M1. L1. Introduction into the Financial Markets

Summary

This 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

00:00

🚀 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.

05:01

🔍 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.

10:02

📈 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.

Keywords

💡Investing

Investing is the act of committing money to an asset with the expectation of generating earnings or profit. In the context of the video, investing is about buying stocks for long-term gains and holding onto them as their underlying value increases over time. It is closely associated with fundamental analysis, which involves examining a company's financial health, management, and market position to determine its potential for growth.

💡Trading

Trading refers to the buying and selling of financial instruments with the intention of making a profit from short-term price fluctuations. Unlike investing, trading is typically done on a much shorter time frame, such as days or weeks. The video script mentions that trading can be done on various instruments like CFDs and relies heavily on technical analysis to determine the right timing for buying or selling.

💡Marketplace

The marketplace, in the context of the video, refers to the financial environment where securities, such as stocks and bonds, are bought and sold. It is the platform where investors and traders interact to make decisions based on their understanding of market dynamics, aiming to profit from the changes in asset prices.

💡Fundamental Analysis

Fundamental analysis is a method of evaluating a company's financial health by examining its financial statements, management, competitive position, and other factors that may affect its financial performance. The video emphasizes its importance in making informed investment decisions by looking at the company's intrinsic value and potential for long-term growth.

💡Technical Analysis

Technical analysis is a technique used by traders to forecast the future price movements of a security based on past market data, primarily price and volume. The video script explains that technical analysis is crucial for determining the timing of trades, as it helps traders to identify patterns and trends that can indicate potential entry or exit points in the market.

💡Stock

A stock represents a share in the ownership of a company. In the video, stocks are the primary assets that investors and traders buy and sell in the marketplace. The script discusses the importance of understanding the difference between a stock's current market price and its intrinsic value, which is a key factor in determining whether it is undervalued or overvalued.

💡Intrinsic Value

Intrinsic value is an estimate of the true value of a company based on its underlying assets, earnings, and growth prospects. The video script highlights that investors should focus on a stock's intrinsic value rather than its current market price to identify undervalued opportunities and make informed investment decisions.

💡Price Fluctuation

Price fluctuation refers to the changes in the market price of a security over time. The video script mentions that price fluctuations can be influenced by various factors, including news and market sentiment, and are a critical aspect for traders to consider when timing their trades.

💡Value Investing

Value investing is an investment strategy that involves selecting stocks that appear to be trading for less than their intrinsic value. The video script encourages viewers to research the concept of value investing, which is about identifying undervalued stocks with the potential for future growth and profitability.

💡Ray Dalio

Ray Dalio is mentioned in the video script as one of the best investors in history. He is the founder of Bridgewater Associates, one of the world's largest hedge funds. The script suggests that researching Ray Dalio can provide valuable insights into successful investing strategies and practices.

💡Warren Buffett

Warren Buffett, often referred to as the 'Oracle of Omaha,' is a renowned investor and the chairman and largest shareholder of Berkshire Hathaway. The video script quotes Buffett to emphasize the importance of understanding the difference between price and value in the stock market, which is a fundamental principle of value investing.

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]

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