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Transcript
I spent 2 months studying money and now, I understand stocks.
I invested in more than a hundred stocks and in 10 minutes I want to tell you:
What is a good stock?
And, what is a bad stock?
But first, some background.
I am on a 6-month challenge to study money: how to invest it and grow it!
I am doing this with my friend Yoni, who is the founder of eToro, the largest social investing platform in the world.
If you want to join us, just go to nas.io/money.
Everything I’m learning is available to you there for free!
Shall we start?
Let’s start!
Alright, back to the challenge.
There are so many ways to invest and make money: real estate, commodities, bonds, crypto, forex.
But today, I just wanna focus on my favourite: stocks.
Stocks is simple: it means ownership in a company.
Buying 1 stock means owning part of a company – that’s it.
That’s what investing in stocks is.
You’re investing in business.
So if you want to generate returns with real gains, you invest in the stock market.,
So, how do you know which stock to buy?
Well, I’m going to tell you my process.
But first: warning!
I do not recommend any specific stock; everything I mention here is just an example – proceed at your own risk!
Let’s begin!
There are tens of thousands of stocks to pick from.
Personally, I only buy stocks that are listed in the United States – why?
Because I believe the world’s best companies are listed or created in the United States.
That is just my opinion.
Now, there are 2 types of stocks that you can buy in the US:
One: stocks that are fast and risky.
And, two: stocks that are slow and steady.
Personally, 50% of my money is in risky stocks and 50% is in steady stocks: 50/50
Asset allocation is: how do you distribute your portfolio across different categories, risks, geographies?
The more knowledge you have, you can basically take more risk.
Now, when it comes to risky stocks, before I buy a stock I have 3 simple rules:
One: I invest in companies that I personally love and use.
Like Uber for transportation, that I use every day,
Or Beyond Meat for Vegan food, that I eat regularly.
Two: I invest in companies that have founders who are still in charge!
Like Mark Zuckerberg and Meta, or Brian Armstrong at Coinbase, or Yoni from eToro – he is the founder.
Founders build better companies, in my opinion.
I agree!
Three: I invest in companies that I think can grow a lot more in the future,
Like Doordash, or PayPal, or Planet Labs.
There is no science to this.
Sometimes I get it right and I make a lot of profit.
Other times, I get it wrong and I lose a lot of money.
This is why it’s called “fast and risky” stocks.
I invested in a stock and I lost 100% of my money.
By the way I also invested in [***] and lost 100% of my money.
Oh did you really?
Good!
We both lost 100% of the money on stocks.
The second type of stock I invest in is called “slow and steady”.
This one is more of a science.
I look for stocks that I believe can be around for 10 years or more.
Warren Buffet famously said: “If you aren’t willing to own a stock for ten years, don’t think about owning it for ten minutes”.
And he’s right!
So I look for stocks that grow consistently over many years or even decades.
The S&P 500, the Dow 30; so, the latest stocks in a stock market are usually – not always, usually – the safest stocks because you know they’ll be there in 10 years or 20 years.
Think healthcare stocks, energy stocks, telecom stocks, food stocks.
Companies like General Electric, Apple, or Google have been around for decades and probably decades more!
There are 2 numbers that are important for steady stocks: it’s the P/E ratio and the Dividends.
And I’m going to explain both numbers so you can look out for them in the markets.
The Price-to-Earnings ratio.
It sounds complicated but it’s simple:
It’s the price people are willing to pay for every dollar that the company makes in profit.
Let me give you a real example:
If a company makes $1000 in profit and the value of this company is $20,000, this means that the Price-to-Earnings ratio of this company is 20.
Investors are willing to pay $20 for every $1 that the company makes in profit.
Twenty!
That’s the magic number I look for: anywhere between 20 and 30.
And by the way, the P/E ratio is available on any public company – you can just google it.
If you’re interested in a stock – you wanna allocate 5% of your earnings in a month to that stock – then a great way to do it is to continuously invest and put a timer, like every month inject a small amount of money into a company you like.
The second thing I look for is Dividends.
Did you know that slow and steady stocks share a percentage of their profits every year with shareholders.
It’s crazy!
Here is how it works:
If you invest $1000 in a company with a 3% dividend, that means that, if fixed, the company will pay you $30 every year.
That is, in addition to the profit you would make if the stock went up.
So it’s not just about the stock price going up, it’s also about that £30 you get every year as dividends.
Take this company, for example.
It’s called NextEra Energy.
It’s a US-based company, it has a Price-to-Earnings ratio of 26, so it’s within my magic range of 20 to 30, and it has a dividend of 2.5% over the last 5 years on average.
And, in my opinion, this company can last for 10 years or more, because NextEra Energy is an energy stock.
The US will always need energy today, tomorrow, and in the next 10 years.
So technically, this company qualifies as a value stock that grows slowly and steadily for many years.
That is just 1 example, but there are many companies like this one.
The best value stocks are stocks that you know are here to last.
That’s it?
That’s it!
And by the way, if this is confusing to you, you can always decide not to buy individual stocks.
You can buy multiple stocks at the same time, and this way you reduce the risk.
It’s called the S&P 500.
You buy an index or an ETF, and you buy 500 stocks at the same time.
This is just another thing you can explore if you don’t want to pick individual stocks.
And now for the most important tip on stock investing.
Mom, I hope you’re paying attention.
When it comes to stocks: don’t overdo it!
The more you buy and sell, buy and sell, the more you risk losing.
A famous investor once said: “Your money is like a bar of soap. The more you handle it, the more you lose it.”
That’s why I don’t believe in day trading.
I don’t believe in timing the market.
I don’t believe in get-rich-quick stocks,
Some people may succeed here, but that’s too risky and complicated for me and probably for you.
Long term investing is supposed to be simple and straightforward: just buy and hold.
Just look at this shocking statistic:
If you buy the S&P 500 today and you sell it tomorrow, you don’t know if it’s gonna go up or down.
So you have a 50% chance of making money and a 50% chance of losing money.
But, if you buy the S&P 500 for 13 years, and never sell it, you have 100% chance of making money,
Yeah that’s not my opinion, that’s literally historical data!
So, Yoni, this is my stock portfolio.
Half of it is in companies that have products that I use and founders that are still in charge, and the other half is in slow stocks, good P/E ratio, steady, good dividends, and a long history of of operations.
So, 50/50.
What do you think of this portfolio?
First of all I think you’re a very fast learner!
Now you’ve diversified your portfolio, so now you have less risk in your portfolio and it’s diversified between value stocks and growth stocks which is important for any portfolio.
Great!
We’re doing something right!
Just remember what Warren Buffet said: “Time in the market is 100 times more important than timing the the market”
Invest wisely and safely.
And I’ll see you next month for another video about money.