Everything To Know About Stocks For Beginners – This easy-to-follow beginner’s guide will help you learn how to invest in the stock market. We’re going to ditch all the confusing Wall Street jargon and explain things in simple terms.

1. Stock Market Basics: Why Invest 2. Understanding How the Stock Market Works 3. Learn How to Invest in Stocks 4. Learn about Stocks with the P/E Ratio 5. Two Stock Market Factors to Trade: P/ B and P/S Ratios 6. Finding the Best Stocks for Beginners: Searching for Dividends and Growth 7. The Best Way to Avoid Risk and Combine Everything!

Everything To Know About Stocks For Beginners

Everything To Know About Stocks For Beginners

Let the power of compound interest do the work for you. This is how you unlock the magic of the stock market and slowly build wealth over time.

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This is not some arcane secret or get-rich-quick shortcut. It’s a time-tested method to get rich and become financially independent. That’s how billionaires like Warren Buffett have done it all their lives.

Let’s say you saved $500 a month for 40 years. That would leave you with $240,000 to live on, which on a $60k/year lifestyle would only last about 4 years. You’d retire at 65 only to be broke at 69, and you’ve been a good saver all your life.

Again, let’s say you saved $500 a month for 40 years. BUT you invested it in the stock market and got only an average stock market return. That same $500 per month, compounded annually at 10%, turns your net worth into $2,655,555 over 40 years!

That’s because over the past 100 years, the average annual stock market return has been about 10% per year. If you buy and hold stocks for the long term, you can easily earn at least that 10% on average per year.

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Before I started researching investments, the only things I knew about the stock market were what I saw on the news or heard on TV. It was never positive.

A share is partial ownership of a business. When you own a share of stock, you get a claim to a portion of the profits of a business because of that fractional ownership interest.

A stock market is simply a place where shares of ownership of real businesses are traded, where you can buy or sell shares of stock.

Everything To Know About Stocks For Beginners

By investing in the stock market for the long term, you can participate in the growth of the economy in the long term. This is because the stock market contains some of the largest businesses in the economy.

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If you believe that people will continue to innovate and the economy will continue to grow, then your stock will also grow.

That said, there is more to understanding how the stock market works. You must beware of its very real dangers because it is easy to lose if you do not learn how to invest in the market the right way.

Take a look at the market during the pandemic to see how hard and fast the market can crash:

Yes, stock prices are volatile. They fluctuate up and down, sometimes abnormally. But when held for long periods of time, the chances of profits from investing in stocks are almost guaranteed.

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This will bring you dividends that will accumulate and multiply over time. And if a good company is invested in, the share price should also rise significantly.

Buying just one share of your favorite company when you buy your first stock is like taking your first step into the market.

I cannot stress enough the importance of buying your first shares. You can read and read until your eyes turn blue, but you won’t start to see progress towards your results until you take action.

Everything To Know About Stocks For Beginners

Trust me, from someone who has been there before, buying your first stock gives you a sense of empowerment and excitement to be a part of the stock market.

Tips For Beginners To Make Money In The Stock Market:

First, you need to open an account with a broker. My podcast co-host, Dave Ahern, recommends Charles Schwab, and I like Fidelity and Merrill Edge.

Whichever brokerage you decide to use, make sure the company is protected by the SIPC (which is different from the FDIC for checking accounts). This can protect your assets during the next financial crisis.

These days, the process of signing up for a brokerage account is SO easy, there’s no excuse not to get started today. Let’s review some of the basic types of accounts.

You could overanalyze the situation until you’re blue in the face, but you won’t make any progress until you open an account and actually buy at least 1 share. There’s nothing like having skin in the game, so think of a company you like, go buy its stock and see how it does.

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P/E, or the price-to-earnings ratio, simply measures how much you’re paying for a company’s earnings. The higher the ratio, the more expensive the company. A higher P/E ratio usually means that a company is more popular and more people are buying that stock.

P/E ratios vary by industry and market conditions. You can usually tell when a market is overpriced because the market’s average P/E ratio is high.

But a company’s P/E can depend on other factors such as its growth, interest rates, and perceived risk or earnings sustainability.

Everything To Know About Stocks For Beginners

With all that said, P/E is one of the best quick-access tools for quickly measuring how expensive or cheap a stock is—how generally bullish or pessimistic the market is about a stock.

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You should do this either on a per-share basis or on a company-wide basis. You have two options for this:

These ratios can be more reliable indicators than the P/E ratio because earnings (sales) and book value vary much less than earnings.

Earnings and earnings per share (EPS) can be more easily manipulated by companies depending on accounting practices. There are cases where companies have been caught manipulating their earnings after the fact.

However, sales and book value are more difficult to manipulate – another reason why these two ratios can be so useful.

Amazon.com: Stock Market Investing For Complete Beginners: A Blueprint To Build Your Wealth In Stocks

In general, a lower P/S is better, especially if you’re looking at high growth stocks. The historical stock market average has been around 1.55.

The main premise behind buying stocks with low P/B ratios involves buying a company that is selling near or below its book value. Therefore, the idea is that you are buying a stock with very few downsides, as the book value can represent the “liquidation value” of the company.

In other words, if a company closed tomorrow and sold all of its assets at fair value, investors would expect the company to receive its book value (assets minus liabilities).

Everything To Know About Stocks For Beginners

To calculate the P/B ratio, simply divide the price by the book value. It can be calculated both on a per share basis and on a total company basis:

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A company’s book value is easily calculated from the consolidated balance sheet and equals total assets minus total liabilities. It is also known as share capital.

Taking a dividend and reinvesting that dividend is a fantastic way to take full advantage of the power of compound interest. Dividends are a guaranteed return on investment. And companies with good dividend records tend to increase their dividend payouts every year.

The dividend yield is fairly easy to calculate and will often be explicitly stated next to the share price as a percentage. To calculate this rate of return, simply divide the dividends paid by the company for the year by the current share price.

Next, we want to know the dividend payout ratio. This tells us how much of the company’s earnings are used to fund the dividend.

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If a company has too high a payout ratio, it could mean that the company is irresponsible. It also usually warns of a struggling company trying to hide its balance sheet failures while paying high dividends.

To calculate this, take the dividend paid for the year divided by the company’s EPS (earnings per share found on the income statement).

A healthy dividend yield and dividend payout can reflect a company that uses excess cash effectively. This usually provides a good total return for its shareholders.

Everything To Know About Stocks For Beginners

However, the type of stocks with the best earnings growth can be very volatile. Small changes in growth can cause big ups or downs because of all the attention on his growth.

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A high-flying stock with stellar growth can see its growth slow and with many sellers send the stock down very quickly. High growth stocks tend to be much more volatile than other stocks and can become a very dangerous place to invest.

To be a successful stock market investor, you need to find companies with good earnings growth that also trade at a good price.

Good earnings growth is around 5-10%, which at least matches or exceeds average GDP growth. This usually indicates a stock with a very bright future.

Through many backtests, I have found common characteristics in companies that are about to experience significant stock price declines or bankruptcy.

How To Invest In Stocks For Beginners: A Comprehensive Guide

Debt to equity is a common measure of risk in investing. If you think about it, it makes sense too. A person who is more likely to go bankrupt is a person with too much debt, and the same goes for companies. If

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