Stock Investing Final Without Logo - YIS

Transcription

Stock Investing 101www.younginvestorssociety.org

STOCK INVESTING 101Copyright 2016 by Young Investors SocietyAll rights reserved. No part of this publication may be reproduced, distributed, or transmitted in anyform or by any means, including photocopying, recording, or other electronic or mechanical methods,without the prior written permission of the publisher, except in the case of brief quotations embodiedin critical reviews and certain other noncommercial uses permitted by copyright law. For permissionrequests, write to the publisher, addressed “Attention: Permissions Coordinator,” at the address below.Young Investors Society5551 Colodny DriveAgoura Hills, CA 91301www.younginvestorssociety.org

TABLE OF CONTENTSLESSON 1: THE SEVEN GOLDEN RULES OF INVESTING .3Introduction .3ARE YOU AN INVESTOR? .3SECTION 1 .5Who are Investors? .5Starting Early .6WHAT DOES IT REALLY MEAN TO INVEST IN THE STOCK MARKET? .7SECTION 2 .9BEATING THE MARKET .9QUESTIONS TO CONSIDER: .10SECTION 3 .11THE SEVEN GOLDEN RULES .11LESSON 2: THE VALUE OF A STOCK .16Introduction .16SECTION 1 .17WHY DO STOCK PRICES FLUCTUATE SO MUCH? .17MR. MARKET .17SECTION 2 .19WHAT IS THE VALUE OF A BUSINESS? .19SECTION 3 .24UNDERSTANDING THE TERMINOLGY .24THE “GO-TO” WAY TO VALUE A BUSINESS: P/E RATIO .25LESSON 3: WHAT MAKES A GOOD BUSINESS? .27Introduction .27SECTION 1 .28HOW DO I KNOW IF A COMPANY IS A GOOD BUSINESS? .28SECTION 2 .30WHATEVER FLOATS YOUR MOAT .30Types of Economic Moats .30LESSON 4: FINDING STOCKS TO INVEST IN .41Introduction .41SECTION 1 .42HOW DO I COME UP WITH INVESTMENT IDEAS? .42SECTION 2 .44STOCK SCREENS .44IS THE COMPANY GOOD? .45

IS THE COMPANY GROWING? .45IS THE STOCK CHEAP? .45THE S&P 500 & THE DOW JONES: .47SECTION 3 .48RESEARCH REPORTS: .48GIVING DUE DILLIGENCE ITS DUE .49LESSON 5: LEARNING TO SPEAK THE LANGUAGE OF FINANCE .52Introduction .52SECTION 1 .53WHY DO COMPANIES PREPARE FINANCIAL STATEMENTS? .53WHO USES FINANCIAL STATEMENTS? .53WHAT ARE THE THREE FINANCIAL STATEMENTS? .54THE BALANCE SHEET .54SECTION 2 .56THE INCOME STATEMENT .56THE STATEMENT OF CASH FLOWS .57SECTION 3 .59HOW DO I FORECAST REVENUES OF A COMPANY? .59HOW DO I FORECAST MARGINS OF A COMPANY? .60COMPANIES .63APPENDIX A: SELECTED FINANCIAL STATEMENTS .64LESSON 6: THE INVESTMENT THESIS .73SECTION 1 .75WHAT IS AN INVESTMENT THESIS? .75SECTION 2 .78LESSON 7: INTRINSIC VALUE .82SECTION 1 .84SECTION 2 .86Determining the Intrinsic Value of a Company .86The Discounted Cash Flows method .86SECTION 3 .89The Relative Valuation Method .89Two Primary Valuation Options .92GLOSSARY OF TERMS .93

LESSON 1:THE SEVEN GOLDEN RULES OF INVESTINGIntroductionWelcome Young Investors! It is our goal to make you master investors. Many ofthe lessons you will learn have been used by successful investors over severalgenerations. You will notice that a recipe for success is easy to follow but is actuallyfollowed by few. Let’s start with a question:ARE YOU AN INVESTOR?Are you a spender or an investor? Pop Quiz. Ready. Go.Question #1I’ll give you 100 today or a new Mercedes next year? Which one will you take?A) The cashB) The carC) Why are you even looking at other options, you’d be crazy not to take the car!Question #2I’ll give you 100 today or 100 next year. Which one will you take? Think aboutit.A) The cash todayB) The same cash tomorrowC) Of course you wouldn’t wait! What’s the point? You wouldn’t get anything inreturn for waiting.In one minute we’ve narrowed down whether you are an investor or a spender.You’re a spender if you don’t get a return. You’re an investor if the future is worthsomewhere between 100 and a new car. The question of whether you will invest isreally just a question of how much you believe tomorrow can offer.How much could the future be worth for a bit of sacrifice today?That is the key question that every investor asks themselves .5

YOUNG INVESTORS SOCIETY . STOCK INVESTING 101QUESTIONS TO CONSIDER:1. How much cash would you be willing to give up today in return for apromise to receive 500 5 years from now from that investment? 50? 100? 300? 450?2. What does a low number ( 50) say about you? What does a high numbersay about you ( 450)?6

YOUNG INVESTORS SOCIETY . STOCK INVESTING 101SECTION 1Who are Investors?The truth is that WE ARE ALL investors. When we hear the word investors,we may think of a high-flying Wall-Street banker in a blue-pin stripedsuit. That is certainly one type of investor, but so is the business owner, thefamily trying to save for their kids’ college, and the college student trying toscrape up enough quarters to eat dinner. We all need to manage the money wemake, and we all hope to end up with as much money as possible.The question of building wealth in your life will really boil down to twoquestions?1) Are you able to save each year?2) When you save, where do you put the money?HypotheticalLet’s assume you’re 20 years old and just took a job as a fireman,your childhood dream (what kid doesn’t want to be a fireman,right?). Your salary is meager, but you make the goal to

9 190k. Look at the results below assuming he invests in the stock market: Started saving 1,000 per year at at Age 40 190,773 (at age 70) at Age 30 535,682 (at age 70) at Age 20 1,359,199 (at age 70) And then, letÕs say you join Young Investors Society and start investing