How to know what to invest in stocks
How I Pick My Stocks: Investing For Beginners
Timecodes:
hi guys it's mark so i've got a secret
it's about time we talked about it
this is my crystal ball and it allows me
to predict
everything the stock market's going to
do in the future look if anyone tells
you that never believe them
they're probably just trying to sell you
one of those courses for 997 dollars so
even though there's no magic ball that
can tell you when to buy a stock before
it rockets in value and makes you a
millionaire overnight
there is certainly a few things i do to
tip the odds in my favor
and that's what i'd like to share with
you guys today as i've got older and
slightly grayer
i've found that knowing the reason
behind why i stopped my changing prices
helped me make
and save a lot of money if you're new to
the stock market then a stock is a small
part of a company and when you buy
you actually become a part owner the
idea is to buy parts of a company that
you believe will go
up in value so you're able to multiply
your money
without doing any extra work but let's
face it investing in the stock market
can be pretty confusing
and most people just pick companies on a
whim however that's not how i do it
so by the end of this video you'll know
my actual strategies for picking great
stocks
and don't worry i won't be trying to
sell you anything so you can just sit
back and relax
so there are two main ways to attempt to
predict the stock market these are
called technical and fundamental
analysis
a good way to think about this is like a
scale usually short-term day traders are
purely focused on technical aspects
these include looking at charts and
patterns they believe that they can
predict how the stock will change in
price by judging the highs
and the lows on the graphs they're the
geeky ones nah i'm only kidding it's
just not how i do it my whole investment
strategy is about keeping it simple
lots of people talk about using margin
and options but that's really not
something i worry about i'm a long-term
investor so this means i'm a lot more
focused on the fundamentals of a company
this includes the financials the
leadership and the brand recognition
as i believe this is where the
information lies to indicate the
long-term success of a stock however
like i mentioned
it's a scale so i do cast my eye over
the occasional chart in order to find
the best time to buy this approach has
helped me to find some really good
investments over the years
rather than just dipping in and out and
trying to make a profit on a daily basis
the amazing thing is the majority of
professional traders are still unable to
be a low-cost index fund
over the long term this may sound quite
complicated but it's actually very
simple
so this bucket represents an individual
stock and the water
is me pumping all of my money into that
company
this represents an index fund each cup
being a different company and the water
i'm putting in
is the money i'm spreading between each
of them in one
easy investment for whatever reason if
this company goes bankrupt then guess
what
or my money goes down the drain now this
is the same company and it still goes
bankrupt
but the good thing is i may lose my
money in that small investment however
i've got so many more stocks and i've
done really well in some of them
which means i've actually made a profit
overall
my favorite index funds track the s p
500 which are the top
500 public companies in the usa so even
though the majority of my money goes
into index fund investing
i also have a lot of fun picking
individual stocks and watching my
portfolio grow
on this note if you'd like an easy way
to get started public are currently
giving away a free stock worth all the
way up to 50 dollars when you fund your
account
if you want to pick that up i'll leave a
link in the description and if you're in
the uk
free trade are giving away a free stock
that could be worth up to 200 pound when
you deposit as little as two pounds
i'll leave that link below as well it's
a great way to get started with
individual stocks and basically it's
free money right so now you've got your
free stock and you're ready to invest
into some more
but where should you start well if
you're anything like me it makes sense
to start with the numbers
we call this quantitative analysis
whenever i'm thinking about investing in
a company
i make sure to look at all these figures
first if the financials don't look good
to me
then it's very rare that i do any
further research into the company it's
kind of like when you go on a first date
with someone and they seem really nice
however it isn't until you really start
getting to know all the details about
them that you might start to notice
their flaws
like eating with their mouth open or
picking their nose if only they gave you
a non-biased comprehensive list of how
they actually are
so you can make an educated decision
whether you want to date them or not
i don't have a solution to this problem
but luckily that's exactly what
companies do it's brilliant
you can find out this information for
free on yahoo finance which is the
website that i use there are three main
aspects that i look at
first let's break down the balance sheet
i know it doesn't sound too interesting
but
trust me this is where you find some of
the real juicy information
the whole purpose of this sheet is in
the name to balance
assets and liabilities think of it a bit
like this
you may own a watch or a rental property
and these are your assets
but let's say you have loads of credit
card debt this is one of your
liabilities
so let's break down some of the
gobbledygook terms so you can easily
understand this complicated looking
sheet and impress your friends
assets are broken down into three
categories current assets are things
that could be turned into cash within 12
months
longer term assets are things like their
headquarters which they usually don't
sell in a hurry companies can also have
assets that you can't physically touch
known as non-tangible assets
such as the brand recognition of an
established business
that has been trusted for generations i
like to think of coca-cola and then we
come to the liabilities and what i'm
really interested in here are the
current liabilities
as this is the debt that they'll need to
repay within 12 months with this there
is a simple calculation you can do to
easily know if the company is high risk
or not
and that is total current assets divided
by total current liabilities
a good rule of thumb here is the number
should be above one but how does this
work in practice
let's take apple's balance sheet for
example apple's total current assets
divided by their total current liability
comes to
1.4 when rounded up this is great as now
we know that apple are able to pay off
all their short-term debt nearly one and
a half times
the second document that's really
important to have a look at is the
income statement if you've ever heard
the saying of the top and bottom line
this is where it comes from at the top
of the statement this is the total
revenue which is the total the business
take and at the bottom is the net income
which is the money the company makes
after all the expenses have been
deducted
every business has these expenses the
cost of operation
and the cost of revenue so let's take a
simple business like a smoothie company
their cost of revenue is fruit
they can't make the smoothies without
buying that therefore that is a cost
they have
no choice about it's a simple fact of
running their business but the next
thing they do have a choice about which
is their operating expenses
who they're hiring and what kind of
wages that they're paying them after
these expenses are deducted from the
total amount of money they take from
their customers
you get the operating income so here's
my simple calculation that lets me know
if the business is healthy
operating income divided by total
revenue
times 100 ideally i look for above 15
using apple again let's take this number
divided by
this number and we get 27 which is great
the last one of the big three is the
statement of cash flow
i'm not going to spend too much time on
this one as when you boil it down
it's pretty simple the main thing i look
out for is if the company i'm investing
in has increase in
free cash flow year on year which is
money
they can use to reinvest or pay back to
investors
a big red flag here is sometimes i see
the cash flow is negative
but the company is still paying
dividends back to its investors
it's just unsustainable and eventually
the business is just going to run out of
cash
now once i've had a good look at all
these numbers it's time to get into the
juicy stuff and that's all about
analyzing the qualities of a company
this is known as qualitative
analysis one of the qualities i look for
is brand recognition
when i say the word apple most people
think about the company
rather than the fruit i know i keep
referring to it but it's a great example
of amazing brand recognition that won't
be going away anytime
soon being a household brand name comes
with a lot of consumer trust so when
they launch a new product
people are much more likely to try it
out especially if it's something unique
or groundbreaking such as the ipad
and we like to show it to you today for
the first time
and we call it the ipad
this helps companies like apple shape
our future and create entire new markets
and revenue streams another great
example of brand awareness is coca-cola
it's the second most recognized word in
the world after okay
something that really affects price
movements is the news i always keep an
eye on it and in particular
rumors on social media you may have
heard about the whole gamestop situation
where a small bunch of retail investors
managed to outsmart the top hedge funds
by finding a flaw in their strategy they
were able to use this to their advantage
and earn a lot of money
tonight it's wall street's david versus
goliath the struggling video game
retailer gamestop skyrocketing about 8
000 percent over six months
but once the news broke and more people
started to jump onto the bandwagon
the big profits had already been made
this is a great example of the age old
saying
buy the rumor sell the news i learned
this valuable lesson during the dot-com
boom in the 90s
when i started investing people were
amazed that i was pouring money into
companies whose main asset was
a dot-com domain name however within six
months it seemed that everyone's telling
me that they were buying shares in
dot-com companies
even my hairdresser i decided to start
selling to buy more real estate just
weeks before the bubble burst
and i managed to save the majority of my
profits others weren't so lucky
everyone thought that internet
businesses were the future and they were
eventually right however most of the
original companies never recovered and i
saw some of my friends make
millions just to lose 90 percent of
their investment when everything crashed
only a handful of companies managed to
weather the storm such as amazon this
showed me that the hype generated by the
news and other people talking about it
really just caused the prices to get out
of control and become
unsustainable so whenever i feel like
hype is driving the price of a
particular stock i know that it probably
isn't a great long-term investment
although with the dot-com bubble it is
true that a lot of companies did rebound
eventually the next important factor is
the leadership of the company
even more so nowadays with social media
and what the leaders say is having a
huge effect on the price of the stock a
prime example of this is elon musk who
is very clearly the visionary behind all
of his companies
one of them of course being tesla just
imagine if elon musk decided he was
bored of making electric cars and
tweeted that he was standing down from
tesla to focus on spacex
and his mission to colonize mars i think
this reliance on
elon musk is one of tesla's greatest
strengths but also one of its greatest
weaknesses
as the company is highly affected by his
actions this brings me to my next point
which is to look out for emerging future
industries like electric vehicle
technology which tesla is leading the
way in
these types of investments are really
your growth stocks
my friend simon squibb often tells me he
believes that in the future
doctors will be replaced by artificial
intelligence this sounds like the stuff
of science fiction however when i was
younger
this was what i used to see on star trek
spark
spark here in fact this is even better i
actually first heard of tesla when it
was featured on top gear in 2008
it wasn't a very flattering review as
they showed the car running out of
batteries in 50 miles which was only a
quarter of the advertised range elon
wasn't very happy about this and he
actually later filed a lawsuit against
the show however the segment certainly
piqued my interest
and i could see they were onto something
during my time investing i've seen a
huge shift in each sector or if you're
american at home sectors
let me take you back to when i was
younger if you can imagine that far back
i remember sitting at my grandma's house
and watching this guy come along with a
sack of coal on his back
which he would deliver to my grandma so
she could heat her house
nowadays most people use gas so no more
mr coleman
and this sector is all set to change
again with the introduction of renewable
electricity but that's
three major shifts that i'll experience
in my lifetime if i'd been stuck in my
ways and not taking notice of these
changes
then my investments would have been left
in the past just like the coal industry
so before
investing in a stock i always think
about whether a future shift in sector
will have a positive or negative impact
on that company
but how do i predict when the best time
to buy is you don't but there's a
strategy
i use to get around this and it's called
dollar cost averaging let's imagine you
were to invest once a month for three
months
month one the stock might cost you two
hundred dollars month two
hundred and fifty dollars a month three
hundred and thirty dollars of course if
you knew it was going to dip to 130
you'd have bought then however no one
knows how low the price will go but by
doing this instead of investing all your
money in month one when your stock was
at 200
you actually lower your average buying
price to 160 dollars this is also known
as
buying the dip instead of getting scared
and selling like the majority of people
would
the idea is to buy more because it's
like having a garage sale
and if you've done all your research and
you like the company
then the stock is at a bargain price so
i'm going to leave the next video right
up there but don't click on it just yet
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okay i'll see you over there
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