Investing For Beginners - How I Make Millions Picking Stocks (Full Guide)

Summary

This video script offers a unique perspective on investing by likening it to finding a partner, emphasizing the importance of a long-term approach. It introduces two main strategies for stock selection: technical and fundamental analysis. The script delves into financial statements, focusing on balance sheets, income statements, and cash flow to assess a company's health. It also highlights the significance of qualitative factors like brand recognition and leadership. The video advises against emotional reactions to news and stresses the importance of portfolio diversification, distinguishing between value and growth stocks, and the benefits of index fund investing.

Takeaways

• 💡 Investing in stocks is likened to finding a partner, suggesting a long-term and successful commitment.
• 📈 There's no guaranteed method to predict stock market success, but strategies can improve chances.
• 🔍 Two main investment strategies are the technical and fundamental approaches, each with different focuses and outcomes.
• 📊 Technical analysis is for short-term trading and uses price patterns, while fundamental analysis examines company details for long-term investment.
• 🚫 The video warns against seeking quick riches and emphasizes the importance of secure financial planning.
• 💼 The balance sheet is crucial for understanding a company's financial health, detailing assets, liabilities, and equity.
• 🔑 A simple liquidity ratio (current assets divided by current liabilities) can indicate if a company can cover its short-term debts.
• 📝 The income statement provides insights into a company's revenue, expenses, and profitability over time.
• 💰 A healthy profit margin, calculated from operating income and total revenue, is a good sign for investors.
• 🌟 Past performance is not a guarantee of future results, so it's important to consider a company's trajectory and not just its history.
• 💬 News and rumors can significantly impact stock prices, but informed investors should not solely rely on emotional reactions to news.
• 🏆 Competitive advantages, such as patents and brand loyalty, can set companies apart and offer lower risk and higher rewards.
• 📚 Qualitative analysis, including brand recognition and leadership quality, is essential for a well-rounded investment decision.
• 🔄 Diversification in a portfolio is key to managing risk, suggesting investments across various sectors and companies.
• 📉 Knowing when to sell a stock is important and should be based on personal financial needs or a change in the company's fundamentals.
• 🌱 Growth stocks are typically more volatile and expected to grow rapidly, while value stocks are more stable and often pay dividends.
• 🌐 The script promotes the use of tools like Trading 212 for research and investment, highlighting the availability of free shares and cash ISAs.

Q & A

What is the analogy used in the script to explain the concept of investing in stocks?

The analogy used in the script to explain investing in stocks is finding a girlfriend. It suggests that buying a share in a company is like entering a partnership, where you become a part owner and want the relationship to be happy, long, and successful.

What are the two main strategies for approaching the stock market mentioned in the script?

The two main strategies for approaching the stock market mentioned in the script are the technical and the fundamental approach. The technical analysis is mainly for short-term day traders, while the fundamental analysis involves a comprehensive examination of a company's financial health and potential for future performance.

According to the script, what is the success rate of day traders using technical analysis?

The script suggests that more than 95% of day traders lose money rather than making it, indicating that the success rate of day traders using technical analysis is quite low.

What is a balance sheet and why is it important for investors?

A balance sheet is a financial statement that provides a snapshot of a company's financial position at a specific point in time, detailing the company's assets, liabilities, and shareholders' equity. It is important for investors as it helps to understand the company's financial health and its ability to cover short-term debts.

What is the significance of the current assets to current liabilities ratio in evaluating a company's financial stability?

The current assets to current liabilities ratio is significant in evaluating a company's financial stability because it indicates the company's ability to cover its short-term debts. A good rule of thumb is that this number should be above one.

What is an income statement and how does it help investors?

An income statement is a report card for a company, showing how well it did over a specific period by detailing how much money the company made and how much it spent. It helps investors by providing insights into the company's profitability and financial performance.

What is the meaning of the operating income to total revenue ratio and what does it indicate about a company's profitability?

The operating income to total revenue ratio indicates the proportion of total revenue that remains as profit after covering the cost of revenue and operating expenses. According to the script, a rule of thumb is that 5% is a low profit margin, 10% is a healthy margin, and 20% is a high margin.

What is a cash flow statement and why is it important for investors?

A cash flow statement shows how much money is coming in and going out of a company over a period of time. It is divided into operating activities, investing activities, and financing activities. It is important for investors because it provides insights into the company's liquidity, financial flexibility, and the sustainability of its financial operations.

What is qualitative analysis and why is it important in investment decision-making?

Qualitative analysis refers to the examination of non-numerical factors such as brand recognition, customer loyalty, and the company's competitive advantages. It is important in investment decision-making because it captures intangible aspects that can significantly influence a company's success and an investment's potential returns.

What are the main types of stocks and how do they differ?

The main types of stocks are value and growth. Value stocks are typically shares in well-established companies with lower stock prices relative to the market, stable performance, and regular dividend payments. Growth stocks are often seen as overvalued and are characterized by higher volatility, higher price-earnings ratios, and expectations of rapid growth in the future, often with little to no dividend payments.

What is diversification in the context of building an investment portfolio and why is it important?

Diversification in the context of building an investment portfolio refers to spreading investments across different types of stocks, sectors, and geographical locations to reduce risk. It is important because it helps to mitigate the impact of a poor-performing stock or sector on the overall portfolio, ensuring that the investments are balanced and less vulnerable to market fluctuations.

Outlines

00:00

💡 Investing Wisdom: The Girlfriend Analogy

The speaker shares valuable investment advice from a millionaire, comparing stock picking to finding a girlfriend. The analogy emphasizes the importance of a long-term, successful partnership with the company you invest in. The speaker debunks the myth of quick wealth through day trading, citing the high failure rate of 95% according to The Motley Fool. Instead, they advocate for a strategic approach to investing, choosing between technical or fundamental analysis. Technical analysis is for short-term traders using price patterns, while fundamental analysis involves in-depth company research for long-term gains. The speaker stresses the importance of a secure financial future over quick profits and encourages viewers to invest for the long-term.

05:00

🔍 Understanding Financials: The Balance Sheet and Income Statement

This paragraph delves into the importance of analyzing a company's financial health through its balance sheet and income statement. The balance sheet is likened to a cookie jar, representing a company's assets, liabilities, and shareholders' equity at a specific point in time. The income statement is compared to a report card, showing a company's revenue, expenses, and net income over a period. The speaker provides a practical example using Coca-Cola's financials, explaining how to calculate the liquidity ratio and profit margin to assess a company's risk and profitability. They also caution against relying solely on past performance and emphasize the importance of continued research and due diligence.

10:01

💰 Cash Flow and Qualitative Analysis in Investing

The speaker discusses the significance of a company's cash flow statement, which details the inflow and outflow of money over time, categorized into operating, investing, and financing activities. They advise looking for positive operating cash flow and cautious investment and financing activities. The paragraph also introduces qualitative analysis, which involves assessing non-numerical factors like brand recognition, customer loyalty, and company leadership. The speaker warns against making investment decisions based on emotions or reactions to news, highlighting the importance of thorough research and understanding of a company's competitive advantages.

15:04

📉 Panic Selling and the Importance of Research

This section addresses the dangers of panic selling in response to negative news, using the example of the Cambridge Analytica scandal's impact on Facebook's stock price. The speaker emphasizes the importance of research and a long-term perspective, rather than reacting to short-term market fluctuations. They also discuss the importance of a company's leadership, particularly the influence of CEOs on social media, and the need for sensible leadership to maintain investor confidence. The speaker encourages investors to be like Sherlock Holmes, seeking out information that may not be immediately apparent but is crucial for informed investment decisions.

20:05

🏆 Diversification and the Types of Stocks

The speaker explains the concept of diversification in building an investment portfolio, highlighting the differences between value and growth stocks. Value stocks are typically from well-established companies with lower stock prices, stable earnings, and dividends, often found in essential industries. Growth stocks, in contrast, are seen as overvalued but have the potential for rapid growth with higher price-earnings ratios and little to no dividends. The speaker advises against concentrating investments in a single stock or sector and suggests a diversified portfolio with stocks from different sectors, countries, and at least 25 different companies. They also mention the option of a Cash ISA for tax-free savings and hint at the benefits of index fund investing for those who find picking individual stocks too time-consuming.

Keywords

💡Investing

Investing refers to the act of allocating resources, such as money, with the expectation of generating income or profit. In the context of the video, investing is likened to finding a girlfriend, emphasizing the long-term and partnership-like nature of choosing stocks. The video script mentions that investing involves picking the right stocks and treating the act as a partnership with the company, aiming for a happy, long, and successful relationship.

💡Stocks

Stocks represent shares in the ownership of a company and are a common form of investment. The script uses the metaphor of stocks as a part of a partnership, where the investor becomes a part owner of the company. It discusses the importance of selecting stocks wisely, much like choosing a partner in a relationship, to ensure a potentially profitable and enduring investment.

💡Technical Analysis

Technical analysis is a method used by traders to predict the direction of stock prices through the study of historical market data, primarily price and volume. The video describes this approach as mainly for short-term day traders who use charts and price action to identify patterns, suggesting that it's akin to gambling and has a high rate of loss according to The Motley Fool.

💡Fundamental Analysis

Fundamental analysis involves evaluating a company's financial health and performance to determine the intrinsic value of its stock. The script likens this to being a detective for a company, examining financial reports, brand recognition, and management to understand the company's current state and future prospects. It is presented as a more reliable long-term strategy compared to technical analysis.

💡Balance Sheet

A balance sheet is a financial statement that provides a snapshot of a company's financial position at a specific point in time, detailing its assets, liabilities, and shareholders' equity. The video script uses the analogy of a cookie jar to explain the balance sheet, emphasizing its importance in understanding a company's financial health and risk level.

💡Income Statement

An income statement, or profit and loss statement, reports a company's financial performance over a specific period, showing revenue, expenses, and net income. The script refers to it as a 'report card' for a company, highlighting its importance in evaluating the company's profitability and financial health.

💡Cash Flow Statement

A cash flow statement records the cash generated or used by a company's operations, investments, and financing activities. The video script explains this as a way to see how money is coming in and going out of a company, which is crucial for assessing the company's liquidity and financial stability.

💡Qualitative Analysis

Qualitative analysis assesses non-numerical information about a company to determine its investment potential. The video script suggests that this includes factors like brand recognition, customer loyalty, and the company's competitive advantages, which are essential for a comprehensive evaluation beyond just numerical data.

💡Diversification

Diversification is the practice of spreading investments across various financial instruments, industries, and other categories to reduce risk. The script advises against putting more than 5% of one's money in a single stock and emphasizes the importance of having a diverse portfolio to balance out potential losses.

💡Value Stocks

Value stocks are shares in companies that appear to be trading for less than their intrinsic value and are typically characterized by stability, low price-to-earnings ratios, and dividend payments. The video script contrasts these with growth stocks, describing value stocks as investments in well-established companies that provide essential goods or services.

💡Growth Stocks

Growth stocks are shares in companies that are expected to grow at an above-average rate compared to the market. The script describes these stocks as potentially more volatile and having higher price-earnings ratios, often reinvesting earnings rather than paying dividends, with the expectation of rapid growth in the future.

Highlights

The millionaire suggests treating stock investing like finding a girlfriend, emphasizing the importance of a long-term, successful partnership.

Investing involves choosing between a technical or fundamental approach, with the latter being likened to detective work on a company's performance.

Technical analysis is for short-term trading and is considered by some as a form of gambling, with a high rate of loss.

Fundamental analysis involves examining a company's financial reports and brand reputation to predict future performance.

The millionaire warns against seeking quick riches and emphasizes the importance of securing one's financial future.

Investors should approach the stock market with a strategy, similar to dating, to achieve desired results.

The balance sheet is compared to a cookie jar, with assets and liabilities explained in a relatable way.

A simple calculation using current assets and liabilities can indicate if a company is high risk or not.

The income statement is like a report card for a company, showing revenue, expenses, and net income.

Profit margin calculations can help determine if a business is making a healthy profit.

Cash flow statements are essential for understanding a company's financial health and its management of money.

Qualitative analysis involves assessing non-numerical factors like brand recognition and customer loyalty.

The importance of researching a company's leadership and their impact on stock prices is discussed.

Competitive advantages, such as patents and loyal customer bases, set companies apart and benefit investors.

The millionaire advises against reacting to news-driven panic and emphasizes the importance of research and long-term thinking.

Differentiating between value and growth stocks is crucial for building a balanced investment portfolio.

Diversification in a portfolio is key to managing risk, with guidelines on allocation percentages provided.

The video concludes with a teaser for another video on index fund investing as an alternative to individual stock picking.

Transcripts

- 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 overhearing 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 wanna make sure it's happy, long, and successful.

But look, I'm not gonna 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.

(light upbeat music)

When you're looking for a partner,

you need to have a strategy in mind.

Are you gonna shower them with gifts like a simp

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 gonna 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 gonna 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 that they trade successfully?

Yes, but more than 95%, a day traders lose money

rather than making it,

according to The Motley Fool.

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 three to 10 year 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.

(light upbeat music)

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 shareholders' 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 gonna 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 along.

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 a hundred pound 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 gonna 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 the balance sheet,

just head to the stock you're interested in.

For this example, I'm gonna pick Coca-Cola.

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 cookie jar.

There you go.

At the top, you've got the current assets.

These are like the cookies you can grab and eat.

(cookie crunches)

Mm, 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 a jar.

For a company, this often includes

the headquarters and equipment.

Here, you have the intangible assets.

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 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 $26.73 billion.

So if we divide that by their total current liabilities,

which are $23.57 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.

(cookie crunches)

Mm.

(light upbeat music)

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 wanna check out its 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 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 Coca-Cola, 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 Coca-Cola.

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 times a hundred.

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

25.73%, which is a high profit margin.

This is a great indicator to use.

However, it's important to remember

that older, more 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.

(light upbeat music)

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 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 wanna 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.

It's 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 spends on investments,

like buying new 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 re-investing back

into the business.

I always like it when I see that companies

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 money 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 just not sustainable,

and eventually you'll run outta cash.

However, this isn't the case with Coca-Cola

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.

(light upbeat music)

Have you ever been really attracted to someone online

who seems perfect on paper,

but when you finally meet them,

you 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 asked you about a brand

that wasn't as popular, like Xiaomi?

You'd probably get a lot more blank stares,

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 Xiaomi 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 they're king on a chess board.

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 executive's 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 F-35 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 F-35 program was a Lockheed Martin project.

After that tweet, Lockheed Martin's stock price

took a nosedive.

The company shares fell by 2.5% on the same day,

wiping out nearly $4 billion 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, loyal 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 cutting edge

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 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.

(light upbeat music)

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 rush 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 panic 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 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 fearmongering,

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 a stock at,

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.

(light upbeat music)

When looking for a partner,

you don't wanna settle with the first person you date.

It's important to explore

what different people have to offer.

Some may seem perfect,

but 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.

Additionally, 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 Berkshire Hathaway, which is owned by Warren Buffet

and invest in many different companies;

Procter & Gamble, which makes everyday products

like shampoo and toothpaste;

and JP Morgan, a major bank.

Growth stocks, on the other hand,

are usually seen as overvalued compared to the market.

They tend to be 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 growth stocks

include Amazon, Meta Platforms, NVIDIA, and Tesla.

If you're not sure if the stock is growth or value,

then a quick way to tell is by using the P/E ratio.

You can easily find this here on Trading 212.

Typically, the average P/E 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 thumb

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,

your 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 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 ISAs right now at 5.2%.

So if you've already used the code TILBURY

or the link in the description

to pick up your free fractional share worth up

to a hundred pounds,

then all you have to do is go up here

and they'll walk you through the process.

If after watching this video

you think picking individual stock seems too time consuming,

then there is a way you can cut out

pretty much all the research

and in a lot of cases get even better results.

If you wanna understand how I make around $17,000 a week

using index fund investing,

then you should watch this next video

where I explain everything in detail.

But don't click on it just yet.

Make sure to subscribe if you wanna grow your wealth, okay?

(clicks tongue) I'll see you over there.