Introduction to the Stock Market!

What is the Stock Market?

Introduction

Stock markets are venues where buyers and sellers meet to exchange equity shares of public corporations. You most likely have heard of Wall Street which is located in the Financial District of Lower Manhattan in New York City. Traditionally this is where most of the trading occurs and to this day is still a hub for experienced traders and investors to hang out, make money and mingle. Nowadays we are able to exchange equity right in the comfort of our home via a digital exchange which we will go into more detail later on in the course. What we want to focus on is understanding ways to invest, what strategies are commonly used, and how to manage your risk when starting a position in the stock market. Though it is called a stock market, other securities, such as exchange-traded funds (ETFs) and Penny Stocks are also traded in the stock market, which we will cover as well.

The U.S. stock market is open Monday-Friday every week as long as the day does not fall on a federal holiday. You can find the list of holidays that the Stock Market is closed on here: Holiday Hours/Closure

The U.S. stock market is regulated by the Securities and Exchange Commission (SEC) and local regulatory bodies.

So Why Should You Invest?

It is important to first understand that inflation erodes the value of money as years go by. By investing, you can better combat inflation, increasing your chances of being able to afford the things that you enjoy spending money on. Investing is a tool or resource that allows you to take money that you make whether that be from freelance work or working a salary based job and compounds it. Compounding profits means that any profit you earn is then reinvested to earn additional returns, which ultimately results in you having to spend less of your funding in your bank account. You continuously rotate the money that you have inside of the broker app that you choose to use which we will later cover. The earlier you start to invest, the more benefit you gain from compounding. Of course there is some risk involved but nothing that you can't easily bounce back from if you manage the risk well enough and offset with other investments.

Things to consider as a Beginner!

1. [What are your goals when it comes to investing?] - Quick cash? Generational Wealth?
2. [How much time invested to reach that goal?] - Trading requires you to be dilligent, consistently learning and actively trading. Start with paper trading.
3. [Gauging your risk tolerance!] - What are you comfortable losing? If youre afraid to lose don't trade, because you will 100% lose at some point.
4. [Building a diverse portfolio!] - If youre a tech guy, don't just focus on the tech sector engage/diversify with sectors covering other areas of the market.
5. [Do not get attached emotionally to any position!] - In this market you should never get emotionally attached, we are in very unpredictable times. Make your money and move on. I have lost thousands of dollars due to "loving" a stock too much and being greedy, ignoring the signs that a decline was coming.

Types of trading strategies?

There are many different ways to invest in todays market, depending on the level of risk, how much money you want to invest/lose and how often you are able to actively trade dictates which direction you should most likely go. We will go deeper into the below strategies later on but feel free to get ahead by researching them on your own:

1. 1. Value Investing
2. 2. Growth Investing
3. 3. Income Investing
4. 4. Socially Responsible Investing
5. 5. Small-Cap Investing

But wait.... How do I even invest in the first place? Do I go to a licensed stock broker and tell them what I want? What if I want to invest on my own with my own strategies and research! Stay tuned cause we cover all of this in the next section!!

Choosing the right broker/platform based on accessibilty and ease of use!

What is a Broker?

A broker is a platform that can be used either on mobile devices or web applications to invest real money in the Stock Market. Typically it is as simple as setting up an account with a broker and depositing funds from your bank account for your first stock purchase. This can be very easy depending on which broker you choose and for beginners we recommend Robinhood.

Below we will list Brokers by difficulty based on our experience, we understand that all of these may be easier for others, but its pretty common across the board when it comes to ease of use.

1. 1. Robinhood
2. 2. Charles Schwab
3. 3. E-Trade
4. 4. WeBull
5. 5. Fidelity
6. 6. ThinkOrSwim/TDAmeritrade

There are many other trading platforms but these are the most popular, find what is easiest to understand and maneuver for you and master it!

(So which is best? First its better to understand the benefits, and pro/cons of the brokers mentioned):

Robinhood

By far is the easiest application to use for trading as a beginner, it has a very simplistic UI and easily accessible Option chain for when you want to get into the more complex trading strategies.

Charles Schwab

When it compares to Robinhood being the #1 beginner friendly broker, this platform comes in a close second with the biggest con being that the fees are much higher for some mutual funds. Like we mentioned before, Robinhood doesn't support mutual funds so for some this may be the best option.

E-Trade

E*TRADE has long been one of the most popular online brokers. The company's $0 commissions and strong trading platforms appeal to active traders, while beginner investors benefit from a large library of educational resources.

WeBull

Webull will appeal to the mobile-first generation of casual investors with its slick interface for desktop and mobile apps, but the brokerage also delivers an impressive array of tools for active traders. However, its relatively weak educational content may leave true beginners in the lurch, and it lacks access to a few common asset classes.

Fidelity

Fidelity is one of the most well-rounded brokerages available today, with no commissions on stock or ETF trades and a selection of no-expense-ratio index funds suited to both beginner and active investors. The UI is fairly simplistic for beginners to dive in and quickly learn how to maneuver and access stocks or crypto (which was added in 2023).

ThinkOrSwim/TDAmeritrade

TD Ameritrade is tough to beat with its $0 minimum, free tools and research and multiple trading platforms aimed at both beginner and advanced traders. It meets the needs of both active traders and beginner investors with quality trading platforms, $0 commissions on online stock and ETF trades and a large selection of mutual funds.

Under the hood of investment strategies to use or adapt!

Find Your Investment Strategies

To find the best investing strategy for you, we must first look at some important things to consider.

1. Be patient! Its a very high possibilty that companies may not meet expectations. Things happen and you have to make sure that you have measures in place to minimumize the amount of loss you take, this can be done with alerts and stop-losses which we will cover later amongst some other things.


2. Don't get emotionally attached to a stock or company, often times you will let your emotions dictate whether you exit a position or enter a position and it could cause you to burn yourself when the chart is showing you exactly what you need to see.


4. Diversify, Diversify, Diversify! I can't say this enough, IT IS VERY IMPORTANT to have a wide range of sectors of the stock market to invest in. This will allow for you to balance out losses in specific sectors. If the technology sector is taking a hit as a whole and my whole portfolio is in tech, then I am not making any profit or recovery money at all during the downtrend.
• 1. Government Bonds
• 2. Investment-Grade Corporate Bonds
• 3. Gold
• 4. Equity Securities
5. Always review and rebalance your portfolio as the market changes! The stock market today and of the future is one that will be very unpredictable, even more than its known to be. Nowadays the direction of a stock can be persuaded unintentionally by a tweet, a video or a influencer with enough fan base to push it in a certain direction. It isn't solely based on earnings, meeting specific expectations, new news inside of the company, etc (although those will move a stock), the big changes are seeming lately to have nothing to do with what the company is doing and more so whose talking about it or pushing it to the public.


6. Have alternative investments. Cryptocurrency is one alot of people are putting money into especially after the huge rallies from Gamestop and AMD! Outside of this, you have Real Estate, and Forex trading. These courses will be available soon, so stay tuned for in-depth guides on how to get started.
7. Prioritize growth over value


8. Follow your plan! you chose to embark on this journey and you have your reasoning and goals that have brought you here. DYOR(Do your own research), always be coachable and ask for advice from better traders then yourself, revisit/rebalance your portfolio, and ensure you have a solid risk tolerance.

What are some common things to look at when investing in a company?

Introduction

Business valuation can mean alot of things depending on who youre talking too, ultimately it is the process of estimating what it would cost an independent buyer to purchase the entire business. This means estimating what the future earnings of the business are worth to the buyer, comparing similar business sales, or estimating the value of the business if the assets were sold off. To go more in-depth we have broken down other ways to value a business:

1. Market Cap
• Is equal to the current price of the stock multiplied by the number of shares. It tells you the amount it would currently take to purchase the whole business.
• Many analysts prefer to adjust the market cap number to get enterprise value (EV), which is the market cap plus total debt minus cash. Enterprise value is a more accurate representation of what it would cost to purchase the business because it includes cash the buyer would receive and debts that they would be liable to pay.
2. Discounted cash flow
• When it comes to discounted cash flow, you often times are looking ahead at the future cash flow of the company, where exactly is it projected to go and how long will that take according to the chart and reporting of the company. Things like earnings reports is a pretty useful tool when looking at the potential cash flow of a company. So with that in mind, how can we calculate what we project to be the future cash flow?

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Keep in mind this is more of an intermediate tool to use but its not super complicated for a beginner to learn:




(Below is the formual for calculating Discounted Cash Flow):





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Comparables (Ratios)



• 1. Price-to-Earnings (P/E)

The P/E ratio is a measure of how much investors are willing to pay for a company's earnings. A higher P/E ratio suggests that investors are expecting high future growth or have confidence in the company's prospects, while a lower P/E ratio may indicate that the stock is undervalued or that investors have concerns about its future performance.




P/E Ratio Breakdown:

P/E Ratio = Market Price per Share / Earnings per Share (EPS)



• 2. EV & EBITDA

This ratio is a commonly used valuation multiple that compares a company's Enterprise Value to its EBITDA. This ratio is used to assess the relative value of companies in the same industry or to evaluate the attractiveness of a potential acquisition target. A lower EV/EBITDA ratio may indicate that a company is undervalued, while a higher ratio may suggest that it is overvalued relative to its peers.




Enterprise Value:

Enterprise Value = Market Capitalization + Total Debt - Cash and Cash Equivalents




Earnings Before Interest, Taxes, Depreciation, and Amortization:

EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization): EBITDA is a financial metric used to assess a company's operating performance. It is calculated by adding back interest, taxes, depreciation, and amortization expenses to a company's net income. EBITDA is often used as a proxy for operating cash flow, as it measures a company's ability to generate earnings from its core operations, excluding the impact of capital structure, taxation, and accounting practices.



• 3. Price-to-Sales (P/S)

The P/S ratio is a measure of how much investors are willing to pay for a company's sales. A higher P/S ratio indicates that investors are expecting high revenue growth or are confident in the company's business model, while a lower P/S ratio may suggest that the stock is undervalued or that investors have concerns about its growth potential.




P/S Ratio Breakdown:

P/S Ratio = Market Capitalization / Total Revenue (Sales)



• 4. Price-to-Book (P/B)

The P/B ratio is a measure of how much investors are willing to pay for a company's net assets. A higher P/B ratio indicates that investors are expecting the company's assets to generate significant future returns or that they have confidence in the company's growth prospects. A lower P/B ratio may suggest that the stock is undervalued or that investors have concerns about the company's ability to generate returns on its assets.




P/B Ratio Breakdown:

P/B Ratio = Market Price per Share / Book Value per Share




Liquidation Value

To calculate the liquidation value, you would follow these steps:

1. 1. Determine the market value of the company's tangible assets, such as cash, accounts receivable, inventory, property, plant, and equipment. This would involve valuing assets at their likely sale prices in a rapid or forced sale, which could be lower than their book values or market values in a normal sale.
2. 2. Subtract the company's total liabilities, including short-term and long-term debt, accounts payable, and any other outstanding obligations.
3. 3. Divide the net value (assets minus liabilities) by the number of outstanding shares to obtain the liquidation value per share.

What to liquidate to?

• 1. Cash
• 2. Accounts Recievable (ARs)
• 3. Inventory
• 4. Property, Plant & Equipment (PPE)

How do I manage my risk?

Introduction

Risk management in the stock market refers to the process of identifying, assessing, and mitigating potential risks that can negatively impact investment performance. The objective of risk management is to protect investors' capital, minimize potential losses, and achieve a desired risk-return balance for their investment portfolios. Effective risk management involves a combination of strategies, techniques, and tools to address various types of risks associated with investing in stocks. Some key aspects of risk management in the stock market include:

• 1. Diversification: Spreading investments across various stocks, sectors, industries, and geographical locations can help reduce the impact of individual stock or sector-specific risks. By diversifying, investors can minimize the potential losses from a single investment and benefit from the different performance of assets over time.
• 2. Asset allocation: Allocating a portfolio's assets among different asset classes (e.g., stocks, bonds, cash, and real estate) can help manage risk by taking advantage of the varying risk-return profiles and correlations among these classes. Asset allocation aims to create a balanced portfolio that meets the investor's risk tolerance, investment horizon, and financial goals.
• 3. Position sizing: Managing the size of individual investments within a portfolio can help control risk exposure. By limiting the amount of capital invested in a single stock or sector, investors can reduce the impact of adverse price movements on their overall portfolio.
• 4. Stop-loss orders: Implementing stop-loss orders is a proactive risk management technique that helps limit potential losses on individual investments. A stop-loss order is an instruction to sell a stock when it reaches a predetermined price level, preventing further losses if the stock's price continues to decline.
• 5. Fundamental and technical analysis: Conducting thorough fundamental and technical analysis of stocks can help investors identify potential risks and make informed investment decisions. Fundamental analysis involves evaluating a company's financial health, competitive position, and growth prospects, while technical analysis focuses on historical price patterns and trends to predict future price movements.
• 6. Risk assessment and monitoring: Regularly assessing and monitoring the risks associated with individual investments and the overall portfolio is crucial for effective risk management. This includes tracking market trends, economic indicators, and company-specific news to identify potential risks and adjust the investment strategy accordingly.
• 7. Risk tolerance: Understanding an investor's risk tolerance is essential for creating a suitable investment strategy. Risk tolerance refers to an individual's willingness and ability to bear the potential losses associated with investing. Factors such as investment objectives, time horizon, and financial situation should be considered when determining an investor's risk tolerance.

Other strategies to consider:

• 1. Hedging: Hedging involves taking an opposing position in a related security or derivative instrument to offset potential losses in your primary investment. For example, you can use options, futures, or inverse ETFs to hedge against potential declines in stock prices, interest rates, or currency fluctuations.
• 2. Dollar-cost averaging: By investing a fixed amount of money at regular intervals, regardless of market conditions, you can reduce the impact of market volatility on your investment portfolio. Dollar-cost averaging ensures that you purchase more shares when prices are low and fewer shares when prices are high, potentially lowering the average cost per share over time.
• 3. Rebalancing: Regularly reviewing and adjusting your portfolio's asset allocation can help maintain your desired risk-return balance. Rebalancing involves selling overperforming assets and buying underperforming ones to bring your portfolio back to its original asset allocation, which can help manage risk and maintain diversification.
• 4. Quality investing: Focusing on high-quality investments, such as companies with strong balance sheets, competitive advantages, and a history of stable earnings, can help mitigate risks associated with market volatility and economic downturns.
• 5. Avoiding leverage: Using borrowed funds or margin to invest can magnify gains but also exacerbate losses. To manage risk, consider avoiding or limiting the use of leverage in your investment portfolio.
• 6. Setting investment goals: Establishing clear investment goals and time horizons can help you make appropriate risk-management decisions. For example, if you're investing for a long-term goal like retirement, you may be able to tolerate more risk in your portfolio compared to someone with a short-term goal like buying a house.
• 7. Maintaining an emergency fund: Having a readily accessible emergency fund can prevent you from needing to sell investments at inopportune times to cover unexpected expenses. This can help you avoid realizing losses during market downturns and allow you to maintain your long-term investment strategy.
• 8. Continual education and researc>h: Staying informed about market trends, economic conditions, and investment opportunities can help you make better risk management decisions. Continuously learning about investing techniques and strategies can also help you adapt your approach in response to changing market conditions.
• 9. Seeking professional advice: If you're unsure about your risk management strategy or need assistance in implementing one, consider seeking advice from a professional financial advisor or planner. They can help you develop a personalized investment plan that aligns with your goals, risk tolerance, and financial situation.

By employing effective risk management strategies, investors can protect their capital, minimize potential losses, and achieve their investment objectives in the stock market.

Closing remarks and Social Media links

You have completed the Beginner Guide to Investing in the Stock Market!

To close, as a beginner learning to invest in the stock market, remember that investing is a journey that requires patience, discipline, and continuous learning. Here are some closing remarks to help guide you on your investment journey:

• 1. Start with a solid foundation: Focus on understanding the basics of investing, such as financial markets, asset classes, investment vehicles, and key financial concepts. A strong foundation will help you make informed decisions as you progress in your investment journey.
• 2. Set clear investment goals: Establish your financial goals, risk tolerance, and investment time horizon to create a personalized investment strategy that aligns with your objectives and preferences.
• 3. Diversify your investments: Build a well-diversified portfolio that includes various asset classes, sectors, and industries to reduce risk and enhance potential returns.
• 4. Adopt a long-term perspective: Focus on long-term capital appreciation and the power of compounding returns, rather than attempting to time the market or engaging in short-term trading.
• 5. Conduct thorough research: Before investing in individual stocks or other securities, perform comprehensive research on the underlying companies, their industries, and market conditions. Stay informed about market trends and economic news to make timely adjustments to your investment strategy when needed.
• 6. Use risk management techniques: Employ risk management strategies, such as diversification, asset allocation, and position sizing, to protect your investments and mitigate potential losses.
• 7. Keep emotions in check: Maintain a disciplined approach to investing and avoid making decisions based on emotions or market hype. Stick to your investment plan and make adjustments based on rational analysis and sound reasoning.
• 8. Continuously learn and adapt: Stay committed to learning about new investment strategies, financial tools, and market trends. Continuously improve your investment knowledge and adapt your approach to changing market conditions.
• 9. Monitor your investments: Regularly review the performance of your investments and make necessary adjustments to your portfolio to maintain your desired risk profile and investment objectives.
• 10. Seek professional advice when needed: If you're unsure about your investment strategy or need assistance, consider consulting a professional financial advisor who can provide personalized guidance and recommendations.

Remember that investing in the stock market comes with inherent risks, and there are no guarantees of returns. However, by following these principles and staying committed to learning and improving your investment skills, you can increase your chances of long-term success and work toward achieving your financial goals.

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