Stock Investing Final without logo - New Home

Stock Investing 101



STOCK INVESTING 101

Copyright ? 2016 by Young Investors Society

All rights reserved. No part of this publication may be reproduced, distributed, or transmitted in any form or by any means, including photocopying, recording, or other electronic or mechanical methods, without the prior written permission of the publisher, except in the case of brief quotations embodied in critical reviews and certain other noncommercial uses permitted by copyright law. For permission requests, write to the publisher, addressed "Attention: Permissions Coordinator," at the address below.

Young Investors Society

5551 Colodny Drive

Agoura Hills, CA 91301



TABLE OF CONTENTS

LESSON 1: THE SEVEN GOLDEN RULES OF INVESTING ............................................................................3 Introduction ................................................................................................................................................................3 ARE YOU AN INVESTOR? ......................................................................................................................................3 SECTION 1 ....................................................................................................................................................................5 Who are Investors? ......................................................................................................................................................5 Starting Early ...............................................................................................................................................................6 WHAT DOES IT REALLY MEAN TO INVEST IN THE STOCK MARKET? ..................................................7 SECTION 2 ...................................................................................................................................................................9 BEATING THE MARKET ........................................................................................................................................9 QUESTIONS TO CONSIDER: ...............................................................................................................................10 SECTION 3 .................................................................................................................................................................11 THE SEVEN GOLDEN RULES ..............................................................................................................................11

LESSON 2: THE VALUE OF A STOCK ..................................................................................................................16 Introduction ..............................................................................................................................................................16 SECTION 1..................................................................................................................................................................17 WHY DO STOCK PRICES FLUCTUATE SO MUCH? .....................................................................................17 MR. MARKET ..........................................................................................................................................................17 SECTION 2 .................................................................................................................................................................19 WHAT IS THE VALUE OF A BUSINESS? ............................................................................................................19 SECTION 3 .................................................................................................................................................................24 UNDERSTANDING THE TERMINOLGY ..........................................................................................................24 THE "GO-TO" WAY TO VALUE A BUSINESS: P/E RATIO .............................................................................25

LESSON 3: WHAT MAKES A GOOD BUSINESS? ..............................................................................................27 Introduction ..............................................................................................................................................................27 SECTION 1..................................................................................................................................................................28 HOW DO I KNOW IF A COMPANY IS A GOOD BUSINESS? .......................................................................28 SECTION 2 .................................................................................................................................................................30 WHATEVER FLOATS YOUR MOAT ...................................................................................................................30 Types of Economic Moats ......................................................................................................................................30

LESSON 4: FINDING STOCKS TO INVEST IN ..................................................................................................41 Introduction ..............................................................................................................................................................41 SECTION 1 .................................................................................................................................................................42 HOW DO I COME UP WITH INVESTMENT IDEAS? ...................................................................................42 SECTION 2 .................................................................................................................................................................44 STOCK SCREENS ....................................................................................................................................................44 IS THE COMPANY GOOD? ..................................................................................................................................45

IS THE COMPANY GROWING? ..........................................................................................................................45 IS THE STOCK CHEAP? ........................................................................................................................................45 THE S&P 500 & THE DOW JONES: ....................................................................................................................47 SECTION 3 .................................................................................................................................................................48 RESEARCH REPORTS: ...........................................................................................................................................48 GIVING DUE DILLIGENCE ITS DUE ................................................................................................................49

LESSON 5: LEARNING TO SPEAK THE LANGUAGE OF FINANCE ............................................................52 Introduction ..............................................................................................................................................................52 SECTION 1..................................................................................................................................................................53 WHY DO COMPANIES PREPARE FINANCIAL STATEMENTS? .................................................................53 WHO USES FINANCIAL STATEMENTS? ..........................................................................................................53 WHAT ARE THE THREE FINANCIAL STATEMENTS? .................................................................................54 THE BALANCE SHEET ..........................................................................................................................................54 SECTION 2 .................................................................................................................................................................56 THE INCOME STATEMENT ................................................................................................................................56 THE STATEMENT OF CASH FLOWS ................................................................................................................57 SECTION 3 .................................................................................................................................................................59 HOW DO I FORECAST REVENUES OF A COMPANY? ................................................................................59 HOW DO I FORECAST MARGINS OF A COMPANY? ..................................................................................60 COMPANIES ............................................................................................................................................................63 APPENDIX A: SELECTED FINANCIAL STATEMENTS .................................................................................64

LESSON 6: THE INVESTMENT THESIS .............................................................................................................73 SECTION 1 .................................................................................................................................................................75 WHAT IS AN INVESTMENT THESIS? ...............................................................................................................75 SECTION 2 .................................................................................................................................................................78

LESSON 7: INTRINSIC VALUE ..............................................................................................................................82 SECTION 1 .................................................................................................................................................................84 SECTION 2 .................................................................................................................................................................86 Determining the Intrinsic Value of a Company ...................................................................................................86 The Discounted Cash Flows method .....................................................................................................................86 SECTION 3 .................................................................................................................................................................89 The Relative Valuation Method ..............................................................................................................................89 Two Primary Valuation Options ............................................................................................................................92

GLOSSARY OF TERMS ............................................................................................................................................93

LESSON 1:

THE SEVEN GOLDEN RULES OF INVESTING

Introduction

Welcome Young Investors! It is our goal to make you master investors. Many of the lessons you will learn have been used by successful investors over several generations. You will notice that a recipe for success is easy to follow but is actually followed by few. Let's start with a question:

ARE YOU AN INVESTOR? Are you a spender or an investor? Pop Quiz. Ready. Go. Question #1 I'll give you $100 today or a new Mercedes next year? Which one will you take? A) The cash B) The car C) Why are you even looking at other options, you'd be crazy not to take the car!

Question #2 I'll give you $100 today or $100 next year. Which one will you take? Think about it...

A) The cash today B) The same cash tomorrow C) Of course you wouldn't wait! What's the point? You wouldn't get anything in return for waiting.

In one minute we've narrowed down whether you are an investor or a spender. You're a spender if you don't get a return. You're an investor if the future is worth somewhere between $100 and a new car. The question of whether you will invest is really just a question of how much you believe tomorrow can offer.

How much could the future be worth for a bit of sacrifice today?

That is the key question that every investor asks themselves....

5

 ................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download