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How To Invest In Stocks For Beginners

(Step by Step)

Presented By: Marko - WhiteBoard Finance

www.WhiteBoardFinance.com
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Why Should You Listen to me?

Investing in the stock market for 15+ years
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Why Should You Listen to me?

Bachelor’s degree in Finance & Entrepreneurship (Dec 2010)
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Why Should You Listen to me?

Worked in Finance & CRE a majority of my career
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Why Should You Listen to me?

Providing FREE value via YouTube since Nov 2017
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Free gifts & added value

- Download This Presentation
- Link in the video description below

- Free Stocks! (Use the links below)

- Robinhood (The platform used in this video)
- WeBull
- M1 Finance (My Free training available in the description below)

- WhiteBoard Finance University - Join The Waiting List

- https://whiteboardfinance.com/wbf-university-waitlist/
- Courses, Live Q&A, and Community Discord
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Why Should you invest in the stock market?

- One of the best tools to grow wealth in human history
- The market has averaged a 10% annual ROI historically
- Savers are losers (Battle Inflation)
- Assets > Cash
- You are losing purchasing power by not investing
- Never been cheaper to invest
- $0 Trades/Fees are the norm
- Low Expense Ratios for solid investments (Vanguard, etc.)
- You don’t have to be a genius
- There are strategies that help you grow your wealth over time
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What is a stock, exactly?

- A stock is a share of ownership in a company
- Think of each share being a slice of a pizza
- Buying shares gives you “equity” aka ownership in shares of a company

- Example: Microsoft (MSFT)

- Shares Outstanding = 7,560,000,000 (7.56B)
- Share Price = $216.02
- Market Capitalization = Shares Outstanding x Share Price
- 7,560,000,000 x $216.02 = $1.633T ($1,633,111,200,000)
- Companies are typically measured by their Market Cap
- Market Cap changes over time because share prices and shares
outstanding can change over time
- Buying & Selling a company’s stock drives Share Price
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WHy Do Companies Issue Stocks?

- Corporations issue stocks to raise money for their business
- Fund a new product line
- Research & Development
- Invest in growth
- Pay off debt

- Preferred Stock & Common Stock

- Preferred = No Voting Rights
- Common = Voting Rights
- Last in line to get paid out in case of liquidation
- Last to get paid a dividend
- You are usually buying common stocks when “buying stocks”
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How are stocks categorized? (important)

- Large Cap, Mid Cap, and Small Cap Stocks
- Market Cap = Shares Outstanding x Share Price

- Large Cap ($10B+ Market Cap)

- Typically hard to achieve massive growth due to size

- Proven track record over many years, frequently offer dividends

- Mid Cap ($2B-$10B Market Cap)

- Not quite large cap, and more established track record than small cap
- Often target of M&A (Mergers and Acquisitions)

- Small Cap ($300M-$2B Market Cap)

- Typically younger and are seeking aggressive growth

- Higher risk & Don’t usually offer dividends
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How are stocks categorized? (con’t)

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How are stocks categorized? (con’t)

- Growth Stocks
- Big potential for growth / outpacing the market ($AMZN, $FB,$MSFT)
- Typically low or no dividends (reinvesting retained earnings)

- Income Stocks
- Regular Dividend payment ($MMM,$WM,$VZ)
- Proven track record/biz model, consistent increase in dividends
- Watch My Dividend portfolio criteria video HERE

- Value Stocks
- Perceived to be trading below its fundamentals (P/E Ratio, P/B Ratio)
- Typically seen as unfavorable in the marketplace
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How are stocks categorized? (con’t)

- Stock Sectors
- An area of the economy in which businesses share a product/service
- There are 11 broad sectors:
1. Energy (oil, gas, coal, fuel, etc.)
2. Materials (chemical, metals, paper)
3. Industrials (defense, aerospace, manufacturing)
4. Consumer Discretionary (apparel, household products, etc.)
5. Consumer Staples (food, beverages, etc.)
6. Healthcare (pharma, healthcare equip)
7. Financials (banks)
8. Information Technology (internet, software, semiconductor)
9. Telecommunication Services (AT&T, Verizon, etc.)
10. Utilities (electric, gas, water companies)
11. Real Estate (REITs, apartments, malls, office space)
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Understanding risk
- What is risk?
- The chance that your actual outcome will differ from
your expected outcome
- Risk includes the chance of losing some or all of your
investment
- Risk (should be) = Reward
- As investors, we are compensated for the level of
risk we assume
- i.e. Investing in a startup vs. a savings account
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Understanding risk (con’t)

1. Market Risk - economic developments/other events
2. Liquidity Risk - can’t sell your investment
3. Concentration Risk - too many eggs in 1 basket
4. Credit Risk - entity can’t repay (i.e. - bonds)
5. Inflation Risk - loss of purchasing power (i.e. 3% < 5%)
6. Horizon Risk - your investment time frame changes
7. Foreign Investment Risk - applies to foreign investments
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types of stocks/equities (What to buy?)

1. Individual Stocks
2. Mutual Funds
3. Index Funds
4. Exchange Traded Funds (ETFs)
5. REITs
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types of stocks/equities (What to buy?)

- Individual Stocks
- Pros:
- Reduced/No Fees
- No management fee to own
- Complete control/understanding of what you own
- Taxes are easy to manage (capital gain / loss)

- Cons:
- Hard to diversify (need 20-100 to achieve adequate diversification)
- More effort/time to monitor portfolio (rebalancing, etc.)
- FOMO / Emotions
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types of stocks/equities (What to buy?)

- Mutual Funds = Pools of money from the public to buy securities
- Pros:
- Liquid
- Diverse
- Professional Management (active vs. passive)
- Lot of options (balanced, fixed-income, money market, income, etc.)

- Cons:
- Higher fees
- Not FDIC insured
- Large cash holdings
- Hard to evaluate (apples to apples)
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types of stocks/equities (What to buy?)

- Index Funds = Basket of stocks to mimic a certain market index
- Pros:
- Low Fees
- Outperform Active Management over time
- Easy to own / manage / invest in / achieve goals

- Cons:
- No control over holdings
- Lack of downside protection (NOT a hedge fund)
- Lack of different strategies
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types of stocks/equities (What to buy?)

- ETFs = Basket of stocks to mimic a certain market sector that trade on an exchange

- Pros:
- Access to many stocks
- Low expense ratios
- Easy to own / manage / invest in / achieve goals

- Cons:
- Actively managed ETFs have higher fees
- Lack of downside protection (NOT a hedge fund)
- Diversification is limited by focusing on 1 industry
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types of stocks/equities (What to buy?)

- REITs = A company that owns, operates, or finances income-producing real estate

- Pros:
- Access to a historically unaccessible asset class
- Liquid
- Stable cash flow through dividends (have to pay out 90% of income)
- Historically sound asset class

- Cons:
- Dividends are taxed as regular income
- Subject to market risk (economy downturn 2008)
- Can have high management fees
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How to evaluate a company (financial statements)

- Financial Ratios When Buying Stocks
- Where do these numbers come from?
1. Balance Sheet (snapshot of financials)
- Assets = Liabilities + Shareholders’ Equity
2. Income Statement (revenues & expenses during a specific period)
- Net Income = (Total Rev + Gains) - (Total Exp + Losses)
3. Cash Flow Statement (Cash inflows & cash outflows)
- 1. Operations (business activities, etc.)
- 2. Investing (Property Plant & Equipment, CAPEX)
- 3. Financing (cash flow between a biz and creditors 10-K)
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How to evaluate a company (financial Ratios)

Financial Ratios When Buying Stocks (categories)

1. Valuation
2. Profitability
3. Liquidity
4. Debt (Solvency)
5. Efficiency
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How to evaluate a company (financial Ratios)

- Price-to-Earnings Ratio (P/E Ratio)
- Valuation Ratio
- P/E Ratio = Company’s share price to its EPS
- Relative value of a company’s shares apples to apples

- Formula: Market Value Per Share / EPS

- Live Example
- Healthy P/E Ratio* = 15 or lower
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How to evaluate a company (financial Ratios)

- Price/Earnings-to-Growth Ratio (PEG Ratio)
- Valuation Ratio
- PEG Ratio = Company’s share price to its EPS Growth
- Relative value of a company’s stock value factoring in growth

- Formula: (Price/EPS)/EPS Growth

- EPS Growth is an estimate!
- Live Example
- Healthy PEG Ratio* = 1 or lower
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How to evaluate a company (financial Ratios)

- Price-To-Book (P/B Ratio)
- Valuation Ratio
- P/B Ratio = Company’s market cap to its book value
- Compares the cost of a stock to the value of it’s equity if the company
was sold today. Stock to asset’s value.

- Formula: (Market Price per Share / Book Value per Share)

- Book Value = (Total Assets - Total Liabilities) / Shares Outstanding

- Live Example
- Healthy P/B Ratio* = 3 or lower
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How to evaluate a company (financial Ratios)

- Return on Assets (ROA)
- Profitability Ratio
- ROA = How profitable a company is compared to its assets
- Gives an investor an idea as to how efficient a company’s management is
at using its assets to generate earnings.

- Formula: (Net Income/Total Assets)

- Live Example
- Healthy ROA Ratio* = 5% or higher
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How to evaluate a company (financial Ratios)

- Return on Equity (ROE)
- Profitability Ratio
- ROE = Measure of how efficient a company is at generating
profits
- Gives an investor an idea as to the profitability of a company in
relation to stockholders’ equity

- Formula: (Net Income/Total Assets)

- Live Example
- Healthy ROE Ratio* = Subjective by industry
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How to evaluate a company (financial Ratios)

- Current Ratio
- Liquidity Ratio
- Current Ratio = Measure of ability to pay short-term
obligations or those due within 1 year
- Gives an investor an idea how a company can maximize the current assets
on its balance sheet to satisfy debt/payables

- Formula: (Current Assets/Current Liabilities)

- Live Example
- Healthy Current Ratio* = 1.2-2
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How to evaluate a company (financial Ratios)

- Quick Ratio
- Liquidity Ratio
- Quick Ratio = Measure of company’s capacity to pay its
current liabilities without needing to sell inventory or
get more financing
- This is considered more conservative than the Current Ratio

- Formula: (Cash + Marketable Securities + Accounts Receivable)

/ Current Liabilities
- Healthy Quick Ratio* = Ideal is 1:1
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How to evaluate a company (financial Ratios)

- Debt-to-Equity
- Debt/Solvency Ratio
- Debt-to-Equity Ratio = Measure of company’s financial
leverage.
- A measure of the degree that a company is financing its operations
through debt versus wholly-owned funds

- Formula: Total Liabilities / Total Shareholders’ Equity

- Example next slide
- Healthy Debt to Equity Ratio* = Ideal is 1:1
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How to evaluate a company (financial Ratios)

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How to evaluate a company (financial Ratios)

- Asset Turnover
- Efficiency Ratio
- Asset Turnover Ratio = Measure of company’s ability to use
its assets to generate sales/revenue.
- A measure of the degree that a company is financing its operations
through debt versus wholly-owned funds

- Formula: (Total Sales) / (Beginning Assets + Ending Assets)/2

- Example next slide
- Healthy Asset Turnover* = Higher number is preferable
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How to evaluate a company (financial Ratios)

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Live demo: Buying a stock

Let’s buy & sell our first stock together!

Click HERE To Get a FREE Stock

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Taxes & Fees

1. Capital Gain = You sold > You bought
- Bought: $100 Sold: $110 Capital Gain = $10

2. Capital Loss = You sold < You bought

- Bought: $110 Sold: $100 Capital Loss = $10
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Taxes & Fees

1. Short Term Capital Gain/Loss = Less than 1 year hold
- Regular taxable income

2. Long Term Capital Gain/Loss = Longer than 1 year hold

- 0%, 15%, 25%
- Dependent on filing status and income
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Free gifts & added value

- Download This Presentation
- Link in the video description below

- Free Stocks! (Use the links below)

- Robinhood (The platform used in this video)
- WeBull
- M1 Finance (My Free training available in the description below)

- WhiteBoard Finance University - Join The Waiting List

- https://whiteboardfinance.com/wbf-university-waitlist/
- Courses, Live Q&A, and Community Discord