Investing For Beginners 101: 7 Steps To Understanding The .

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Investing for Beginners 101: 7 Steps to Understanding the Stock Market7 Steps to Understanding theStock MarketThe Investing for Beginners 101 GuideCopyright: www.einvestingforbeginners.comPublished: April 27, 2013. Updated: April 21, 2020.Information in this eBook should not be construed as investment advice. The work is based onSEC filings and should not be seen as a solicitation to buy or sell certain securities. The author isnot a lawyer, an accountant, or a financial planner. Any suggestions are not intended to solve anyparticular financial situation and you should also seek the services of a certified professional.The information in this guide should be considered for informational purposes only. There are linkscontained in this guide that may benefit the author financially. The author does not assumeresponsibility for any Third Party material or opinions that may be present in the guide.No parts of this publication may be reproduced or distributed without the expressed writtenconsent of the author. All registered trademarks are property of their respective owners.All readers of this guide must do their own due diligence and accept that the author does not takeresponsibility for the success or failure of your investment or business decisions. As of the date ofpublication, the author does not hold any positions in the securities discussed in this guide.www.einvestingforbeginners.com 2

Investing for Beginners 101: 7 Steps to Understanding the Stock MarketAndrew Sather’s About PageThe stock market is intimidating andconfusing, yet it is the KEY to attainingfinancial freedom.If you have a 401k, you have money in thestock market. But if you don’t know how itworks and aren’t familiar with basic investingprinciples, you could be leaving hundreds ofthousands of dollars (or millions!) of hardearned savings on the table.The thing is, you don’t need a background infinance to become a self-sufficient investor.The free resources in this book can empoweryou to reach your goals if you put in theeffort. Learn it once and it benefits you for therest of your life.What is financial freedom?It’s the coveted financial situation where youreceive a perpetual income stream from yourinvestments – to unlock the life you’ve alwaysdreamed of.My name is Andrew Sather and I’m driven tohelp you decode the jargon of the market,investing and finance. You can get started onyour path to financial freedom TODAY, byreading through this eBook, reading throughthe blog, listening to my podcast, orsubscribing to my free email newsletter (whichyou just did) for daily tips.Stop working for money, put money to workfor you. Let’s get started.www.einvestingforbeginners.com 3

Investing for Beginners 101: 7 Steps to Understanding the Stock MarketContentsStep 1 to Understanding the Stock Market . .5The Rule of 72 Exercise . . .7Step 2/7: How the Stock Market Works . .8Step 3/7: The BEST Stock Strategy and Buying Your First Stock .12Step 4/7: How To Calculate P/E Ratio . . .16Step 5/7: The Single Two Factors Most Correlated To Success. .20Step 6/7: Cashing In With A Dividend Is A Necessity .23Step 7/7: The Best Way To Avoid Risk & Putting It All Together!.28www.einvestingforbeginners.com 4

Investing for Beginners 101: 7 Steps to Understanding the Stock MarketInvesting for Beginners 101:7 Steps to Understandingthe Stock MarketWelcome to this easy 7 step guide tounderstanding the stock market, Investing forBeginners 101. I’ve created the easy to followInvesting for Beginners guide to simplify thelearning process for entering the stock market.By leaving out all the confusing Wall Streetjargon and explaining things in simple terms,Investing for Beginners 101 is the perfectsolution for those willing to learn.Before we get started, here is a breakdown ofthe 7 categories for the first official eInvestingfor Beginners guide.1. Why to Invest?2. How the Stock Market Works3. BEST Stock Strategy; Buying Your First Stock4. How to Calculate the Most Used Valuation5. The Single Two Ratios Correlated to Success6. Cashing In With a Dividend Is a Necessity7. Best Way to Avoid Risk; Putting it all Together!Why is investing so important?Let’s imagine a life without investing first. Youwork 9-5 for a boss all your life, maybe get acouple of raises, a promotion, have a nicehouse, car, and kids. You go on vacation oncea year, eat out regularly, and attempt to enjoythe finer things in life as best you can.Now since you haven’t invested, you get old,become unattractive for hiring, and live with ameasly social security allowance for the rest ofyour life. You might’ve made good money whenyou were young, but now you have nothing toshow for your lifetime of work.Now let’s say you did save some money forretirement, but again this money wasn’tinvested and won’t be invested. Let’s even stayoptimistic and assume you saved 1,400 amonth for 26 years. This would leave you with 403,200 to live on, which on a 60,000 ayear lifestyle, would only last you 6.72 years.You’re retiring at 65 only to go broke at 71 andyou’ve been a good saver all your life. Well thenwhat’s the point of saving, you may ask? Nowwww.einvestingforbeginners.com 5

Investing for Beginners 101: 7 Steps to Understanding the Stock Marketlet me show you the same numbers but addinvesting into the equation.Again, let’s say you saved 1,400 a month for26 years. BUT, this money was investedcontinuously as part of a long-term investmentplan, solid in the fundamentals you learnedfrom Investing for Beginners 101. Now,including dividends in long-term stock marketinvestments,Icanconfidentlyandconservatively say that you can average a 10%annual return on these investments.The same 1,400 a month compoundedannually at 10% turns your net worth into 2,017,670.19 in 26 years! But the story getseven better. With this large sum of money atyourretirement,againconservativelyassuming a 3% yield on your dividends, youcan collect 60,530 a year to live on WITHOUTreducing your saved amount.See the graph to the right to get a visual pictureof the staggering difference.Answer: Compounding InterestBy letting the power of compounding interestassist you in saving, you leverage the resourcesavailable in the market and slowly build wealthover time. It’s not some mystified secret or getrich-quick shortcut; this is a time-testedmethod to become wealthy and be financiallyindependent, and it’s how billionaires, likeWarren Buffett, have done it all their lives. Heteaches this exact thing.www.einvestingforbeginners.com 6

Investing for Beginners 101: 7 Steps to Understanding the Stock MarketFor those who don’t want to think abouttomorrow, I can’t help you. But tomorrow willcome, it always does. Would you rather spendthe rest of your life with no plan, dependent onothers and unsure of your future? Or would yourather be making progress towards a goal,living with purpose and anticipating the fruitsof your labor you know you will be reaping foryears after you sow?We want the ability to calculate how muchinterest we could earn on an averageinvestment in order to plan sufficiently andcreate goals for that investment plan.The choice is yours, and only YOU will feel theconsequences of that choice.So, for our previous example of 10%compounded annually, it takes our money 7.2years to double.The Rule of 72 ExerciseThe equation for calculating how long it takesan investment to double is as follows:[ 72 / (interest %)] # of years to double72 / 10 7.2 yearsThe Rule of 72 is a simple way to quicklycalculate how long it will take for an investmentto double, based on compounding interest.In a period of 26 years, our money doubles 3.6times. When adding in the monthly additions,this is how 1,400 a month becomes 2,017,670.19.As I referred to in the previous section,compounding interest works its wonders byearning interest on capital, then earninginterest on the interest of that capital, thusmultiplying the amount of money able to besaved each and every year thereafter.The best way to learn is by doing. Work on thisexercise and then read the answer in the nextexercise section. How long until your moneydoubles at 12% annually?www.einvestingforbeginners.com 7

Investing for Beginners 101: 7 Steps to Understanding the Stock MarketStep 2/7: How the StockMarket WorksThe saying goes that knowing is half the battle,and the same is true with investing in the stockmarket. By yearning to educate yourself abouthow to invest and build wealth, you are alreadyhalfway to your goal.My job as your teacher is to build a foundationof educational wisdom that can be broadly usedto earn money and understand any stockmarket strategy presented to you. I hope thisguide is as entertaining and easy to follow ascan be.In order to understand investing, you mustunderstand how the general principles behindthe stock market work. Before I startedresearching and reading about investing, theonly things I knew about the stock market werewhat I saw on TV or heard on the news, and itwas never positive.Stock Market is OverdramatizedI remember hearing about the disaster of theFacebook IPO (initial public offering, when thestock is first able to be bought by the public),the failures of Freddie and Fannie Mae and howstocks tumbled afterwards, and the great dotcom bubble that burst in 2000.With each stock market crash or failure, thereare lots of emotional stories about everydaypeople losing everything they had or big,greedy corporate leaders succumbing to the fallof their empire.Because of my limited knowledge of the stockmarket, I pictured it as full of Gordon Gekkobusinessmen types (from Wall Street: MoneyNever Sleeps) with money spilling out of theirears and lives full of fast action and New Yorkspeed trading. Hollywood depicts Wall Street asthis extreme roller coaster ride where fortunesare won and lost every instant, when in reality,this isn’t the case. Yes, the stock market hasups and downs, there is risk involved, andsome people do get burned badly, but thewww.einvestingforbeginners.com 8

Investing for Beginners 101: 7 Steps to Understanding the Stock Marketmajority of successful investors take veryboring and safe strategies straight to success,because they understand the basic principlesand are educated on how to stay out of riskyinvestments.Reality: The Market FluctuatesI feel like I must give the reader someperspective to the reality of the stock market,so you can understand that the big flashy newsheadlines and TV specials are extremelyoverdramatized. The S&P 500 is a list of the top500 stocks in the U.S. and is widely acceptedas the benchmark for all stock investments;analysts consistently compare performance tothat of the S&P 500. The S&P 500 is an indexthat you can think of that is similar to the DOW,which only has 30 companies. Now, the worstone day loss for the S&P 500 in 2008 was only-9.03%. In total for the year, the S&P 500 lost-38.49%, which was the worst year the indexhas ever had.less than half their worth during that year. Butas you can see from the graph below, the S&Pquickly recovered lost ground after the ’08fall.In fact, periods of time where the price falls arecommon. An important aspect of investing isknowing that stock prices do fluctuate up anddown but when held over long periods of time,the chances of gains exponentially increase.If you think about these numbers for a little bit,anyone can clearly derive that investors lostwww.einvestingforbeginners.com 9

Investing for Beginners 101: 7 Steps to Understanding the Stock MarketReality: Media Coversthe ExtremeAs you can see, the majority of investors aren’tin fact losing their shirts and the media ischoosing to cover extreme cases of peoplelosing money in the stock market, simplybecause they make for good stories and goodTV. Those who did lose all their money weren’tdiversified in their investments, bought stock incompanies that were over leveraged, borrowedmoney to purchase stocks, or a combination ofall three.For those investors who didn’t sell their stocksin 2008, which would’ve been the worst time tobail out of your stocks, the market recoveredand the “devastating losses” didn’t affect theirportfolio. Therein lies the importance of longterm investing and riding out the storms. Sinceits inception in 1957, the S&P 500 has returnedon average 10.83% annually, when dividendsare automatically reinvested.For those who need a reminder on howpowerful a compounding 10% return can be,recall my 2 million example. In 40 years, thisamount becomes 8,179,114!Smart Investors Don’tListen to NoisePlease don’t forget that a stock is meant to bea long-term investment. It will pay youdividends that over time will compound andmultiply, and if invested in a good company,the share price will appreciate substantially aswell.As financial guru Dave Ramsey put it, “The onlypeople who get hurt riding a roller coaster arethe ones that jump off.” Once you gainconviction in your investments - knowing thatthey will recover when hit badly - you will easilybe able to avoid selling your stocks at theworst possible time, when the market has atemporary crash and it seems like everyonearound you is selling too.www.einvestingforbeginners.com 10

Investing for Beginners 101: 7 Steps to Understanding the Stock MarketBefore I introduce the more in-depth topics ofthis guide, I feel I must explain how I derivedthese categories and why they are relevant toyou. While the Value Trap Indicator I teach ismy own original invention, the fundamentalideas and ratios are all well-known and widelyused by millions of investors around the worldand countless investing experts and authors. Infact, if you get around to reading enoughinvesting and stock market books, you’ll realizethey are almost all the same, and many of thevarious ways institutional investors evaluate astock run parallel to other strategies.Step 3 will uncover the BEST stock strategyyou will ever learn and show you that buying a

Investing for Beginners 101: 7 Steps to Understanding the Stock Market www.einvestingforbeginners.com 8 Step 2/7: How the Stock Market Works The saying goes that knowing is half the battle, and the same is true with investing in the stock market. By yearning to educate yourself about how to invest and build wealth, you are already