Getting Started Investing

“Every investment is the present value of all future free cash flow.” Everything Money

Many people want to learn how to get started investing, but they allow emotion, fear of loss, and doubts about making a mistake stop them from taking that initial step of purchasing stocks and bonds.

Some common concerns regarding investing, according to Phil Towns, founder The Rule #1, include:

  • “I’m afraid I’ll fail and lose all my money.”
  • “There’s no way I can make time for investing in my day! I’m busy!”
  • “I don’t have the skills to invest.”

These are all popular rationalizations for why you may be dragging your feet on investing in assets, particularly equity stocks, bonds, mutual funds and exchange traded funds ((ETF).

Yet, investing in the stock market continues to be the best way to grow your wealth and to achieve financial freedom. To begin, you might consider investing in well-known companies’ or blue-chips stocks that are less volatile, which can avoid big stock price swings.

Many people started investing for the first time during the COVID-19 pandemic. While some people prefer trading stocks over short periods of time, you might want to consider long-term investing. The stock market on average produces around a 10% annual return. While this may seem easy, not many people actually achieve such returns. And one of the main reasons is because investors don’t stay invested long enough. 

Admittedly, choosing the right stocks to invest in can be a time-consuming endeavor. This is true even for many seasoned investors. If you are new to the stock market, buying companies that you are familiar with, like Apple or Walt Disney, maybe a good place to start. It would be beneficial to have an idea of how the companies make its money. Besides, picking stocks with strong balance sheets and stellar growth prospects below its intrinsic value or worth could increase your chances of success.

Value investing

Great investors never stop learning

Value investing is buying companies for less than they’re worth…their intrinsic value. According to the Kenneth Jeffery Marshall, professor, value investor, and the author of “Good Stocks Cheap”, best value investing procedures to utilize include:

  • Do you understand the company
  • Is it a good company:
    • Has it been historically good
    • Will it be good in the future
    • Is it shareholder friendly
  • Is the stock price cheap or at what price will the company’s stock become cheap (margin of safety)

The secret of successful investing: Staying invested and patience. Stock prices can be volatile and can fluctuate unpredictably in the short term.  But the intrinsic values of companies stay relatively steady. Thus, you should chose to invest in companies selling for less than they are worth (intrinsic value) and not over pay for a company.

The reality is that some of your selected stocks will lose money. That’s why it is important to diversify your investments, so that losses in a stock may be outweighed by gains in other stocks.

If you had invested $1,000 in stocks like the S&P 500 or Apple (AAPL) 10 years ago, it would have grown and be worth $4,528.52 (S&P 500) and $11,149.68 (Apple) today, respectfully. Effectively, the S&P 500 rose 229.91% and Apple gained 1,062.82% gain. Theses returns exclude dividends but includes price increases.

Anyone can and should be invested in assets, but building a successful investment portfolio requires research, patience, and a little bit of risk. Thus, it’s essential to learn how to study and value companies to invest.

So, if you had invested in Apple ten years ago, you’re likely feeling pretty good about your investment today.

“The historic price of a stock does not determine the future price of that stock.” Kenneth Jeffrey Marshall,.

Additionally, according to the Kenneth Jeffery Marshall, there are four reasons in which a stock should be sold. The reasons are:

  1. When company’s stock price flies past intrinsic value,
  2. When a company thought to be good turns out not to be,
  3. In buyouts, or
  4. When a clearly better opportunity emerges.

Buy with a margin of safety means buying companies inexpensively which both increases investment returns and lowers risk. Basically, stocks tend to realize their fundamental value and potential in the long term. You have to be patient and stick with them.


References:

  1. https://www.nasdaq.com/articles/if-you-invested-%241000-in-apple-10-years-ago-this-is-how-much-youd-have-now-2021-06-23
  2. https://myfintalk.com/good-stocks-cheap-review/
  3. https://www.nasdaq.com/articles/15-best-stocks-to-buy-for-beginners-2020-11-12
  4. https://wtop.com/news/2021/11/9-best-cheap-stocks-to-buy-under-10/
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