in this video i want to break it down
step by step how to invest in the stock
market for beginners now remember the
goal with investing is to one day live
off our investment portfolio but we have
to start somewhere we can't just click
our fingers and be sipping cocktails on
a beach living off of dividends let's
start with the basics and break it down
step by step how to get into investing
and by the way everything in here is
free there's no hidden courses or
anything at the end where you have to
pay for something no also the timestamps
are in the description below if you want
to skip to a particular section
so for me the reason why i personally
invest in stocks is one thing and that
is passive not active income essentially
there are two ways of earning income one
is you go to work all day whether that
be in an office or construction site or
customer service whatever and you
actively earn your income aka active
income work income the second type of
income is passive income and this is
where you own an asset like a stock that
produces income for you once you own it
you get paid without having to do any
extra work so it's completely passive
and that for me at least is the number
one reason to get invested in stocks so
you don't have to work for every dollar
that you earn
so a stock is a security that represents
ownership in a fraction of a business
okay so for example if you own a stock
in coca-cola you actually become a very
very small owner in coca-cola the
company so if we look at robert
kiyosaki's cash flow quadrants you join
the fourth square of the quadrants where
you own part of a business but you don't
have to work for the business
so in order to buy a stock you need to
sign up to a brokerage company a
brokerage company is a platform that
allows you to buy and sell stocks now
don't worry this isn't 1995. you don't
need a dodgy broker from wall street to
do your trades go with a
well-established company with a proven
track record if you're looking for a
very cheap broker and you're just
beginning your investing journey robin
hood and weeble are quite popular you
can buy and sell stocks for free with
them or if you have a bit more money and
you're looking for a platform that's
been around for a lot longer look into
one like trial schwab or fidelity or td
ameritrade they're pretty easy and
straightforward to sign up to if you're
living in the usa just google them go to
their website and fill out a form or two
and step one find a stock broker done
now this is the important part this is
where a lot of people can go wrong they
get greedy they don't do the work up
front and instead of making money they
lose money through uneducated silly
investing so you need to decide what
investing strategy you're gonna employ
and then what stocks are you gonna pick
so i'm gonna outline four different
approaches to investing and the
positives and negatives that come with
them pick the style that you feel suits
you in your specific situation and how
you want to invest so the four styles
are one is dividend investing a great
approach for passive and reliable income
two is value investing the approach that
warren buffett took one of the
wealthiest man in the world three is
growth investing and this is the style
that kathy wood has been making a lot of
money from recently
and the last type we'll go over is
passive index fund investing a laid back
style that does well over the long term
so let's start with dividend investing
this approach is one where you can
pretty much have guaranteed passive
income through quarterly or monthly
dividends
dividend investing is an investing style
where you buy stocks that pay a dividend
as a portion of their earnings they
normally get paid every quarter okay
every three months or sometimes they get
paid every month or semi-annually so if
you pick out some good dividend stocks
that's one way to ensure passive income
rolling into your bank accounts
throughout the year but you got to play
things smart you can't just put your
hand on a piece of paper and pick out
the ones that pay the highest dividend
that's too risky we need to understand
the numbers behind the stock so here are
some things to look for in a dividend
stock there's four key things i want you
to pay attention to
let's go on to my computer and i want to
show you these four measures so we're
going to use coca-cola stock for the
example and the website that i generally
like to use to get the stock metrics is
yahoo finance
so we'll just click here and this page
gives us a summary of coca-cola stock
now what we want to do is click on
statistics and then scroll down until we
see dividends and splits and this is
going to give us some important
information on the dividend side of
coca-cola stock so one of the first
statistics we should look at is the
dividend itself so we can see here that
the dividend for coca-cola is a dollar
68 which gives it a dividend yield of
2.86 percent
so okay if we bought a hundred dollars
of coca-cola stock we will get
2.86 every year as a dividend so 2.86
percent it's not too bad considering
that the average dividend in the market
is 1.3 percent so it's always good to
compare things to the average or to
their competitors and that's how you get
a feel for how good a stocks numbers is
now the next thing we want to look at is
the payout ratio the payout ratio shows
the proportion of earnings a company
pays in the form of dividends and how
much it reinvests in the business okay
so if a stock earned ten dollars a share
and its payout ratio was forty percent
this would mean they would pay out four
dollars as a dividend and six dollars
would be reinvested in the business now
with coca-cola we can see that the
payout ratio
is 82
now this means that most of the earnings
that they generate they pay out to the
shareholders as a dividend now the other
18 percent they use to reinvest in the
business this is a very high payout
ratio to be honest with you the reason
is because coca-cola is such a mature
business and they're more of a cash cow
than a growth company but generally i do
prefer the payout ratio to be quite a
bit lower than 80 percent it's always
good to see a business reinvest in their
future growth instead of paying it all
out as dividends speaking of growth the
third thing that we need to look at is
the company's earnings over the past now
to do this we click on the summary
section of yahoo finance
we've got to scroll down a bit and here
we get a good look at their past
earnings so the blue line is earnings
the green line is revenue and with
coca-cola the earnings were trending to
be higher and higher that is up until
2020 where of course they got hurt in
the pandemic and earnings went down but
generally you want earnings to be
trending upwards i'll get i guess we'll
give them a pass because of the pandemic
another important thing to look at
before buying a dividend stock is their
dividend history do they have a reliable
past of paying dividends consistently or
are they perhaps a bit more inconsistent
so for dividend history i like to use
the website macro trends which we can
find pretty easy on google
and with coca-cola stock we can see that
they have a very strong history of
paying out dividends in fact it seems
that they've never dropped their
dividend payouts over the course of
history of their stock since 1974
as per this graph so this means that in
the future if we bought the stock they
are pretty unlikely to drop their
dividend payouts even in recessions and
in bad economic times so that's a big
reason why coca-cola is and has been
such a popular dividend stock over time
that's sweet and reliable dividend
so other dividend stocks that are quite
popular that you may want to look into
in order to start building up a
portfolio
is 3m ticker symbol mmm dividend yield
3.3 percent so that's a consumer goods
company with quite a good dividend to it
johnson and johnson second symbol jnj
dividend yield 2.5 percent in the health
care sector or you could look at
something like a t a bit more of a
riskier dividend ticker symbol t the
dividend yield though is 8.5 percent so
that's very good in this market so guys
get and slowly get in stocks that are
reliable with a good business model
behind them and start building up a
portfolio that hopefully one day you can
retire off obviously it's not going to
be any time soon don't get your hopes up
too high but once you start building and
allow for some compound interest you can
actually grow a portfolio into something
quite impressive if you give it time so
the positives of dividend investing are
the passive income from the dividends
that income is pretty reliable
especially if you buy into strong
business models plus you'll get income
from the capital gains of the stock so
it's you know those two forms of income
i'd say the main negative with dividend
investing is sometimes these companies
are more mature and they have less room
for that high quick growth that we see
in other investing styles so it's a lot
safer form of investing and a lot more
reliable but we won't generally see
those big yolo returns as the youth call
it
okay now moving on to the investing
style that made warren buffett a
billionaire and that is value investing
and i'm not saying that it's going to
make you a billionaire we're not all
warren buffett but value investing can
make some very healthy returns if done
right
so the essence behind value investing is
buying stocks at a price below their
value basically it's like bargain
hunting but instead of going to a garage
sale or going to shops you go to the
stock market so now the question becomes
wait how do we know if a stock is cheap
do we just look at the price and if the
price goes down by 20
then it's cheap then it's a bargain
unfortunately it's not that simple
because often when the price goes down
the value of the business goes down as
well
so the key to value investing is
determining the intrinsic value of the
business once you know the value you can
simply compare it to the price and see
how much of a bargain you're getting or
how badly you're getting ripped off
i made another video on this that breaks
it down into three steps on how to
calculate the value of a stock so i'm
going to leave that in the description
box below it's actually not too hard
once you know what you're doing
and then basically what you do is you go
around analyzing different stocks and
you compare the price to the value
compare the price to the value the price
to the value that's what warren buffett
did when he was younger but back in
those days without the internet he used
the moody's manual instead he said that
he went through the entire book twice
just by reading over different
businesses and looking for bargains
looking for high value and low prices
but there's a lot of stocks in the stock
market so one way of screening for value
stocks is looking for the ones with low
p e ratios a p e ratio is short for
price to earnings ratio and essentially
as per the name it compares the price to
the earnings if the number is low it
means the price is cheap compared to the
earnings and if the number is high it
means the price is expensive compared to
the earnings that a stock brings in
pretty easy to find the p e ratio on
stocks so you just go to our friend
yahoo finance again we go to the summary
section
and it says it right here 29 for
coca-cola so that means the price is 29
times higher than the yearly earnings
and it will take around 29 years to get
our money back if earnings stay the same
now you might ask if 29 is high or low
well one way to work that out is to
compare it to the market's average p e
ratio the market's p e ratio is sitting
around 29.3 right now so coca-cola is
around the average price of the market
price to earnings it's not really
cheaper it's not really more expensive
so coca-cola is definitely more of a
dividend play compared to a value play
so some examples of stocks that are
quite popular with value investors
include alibaba the chinese e-commerce
company a lot of value investors are
buying this after its recent dip it's a
bit of a controversial investment not
gonna lie but famous value investors
like charlie manga and ray dalio are two
big names that have bought the stock
then we've got berkshire hathaway
another value stock in fact this is kind
of like a group of value stocks since
warren buffett is the head investor of
berkshire who owns a bunch of stocks
under the company then we've got
gamestop this was a huge value play
especially a year ago before the whole
reddit hedge fund saga
and bank stocks are another place to
start for value investors this year
especially with their low p e ratios
buffett has bought big into them over
the past couple of years i'm not saying
that you should definitely go and buy
these stocks but these are a place to
start if you're looking to find a value
investment
okay this is an investment style that
has more risk associated with it if a
recession comes you're probably going to
get hit hard but on the other hand
there's a lot more potential for those
quick high returns now we can look at
someone like kathy wood who's adopted
innovation slash growth as her core
investing style and over seven years her
innovation fund averaged an annual
return of 39 percent that's the average
over three times the return of the s p
500 so growth investing if done smartly
can pay off big time and there's a
couple of core things that we need to
focus on with growth investing the most
important thing is we need to work out
where is the business heading in the
future is it innovative is it disruptive
is it the next tesla changing the car
industry or will it be the type of
business that gets left behind like the
textile business in the 70s or the video
rental or newspaper business in the
2000s they got wiped out by innovation
so put your thinking cap on and try work
out what will be the disruptive
companies over the next 5 to 10 years so
some examples of industries that could
flourish in the future include
artificial intelligence automation
robotics self-driving cars elon musk
thank you blockchain companies now these
sectors could change the way business is
done in the future and a lot of growth
investors are focusing on these
particular ones these sectors but you do
need to do a bit of digging into their
financials there's no point in buying a
business that's going to be popular but
not make any money so for growth
investing revenue is a very important
figure to look at revenue is the total
income that the business is generating
we need to look at this and importantly
check that it's growing so for tesla one
of the most popular stocks we can see
that in yahoo finance that every year
they're generating more and more money
also if we look into the future under
revenue estimates we can see that the
analysts expect it to keep growing at a
strong rate of knots now the other thing
that we want to look at is return on
equity because it gives us a good idea
on how effective the business is from a
monetary standpoint so return on equity
is calculated as net income divided by
shareholders equity this shows us how
much profit we can make as a percentage
of equity we want this number to be as
high as possible and we can find return
on equity by simply scrolling under
statistics in yahoo finance scroll down
a little bit and there we have a return
of equity for tesla of 15.6 percent so
15 is not bad especially when we compare
it to their competitors which i'll show
you soon
and just a little bit up is profit
margins another metric to help us get a
feel for the business and its
effectiveness and as we can see tesla's
is 7.4 percent
so that means for every a hundred
dollars in revenue that tesla generates
7.40 will be the profits now it can be
hard to tell if these numbers are good
or not but as with everything we have to
compare it to other companies in order
to get a feel for things so tesla's
competitors include neo which has a
negative 30 profit margin and a negative
47 return on equity
ford a 2.1 profit margin and a 8.1
percent return on equity volkswagen 7.2
in profit margin and a negative 14
return on equity and nikola another
competitor which has a zero percent
profit margin and a minus 75 return on
equity so tesla actually beats all of
these competitors with these two metrics
elon musk is a very smart man i guess we
can just say that another thing that
many growth investors like to do i don't
particularly like it but that is looking
at the past price of a stock and see if
it's trending upwards so it's pretty
easy to see this we just type in tesla
stock and google go back five years and
we can see that every year it seems to
be trending upwards by quite a bit and
this is no guarantee that in the future
that the stock will only head up but
some people like that positive forward
momentum some examples of growth slash
innovation stocks to start looking into
can include coinbase a cryptocurrency
exchange platform and that's if you want
to build into the blockchain sector
without buying individual
cryptocurrencies intelligent
therapeutics are an exciting company
that are into genome editing looking to
cure diseases then we've got pounds here
a company that uses software to
integrate data to improve business
decisions so this is an exciting company
founded by peter thiel who also
co-founded paypal and was the first
outside investor into facebook so he's
got a proven track record and then even
tesla the electric car company that's a
growth stock but tesla is so big now its
market cap is 1.1 trillion so that means
it has less growth potential on the
upside you rarely want to buy the stocks
before they get overly hyped up where
they're just starting to gain momentum
and they're getting talked about on
smaller platforms like reddit forums or
certain discord groups that's when you
want to buy generally not when every big
media outlet is talking about them so if
you buy earlier that's where you make
the big 10 20 even 100x type returns
okay passive investing in an index fund
is the way to go if you don't want to
spend time researching and analyzing
different stocks the interesting thing
about index investing is it actually
beats most other returns that big hedge
funds gets it sounds untrue but it is
actually true so this is why you have
people like warren buffett recommending
it to most investors so an index fund is
simply a basket of stocks that tracks a
specific group of the market okay for
example the s p 500 index fund is a
group of 500 large stocks that tracks
the american stock market the vanguard
information technology fund has more
than 300 u.s technology stocks tracking
the tech side of the market then we got
the vanguard dividend appreciation fund
tracks a group of 247 companies that
have increased their dividend for long
periods of time so you can see that you
can buy index funds aka a group of
stocks that tracks most areas of the
market depending on what you want to
invest into and it sounds weird and it
almost sounds too easy like what's the
catch but sometimes when it comes to
investing less is more
i would say that
among the various propositions offered
you a very low cost index fund
where you don't put all your money in at
one time i mean if if if you accumulate
a
a low cost index fund over 10 years
with fairly regular sums i think you
will probably do better than
ninety percent of the people around you
that take up investing at a similar time
so to buy an index fund you simply enter
the ticker symbol of the fund you want
on your brokerage accounts whether that
be a world market index fund a chinese
one don't know why you do china just
kidding a real estate one a healthcare
one think of the sectors of the market
that you want to be invested in and go
from there
and the important thing is not to wait
around too much okay do your upfront
research make sure you have a good
understanding of the basics but you
don't need to be warren buffett before
you start investing dip your feet in by
buying your first stock remember stocks
are not too expensive ford stock is 20
apple 180 coca-cola 60
get in the game with a small amount of
money and then learn as you go the worst
thing you can do is wait lose the
motivation to invest and then not invest
at all
one question that we may ask is look how
high stock market prices are right now
we've essentially been on a 13-year bull
market run and prices have just kept
going up is there any tactic we should
have for this isn't there going to be a
crash
so with investing we need to be looking
long term it's something that i learned
from warren buffett we must think in
five ten years time is the market going
to be higher or lower it's going to be
higher because stocks aka businesses
continue to produce and earnings
continue to increase so even if we buy
now and god forbid there is a crash
that crash at some points will rebound
the key is that when it crashes we don't
panic and sell and we do what buffer
does if it crashes
buy more stocks because that's when
stocks are cheaper that's where there's
even more profit to be made also if you
buy good quality stocks that are
producing income adding value to their
customers innovating you're going to
make money even if the market has its
dips if you invest smartly you don't
need to fare a crash
so pick which investing style you want
to take up going forward learn all you
can about that style actually learn all
investing styles and take what you can
away from each different style start
dipping your feet into a couple of
stocks make some mistakes it's okay you
will make mistakes and slowly slowly
start to master the art of investing and
at some points you'll be able to retire
off of your portfolio that's the goal
with investing and i wish you guys the
best of luck with your journey in the
stock market