How I Pick My Stocks: Investing For Beginners

this is the best piece of advice I've ever heard about investing it came from a millionaire I looked up to as a kid after over hearing him talk about investing I wanted to get involved but as a complete beginner I didn't know where to start so I asked him how do I pick the right stocks to invest in his answer was very simple treat it like finding a girlfriend this is quite a clever way to look at it because when you buy a share in a company you actually become a part owner this is like a partnership between you and the company and just like a relationship you want to make sure it's happy long and successful but look I'm not going to pretend that there's a crystal ball that can tell you when to buy a stock before it rockets in value like most of the fake gurus online however there are certainly a few things you can do to tip the odds in your favor when you're looking for a partner you need to have a strategy in mind are you going to shower them with gifts like a s or treat them mean to keep them Keen you'll get very different results depending on which strategy you choose and the same goes for stocks so just like dating you need to figure out how you're going to approach the stock market so that you get the results you want there are two strategies you can choose from the technical or the fundamental approach both of these options are very different so let's quickly go over what they involve technical analysis is mainly for short-term day Traders they use charts and price action to identify patterns that supposedly help them predict if a stock is going to go up or down in the short term I use the word supposedly because in my opinion most of the people using this strategy are glorified gamblers is it possible to day trade successfully yes but more than 95% a day Traders lose money rather than making it according to the modly fold fundamental analysis is like being a detective for a company you look at everything from their financial reports to how well known the brand is and who's running the show all these pieces of information help you understand how the company is doing now and how it might perform in the future this approach can help you pick a range of stocks that can make you a nice amount of money over a 3 to 10e period I know saying this will probably ruin my watch time but I only want people getting into this for the right reasons so if you're looking for a way to get rich quick then stop watching my video now my goal is to secure your financial future not just help you make a quick Buck also remember with any kind of investing your money can go down as well as up if you're still with me then comment down below I'm in so I know how many of you are willing to invest for the long term right all done cool let's jump into when you're on a dating app and checking out someone's profile you usually look at their pictures and read their bio to see if they'd make a good match it's exactly the same when you're thinking about investing in a company you have to check out the company's profile which in this case is something called a balance sheet a balance sheet is a financial statement that provides a snapshot of a company's financial position at specific point in time it details the company's assets liabilities and share holders Equity don't worry if that sounds a bit confusing we'll take a look at one together and I'll break it down with you I'm going to be using trading 212 to do this which is a great place to research and buy stocks you're welcome to download it and follow long trading 212 is also sponsoring this portion of the video and if you use the code Tilbury you'll also get a free fractional share worth up to £100 when you open your account I'll put the link in the description plus you can get more free Stocks by inviting your friends both of you will get a free share as long as they fund their account I'm going to be using their desktop website for this video but you can do all of this on the mobile app if you want to for everyone in the USA you can find the same information on Yahoo finance remember that nothing in this video should be taken as Financial advice I'm not a financial advisor and when investing your capital is at risk so to find a balance sheet just head to the stock you're interested in for this example I'm going to pick coca colola scroll down the page click on the financials and then the balance sheet and more financials this pulls up a pretty complicated looking page but trust me it is actually very simple to help you understand this balance sheet think of it like a like a cookie jar there you go at the top you've got the current assets these are like the cookies you can grab and eat M very nice for a company this is the cash or anything that can be turned into cash within 12 months next you have the longer term assets these are like the cookies that are deeper down in the jar for a company this often includes the headquarters and Equipment here you have the intangible asset these are like the invisible things that make the cookies taste good you can't touch these things but they bring a lot of value for a company this is patents intellectual property trademarks and Goodwill this next section is all about liabilities these are like the cookies that you've promised to your friends for borrowing their ingredients I'm most interested in the current liabilities as these will need to be paid back within one year or a normal operating cycle so so now you know what all of this information means what should you actually do with it well there's a simple calculation you can do to easily know if a company is high risk or not and that is total current assets divided by total current liabilities A good rule of thumb is this number should be above one but how does this actually work in practice well let's put Coca-Cola's numbers in their total current assets are 26. 7 3 billion do so if we divide that by their total current liabilities which are 2357 billion that comes to approximately 1. 13 this means the company has $1.

3 in current assets for every $1 in current liabilities indicating they have enough short-term assets to cover their short-term debts this is a great indicator but our work is far from over H when you're getting to know someone new you're probably curious about their past relationships it's like doing a bit of a background check right you might wonder whether they've ever cheated or how many partners they've had it's pretty much the same when you're considering investing before you put your hard-earned cash into a company you want to check out his track record that's where the income statement comes in and unlike people public companies have to be upfront and honest about their past an income statement is like a report card for a company showing how well it did over a specific period like a month a quarter or a year put simply it tells you how much money the company made and how much it spent this is normally found in the same place as the balance sheet if you're using the trading 212 app like me then just click on the first Tab and then you'll see all the information here at the top we have the total revenue which is the toal total the business took in the time period as we can see from Coca-Cola they took 45. 75 billion in 2023 which isn't too shabby if we scroll down a bit we get to the net income which is the money the company makes after all expenses have been deducted for cocacola this is 10. 71 billion so why does this matter well every business has two main types of expenses the cost of Revenue and the cost of operations if either of these are too high then it could be a red flag just think about it if you were selling custom t-shirts you'd have to spend money on fabric and printing this is your cost of Revenue as you can't create custom t-shirts without these materials so this is a necessary expense but that's not it you'd also have to spend money on marketing and potentially staff these are known as your operating expenses once you subtract both the cost of Revenue and the operating expenses from the total money you make from selling your custom t-shirts you get your operating income now if you just scale up that example it's the same idea for big companies like cocacola see here this is the operating income so now you know what all this information means what should you actually do with it well here's a simple calculation to see if a business is making a healthy amount of profit operating income divided by total revenue time 100 according to tide banking as a rule of thumb 5% is a low profit margin 10% is a healthy margin and 20% is a high margin if we plug Coca-Cola's numbers into this calculation we get approximately 25.

73084 established companies will be more profitable than newer faster growing companies so profitability isn't the most important thing I mean Amazon took years to make a profit and look at them now but saying this you should also keep in mind that a company that's done well in the past doesn't mean that it'll continue to do well in the Future Past performance doesn't guarantee future results listen it might not sound like a romantic thing to say but if you're thinking of getting involved with someone you don't want want them to be bad with money it can lead to a whole lot of headaches down the line trust me in fact money issues are a huge reason why relationships break up the same goes for companies you don't want to invest your money in a company that can't handle it correctly that's why you need to check out their cash flow statement cash flow statement shows how much money is coming in and going out of a company over a period of time is divided into three parts operating activities investing activities and financing activities they sound confusing but trust me they are super simple let's run through them one by one and I'll let you know what to look out for operating activities show the money a company makes from its regular business operations in Coca-Cola's case that's selling their various beverages all you need to look for here is a positive number like this it means the company is making more money than it spends on its day-to-day operations this is a good sign investing activity shows the money the company spent on investments like buying their equipment buildings or other companies it also includes money made from selling those kinds of Investments believe it or not this negative number here isn't a bad thing this is because the company is reinvesting back into the business I always like it when I see that a company is investing wisely in their future just be cautious that they're not spending too much or selling off lots of assets financing activities is about the moneyy a company borrows or gets from selling pieces of the company and the money it uses to pay back loans or give rewards to stock owners in the form of dividends it's very important for you to keep an eye on how they're managing their debt and dividend payments be cautious if they rely too much on borrowing and if they're paying high dividends with a negative cash flow it's like if you won a chunk of money and stopped working and then kept giving all your friends expensive gifts it's it's just not sustainable and eventually you'll run out of cash however this isn't the case with cocacola because even though they gave away $7. 95 billion worth of dividends to their shareholders it's safe to say with that kind of positive cash flow they can afford it have you ever been really attracted to someone online who seems perfect on paper but when you finally meet them you don't don't feel that spark this could be similar to stocks a company may appear to be a good investment Based on data but there are factors that spreadsheets just can't capture that's why you need to cross-examine with something called qualitative analysis this basically means checking out things that aren't numerical like how well known the company is how loyal their customers are and how happy those customers are with that company so yeah it's not all about the numbers you need to seek out this information from sources that aren't as easy to find and really embody your inner Sherlock Holmes so what information should you be looking for and how can you find it when it's not immediately obvious well there are three key things you need to keep an eye on the first thing is brand recognition if you went to a bunch of people in the street and said tell me what you think about Apple you'd probably get mostly positive responses about their product quality and good privacy reputation I mean most people out there own an Apple device and they've built a very strong customer base but what if I ask you about a brand that wasn't as popular like XI you'd probably get a lot more blank stairs especially in the UK If you haven't heard of it it's a Chinese tech company so just through those two examples there is a clear contrast between the two and I'd say 99. 9% of you would rather invest in Apple stock just based off its brand recognition even though zi is a major player in China and Emerging Markets with a growing customer base but why is this well companies with a strong brand recognition have built up a lot of trust with their customers meaning that they're less impacted by any competition therefore minimizing your risk as an investor it's like the King on a chessboard every move revolves around it and its position is Central to the game making it Irreplaceable the second key thing to check out is the company's leadership you can find all this information by researching the company's board of directors reading transcripts of earnings calls and checking out the executives LinkedIn profiles however it's not only important to know who these leaders are but how long they've been working there in general the longer they've been in charge the more knowledgeable they are meaning the more successful they're likely to be in addition to this lots of CEOs have big followings now on Twitter however this comes with both pros and cons with the power to influence Millions with just a tweet it can send stock prices to the moon or crashing back down I mean back in 2016 Donald Trump tweeted the F35 program and cost is out of control billions of dollars can and will be saved on Military and other purchases after January the 20th that F35 program was a locked Martin project after that tweet loed Martin's stock price took a nose dive the company's shares fell by 2.

5% on the same day wiping out nearly $4 billion do in market value so it's becoming more important than ever to invest in companies with a sensible CEO otherwise the wrong tweet could lead to a very bumpy ride the third important thing to research is any competitive advantages so this can be things like patents law customer bases or disruptive business models these advantages set them apart from the competition helping them make more money and grow their businesses faster over time for example Tesla has managed to secure a competitive advantage through cuttingedge electric vehicle technology and an expansive charging Network these competitive advantages are like gold for investors because it means lower risk and bigger potential rewards you'll be able to find all this information on the company's website and and also through a good old Google search it's time consuming yes but understanding these aspects could make or break your investment remember research is your best friend it's better to spend a couple of weeks researching rather than make a rushed investment and have it backfire let's say you hear a nasty rumor about the person you're seeing you might panic and dump them without getting to the truth this is what so many people do when they hear bad news about the company they've invested in they rushed to sell it without actually giving it any proper thought they just act on emotion the news is actually so powerful think back to when the news broke that we might see empty shelves in the supermarkets what did everyone do they Panic bought toilet rolls until they really did run out the Panic buying just made the situation so much worse just imagine if that wasn't reported on the news there wouldn't have been panicked buying and toilet rolls wouldn't have sold out in every store the news has the same power over investors too and can cause abrupt surges in stock prices but more often than not it causes extreme Panic selling one example of panic selling is when the Cambridge analytica Scandal broke in March 2018 and personal data was unethically taken causing Facebook stock to plummet nearly 18% in just 10 days as investors reacted to the the news of data misuse but as we can see if we zoom out since then the stock has gone up by more than 200% this was just a blip on the radar and long-term investors that understood that held strong because they were confident in their research so if the news is full of fear monring then how do you know when to actually sell a stock well there's a few occasions when you should sell a stock and this might not be what you're expecting to hear but these occasions actually depend on you and not the stock market for example if you find yourself in a financial emergency and don't have any emergency fund to fall back on then I'd advise you sell your shares to get yourself out of that sticky situation or on a more positive note maybe you've hit a financial goal and you'd like to take a vacation I wouldn't normally suggest this to people but if it's a figure at which you would feel satisfied selling the stock ad then do it and enjoy your gains the last reason to sell a stock is when you no longer believe in the fundamentals of the company and their future trajectory in this case it may be time to cut and run when looking for a partner you don't want to settle with the first person you date it's important to explore what different people have to offer some may seem perfect but are too self-absorbed While others may have a great potential the same concept applies when building your Investment Portfolio the main types of stocks are value and growth it's beneficial to understand both so you can decide whether to focus on just one type or mix and match value stocks are normally shares in big well-known companies these companies have a few key features first their stock prices are considered lower compared to other companies in the market they also have a low price to earnings ratio which means they make good money compared to their stock price addition they're stable and they don't have wild ups and downs in their stock prices and they pay dividends which essentially means they regularly give some of their profits back to their investors value stocks are often found in companies that people rely on even when times are tough like during a recession for example these companies make or provide things that people need no matter what examples include Consumer Staples which are everyday products like food and household items energy companies that provide Fuel and power financials like Banks and Industrials that build things and provide raw materials some well-known examples of value stocks are Burkshire Hathaway which is owned by Warren Buffett and invest in many different companies proor and gamble which makes everyday products like shampoo and toothpaste and JP Morgan a major Bank grow stocks on the other hand are usually seen as overvalued compared to the market they tend to be pretty pretty volatile meaning their stock prices can go up and down a lot these stocks have higher price earnings ratios this means that investors expect them to grow a lot in the future and they pay little to no dividends some growth stocks aren't even profitable for a long time as they reinvest their earnings to fuel further growth growth stocks are expected to grow at a more rapid Pace than the overall Market which is why they often outperform the market some well-known examples of grow stocks include Amazon meta platforms Nvidia and Tesla if you're not sure of the stock is growth or value then a quick way to tell is by using the PE Ratio you can easily find this here on trading 212 typically the average PE ratio is around 20 to 25 anything below that would be considered good whereas anything above would be worse however this is just a general rule of fun and does vary depending on the industry so make sure to compare it with some other companies in that sector once you've determined whether you're a value growth or mixed investor you need to ensure you have a diverse range of stocks in your portfolio this is what we call diversification so if one of your stocks takes a dive you're banking on the others to balance things out a general rule is not to have more than 5% of your money in one stock and no more than 20% of your investments in one sector such as Tech technology for example it's a good idea to have stocks in at least five different sectors a minimum of two countries and more than 25 different stocks in total you could also look into having a cash Isa too which is basically just an individual Savings in the UK which allows you to save money and earn tax-free interest at the moment trading 212 seem to have one of the highest paying cash ises right now at 5.