more so recently, they’ve done a better job, but certainly when, when I got involved in this space, I felt like in the digital realm, that there was a lot of work to be done. And I’m really lucky that in my story, this is all dovetailed together into two areas that I’m very fascinated about, which allows us to work and explain what’s happening in the markets so that other people are able to understand as well. Dave (20:45): And that’s one of them that is great, and I, a hundred percent agree with you on the not communicating and not explaining things and telling the stories, because I think when people start to hear the stories and understand the stories, I think it makes it a little more personal for people, and it makes it a lot more interesting. And some of the stories that we’re above it has a bank gram and some of those other people; they’re just fascinating. And I agree with you about communication, and that’s one of the things that I really love about your site. And what I loved about the book as there’s so much great information in there, but the visualization also helps, I guess, illustrated and highlighted. And also the retention of it. You, you, you put that visual with the information, and it just, it makes it come that much more alive. Dave (21:30): And I know Andrew is, is really dying to talk about this. But one of the things that really helped me personally was the whole 5g thing. I’ll be blunt. I’m not a tech; I’m not a technical person. I love math, but some of that aspect of it, of the 5g and the connected cities and some of those things I find fascinating, but I don’t understand the ins and outs of it. And after reading through some of the book and some of those different signals and the subsets of those, it really came alive to me. So I guess I’d love to hear more of your thoughts on that. I’m sure Andrew would as well. Jeff (22:07): Yeah. So, so 5g is one of these topics that is a buzzword that people hear about all the time. And one thing we want to make sure when we were addressing this topic is we didn’t want to go down that same route of hitting on a buzzword; people look at the thing, and they say, okay, so how does this affect me? Or like, how does this actually impact my portfolio? Or how does this impact markets? And so what we wanted to do with 5g is we want to make sure that we were putting it into context so that people really understood the base technology in a way that you can make the link between that, like what you currently have today, which is, you know, we have wifi, and we have, you know, you have a 4g, LTE connections with your, your phone and that kind of thing. Jeff (22:57): So take that. And what is the link between that and the future of 5g? What, what changes once you flip the switch how does the, how does society change? And so I think the first, for me, the first point in being able to understand that is you have to look at the advancement, that the advancements that 5g will bring from a, you know, very basic technical standpoint, and then apply those new advantages that you have to, how you could do things differently in the world. So a couple of really simple points to highlight 5g is going to be a hundred times faster than LT. It’s going to allow for a hundred times more connections; it’s going to be more reliable. And so when you look at these increases in terms of what is possible, you start to realize that everything from how cities connect together to how a smart factory might imagine, how it’s inventory tracking and fleet management works to be able to to do things with computations and in real-time across all kinds of networks and everything happening so fast, you really start to see the different areas where this can make an impact, and it creates a business case for what is actually going to change. Andrew (24:22): Can you give us a little more color on some of those and cases? I don’t have the book right in front of me. I remember there was a list. But just maybe like an example or two, you kind of touched on automation. Maybe you can explain that a little bit better so we can maybe visualize. Jeff (24:43): Yeah, sure. So, okay. So one area that I think is really useful to think about is AR and VR. So augmented reality and virtual reality when you, when you look at these things, the big problem that they have is latency, right? But with 5g connectivity all around the world, you could, in theory, be I could be performing an operation from like a medical operation as a surgeon from, I could be in China, and I could be doing a procedure on someone in Europe, which is not possible right now. There’s too much latency. There’s too much. You, you can’t make precise movements, right. But with 5g, it’s actually going to be possible to be doing things like this. It’s going to be possible to, as you say, if you think about automation in a factory, you’re going to have all these different connections within a factory, being able to talk to each other in real-time, being able to optimize how they’re working together, you’re going to be able to sync up, you know, all these different facets of production that currently, we’re not able to really do. Jeff (25:48): And then when you, you add in the robots and the ability to automate that stuff really, the decision-making can be fast, precise, and it’s going to lead to all kinds of efficiencies that we can’t even imagine today. Andrew (26:04): I think one, and I, I, I, I, I, I don’t know enough about what, what the feature’s going to hold for this that I wish I knew, I guess what another example would be. You know, we have some automakers who are pushing towards making cars, basically drive themselves. If you had a network where these cars could connect and communicate with each other instantaneously, then you could have this network of cars that with all drive themselves and be able to react to each other. And so I guess you could take that model, and then you apply that to home delivery or drone delivery or a factory. Is that somewhere in the ballpark? Jeff (26:53): Yeah. And the other thing to remember about cars, in general, is the modern car generates a crazy amount of data each day, even on a short drive. And so being able to, to be able to harness that in any way, you need to be able to have the abilities of 5g or something like that, right? Because with current technology, you can’t be taking terabytes of data and doing anything with it in any sort of nimble fashion, right. But as you say, with cars, being able to talk to each other and to be able to process all that data, basically in real-time, and to make these decisions that, that are virtually impossible today, that’s, that’s really where this is going as, as you say, and yeah, you can use that same idea, and you can apply it to a bunch of different areas to really expedite different areas of business and in ways that you can’t even Andrew (27:47): Imagine what one last question on this 5g stuff. So how do you think COVID and everything we’ve seen with, with the lockdowns, how does that affect this or play into this? New Speaker (27:59): So for 5g, I see it mostly as a, I see it mostly as being unaffected by COVID in that people are going to, we’re going to be moving to this technology. And, and, you know, now we have people using their phones and using the internet and connecting with each other just as much as they, or, or more than they were pre COVID, I think where the real differences in, in the supply chain, right, which is maybe there are some delays in implementing it from a supply chain perspective, because we can’t, we can’t be going to different countries and installing this in the way that you would be able to normally the big providers of 5g are based in countries like China and US, and they’re going to, they’re going to all of the countries around the globe and, and basically implementing that technology and building the infrastructure for this technology. Jeff (28:56): And so in a lot of places that we’re planning 5g implementation, I can imagine that, that the pandemic is, is setting them back a little bit. But that said, in the countries where you’re full steam ahead, you know, especially advanced Western countries, I figured that they’re probably unaffected by it. The inventory, like the way that inventory systems works, is really like the supply chain in general, because of COVID is really an interesting area as a complete aside, because previously you had these just in time systems, all around the world, and now with borders closed in so many places and the need for a much more, I guess, robust supply chains where you, you know, you can get access to something, you know, that’s going to be something that all of these companies will be considered as well. Announcer (29:50): What’s the best way to get started in the market, download Andrews ebook for free at stockmarketpdf.com, I guess, as an investor, then Jeff (30:01): They sound like pretty significant trends. And it sounds like, I mean, just taking 5g alone and ignoring the other things we talked about, like the debt. And so, do you think that changes how an investor would look at the market? Then let’s say 20 years ago when we didn’t have this prevalence of data, and now the network that’s going to support the connections of this data to become instantaneous. Do you see that may be in your own personal portfolio or just how you think about it in general? I think that because we know that data is taking a bigger and bigger role in our lives, we have to think about how the firms that are able to use that data to their advantage. And so 5g is obviously a component of this, but we have another chapter called data as a moat, which I think is a really interesting proposition as well, which is that data is a moat looks at things from the perspective of Warren Buffett’s economic modes, except saying that unlike traditional modes that we’re used to that, you know, big blue-chip businesses used to have to be able to defend themselves. Jeff (31:12): Data seems to be the new mote that allows companies to be able to do things. And 5g is just one of these new technologies that are going to be able to be leveraged to make more sense of that data and, to get more insight out of that data. So, you know, data as a moat is not going to be changing anytime soon; you’re going to find that the biggest companies globally are going to be those that have these giant masses of data and are able to process it meaningfully in a way that other companies aren’t able to compete. So when you think of the Amazons or the Facebooks or any of these companies that are Google alphabet, obviously, you know, they, they’re standing on so much data, and they’re able to leverage it in ways that, that their competitors can’t compete in a meaningful way. 5G is just a technology that’s going to contribute to that. Andrew (32:07): Right. Oh, and you know, a perfect example of that because, you know, you mentioned the big tech, and I think we can all imagine what they’re doing with our data, but some of the companies that you would never think would use data. So I, rather than the wall street journal today, how GM is going to be offering auto insurance, using the data from their cars. And so that’s going to disrupt the insurance industry possibly because if GM’s getting real-time feedback on all of the vehicles They produce, they can set much more competitive rates and, you know, obviously manipulate profit margins way better than an insurance company who doesn’t have that data would be able to. Jeff (32:52): Yeah. And digital transformation is a buzzword, but when you think of companies like GM that are selling hundreds of thousands of vehicles each year, and the data that they could have access to, it’s pretty mind-blowing. It’s just a question of how they use it and how they implement business models around it before other people do. But certainly, there’s a bunch of companies, even more, legacy companies that could have mind-blowing and massive data. Dave (33:20): Yeah. That’s, that’s fascinating stuff, I guess, as, as an investor, how, how should we think about investing in these kinds of companies? Is it something that we should look at the big dogs or, or kind of looking maybe down the supply chain of, of how the technology is being produced and distributed and, you know, I guess assimilated is, are those things that as an investor, we can also think about as well. Jeff (33:51): So we have another chapter in the book called, called dwindling corporate longevity. And I think that that’s an interesting way to approach this question, which is that over the years, the amount of time that the average company that’s been on the S and P 500, that they’ve, that they, their average sort of age on that has dropped from about 33 years. And it’s expected to drop down to, I think, 12 years by 2027. So that means that you know, between 2018 and 2027. So just over this period of nine years, about half of the index is actually going to be turned over. So, you know, about 250 new companies will be on the S and P over that period of time. And some of these we’ve already seen come on, and some of them we’ve already seen drop off. Jeff (34:44): So you’ve had, you know, the Macy’s of the world and Harley Davidson, and some of these companies drop off. But I think through the lens of what you’re talking about, though, this is an interesting thing to consider, right? Because, and it combines with another trend that we have, which is stock market concentration. So there are some big companies that are going to keep getting bigger, which are the big tech companies that have been talking about. But then there’s also this massive opportunity to grow and take over or to overtake a company that is already existing on this major index. So there are small companies that are going to grow and become big. And they’re also big companies that are become bigger. I think the ones that you want to avoid are the ones that are, that are the so-called blue chips that are on, on the S and P 500, for example, that are not in this upskilling and innovation that they need to be competing because, at the end of the day, the barriers to entry are so low right now. And, the speed at which tech moves is so fast that I do think it is really possible to come in and, you know, basically steal the business away from these incumbents that have been there that aren’t fast-moving. Andrew (36:02): Yeah. Yeah. You mentioned the barriers to entry are so low, especially today, and that ties into everything we’ve been talking about in this whole episode; the low-interest rates play into that a lot, too, because when the capital’s cheap, those barriers are lower. So as you know, you mentioned stock market concentration, and that being a possible thing too, to develop, are you worried about data concentration too much of people’s day they’re getting concentrated into if you select individuals or companies or countries or anything like that? Jeff (36:36): Yeah, I would say I’m worried about that. I mean, I’m a little bit, I’m a little bit relieved, but also concerned that it seems to be a talking point of governments today. Right? I mean, I think that everyone is aware that, you know, big tech is under scrutiny from all kinds of governments around the world. So they obviously see that as being a problem. I think the question is just, you know, are they going to fix it or are they going to make it worse? This is kind of always the question with government, but yeah, I, I am concerned about it. I, I do think that there is, you know, especially in these, these big five companies that you have a lot of concentration there. But I also think that history has shown us that, that, that some of these companies are going to make blenders. Jeff (37:22): They are going to make mistakes. They are going to create opportunities for others too, coming in and, and, you know, take their lunch, but they have to, you have to run the perfect company not to give up those opportunities. And for someone like Facebook or Amazon, like you, you have to be really careful about how you’re perceived by governments and what they’re going to be doing to your business. As you continue to, in Amazon’s case, seemingly try to monopolize more and more spaces like most recently pharma, right? Andrew (37:59): Yeah. They, they, they do, they do need to be careful how many Hornet’s nest they stir up, you know, my, my opinion, Jeff (38:07): Which is the Uber problem, right? Uber, Uber did this. I mean, it was their culture that ultimately was an Achilles heel, but really they were stirring up as many hornet’s nests as they could, including a lot of local governments. And there’s a lot of those. So, you know, you have to, you have to be really you can’t be, you can’t move too fast and break things as a, as Mark Zuckerberg used to say you do have to think about, you’re going to be perceived in a world where people are becoming they’re scrutinizing tech and data more and more. Dave (38:42): Yeah. Good points, very good points. Jeff, was there anything else that you wanted to cover that we have not talked about yet? Jeff (38:51): I think one thing that I think is interesting, and we’ve alluded to it a couple of times in, the podcast is the falling interest rates. And I did want to talk a little bit about that dataset because I find it extremely fascinating. So we pulled this data set from the bank of England, and they have a visiting scholar there that put together this really amazing paper that if you’re a complete finance geek, you’ll love, but basically they’ve gone back all the way till the year. I think 13, 11 or 13, 17 back when the only data points would be things like municipal loans and Venice or Florence or Genoa, and then going from there all the way till you know, more modern datasets, like what you got from the fed and things like that. And they’ve amalgamated altogether to figure out real rates across the globe across developed economies over this, you know, 800 year period. And so the data is fascinating and has pretty consistently seen real rates falling by 1.6 basis points per year for over these eight centuries. So super fascinating to look at. And if you go in that paper itself, there are lots of really crazy loans made to Kings or to or from like the Medici bank or all of these things that we’ve all heard about. But you know, they actually went up and dug up all the data for all of this. Dave (40:26): Wow. Where did they find all that? Because I am that kind of finance geek that would like that stuff. I love, I love history, and I love that. So where did they find that and how, what did, what were the, I guess, to put it in the perspective of what was, do you know what the interest rates were in 13, 11 versus 2020? I mean, how high were they or how, I guess, how does that relate? Jeff (40:52): Yeah. So in, in real terms, they were, they’re all over the place, obviously at that time. So you had some loans and, and some bonds that would have been, you know, five to 10%, and you had some that were some rare ones that were above 20%. But if you look at the data set and you look at the scatter plot of where things have gone and, and how it’s changed over time, it is a very clear trend. And obviously, there are some upticks. And obviously, even in more recent years, there have been giant upticks in interest rates like in the seventies and eighties, but on a long-term scale, you can see that these are mere, you know, very quick divergences. And then it comes right back to the long-term trend. And they have a bunch of theories that they talked about in that paper of, of why this is the case. Jeff (41:45): And I, I’m not so astute that I can go into all those different theories. But I do think that for anyone that’s interested in this stuff, it does provide a really incredible perspective on where we are today as rates sit near zero and how things have changed over time. And it really makes you question, could rates go back up because it’s been such a consistent trend, or if they go up, maybe it’s just for a really short period of time. And then they crashed back down, and our rates are going to be negative over the next a hundred or 200 years. Like, how are public policy decision-makers going to, are they going to keep this trend going? Is it just like a natural thing that that is going to keep going or, or is that impossible? So we haven’t really seen the answer to that yet. And of course, there’s a bunch of different conventional wisdom out there, but I do think it’s a really interesting trend to consider. Dave (42:39): I totally agree. And I think that’s fascinating. So could you imagine being a banker at the bank of England and having it go to Henry Henry the eighth and ask him for his payment, that would have been fun off with your head? Yeah, exactly. I’m going to go out and women, guests, guests that he probably got favorable terms. Oh, that’s fascinating. So I guess how, how do you think that you know, since we’re talking about interest rates, I guess my last question for you is how do you think interest rates are going to go forward for here? Do you think they’re going to continue to drop? I mean, you here in the States, they’re obviously just about as low as they can go before they go negative. Do you think we’re going to go that route like a bank of Japan did? Jeff (43:28): Yeah. So we have a chapter in the book called central bank impotence basically, which is that they don’t have anything left in their toolkit, their conventional policy toolkit, to do anything. And they really are in between a rock and a hard place, which is that you know, their conventional policy options are not going to work anymore. And if they were to be playing with rates going up as we talked about before, it creates all kinds of problems, especially when the economy is the way it is, especially in the COVID recovery era. So, you know, they, they can’t really move rates up, what they can do and what they are doing is, is not current they’re keeping rates where they are, and they’re just buying lots of assets, which has its own challenges as well. I think we noted that in 2020 alone, so far they’ve bought about, or they’ve added about $3 trillion or more the M2 money supply in the US just mainly from buying assets as a part of QE and, and those types of programs. Jeff (44:42): So they’re definitely going to keep doing that. I guess the question is, when will there even be an opportunity to raise rates? That is something that I’m not so sure about because it’s, you’re going to have to assume that we have at least a couple of years to recover and to get back to where we were pre-crisis. And at that point, are we, are we able to, to sustain having higher rates? It doesn’t seem to me like that’s the case. It seems like they’ve, they’ve kind of put themselves into a situation where they’re going to, they’re going to have to keep stimulating. They’re going to have to be they’re going to have to take the same steps as, as the bank of Japan. And, you know, that’s a really interesting route to go down is, is something that especially people in North America are not going to be too familiar with, but the bank of Japan owns 80% of all ETFs in Japan. And they own 8% of, of equities in domestic equities in Japan. So they keep buying assets, and they actually are buying their own corporate assets, which is what the fed has started doing here in, in, in much smaller quantities, obviously. But I don’t know, is that, is that the route that we’re going down is it seems like that may be their only option. So that would be my 2 cents on it. Dave (46:01): Yeah, I would agree with you. And I think it’s going to be very interesting to see how that all plays out over the next coming years. I think I don’t think it’s going to be anything that’s going to turn around right away for sure. Jeff (46:11): Yeah. And there might be an uptick at some point. Like if you look at the graph that the bank of England put for the 700-year history, there are periods of time that last for 40 or 50 years where rates are going higher. It’s just that they all tend to revert back down to that same line. So there, there is the potential for, you know, maybe if we’re adding all of this money to the system and eventually the from an inflation standpoint, that sort of like the people are spending at a fast enough pace such that inflation does start to creep up again. Maybe there will be a period in the future, probably the, you know, mid to more long-term future where rates are high again. But it would probably be terrain and inflation if that’s what they’re doing. Dave (47:02): Jeff, I got one last question for you here. So there was a great quote at the beginning of the book that I wanted to kind of get your thoughts on. So you said the quote in the book said we are drowning in information while starving for wisdom. How do you think your book or your business hope helps to solve that problem? Jeff (47:19): Yeah, I think that’s one of the most insightful things that we’ve seen around the type of work that we do. And I think that it really speaks to what we, we were at at the top of the podcast, which is simply that there’s a sea of information and, you know, people don’t want more information. They want more insight from that information and the people that are able to provide insight, the people that are able to offer useful ways of breaking down data and communicating it to people. I think that’s really where the future lies especially in, in world war II data is you know, doubling every few years. So yeah, that’s, that’s where we plan to be. And we plan to try to make this complex world a little bit easier to understand through visualizations and, and our book is definitely in that same vein. Dave (48:14): It definitely is. And you are definitely one of the leaders in that, and it it’s, I know it’s helped me a ton. So I appreciate that. And I guess, tell people a little bit about where we can find you and tell them a little bit more about the book. Jeff (48:27): Sure. Yeah. So our website is visual capitalist.com, and it’s free. People can go there. We have a mailing list where we send out an email every day with lots of visuals relating to money and markets. And then, of course, our book, which is called Signals, breaks down the 27 key data sets that we see as, as being pretty much indisputable in terms of the direction that the world is going. And we break those down in the book in a very visual way. There are lots of charts, lots of you know, lots of visualizations that people can follow and, and get insight from. And that can be bought from our store on our site, which is store.Visualcapitalist.com. I think it’s $29. Dave (49:17): Awesome. Awesome.  It is fantastic stuff. It really is worth your time. They have so, so much great information. And as you can see, Jeff is very passionate about this, and he definitely knows his stuff; and he and his team have done a fantastic job of disseminating all the data out there and putting it in, in forms that we can all use and utilize to help us become not only better investors, but also I guess, a little smarter people do. So it’s not a bad thing. Jeff (49:44): Absolutely. No, thank you so much. Dave (49:47): You’re welcome. All right, everyone that is going to wrap up our discussion for this evening. I wanted to thank Jeff. Desjardin from Visual Capitalist for taking the time to join us this evening. That was a lot of fun. And I know I learned a lot. Hopefully, you guys did too; please, by all means, check out his website, visual capitalist.com, and also the fantastic book that we discussed this evening signals. That is definitely worth your time. So without any further ado, I’m going to go on, sign us off. You guys, go out there and invest with a margin of safety emphasis on safety. Have a great week. We’ll talk to you all next week. Announcer (50:18): I hope you enjoyed this content. Seven steps to understanding the stock market shows you precisely how to break down the numbers in an and readable way with real-life examples. Get access today@stockmarketpdf.com until next time have a prosperous day. The information contained is for general information and educational purposes. Only it is not intended as a substitute for legal commercial and or financial advice from a licensed professional review—our full disclaimer@eainvestingforbeginners.com. The post IFB179: Interview with Jeff Desjardins of Visual Capitalist appeared first on Investing for Beginners 101.

After huge swings gripped the stock market on the announcement of the effectiveness of Pfizer’s vaccine, investors saw certain stocks soar while other stocks (like those with the WFH theme) popped like a defused balloon. In this episode, Dave and Andrew discuss the mindset needed to invest during a time of great market volatility. A […] The post IFB178: How To Trade Vaccine Volatility appeared first on Investing for Beginners 101.

In this listener Q&A episode, Dave and Andrew tackle some key, top-of-mind topics that investors are thinking about during this post pandemic time: “Can my daughter contribute her unemployment benefits to a Roth?” How Dave and Andrew feel about Coca Cola’s stock What to do when facing 52 week highs or 52 week lows The […] The post IFB177: Unemployment Benefits and Roth IRA, Coca-Cola and Dividend Aristocrats appeared first on Investing for Beginners 101.

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. A step-by-step premium investing guide for beginners, your path to financial freedom starts now. Dave […] The post IFB176: 3 Things to Learn From Shark Tank About Investing appeared first on Investing for Beginners 101.

Announcer (00:02): I love this podcast because it crushes your dreams and getting rich quick. They got me into reading stats for anything you’re tuned in to the Investing for Beginners podcast led by Andrew Sather and Dave Ahern. A step-by-step premium investing guide for beginners. Your path to financial freedom starts now. Dave (00:32): […] The post IFB175: Too Much Money For a Roth, Selling Tesla and Netflix appeared first on Investing for Beginners 101.

Announcer (00:02): II love this podcast because it crushes your dreams of 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. Step-by-step premium investing guidance for beginners. Your path to financial freedom starts now. Dave (00:33): […] The post IFB174: Bottleneck Businesses and Secular Growth Trends with Braden Dennis appeared first on Investing for Beginners 101.

Announcer (00:02): I love this podcast because it crushes your dreams of 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. Step-by-step premium investing guidance for beginners. Your path to financial freedom starts now. Dave (00:33): […] The post IFB173: Why to Invest in Real Estate Investment Trusts (REITs) appeared first on Investing for Beginners 101.

Announcer (00:02): I love this podcast because it crushes your dreams of 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. Step-by-step premium investing guidance for beginners. Your path to financial freedom starts now Dave (00:33): […] The post IFB172: How to Read An Annual Report – The Secret to Buffett’s Success appeared first on Investing for Beginners 101.

Announcer (00:02): I love this podcast because it crushes your dreams of 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. Step-by-step premium investing guidance for beginners. Your path to financial freedom starts now. Dave (00:33): […] The post IFB171: Why Price to Book Died; VTI 7.0 Update appeared first on Investing for Beginners 101.

Announcer (00:02): I love this podcast because it crushes your dreams of 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 say there, and Dave step-by-step premium investing guidance for beginners. Your path to financial freedom starts now. All right, […] The post IFB170: Suspended Dividends, Industry Focus, eLetter Holdings appeared first on Investing for Beginners 101.

Announcer (00:02): I love this podcast because it crushes your dreams of 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. To share Step-by-step premium investing guidance for beginners. Your path to financial freedom starts now. […] The post IFB169: Stock Splits, Ex-Dividend Drops, and Intrinsic Value appeared first on Investing for Beginners 101.