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Investing in Shares Australia (Step By Step For Beginners) | ASX Stock Market 101

Hey, Everyone and welcome back to the channel.

Over the past couple of years, I've

been investing and helping other

people to invest through my

investing platform and through the

youtube channel here.

But I've never strictly made a video

talking about how to invest in

Australian shares for beginners.

So that is what I'm going to do

today and what you can expect from

today's video is I'm going to start

by giving you sort of a brief

explanation of what the stock market

is and how it works.

I've sort of simplified

what you need to know before you

invest in the stock market so that

if you're the very if you're coming

to the stock market for the first

time and you're just learning about

investing then I've broken it

down and made it really simple for

you to understand as there can be a

lot of noise that you think

that you might need to know about

but you really don't.

The second part of this video we're

going to talk about what you need to

get started. So what are the things

you need to collect and stockpile

before you get started investing

in the ASX.

And lastly I want to go through my

simple four step strategy that

I used to invest in stocks how I

analyse businesses how I find out

if it's a good business versus a bad

business and also how I work out how

much we should be willing to pay for

it so that we can consistently find

those are low risk investments that

do produce those high long term

returns. Those are the perfect types

in investments that we're looking

for. So if you do enjoy this video

make sure you leave a like.

And if you want to see more stock

market related content then consider

becoming a subscriber.

I post a lot of stock market related

content about the US market and the

Australian market. So if you're

interested please subscribe and hit

the Like button. But for now guys

let's jump into the video.

So just to start off I want to talk

about how the stock market works

because I understand that there's

probably a lot of people watching

this video who really don't know

too much about investing and they're

really keen on getting it into

investing but they just don't know

what it really is and they don't

really understand what they're doing

when they're buying shares.

So as simply

as simple as I can explain it if

when you buy a share you become a

part owner in that business.

Now it might not be you're

not an owner in the way that you

might think.

Some people think of business

ownership as you running a business

and making decisions and you being

that the CEO that

is not what we mean.

You're not managing the business

you're just an owner.

So you're in control of it and

if you were the owner and you held

all of the shares so you were the

only owner of a company

then you could decide who you wanted

to be the manager.

Now it could be you or it could be

someone else but when it comes to

the share market you only have one

share out of maybe

50 million shares

or maybe you have ten shares out of

50 million shares.

So you have a very small piece

of ownership you're still an owner

but you don't have any power

over who is running the business.

So you're just the owner.

You collect the profits but you

do not make management decisions.

So management will be running the

business on a day to day basis

on your behalf on behalf

of the owners.

And what will happen is that

business will produce some revenue

and then they'll have some expenses

and whatever is left over after

they've paid all their expenses that

they've paid their employees their

leases they've paid for the cost of

the goods whatever's left over is

profit and management then makes

a decision about where they're going

to put that profit.

So some of that profit is going to

be paid directly to the owners

and that's called a dividend.

So this is a cash dividend which

if you are an owner you will get

a small amount of cash depending on

how many shares you have paid

directly into your trading

account. So that's called a dividend

and that's something that management

can do with the money that

is left over after the business

has paid all their expenses.

Another thing that management can

do with that profit is they can

reinvested in the business meaning

they take some of that excess money

and they buy some new land they

buy some new buildings they invest

in some more employees or new

equipment they reinvest in the

business in order to grow those

profits into the next year.

So maybe this year they produce 100

million dollars in profit and then

they reinvested and next year they

can make 200 million dollars in

profit. So that's all very well and

good but how do you make money

as a shareholder.

How do we make money.

Well the first way we make money is

very simple.

It was that dividend.

So if management decides to pay out

a dividend to shareholders you

get a direct cash dividend

a cash deposit into your

account when that dividend is paid

and for Australian shares this

is traditionally every half year

or every year.

And on US businesses you'll often

see that they pay a quarterly

dividend and there is some

Australian businesses that do pay

a quarterly dividend but that's not

the only way that you make money.

Of course you paid a particular

price for those shares.

You might have paid 50 dollars per

share.

Now what can happen is with those

reinvested profits that the business

that the management reinvest into

new employees and equipment and that

sort of thing.

If the business becomes more

profitable so that now

they're producing 200 million profit

instead of 100 million.

Then people are going to be willing

to pay more for those

shares. So the price of those shares

is going to go up and that is the

other way that you can make money is

if the price of the shares go up

after you've bought it and you can

sell that and you can sell it for a

profit. Now there is a lot more that

you could learn about the stock

market there's a lot of little

intricacies that you'll find on the

Internet and you could spend hours

and hours and days and weeks and

months and years learning

about all that all of the different

little things about the stock

market. But really what I just

told you is all you need to know

and it's really two things.

One is that when you buy shares

you're a part owner in a business

an underlying business.

And the second part is that you make

money when the business produces

profit.

And as we said some of that profit

will be paid directly to you

and some of that profit will be kept

in the business and should increase

the value of those shares.

And that is really all you need to

know about how the stock

market works before you go ahead and

start looking at some businesses.

So now let's talk about what you

need to get started in the stock

market. What are the things you need

to collect.

What are the things you need to do

before you go out and start buying

businesses on the stock market.

So the first thing that you need is

cash and that's pretty obvious

but there's a specific type of cash

that you need this cash needs to

be money that you don't need

for the next 10 years because

you need to accept that when you're

buying a business it's a long term

investment.

Don't get into the stock market

expecting that you can make some

profits in the next couple of months

and get your money back and then pay

your bills.

That's not how it works.

You need to think of it as if say

for example you're buying a house.

If you buy a house you're not

expecting to get your deposit

or you're not expecting to get your

deposit back anytime soon.

You're expecting to leave it in the

property essentially and

you hold onto the property for 10 20

30 years or maybe even longer.

And you should have the exact same

mindset when it comes to the stock

market. When you buy a business

assume that you can't sell

that business for the next 10 or 20

or more years.

And the reason why you need to have

that mindset is that the stock

market every now and then does

crash and we haven't had a crash in

a very long time.

So it's likely that if you're going

to be investing in the stock market

starting now that you're going to

see a crash within the next five

years and that means that your

stocks are going to be down in

price but you need to understand

that that doesn't necessarily mean

that you've made a bad decision.

It just means that the price of

those businesses has changed.

It doesn't mean that the business

behind those behind

that stock price is actually

worse than it was before.

Now that's a little bit more

complicated. We don't need to get

into that right now.

But essentially all you need to know

is that you need excess cash that

you don't need and that you're

looking to invest for the very long

term so that you can grow your

wealth over the very long term.

You also need to have no credit card

debt. Now if you have credit card

debt you should be paying that off

first before you go out

and invest in the stock market.

And the reason for this is because

on that credit card debt you're

paying an interest payment of 15

to 25 percent.

So if you pay off that credit card

debt you instantly make

a 15 to 25 percent return

because you no longer have to pay

that interest.

So you need to do that first before

you go ahead and invest in the stock

market. And the third and final

thing that you need before you get

started is a brokerage account.

And this is a place where you're

going to be trading shares through

and it's where you're going to be

able to see what holdings

you have and what kind of percentage

return that you've made on those

holdings. Now if you're in Australia

there are four major brokers that

you could use.

There's the four major banks.

There's a Commonwealth National

Australia Bank Westpac and ANZ.

They all offer trading.

Now there's also some smaller

brokers. But personally I would

just stick to one of the four major

banks if you're just getting started

because for me personally and with

my investing style where we're

looking to make investments over the

very long term it doesn't really

matter that the brokerage fees

are going to be a little bit higher

than maybe some obscure smaller

broker. I would rather just keep my

money in say CommSec

in Commonwealth Bank where I know

my money is safe because it's a

highly reputable bank and I

would rather pay a little bit extra

for brokerage for that added

security.

With that said it isn't overly

important because at any time in the

future you can change broker.

So this isn't a one decision

that you make and then you're stuck

with it for the rest of your life.

You can change your bank broker you

can transfer your shares whenever

you want to.

So just make a decision and if you

really don't know what you're doing

just stick to one of the four major

banks. So for the last five minutes

of this video I just want to talk

about this force that process that

I've been able to use to

consistently outperform the market

and it's fairly simple.

But what it allows us to do it is

it allows us to filter away all

of the rubbish stocks or all

of the stocks that we will never

want to invest in and we can find

a small number of highly

highly profitable businesses that

are discounted that cheap.

So they've got a low risk of going

down further but they have a high

potential to make us a lot of money.

And those are the types of

investments that I'm looking for.

And this forced that process helps

us get there.

So the first part is circle of

competence. And essentially what

we're looking for here is we're

looking to only invest in businesses

that we are capable of

understanding.

So there's certain types of

industries like pharmacy or

finance or resources even

and these types of industries can

be very difficult to understand

unless you have a lot of experience

in those industries.

And then there's industries that are

a lot easier to understand like

retail or a restaurant industry.

These are fairly simple and that you

could learn how to analyze

these pretty quickly and this is

where I would start if I was a

beginner and further

on from that I would start in

industries that I already have

a bit of a background in.

So if you've worked in a particular

industry then you might start

looking in that industry because you

would have a better than average

understanding of how it operates

and how businesses make money

in that industry.

The second step is with those

businesses we need to make sure that

we're investing in businesses that

have what I call an economic

moat now an economic moat is

essentially just a competitive

advantage.

So this business has something

that's unique to it only

it has this competitive advantage.

And that characteristic is

giving it an advantage over other

competition.

So it's drawing in customers

from those other businesses in the

industry and it's protected

in some way.

The example that I often like to

use is Google and their

Google search engine.

So whenever people say

that you need to search something on

the Internet people say go and

google it.

They use the name of the company

when they're referring to searching

something on the Internet.

And that's a huge competitive

advantage.

And what it means is that Google

search engine is used by ninety nine

point nine per cent of people who

are searching on the internet and

whatever the other ones are Yahoo

search it being no one

even looks at them.

No one even considers them it's an

automatic beeline

straight to Google search engine

whenever you need to search

something and that's a huge

competitive advantage.

And that's the kind of thing that

we're looking for in these

businesses and we're looking to

identify that just by the way

I did just then that's qualitatively

just looking at the business.

And we also tried to look at the

numbers and identify it

through looking at the long term

numbers and seeing if they've

consistently been able to grow

in that industry.

The third component is we need to

assess management because as

I said earlier where owners but we

don't control management where

we're not going to be able to boot

them out if they're doing something

wrong. So we need to make sure that

these people are honest

and transparent and that they're

telling us all of the problems that

are happening and that they've got a

consistent track record of fixing

problems within the business and

weeding out bad eggs within the

management and kicking them out and

making sure that management stays a

close tight niche

group of people who care about the

shareholders and then not only that

they also need to be good at their

job. They need to be consistently

making good investments

which property should they buy which

equipment should they buy these

decisions that they make at a

management level will impact

how much profit they make and how

much profit we make at the end of

the day. So we need to assess that

and we're also looking for

businesses with management that

doesn't take on debt because we

don't want that risk that they can't

pay off their debt.

So we're really in the third part

we're really focusing on those

people in charge making sure that

they're honest with us making sure

that they're making good investment

decisions and making sure that

they're not taking on too much debt.

And then the final component is

called intrinsic valuation.

So this is where we put a price

on how much the company is worth

and that price of how much it's

worth is equal to how much

cash we're going to get back

over the next 10 years.

What are we going to get out of this

company. If I buy it today

over the next 10 years maybe I'm

going to get back 100 dollars

per share.

If that's my intrinsic value

calculation then how much am I

willing to pay for 100

dollars over 10 years maybe

I'm willing to pay 50.

So I pay 50 now and over

the next 10 years I get back

100 or maybe I'm willing to pay

30 and I pay 30 now

and over the next 10 years I get

back 100.

That is what intrinsic valuation is

estimating what the profits

of this company are going to be in

the future.

Therefore how much are we going to

get out of this company in

those dividends and through the

stock price going up and therefore

how much are we willing to pay for

those future cash flows.

Now that was a very fast explanation

of the four-step process that I use

to consistently outperform the

market and find those low risk

high return investments.

But if you're interested in learning

more about that four-step process

I actually put together a 20 minute

free training video on my website

which you can get access to via the

first link in the description below

in that video you will learn why it

is so powerful to be able to

make your own investments in the

stock market and to outperform the

market and how exponentially

better you will be off if

you're able to do that rather than

just buying the index and accepting

the market return of about 8 to

10 per cent.

I talk about the four step process

in a little bit more detail and I

also talk about some of the major

mistakes that beginners make when

they start investing in the stock

market. So if that is something that

you're interested in go and check it

out via the first link in the

description below.

But I hope you guys enjoyed today's

video and if you did as I said

earlier please leave a like and hit

subscribe if you want to see more

videos like this in the future.

I have three videos coming out every

single week so if that's something

that you're interested in hit

subscribe and join the team.

But for now guys I'll see you in

the next video.