M1. L1. Introduction into the Financial Markets
Summary
TLDRThis introductory lesson in a trading and investment program aims to raise awareness about the importance of understanding market basics. It differentiates between investing for long-term gains through fundamental analysis and trading for short-term profits using technical analysis. The course encourages learners to identify their goals, whether it's making money, learning the markets, improving trading skills, or entering the financial sector. It emphasizes the need to distinguish between a stock's current price and its intrinsic value, highlighting the importance of value investing and the role of price discovery in capital raising and risk transfer.
Takeaways
- 🚀 The course aims to raise awareness about the reasons for learning to invest in the market and to understand the basics of market participation.
- 🎯 The objectives include learning the differences between Real World Trading and developing a clear understanding of market basics to gain confidence in investment decisions.
- 🤑 Motivations for joining the course could range from long-term wealth creation, learning the markets, improving current trading strategies, to pursuing a career in finance.
- 📚 The lesson introduces the concepts of trading and investing, emphasizing the importance of understanding both to succeed in the market.
- 🔍 Investing is defined as buying for long-term gains, focusing on fundamental analysis to determine the intrinsic value of a stock and its potential for future growth.
- 📉 Trading is the short-term buying or selling of assets for profit, relying on technical analysis to time market entries and exits effectively.
- 🏢 Companies list their shares on stock exchanges primarily to raise capital, transfer risk, and discover their market value through price discovery.
- 💡 The purpose of financial markets is to facilitate capital raising for companies and provide investors with opportunities for growth and profit.
- 📈 Understanding the difference between a stock's current price and its intrinsic value is crucial for successful investing.
- 🤖 Warren Buffett's quote emphasizes the importance of paying attention to value over price when investing in the stock market.
- 🔑 The key to successful investing is identifying undervalued stocks with high potential for future growth, rather than simply focusing on current stock prices.
Q & A
What is the primary objective of the share trading investment program?
-The primary objective is to create awareness of why one would want to learn to invest in the market and to develop a clear understanding of market basics, including the differences between trading and investing.
Why is it important to understand the basics before participating in the market?
-Understanding the basics is crucial because it builds confidence in defining value in a stock, reading technical analysis, and comprehending the factors that cause stock prices to fluctuate and the underlying value to increase or decrease.
What are some reasons someone might be interested in this investment course?
-Reasons include wanting to make money with long-term or part-time investing, learning about the markets to become an active and profitable investor, improving current trading and investing strategies, or seeking a career in the financial trading and investment sector.
Who is Ray Dalio and why should one research him?
-Ray Dalio is one of the best investors in history. Researching him will likely provide insights into successful investing strategies and practices.
What is the main difference between trading and investing?
-Trading focuses on short-term profit gains, often using technical analysis for timing, while investing is about long-term gains, relying on fundamental analysis to determine the value of stocks.
Why is fundamental analysis important for investors?
-Fundamental analysis is important for investors because it helps them understand the company's financial health, management, assets, and macroeconomic environment, which are crucial for making informed investment decisions.
How does trading differ from investing in terms of ownership of the instrument?
-In trading, one does not need to own the instrument, as it often involves contracts for differences (CFDs), allowing for speculation on price movements without actual ownership.
What is the purpose of a company listing their shares on a stock exchange?
-The primary purposes are to raise capital for growth and expansion, transfer risk to investors, and discover the company's value through price discovery of the shares listed.
What does Warren Buffett's quote 'Price is what you pay, value is what you get' imply for investors?
-It implies that investors should focus on the intrinsic value of a stock rather than its current market price, and understand the difference between paying a price and receiving true value.
Why is it a misconception to judge a stock by its current share price?
-Judging a stock by its current share price is a misconception because the price does not necessarily reflect the stock's true value or its potential for future growth or decline.
What is the definition of value investing, and why is it important for investors to understand it?
-Value investing is an investment strategy that involves identifying stocks that are currently undervalued by the market. It is important for investors to understand because it helps them find opportunities for long-term gains by investing in companies with potential for growth that is not yet reflected in their stock prices.
Outlines
🚀 Introduction to Share Trading and Investment
This paragraph introduces the share trading and investment program, emphasizing the importance of understanding the basics of the market and the reasons for investing. The lesson aims to raise awareness about the motives behind learning to invest, such as making money, learning the markets, improving trading skills, or pursuing a career in finance. It also introduces the concept of the difference between Real World Trading and the need to comprehend the factors influencing stock prices and value fluctuations. The paragraph invites participants to reflect on their goals and assures them of an enlightening journey ahead.
🔍 Understanding the Differences Between Trading and Investing
The second paragraph delves into the distinctions between trading and investing, two market activities that aim for profit but differ in approach and strategy. Investing is characterized as a long-term strategy focused on buying stocks with the expectation of their value increasing over time, relying on fundamental analysis to assess a company's financial health and market potential. Trading, on the other hand, is a short-term activity that can capitalize on both rising and falling markets, using technical analysis to time purchases and sales for profit. The paragraph also explains the concept of trading contracts for differences (CFDs), which allow traders to speculate on price movements without owning the underlying asset.
📈 The Importance of Timing and Price in Trading Decisions
This paragraph discusses the significance of timing in financial market trading, highlighting the role of technical analysis in making informed purchase decisions. It explains that while fundamental analysis helps determine a stock's value, technical analysis is crucial for identifying the optimal time to buy or sell shares. The paragraph further clarifies that in trading, one does not need to own the asset to profit from its price movements, as CFDs allow for speculation on future price changes. Additionally, it touches on the sensitivity of trading to market 'noise' and news, which can cause price fluctuations. The purpose of financial markets and the reasons companies list shares, such as raising capital, transferring risk, and price discovery, are also briefly outlined.
Mindmap
Keywords
💡Investing
💡Trading
💡Marketplace
💡Fundamental Analysis
💡Technical Analysis
💡Stock
💡Intrinsic Value
💡Price Fluctuation
💡Value Investing
💡Ray Dalio
💡Warren Buffett
Highlights
Introduction to a trading and investment program aimed at creating awareness about the importance of understanding market basics.
Objective to understand why people want to learn to invest in the market and the different reasons for joining the course.
The importance of distinguishing between Real World Trading and developing a clear understanding of market basics for successful participation.
Different motivations for joining the course, including long-term wealth creation, learning the markets, improving current trading strategies, or pursuing a career in finance.
The definition of investing as a long-term action focused on buying for gains and holding shares for potential future value increase.
Investing relies on fundamental analysis, considering both micro and macroeconomic factors affecting a company's performance.
The necessity of owning the instrument being invested in, such as shares of a company, to benefit from its future valuation.
The sensitivity of investing to news and fundamental influences, emphasizing the importance of studying fundamental analysis.
Definition of trading as the art or action of buying or selling for short-term profit, including day trading and CFDs.
Trading's reliance on technical analysis for timing purchases and the difference from investing in terms of ownership of the instrument.
The purpose of financial markets and why companies list shares on stock exchanges, including capital raising and risk transfer.
The concept of price discovery in the stock market and its role in determining a company's value through share price movements.
Warren Buffett's quote emphasizing the difference between price and value, and the importance of understanding this distinction in stock market participation.
The misconception that a low stock price equates to a low value and the need to identify undervalued companies with high future potential.
Key points on price and value, including the current price indicating the present value and the intrinsic value potentially being different based on company advancements or risks.
The assignment to research the definition of value investing as additional learning material between lessons.
Transcripts
so I formerly welcome you to the share
trading investment program this is
lesson one where we're going to be
kicking things off a world of
opportunity let's get stuck into
it so taking a quick look at the
objectives that we'd like to accomplish
at the end of this lesson is the
awareness of why we want to learn how to
invest in the market in the first place
and then we'll be getting onto learning
the differences between Real World
Trading and then we'll be getting into
developing a clear understanding of
Market basic you cannot participate in
the marketplace unless you have
confidence in understanding the basics
because understanding how to define
value in a stock pick or read the
analysis on a technical side of a
specific stock is one thing and it's a
very important part of the decision
making process but understanding what
goes on behind the scenes and what
actually makes prices fluctuate what
makes the the underlying value of a
stock increase in value or decrease in
value is vitally important as well as
well so without further Ado let's get
into core topic number one and that is
why are you here what do you want to
achieve in the market or what brought
you towards doing this course in the
first place let's look at a few options
maybe you want to make money longterm
with some short-term uh or part-time
investing decisions right maybe you're
just someone who wants to learn the
markets and become an active and
profitable investor maybe you want to
improve your current trading and
investing because you're not currently
successful in the system that you're
using maybe you also want to just find
an active career path into the financial
trading and investment sector so if you
fall into one of those four categories
welcome to the course this is going to
be an amazing journey for you and I
can't wait to get fully submerged in all
the amazing content that we have laid
out for you so let's continue all right
it's time to get stuck into core topic
number two and that's going to be
trading and investing I love this whole
portrait of Ray Delo a part of what you
can do as a part of your homework at the
end of this lesson is to go research who
Ray Delio is and I'm sure you'll be very
surprised by the information you find
one of the best investors to date in
history that's for sure all right so
let's look at the differences between
trading and investing so both involve
seeking profit from the markets but
which side should you be on though
that's a question that many people ask
especially getting into the marketplace
for the first time well let's define the
two and then I'm sure you'll have a
little bit more clarity on how we look
at trading versus investing starting off
with investing as I'm sure you already
understand investing is the action of
buying for long-term gains it's about
understanding how to define the value in
a stock pick and then making a buying
decision on a certain amount of shares
that you can then hold on to and if the
underlying value of those shares
increase in value over time then so does
the value of the amount of shares that
you hold to which then you can decide to
sell those shares for a profit or maybe
continue holding on for longer term
gains when we looking at investing we
are considering the future value of what
it is we are dissecting the value of
okay so we are looking at what the
future price could potentially be and
looking to maybe gain the potential of
the rise in price or the rise in value
of our Pacific stock pick so that we can
sell at a specific Target right
investing generally relies on
fundamental analysis so it's not only
based on what's going on in a micro
scale in a company so the company
reports the who they see CEOs are who
their board of directors are uh what
their uh cash flow is like what their um
assets are like we're looking at the
macroeconomic environment around that
company as well what's happening within
those sectors are there external
influences that could affect the
performance of that company so we need
to look at all these fundamental
influences in order to make a proper
investment decision you need long-term
growth opportunity in order to see any
sort of financial gain from whatever it
is that you investing in you must own
the instrument being uh invested in so
when you investing into a company for
instance you're essentially buying a
little bit of that company itself so you
have to own the share in order to
benefit from this future valuation where
you can sell at a later point in time
because if you don't own it then you
have nothing to sell as with anything in
the financial markets investing is going
to be sensitive to news we can always
see price fluctuations occur depending
on what is happening in the fundamental
news sector which is why studying
fundamental analysis is going to be such
a key element to our success as budding
investors so let's have a quick look at
how we Define trading and how it
differentiates from investing SO trading
is the art or action of buying or
selling for shortterm profit gain and
when we talk short-term we're talking on
a weekly or even monthly basis or even
sometimes day today all right we can
make money as traders in both upward and
downward moving markets and that that is
generally based on the fact that you're
trading contract for differences cfds
all right when it comes down to the
timing of our purchasing decisions based
on how many shares we'd like to include
in our portfolio then we're going to be
relying on technical analysis because
timing is absolutely crucial in any
Financial Market instrument trading
approach so we need to make sure that
not only are we determining the value
correctly but that we are buying a
certain amount of shares to add to our
portfolio at the perfect time
fundamental analysis will help us
determine the value and technical
analysis will help us Define the timing
behind our purchasing decisions so in
trading you don't need to own the
instrument in order to trade it
generally because it's a cfd a contract
for difference so you putting up a
portion of your own account value in
order to speculate the future price
movements of what it is that you're
looking at let's say you're looking at
the currency market for example you're
looking at EUR USD you could determine
if euro is going to go up or down uh
based on your own speculative views and
your strategy that that you're using and
if you're right then you'll be able to
benefit so if you make a buying decision
and the price of Euro goes up against
USD then you'll be right and you'll gain
a certain uh portion of capital from the
markets based on how much risk you added
on that trade or inversely if the market
goes down and you've made a selling
decision before that happened then
you'll be right to a certain degree and
also be able to gain a certain
percentage based on how much risk you've
made or applied to that certain trade
yes trading is also very sensitive to
noise so if you are looking at any sort
of charting behavior and there is some
sort of uh news that comes out as a huge
fundamental influence then we will see
the price fluctuations on the chart that
we are looking at as well let me help
you understand that the purpose of the
financial markets and a company listing
their shares on the on a stock exchange
is for them to mainly raise Capital
that's their primary objective so that
people can buy into their company and
buy into their future valuation and
their future growth be a part of that
company's growth essentially right
another big reason that a company will
list their shares on the stock market is
so that they can transfer risk so they
list their shares on the stock exchange
in order to get investors interested in
raise the capital for them to use to
actually broaden out into different
opportunities and expand but as well now
a company listing their shares on a
stock exchange is a great way for them
to discover the value of their company
and that's through price discovery of
the shares being listed right so the
more people who buy shares uh the more
money the company essentially makes and
the higher the price of the shares in
inevitably come and then there is the
transfer of liquidity and international
trade as well and this is just a very
brief overview as to why companies list
their shares on a stock exchange to
create some sort of interest from
investors to help benefit the company's
growth and overall development as well
so Warren Buffett famously said price is
what you pay value is what you get in
order to participate in in the stock
market successfully you must be able to
understand what you can invest in and
you also need to understand how you
analyze and when do you actually trade
and then how do you actually buy and
sell so how do you find the value
determine when the right time is and
then pull the trigger on a buying
decision you need to know how much a
stock costs to purchase is not
necessarily a true representation of the
Stock's True Value so you need to
understand that it's not going to be uh
judging a book by its cover process if
you had to see Mark Zuckerberg walking
on the side of the road you definitely
wouldn't assume that he was the
billionaire who created Facebook right
you would assume just by the name Mark
Zuckerberg is someone who probably wears
a suit and goes to very important
meetings and spends most of his time
sitting around boardroom tables but he's
very far from the average billionaire
and for this reason uh we should not
judge a book byas cover and there's an
equally valid saying for the investor
and that is don't judge a stock by a
share price when we talk about future
valuation we are not talking about a
stock Price's current value all right
and they may be towards the bottom or
middle still on their way up as a
company and you need to be able to
determine if a company is undervalued
which means that their stock price is
low but their future valuation is high
and that's what we call value-based
invest so most people incorrectly assume
that stock with a low price is cheap and
worthless while another one with a high
price is expensive the Stock's price
says very little about a Stock's True
Value so current price does not dictate
whether the stock is heading higher or
lower in future right so we need to look
for companies just like that who are
trading lower and have massive potential
in the environments that they're going
to be operating later on so there are
some key points that I need you to
remember regarding price and value a
stocks price indicates its current value
to buyers and sellers and you can
highlight current not future current
price intrinsic value may be higher or
lower based on the company's
advancements or the certain risks they
take to grow and develop into the
industries that they operate within
successful investing overall is the art
of identifying stocks that are currently
undervalued by the market and we're not
talking about the investor the investor
is interested in the intrinsic value the
market is focused on the current price
just as a little bit of extra
information that will keep you busy
between now and your next lesson I would
like you to research the definition of
value investing in your own
[Music]
time
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