hey everybody welcome back to whiteboard
finance my name is marco and i'm here to
help you
master your money and build your wealth
in today's video i'm going to teach you
how to invest in stocks for beginners
step by step
so this video is basically going to be a
course or a mini course in and of itself
so i highly recommend that you watch it
from beginning to end
whether you're a beginner or even an
intermediate trader or a stock investor
you're going to find nuggets of
information all throughout this video
if you're not a fan of this kind of
setup or if you like the whiteboard
better
the reason i'm doing it this way is
because this is going to be a powerpoint
presentation
mixed with live trading mixed with me
actually handwriting some stuff on this
tablet here
so that's an easier way to teach you
just that way you can see it live and
it'll be easier to connect the dots
so let's get right into it so this
presentation here
i created obviously it's presented by me
and if you don't know who i am
uh here's you know some quick
credibility points on me
i've been investing in the stock market
for 15 years now i started when i was 18
years old i'm 33 at the time of this
recording which is pretty crazy how time
flies
um but i started with a trade king
account so tradeking was acquired by
ally
and i've actually advanced to you know
vanguard td ameritrade
m1 finance robin hood weeble there's a
million different brokerages that i have
my money on
uh the reason for that is because i
actually review brokerages for both my
blog and also for this channel
so i like to have my money in a lot of
different places
i actually have a finance degree and an
entrepreneurship degree as well
i graduated in december of 2010 uh
literally 10 years ago to the date which
is pretty crazy
starting to feel old and i've actually
worked in finance and commercial
real estate a majority of my career so i
worked at a publicly traded bank as a
credit analyst so basically doing what i
do
with the stock information or these
balance sheets and ratios that i'm going
to teach you about
i actually did that as a job so key bank
is a publicly traded bank
i worked at markson mill chap on the
commercial lending side they're a
publicly traded real estate
advisory services firm and i also worked
for a real estate developer for many
years
i've built homes that's actually a
duplex that i built from the ground up
and i've done a lot of stuff in real
estate and then finally i've been
providing free value on youtube since
november of 2017.
at the time this recording i think i
have somewhere around 465
000 subscribers so just some
housekeeping before we get started we're
going to get into the presentation but
there's a lot of value in this slide so
please pay attention
i'm going to make this presentation
downloadable
after i upload it and have a link and
then that way you can actually download
this entire
powerpoint presentation that way you can
keep it shared do whatever you want with
it
there are some offers with free stocks
using the links below at the time of
this recording
robin hood which is the broker that i
will be giving you examples on
of actually buying and selling a stock
on there they're actually giving out a
free stock
weeble is and then m1 finance as well i
also do have a free training available
in the description below for m1 finance
and then finally whiteboard finance
university that's going to be my
university
which is essentially going to take you
from finance 101 being somewhat
financially illiterate
all the way to finance 401 which is
basically a master's degree in
finance if you will so complete
financial literacy under
understanding how to master your money
and build your wealth over time
so with that being said let's get right
into it so why should you invest in the
stock market so it's clearly been one of
the best tools to grow wealth
over time throughout human history the
market has averaged roughly a 10 percent
annual return on investment historically
the second point is savers are losers
this is to battle inflation so everyone
knows that having assets
is better than just sitting on cash
especially in the interest rate
environment that we're living in but if
you're a beginner to the stock market or
the economy this may be a little bit
over your head
just understand that you are losing
purchasing power by not investing
it's never been cheaper to invest these
are zero dollar trades those are the
norm
zero dollar fees is the norm i remember
when i started the only reason i went
with trade king
is because they had super cheap trades i
think it was like 4.95 a trade
and this was 15 years ago so now it's
pretty much free
everywhere also there's low expense
ratios for solid investments with index
funds and etfs through vanguard and
other brokerages which we're going to
talk about later in the video
and then finally you don't have to be a
genius there are strategies that help
you grow your wealth over time which i
will talk about in this video
so let's get right into it i'm going to
give you a a little preliminary
background a little bit of analytical
background and then we're going to go
exactly into the live demo of buying our
first stock
okay but before we do that um we don't
want to put the cart before the horse
what is a stock exactly so a stock is
simply a share of
ownership in a company so think of each
share being a slice of pizza okay so
when we're buying shares this gives you
equity
aka ownership shares in a company so
let's take an example we have microsoft
okay which everyone is familiar with
they have shares outstanding
of 7.56 billion so if you think of
a pizza or a pie think of a pie divided
into 7.56 billion slices this is
essentially what their shares
outstanding are
so their share price just for easy
numbers i did
um re i did create this presentation a
few days before i actually recorded it
so some of these numbers may not be
exactly accurate but i will be showing
you a live demo on how to figure out all
this stuff
so their share price at the time of this
presentation was 216 dollars and two
cents
so you need to understand what market
cap is so market capitalization
is simply the shares outstanding that's
7.56 billion
multiplied by the share price okay so
let me give you a quick
example of that okay so just so you can
visualize this let's pretend that we
have a pizza here
and the pizza has four slices
so we have slice one two three
four okay it's almost like a pie not a
pizza pretend that this is a company
let's just say that this is microsoft
okay
these four shares that you see here are
each worth
let's say a thousand dollars thousand
dollars times four shares
uh answering down in the comments below
if you know the answer i'll give you a
second here
well that's simple math that just tells
us that this company's market cap
is four thousand dollars so going back
to market cap
that is simply the number of shares
outstanding multiplied by the share
price so if each share is worth a
thousand dollars and you have four
shares of this company
their market cap is four thousand
dollars so let's go back into the
presentation here
so now that we understand market cap you
just simply take that seven point five
six billion multiplied by the share
price of microsoft which is two hundred
and sixteen dollars and two cents
uh may be easier if i have a pointer
here and then you simply get a market
cap
of 1.633 trillion dollars
okay this is important because companies
are typically
measured by their market cap okay so
market cap changes over time because
share prices
and shares outstanding can change over
time that's like saying
hey xyz company went up in price xyz
company went down in price
that's obviously changing their market
cap as time goes on
so why do companies issue stocks well
this is simply to raise money for their
business think of it like this they are
giving out shares of their pie
their equity that's why stocks are
called equities uh in order to receive
money from the general public
in an ipo an initial public offering
that's that's basically
crowdfunding for their business if you
will so this could be used to fund a new
product line it could be used for r d
and research and development
it could be used to invest in the growth
of their company a lot of companies
themselves were doing stock buybacks
which is actually reducing
the number of shares outstanding and
then you also have
paying off debt okay so there is a
difference between preferred stock and
common stock
so preferred stock is that you have no
voting rights
common stock you do have voting rights
however you are the last in line to get
paid out in case of a liquidation so if
a company goes bankrupt
and they have to sell everything that
they own uh they may be going bankrupt
and you may not get paid out that's a
rough reality of being a common
shareholder
and then also you are the last to get
paid a dividend
and then when you're thinking of buying
a stock or the if you're a complete
newbie and you're saying like hey
i'm just buying stocks you are typically
buying common shares when you
um hear that that analogy or hear that
statement
so how are stocks categorized this is
important so
we have large cap mid cap and small cap
stocks
so if you remember we talked about
market cap in this example down here
with the different shares outstanding
that's pretty much how you capital
how you capitalize a company okay so
market cap again is just shares
outstanding by the share price
so large cap companies are typically 10
billion plus
okay these are typically hard to achieve
massive growth due to their size
so think of a huge well-established
company right these could be
your johnson johnsons or your pfizers or
these companies that have been around
for years they've pretty much reached
their peak
and now they're a huge large cap company
they have proven track records over many
years and they frequently offer
dividends that's because they want to
offer the dividend back to their
shareholders
as kind of a thank you for being a
shareholder in the company
the easiest analogy to make with that is
picture you're a landlord and you have a
single family home
you know the price of the property can
go up or down just like the share price
can go up or down
but the tenants in the property are
paying you rent every month that's kind
of what a dividend is
then you have mid-cap stocks which are 2
billion to 10 billion in market cap
they're not quite large capped they're
not quite there yet
um but they also have a more established
track record than the small cap stocks
they are also often the target of m a
okay so if you're not familiar with what
m a is
that simply stands for mergers and
acquisitions these are bigger fish that
are eating up the smaller fish
either for their staff or their
technology or making an
exit because the owner just wants to get
paid
then you have small cap stocks which are
300 million to 2 billion
in market cap these are typically
younger and are seeking aggressive
growth
and they are typically higher risk and
don't usually offer dividends
this is because they are so early on in
their journey as a company of going
public they may have a proven track
record
up until ipo or up until going public
but they may not pan out there's a lot
of these tech companies that happen
um even today that this happens to so if
we want to visualize this you can take a
look at this classic box by
morningstar i'm sure you've seen this
either in your 401k
or in your fund at work you know this
box is like your typical classic
categorization of different types of
stocks obviously this isn't
you know 100 you know granular but it
gives you an idea of how these things
are broken up
so if you look at the x-axis which is on
the bottom you can see
value blend and growth we'll talk about
those in a minute here
and then if you look at the y-axis on
the right you can see
large mid and small cap so you can have
a combination of all these things right
however um the companies typically
gravitate towards one end of the
spectrum or the other and sometimes you
have some outliers but this is a good
way to think about it
when you're looking at different
companies to invest in so
how are these stocks categorized
continued we have growth stocks we have
income stocks and we have value stocks
so growth stocks have big potential for
growth so these are typically
companies that are outpacing the market
such as amazon
facebook microsoft um they typically
offer
low or no dividends however because
they're reinvesting their retained
earnings
into the things that we talked about uh
this could be things like research and
development it could be things like
paying off debt it could be things like
um
you know trying to improve their product
or their service line or advertising or
marketing
then we have income stocks so these
could these are stocks that pay a
regular dividend payment or a regular
income payment
so think of 3m think of walmart think of
verizon
think of utilities companies okay these
are companies that have been around a
long time and have the ability on their
balance sheet to pay a dividend
so they typically have a proven track
record or business model
and they have consistent increases in
dividends over time
if you want to learn more about my own
dividend portfolio
you can click on that link once you
download this presentation
and the presentation download link will
be in the description below
and then finally we have value stocks so
value stocks are perceived to be trading
below their fundamentals
so think of something that's on sale or
that's cheap typically
as value investors we look at price to
earnings ratio or price to book ratio
and all these ratios we're going to talk
about later in the video
and then typically these are seen as
unfavorable in the marketplace that's
why they are
undervalued so think of um you know the
puppy that no one wants to take home at
the shelter but it could end up being
like you know
the greatest dog in the world or the
greatest companion in the world
that's that's kind of like my cheesy
analogy to value stocks right
a lot of people see the fleas and they
see you know the disease and the worms
and things like that on the
on the dog and they don't want to take
it home but once it gets cleaned up and
the values brought out
it could end up being your best friend
so continuing on on how stocks are
categorized we have stock sectors okay
so there are 11 broad-based sectors
these are areas of the economy in which
businesses share a product or a service
so we have energy this could be your oil
gas coal
fuel things like that we have materials
which are chemicals metals paper
industrials which is your defense your
aerospace your manufacturing so think of
like boeing or lockheed martin for
example
you have consumer discretionary this
could be apparel household products
things like that
consumer staples these are your food
your beverages uh healthcare which is
big pharma
healthcare equipment like medtronic for
example
financials are typically banks so think
of like key bank
m t bank you know wells fargo all these
big publicly traded banks
number eight is it which is internet
software semiconductors
this is a sector that has grown a lot
over the past 10
years so think of your you know teslas
your microsoft's your apples etc
and then number nine is
telecommunications services att and
verizon for example
you have utilities so these are the big
electric companies gas companies water
companies
and then you have number 11 which is
real estate which could be reits these
are real estate investment trusts
such as apartments malls office space
we'll talk about all this later in the
presentation
so now that we're understanding how
stocks are categorized we need to
understand
risk risk is the whole point of
investing this is how we're compensated
as
investors we're compensated for the
amount of risk that we take on
so what is risk risk is the chance that
your actual outcome will differ from
your expected outcome
so if i'm little jimmy and i'm starting
to invest in stocks right
and i think that tesla is going to go to
20 000 a share right and it ends up
not doing that that is the risk that i'm
taking by going into that position
so risk includes the chance of losing
some or all of your investment
so contrary to popular belief and
contrary means especially at the time of
this recording
stocks don't always go up okay there's
times when stocks do go down
and that is risk and that's what you're
being compensated for
so risk as mentioned here should be your
reward
as investors we're compensated for the
level of risk we assume
so for example if i want to invest in a
startup versus a savings account
i need to be compensated significantly
higher for the amount of risk that i'm
taking on for investing in a startup
company
which has no proven you know model or
track record versus just putting my cash
in a savings account for example which
is
fdic insured and a much safer
quote-unquote investment
so there are different types of risk
okay there's there's there's a million
different definitions in a million
different types but these seven i've
highlighted because i've come across
them many times throughout my career and
also through my education
so number one is market risk this is
basically the market as a whole so if
you look at economic developments or
other events over time
this could pose a risk to your portfolio
if you remember 2008 some of you do some
of you don't
2008 was huge systemic risk it was huge
market risk
that crushed everyone's portfolio in
almost every product type all across the
board
of course i'm generalizing but i'm just
trying to prove a point here with market
risk
number two is liquidity risk so this is
the the fact that hey
i can't sell this investment it's not
liquid uh say you own a huge warehouse
in the middle of nowhere in the middle
of a corn field for example
um you know that that warehouse may
produce an income it may be worth
something intrinsically
but what if you want to go sell that
warehouse how many buyers do you want to
buy a warehouse in the middle of a corn
field
that comes down to liquidity risk can
you sell this asset
quickly number three is concentration
risk you have too many eggs in one
basket meaning that you have way
too many stocks that are similar or you
know you have all your money just in one
stock that kind of a thing
this is your your capital is
concentrated so much that it's become a
risk meaning that you have too many eggs
in one basket
number four is credit risk this this
means that the entity can't repay
so the company that you're investing in
for example um you know they can't pay
off their credit and which causes them
to liquidate certain things or causes
them to go out of business
okay this also applies in bonds which
i'm not going to get into in this video
you have inflation risk which is the
loss of purchasing power i alluded to
this earlier in the
in the video if you've been following my
channel for a while now i've been making
multiple savers or losers videos over
time
this is basically talking about if
inflation becomes
too low or if inflation becomes too high
you are literally losing purchasing
power okay
so say for example you have uh three
percent you're making three percent in a
savings account online which is
laughable at the time this recording i'm
just using this for an example
um and then the cost of everything else
is going up five percent
you're actually losing two percent a
year in purchasing power
okay so think about that number six is
horizon risk this is your uh
investment time frame if it changes over
time okay
so say for example uh you're originally
planning on getting into an investment
um and being in it for 10 years however
you got
sick and you have no other money so you
had to sell part of that investment
after only a year because you needed to
fund your medical bills for example
that's just a quick example
that people can relate to so your time
horizon if it changes
time horizon is a risk if you think it's
going to take 10 years for an investment
to pan out or one year for an investment
to pan out
and that changes again that is horizon
risk
number seven is foreign investment risk
so this applies to foreign investments
so say for example i want to invest in
you know the hottest new startup in
north korea for example
and that that startup just gets crushed
or whatever it just gets put out of
business instantly by the government for
whatever reason
that is the foreign investment risk that
i'm taking on by investing into that
area or that country
okay so moving on what are the types of
stocks or equities or what are we even
buying here
so number one is individual stocks so
when you think of individual stocks this
goes back to common
shares or common stock that i talked
about so when you're saying hey you know
i'm buying a share of tesla i'm buying a
share of microsoft i'm buying a share of
apple
these are individual stocks okay number
two
is mutual funds i'm not going to explain
that here because i'm going to go into
each one of these in detail
number three is index funds number four
are exchange traded funds or etfs i'm
sure you've heard of that acronym
especially if you've watched my channel
and then finally you have reits which
are real estate investment trusts
so individual stocks this is as i
mentioned these are your walmarts your
netflix's your exxon mobiles etc etc
these are individual companies or
individual shares in individual
companies
some of the pros are that they have
reduced or no fees to buy or maintain
these
there's no management fee to own them
meaning you're not paying a professional
manager
to buy or sell these shares and you're
also not paying anyone
to actually manage this investment for
you you are the owner of these shares
you have complete control and
understanding hopefully
of what you own because you're
researching you're doing your due
diligence you're watching this video and
sharing it with a friend
and you're understanding completely what
you're doing when you invest in these
companies
and then finally the pro the last pro is
that taxes are pretty easy to manage
i'm going to talk about this in the last
slide but you have capital gains and
capital losses
the cons to owning stocks are that
they're hard to diversify
so if you're investing in one individual
company you're exposing yourself to
concentration risk as we talked about
so you're going to need 20 to 100
different shares of stocks
not shares excuse me different companies
to achieve
adequate diversification this takes more
effort or time to monitor your portfolio
because you're always looking at
rebalancing which we'll talk about
and then you're also doing your due
diligence you're reading 10ks you're
reading you know different financial
reports which we'll talk about in this
video as well
you're doing all this stuff burning the
midnight oil trying to find that one gem
that seems to be underpriced or
undervalued or is a value stock which we
talked about
so this takes a lot of time and effort
and then finally uh
fomo and emotions so fomo stands for
fear of missing out
so when you're in the rec center locker
room and all these guys are saying oh
man i bought tesla when it was 100 bucks
now it's a million bucks
you start to get that fomo and you want
to buy in at a million bucks
because everyone else bought in is
making money right so let's go into
mutual funds so mutual funds are simply
pools of money from the public to buy
securities or
assets or equities so the pros of this
is that they're extremely liquid they
don't have that liquidity risk when we
talked about that warehouse in the
middle of a corn field
these are very easy to buy and sell and
partake in they're very diverse because
they invest in a lot of different things
typically
most mutual funds typically have
professional management whether this is
active meaning that there's an actual
portfolio manager or a human being and a
team of human beings managing this
versus passive which we'll talk about in
the next slide
there's a lot of options you have
balance mutual funds you have fixed
income you have money markets you have
income producing mutual funds so there's
a lot to choose from
some of the cons are that these have
higher fees especially if they're
actively managed
most mutual funds are not fdic insured
meaning
that if you're familiar with going to
your bank and having your savings
account insured up to 200 or 250 000
at the time of this recording mutual
funds don't offer that coverage or that
benefit
okay then finally they have large cash
holdings
which means that they have to keep a lot
of their money
uh in cash which we all know at the time
this recording savers are losers and
cash is trash
if you don't understand that i suggest
you sign up for my school
uh it'll all become more clear or watch
the videos that i've done on that
and then finally it's hard to evaluate
to make an apple samples comparison from
one mutual fund to the next
okay so moving on with index funds this
is a basket of stocks to mimic a certain
market index
so if you're familiar with the s p 500
or the nasdaq for example these are all
indices that are able to be tracked by
index funds some of the pros are that
they have low fees
actually extremely low fees especially
if it's passively managed
the studies have shown that these have
typically outperformed active management
over time which is pretty crazy to think
about
which actually makes them extremely easy
to own manage
invest in and achieve your goals over
time
some of the cons are that you don't have
any of the control over the holdings
you're not picking individual stocks
you're basically just accepting what
that manager or that passive
fund is giving you you have a lack of
downside protection meaning that if
stocks take a plunge
this isn't a hedge fund meaning you're
not hedged to help
prevent any downside okay so if you
looked at etfs or index funds after 2008
you know they got hit almost just as
hard as individual stocks
and then they lack different strategies
okay which we'll get into later so
moving on to etfs
etfs are simply a basket of stocks again
to mimic a
certain market sector that trade on an
exchange so some of the pros to this is
that you have access to many stocks
so if you think of an etf think of one
share just like you would buy one share
in
apple for example except that one share
contains
hundreds if not thousands of different
companies or stocks
weighted up to a hundred percent so
one share is buying you a basket of
stocks with an etf
so they have extremely low expense
ratios again because they're either
passively or actively managed which
actually passes the savings on down to
you
if you don't i should have clarified if
you don't know what expense ratio is it
is simply a percentage or an annual fee
to pay whatever fund you're using so if
i'm using a vanguard
etf i'm paying them an expense ratio of
let's say
point zero five percent okay so
five basis points meaning five uh
fractions of a percent if you will
so they're easy to own they're easy to
manage they're easy to invest in
and they're easy to achieve your goals
with just like index funds
however some of the actively managed
etfs have higher fees
they also have a lack of downside
protection because it's not a hedge
fund again and then diversification is
limited by focusing simply on one
industry if that is the case so to round
this out we have reits which again are
real estate investment trusts
this is a company that owns operates or
finances
income producing real estate so the pros
of this is that
the uh you actually have access to a
historically unaccessible asset class
this used to be for the you know the
rich people bourgeoisie super wealthy
you know
peasants that were middle class and
lower class you know what business do we
have investing in commercial real estate
right
well reits have actually allowed these
companies to go public and make them
very liquid
and actually give the masses access
to their balance sheets if you will so
you get stable cash flow through
dividends because reits have to pay out
90
of the income they produce and
historically commercial real estate has
been a sound
asset class i worked in commercial real
estate for many years
it's definitely a wealthy person's game
at least on the physical side
but again with these reits you are
partaking in actual physical real estate
some of the cons are that the dividends
are taxed as regular income they're
subject to market risk so if you look at
the economy downturn
in 2008 a lot of commercial real estate
got absolutely crushed i know a lot of
people personally that went bankrupt
a lot of people that you know drank
themselves to death but i'm not i'm not
going to get into that
especially in this video but it is what
it is maybe may be in a smoke-filled
room we can talk about that but probably
not
because i ain't no snitch so cons
you can have high management fees okay
so with these come
a lot of high management fees that
sometimes these owner operators
may end up paying themselves so uh let's
talk about how to evaluate a company so
now that we know
um you know what to buy in what a stock
is common shares preferred shares all
that good stuff
let's talk about how to actually
evaluate these things are we sitting
there like
um like some random investor that's just
kind of like picking stocks on a
dartboard you know blindfolded
or are we someone that's actually doing
our due diligence and actually breaking
these things down and finding out what
they're worth
so we're going to talk about how to
evaluate a company right now
so there's financial ratios when buying
stocks i'm sure you've all heard of like
p e ratio or
price to book ratio or things like that
but where do these numbers come from
okay where are we actually coming up
with these numbers so they come from
three different sheets or three
different financial statements excuse me
so you have your balance sheet which is
a snapshot of your financials so think
of someone taking a snapshot of a
picture in time
this is defined as assets equal
liabilities plus shareholders equity
that is a picture of your balance sheet
next you have your income statement
which shows your revenues and expenses
during a specific period
so you typically have your net income
equals total revenue plus
any gains that you have minus your total
expenses plus
losses for that period and then number
three is a cash flow statement this is
talking about the cash inflow and the
cash outflow of a business
so number one is operations these are
your business activities number two is
investing
this could be pp e which is property
plant and equipment or capex which is
capital expenditures
and then number three is your financing
so you have cash flow between your
business and your creditors which is
shown on a company's 10k
so let's dig into the five different
financial ratios when buying stocks okay
so this is there's more um but it boils
down to basically these five you have
valuation ratios you have profitability
ratios you have liquidity ratios
you have debt ratios which are talking
about solvency like how
are you as a company financially
health-wise do you have the ability to
pay your debts
and then number five is efficiency so if
we look at a price to earnings ratio
this is a p
e ratio i'm sure you've all heard of
this if you've been investing for any
amount of time
this is what we call a valuation ratio a
p e ratio is simply a company's share
price to its earnings per share
so this is showing the relative value of
a company's shares
apples to apples okay so the formula for
this
is market value per share divided by
earnings per share
so let's take a look at a live example
right now of microsoft
okay so this is finvis.com if you've
never used finvis before it's a great
website for visualizing value
and analytics they even have a nice
little heat map right here so you can
see exactly what the market is doing
uh green being you know gains red being
losses
however that's besides the point i've
been using this since college actually
which is crazy it makes me feel old
um but anyway uh you can see here the
chart of microsoft
uh this right now is showing a candle
chart uh which i'm going which
is beyond the scope of this video
because this gets in into technical
analysis
but basically you can see that the chart
is from april to december
and you can change the time frame you
can change it to weekly monthly
but this isn't really what finn biz is
designed for what it's designed for
is to give you quick easy metrics and a
way to actually
select criteria that way you can invest
in stocks that you're interested in
based on your criteria
so remember if we go back to our
definition of p e ratio
it is simply the market value per share
divided by earnings per share
so this these numbers aren't 100 up to
date so they may be off just a little
bit but it's important for you to see
how this is calculated
so if i know if i'm looking at microsoft
right now in robinhood
i can see that the price of one share is
225 dollars and 56 cents
uh so if i go back to finviz i can see
that their earnings per share right here
for the last 12 months that's what ttm
stands for trailing 12 months
is 6.2 okay so if i want to figure this
out
i would simply go to this calculator i
would type in
this the share price remember our
formula
its price per share divided by
earnings per share which is 6.2 so if i
go back to the calculator put in
6.2 we should get something close to 35.
so we get 36.38 okay so you know how i
know that because the pe ratio the
answer is right here it's 35.94
so we aren't necessarily wrong it's just
that these are using
you know outdated numbers to come up
with this p e ratio
so our number is correct we simply took
the share price right here
divided by the earnings per share giving
us 36.38
so that is how we figure out uh price to
earnings ratio
so if we go back to the presentation
here a healthy p
e ratio typically historically and
there's a lot of there's a lot of
background to this comment but basically
historically before
you know low interest rates money
printing all that good stuff
a healthy p e ratio to value investors
was typically 15 or lower
so we can see at a valuation of the p e
ratio of 36
microsoft seems to be a little bit
overpriced because we're that's what
we're paying
in terms of the price to its earnings
per share
okay so the the price of the stock
divided by
its earnings per share of that stock
that's what helps us get that apples to
apples comparison
okay so the next ratio we're going to
take a look at is the peg ratio the peg
ratio is simply a valuation metric that
takes the company's share price
to its earnings per share growth okay so
this gives us the relative value of a
company's stock value
factoring in growth so if we look at the
formula the formula should be
the price divided by the earnings per
share which we know both those things we
just calculated that for p e ratio
divided by earnings per share growth so
the earnings per share growth is an
estimate
so if you take a look at finvis right
here we typically use
the next five years for the long term
annual growth estimate that
analysts predict and we can see here
that it's 14.55
so if i want to show you guys how to do
this uh let me write this down
so remember that our formula is simply
the share price
so let's just use 225.50 for easy
numbers
divided by the earnings per share
remember this was 6.2
in our last example and i'll show you
right here again
uh you can basically see in the top
right earnings per share is 6.2
and then we're going to have the
earnings per share growth which was
14.55 percent so this should get us a
number
uh close if you take a look at the peg
ratio the answer is right here
2.47 if we put this all into the
calculator right here
we can use 225.5
divided by 6.2
that gives us 36.37 which was our p e
ratio
divided by 14.55
that gives us 2.49 so we were close
enough remember these numbers are not
updated so we're going to look
wrong even though we're not um so that's
peg ratio that was
pretty simple you guys so moving forward
i'm going to give you some more ratios
i'm not going to go through each one but
i will show you the answers on
finviz and that way we can actually
glean some information on microsoft
using this
so the next one is the price to book
ratio this is also a valuation ratio the
price to book ratio is a company's
market cap to its book
value so this compares the cost of a
stock to the value of its equity
if the company was sold today so this is
basically the stock to assets value
so the formula for this is the market
price per share divided by book value
per share
book value is simply total assets minus
total liabilities divided by shares
outstanding
and we're shooting for a healthy pb
ratio of three or lower
okay so if i go to finvis we can see
here
that the pb ratio is 13.66
so this basically means that the stock
is trading
13.6 times what the microsoft's total
assets are if that makes sense or the
book value of its assets so that's
really really high
okay so the next metric is return on
assets uh return on assets is a
profitability ratio
return on assets basically shows you how
profitable a company is compared to its
assets
so it gives an investor an idea as to
how efficient a company's management is
basically running
uh the assets to generate earnings it
basically
says like hey you know what have you
done for me based on what i've given you
did i give you lemons did you make
lemonade that kind of a thing
so the formula is net income divided by
total assets and i'll give you a live
example here i'm not going to do the
math but i'll show you on finviz
you can see right in the middle of the
screen in the middle column the roa is
16.2 percent which is very good
uh the other thing i like about finvis
is it kind of highlights the green and
the red
meaning that if the ratio is black it's
kind of neutral if it's green it's good
if it's red it's bad
so if we go back to this you can see
here at the bottom i made a note that a
healthy roa ratio
or a healthy roa is five percent or
higher and if we look at this we can see
that robin
or excuse me microsoft is 16.2 percent
uh the reason i have an asterisk after
all these healthy ratios is because this
is all subjective
uh you know these ratios are completely
dependent on the type of company the
type of business
uh is it a small cap medium cap large
cap is it a high flying tech stock is it
a conservative income
or value stock that's why this is all
subjective
typically these numbers come from value
investing historically
but you can see here that it's all
subjective so the next ratio is return
on equity this is another profitability
ratio return on equity is simply a
measure of how efficient a company is at
generating profits
so this gives an investor an idea as to
the profitability of a company in
relation to its stockholders equity
so the formula here is simply net income
divided by total assets
so if we look at this you can see that
microsoft's roe
is 40.7 percent which is crazy high
a healthy roe ratio is subjective by
industry as i just mentioned
but we can see here that that to me is
very very good
this says that the income that they're
producing divided by their assets
is very high okay so the next ratio is
the current ratio this is a liquidity
ratio
meaning that how easy can this company
take their assets
and liquidate them to pay off or satisfy
debt or payables so the current ratio
measures the ability to pay short-term
obligations or those due within one year
and this basically gives an investor an
idea how a company can maximize those
current assets on its balance sheet as i
just mentioned
to satisfy debt and payables so the
formula for this is current assets
divided by current liabilities
so if we take a look at microsoft you
can see that their quick ratio is right
around two and a half
so two and a half is okay what you're
typically looking for is anywhere from
like
you know just over one to about two that
means that you have the ability to
liquidate very quickly and that your
current assets
are greater than your current
liabilities so if we look at the quick
ratio this is another liquidity ratio
which gives a measure of a company's
capacity to pay its current liabilities
without needing to sell inventory or get
more financing this is obviously
considered more conservative because
this is taking into account
if you look at the formula here uh cash
plus marketable securities plus accounts
receivable
divided by those current liabilities so
if we go back to microsoft
their quick ratio is 2.5 as well
ideal is somewhere one to one which
basically means that
you have just as much cash as you do
liabilities meaning that
um going back to the theme of kind of
like cash is trash you're not just
sitting on a bunch of cash being
deteriorated by
um purchasing power going down it's
basically just a one-to-one ratio at
that point and you're utilizing your
funds appropriately
so if we go to debt to equity this is a
debt to solvency or debt
solvency ratio basically this is a
measure of a company's financial
leverage
so a measure of the degree that a
company is financing its operations
through debt versus wholly owned funds
this basically means that you can do
this for your own personal finances if
you want
it's basically taking your total
liabilities divided by total
shareholders equity
so i'll give you an example right now so
if we look at this formula right here
debt to equity is basically a ratio that
measures that company's financial
leverage
so you take the debt that you have
divided by the equity so if we take a
look at these two companies
we have company one which has a debt to
equity ratio of five
because they have a hundred thousand
dollars in business loans and they only
have twenty thousand dollars in retained
earnings uh
company two uh they have a 0.5 debt to
equity ratio meaning that
they have fifty thousand dollars in
business loans in this example
divided by a hundred thousand dollars of
retained earnings this means that they
are a low-risk company and a better
investment so the next ratio is an
efficiency ratio this is asset turnover
so asset turnover ratio is basically the
measure of a company's ability to use
its assets to generate
sales or revenue so what this tells us
is the degree that a company is
financing its operations through debt
versus wholly owned funds meaning its
own
assets so the formula makes sense so
take a look at this it's total sales
divided by the beginning assets plus the
ending assets
divided by two the denominators divided
by two i'll show you that here
so if you take a look at these companies
you have four publicly traded companies
walmart target at t and verizon if you
look at the
y axis on the left you have beginning
assets ending assets
average total assets their revenue and
then their asset turnover ratio
so you can see that walmart is 2.3
target is 1.79 a t is 0.41
and verizon is 0.52 so if you go back to
this slide
again this is showing us the measure of
a company's ability to use its asset to
generate
sales and revenue so a healthy pb ratio
or excuse me asset turnover ratio that's
a typo down there on the bottom
the higher number is preferable so we
can see here that amazon is utilizing
their assets
in order to create more sales if that
makes sense okay the moment you've all
been waiting for and some of you
probably skipped to this section you
probably skipped the analysis you
skipped the ratios you're like that
stuff's boring i want to buy stocks baby
stocks only go up let's get rich right
well stocks do go down as we talked
about in the risk section however i'm
going to be buying a stock right now
together
so we're going to be using robinhood and
if you download this presentation or
click on the link below and actually
sign up for robinhood
you get a free stock at the time of this
recording so this is not a sponsored
video or anything like that i actually
have
uh my money in robin hood as one of my
brokerage accounts
however the reason i'm choosing
robinhood is because
if you truly are a beginner and from a
beginner's standpoint
it is one of the easiest ways to get a
full grasp of what's actually going on
which we're gonna go into
live right now so this is my robinhood
account you can see here that right now
i have
uh 29 500 worth of
equities and cash a combination of both
keep in mind this is one of my many
brokerages i use this to
basically learn more about robinhood
myself and that way i can provide
you know critiques i can provide
criticism i can provide you know pros
and cons that kind of a thing in the
reviews that i do
so let's continue the theme of using
microsoft so this is an
individual stock remember we talked
about stocks etfs things like that
we are kind of getting close to the end
of the trading day here at the time this
recording so i'm going to try and
squeeze this in very
quickly so this is a chart okay this is
not the most technical chart in the
world but basically you can see here
that if i choose to expand this
i can get into something a little bit
more technical but that's not the point
of this video i'm actually going to use
this just to kind of prove my point here
so right now we're looking at a one day
chart of microsoft so this means that
anything that's going on from the
beginning of trading which is monday
through friday
9 a.m eastern standard time all the way
to the end of the day which we're not
at yet just yet it's 3 48 at the time of
this recording
so you can see that it went up and down
up and down but it stayed somewhere
right around
let's call it 225 dollars per share as
we've been using in our example
so you can actually zoom out you can go
to a one-week chart you can go to a
one-month chart you can go to a
three-month chart
you can go to a one-year chart or a
five-year chart um
most charts or most brokerages will
actually let you go to all-time
meaning that from when the company ipo'd
which was the initial public offering
all the way until current time so if you
can see here in the past five years if
you invested in robinhood
you would be up a whopping 306 percent
okay so that means that you basically
started january 1st 2016 when it was
valued at 55.48 cents per share
five years later you basically went up
to um
169 per share which gets you at 225 per
share which is a crazy return
now imagine if you did this over many
years compounding on the
dividends that microsoft offers so what
we're going to show you here is
how to actually buy a stock so if you
look at the top right corner up here
you have buy and sell and it gives you
the ticker symbol of msft
so if i go to buy microsoft i can either
invest a dollar amount or a shares
amount
so there's different schools of thoughts
on this now with fractional shares
you can actually invest any amount of
money and it will let you buy a fraction
of this 225 dollars and 18 cents or this
fraction of the share price
that is called fractional shares so to
give you an example if i wanted to buy
one share of microsoft it would cost me
this right here
225 dollars and 13 cents so
how do we arrive at this price how does
this price even come into existence well
let me explain here
remember that this is a market okay we
have a bid
and an ask so if you look at if you
click on the question mark here or click
on market price
this will open up this window right here
you can see
what the last sale of microsoft was it
was at 225 dollars and 14 cents
there's always going to be a bid and
there's always going to be an
ask the bid is what bidders are willing
to pay for microsoft or one share of
microsoft
the ask is what people are asking for
the sellers of it so remember
buyer seller it's a marketplace you have
to come somewhere in the middle and come
to an agreement okay
um so people can unload their shares for
less or for more but you may or may not
have buyers
and at that point the market isn't
efficient so um but that's a topic for a
whole another
you know video or course if you will but
if i wanted to buy let's call it 1.5
shares
you can see here that my estimated cost
is going to go up
the cool thing is is that you can go out
to
a bunch of different decimal places as
long as it lets you buy it i wouldn't
recommend going out too too far
however if you wanted to do a dollar
amount it makes it much easier
say for example you're a beginner and
you're just getting started and you
deposited let's say a hundred dollars
right and you wanted to buy that hundred
dollars worth of microsoft
well at this point it'll let you go out
to one
two three four five six decimal places
and actually allow you to buy 0.444 207
for example
shares of microsoft so in this example
let's do a dollar trade just because i
don't feel like buying a whole share of
microsoft
let's buy 50 dollars worth of microsoft
so if i click on review order the nice
thing about robinhood is that they're
actually going to explain to you exactly
what's happening
so it's saying that you are placing a
good four day market order which i'll
explain in a second here
to buy fifty dollars of microsoft based
on the current market price of two
hundred twenty five dollars and five
cents
you'll receive a plot approximately x
amount of shares your order will be
executed at the best price available
now this is what we call a market order
okay
so if i wanted to edit this actually
let's let's just do this let me buy 50
that way i can explain this and we'll
end this note here
so i'm going to click buy and it's going
to ask me to put in my password and a
bunch of stuff which i'll do
right now okay so i just put in my
password and you can see here the amount
i invested was fifty dollars
i purchased point two two two zero three
four shares at an average price per
share at 225.19
okay so we can see here if i compare my
average share price 225.19
to the current share price of microsoft
i'm actually down
uh whatever that is in cents you know
multiplied by
0.222 so without this getting any more
confusing
um the cool thing about robinhood is
that if i actually go to buy this in
shares
let's say i click on i want to buy one
share
you can then review this order however
what i recommend doing is clicking this
little carrot right up here
and changing the order you can change it
to a limit order
or either a recurring order since this
video is for beginners
i don't recommend playing with stop loss
or stop limit or trailing stop that's a
different conversation for a different
day
however the difference between these
orders i'll explain right now
so when i bought that 50 worth of
microsoft that was a market order
i basically said hey whatever the market
price is or whatever the shares are of
this stock
i wanted to fill right away and i wanted
to execute right away
i don't care if it's you know 225 or 235
dollars for example
that is a market order these are going
to be executed almost right away
as long as there is a buyer and a seller
okay
what i recommend for newbies or for
people that you know have a certain
dollar amount in mind
um is a limit order so what a limit
order is
is basically putting in a price you can
see here there's a limit price
i know that it's trading for 225 dollars
but say that i know that there's going
to be some you know
bad news or there's going to be you know
something that drives the price down
and i don't want to buy it right now at
225.13
i want to buy it when it goes to 224
30 for example so if i put this order in
i can pick how many shares i want let's
just pick one share for example
and i'm going to make this good for the
day okay so up until the end of trading
today
this will basically execute you can
change this until good until cancelled
so this order it'll give you 90 days to
expire
but either way it will not strike this
will not happen
until my limit price is reached okay so
since i don't want to buy another share
of microsoft at this price
let's just make this a ridiculous number
just for um
for example for this video we're at 198
dollars
it's definitely not going to reach that
by the end of the day today i can
guarantee you that
so we can either do good for end of the
day or good till canceled let's do good
for the end of the day you can also
check to allow this order to execute
during extended hours which means any
time after 4
30 pm that's the trading time eastern
standard time but we don't care about
that
so now i'm going to hit review order and
this will explain to you you're placing
a good for day limit order to buy one
share of microsoft
the order is pending meaning that it's
not going to execute until it reaches
your limit which is 198.
so if you're a beginner the whole reason
i'm telling you all this is because
if you are if you don't want to get into
a certain stock right away or if you
want to get into it at a lower price
or if you don't if you want to hedge the
market price
meaning that hey say it's at 224.97
but it jumps up to 227 for whatever
reason
at least you know you're going to get
the stock at your limit price this is
almost buying at a guaranteed amount
as long as there is a buyer and a seller
make sense
okay so now that we've actually bought
microsoft let's teach you how to sell
so selling is very simple it's the same
exact process
remember you have a market order or a
limit order
these stop losses and stop limits and
trailing stops they actually become very
handy
but again that's outside the scope of
this video so if i want to do a market
order
that means that i'm going to sell my
microsoft at whatever the market price
is
right now it's showing that it's 225
dollars and four cents
if i'm not happy with that what would i
do that's a quiz to my audience if
you're still with me at this point i
know it's a long video but it's
important
i would set up a limit order so i know
that hey
i know that i want to get rid of my
microsoft shares for 227
a share and i'm going to sell i don't
know let's call it
five shares actually i don't own five
shares let's just use one i actually own
a couple here i have two point
you can see down here i have 2.38 shares
available of microsoft
so if i wanted to do this i can set it
up for a good till day or good till
canceled
this is this gives it basically 90 days
and i can also allow this to execute
during extended hours
since i don't want to do that i'm going
to sell microsoft
at a market order
and it's going to be in dollars i'm just
going to sell
50 worth remember that's the amount that
we basically bought
i bought at a higher price than this i'm
going to take a very small loss i'm
going to take an l for the audience
so hopefully you're with me here but i'm
going to click review order
and sell okay so since the market is
actually closed at the time this
recording it won't let me sell and i
don't want to get into
after hours by selling a whole share
that is basically the process so i know
that was very anti-climactic but you
guys get the idea based on the buy
order so those are the two different
ways with market orders
and limit orders to buy stocks what i
would recommend again if you're a
beginner
all you do is click on the carrot do a
limit order figure out the price you
want to pay
multiplied by the shares that you want
and then you can set it for good for day
or good for cancelled
if you want to do a market order you can
do the same thing in dollars orange
shares
and that's how much stock you will
actually buy okay so now let's get into
the rest of the presentation
so there are ramifications and taxable
events when you do
buy and sell stocks so we tried to sell
that microsoft stock but we took a big l
in terms of presentation quality we
weren't actually able to do it because
it was 4 p.m
over here but basically there are two
different things
that happen when you buy and sell stocks
so you can buy
and sell a stock for a gain you can buy
and sell a stock for a loss
so number one here is explaining a
capital gain so a capital gain is simply
when you sold
for greater than what you bought it for
so say you bought it for a hundred
dollars
you sold it for a hundred and ten
dollars that is a capital gain of ten
dollars
let's take a look at a capital loss this
is simply the same thing just in reverse
you sold it for less than what you
bought it for you took a loss
so say for example you bought microsoft
worth a hundred ten dollars you sold it
for a hundred dollars
this is a capital loss of ten dollars so
what happens here is with a short term
capital gain or loss
this means that you did this within one
year you did it within a one year time
frame so you held that microsoft stock
you bought it and sold it within one
calendar year
this counts as regular taxable income so
your tax brackets can be anywhere
depending on your income
but that is the percentage you will pay
on that capital gain
okay same thing with a long-term capital
gain or
loss this is the same thing as the
short-term capital gain
except that you held this equity or you
made this transaction
longer than one year you held it for
longer than one year
so with this being said with a capital
gain this is taxed
differently and typically more favorably
depending on your income tax bracket
uh it could be anywhere from 0 15 or 25
dependent on you know your filing status
and your income
so that pretty much concludes the entire
presentation i just wanted to give you a
quick reminder about the free gifts and
the added value in this video
so now that we know how to kind of
analyze stocks we know how to look at
some metrics some ratios how to read the
balance sheet
uh cash flow income statement things
like that i know i didn't go into super
depth but
it actually helps you if you're a
beginner to actually learn those things
early on
and build a strong foundation so very
quickly again if you want to download
this presentation you can do that in the
link
in the description below it'll also
probably be in the pinned comment
the first comment of the video there's
free stocks if you sign up for robinhood
weibull and then m1 finance there's a
free training available
also in the description below that's my
free training it's a private link to a
youtube video
and then also if you want to get courses
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