How to Get Started In Investing: A Beginners Thoughts



The American consumer is bombarded with a bag of mixed messages about the U.S. economy. Experts from Reuters, Cramer, Fox News, MSNBC, and the like are tossing around bear markets, bull markets, economic upturn, market estimates, and bubbles (oh my!) making it a confusing place at best for the beginning online investor like you and me to really understand what is going on.

Regardless of all this interference, sticking to the basics of stock market investing and following Five Core Tenants, as outlined in my last article, even the most green of value investors can expect to retain more earning and take control of their investments.

As a beginning value investor, learning to ignore this noise and sticking with finding undervalued companies will be difficult and somewhat confusing.

The key factor to understand at this point, and as you continue to grow in your investing knowledge, is that as a beginning value investor is that you don’t have to beat the market. In fact, even those experts you hear on the television, or read on the internet, can’t even beat the market.

The truth is that the investing basics and the five tenants we discussed last article are all you really need to be successful in the market.

This blog is dedicated to those basics and Five Tenants, and are here to help your investments and retirements grow.

The Four Investing Basics Every Value Investor Should Know

Before we get into the four investing basics, let’s talk about some simple concept all investors should get to understand, and become friends with, – compounding. Albert Einstein said this about compound interest’ Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.”

Understanding how compound interest can help you as an investor cannot be overstated. You need to take advantage of this concept in order to develop sustainable and continuing growth with your investments, which is a key factor in taking control of your retirement.

It is key that you start invest monthly into your investments. Everyone has bills and obligations, but most value investors can find as little as $50 a month to add to their investments.

Let’s take a look at how that $50 a month can benefit you as you invest. I have added multiple age groups to illustrate how powerful compound interest can be.

(image credits to mystockmarketbasics.com)

As you can see, if you start investing just $50 per month when you turn 20 will benefit you greatly! Even starting a mere ten years later can reduce your earnings by over 50 percent. Why leave that money on the table?

Value Investing Basics #1: Start Early


Everyone likes to spend money. Simple fact of a capitalist society like ours. I know from my own experience that when I get extra-money in, whether through coaching stipends or professional development checks, I have a strong urge to spend it on things that I have either been putting off until I have the money, or things I really want. Yet to be a true value investor, fighting that urge to spend everything you get is a key to investing for long term growth.

Just like we do with value investing and looking at Warren Buffett’s first two rules – the company must have vigilant leadership and the company must have long term prospects – the beginning value investor needs to do the same thing.

A vigilant value investor takes care of their debts by using the extra monies they get to pay down what we call as bad debt. Bad debt is any debt that might have high interest or restricts the value investor’s ability to contribute to their investments.

Not all debt is bad. There is good debt – things like low interest mortgage rates and the like. These actually help add to your overall assets and help build your credit as well.

I do caution those that spend all their monies paying down every debt to become completely debt free. Being debt free without having contributed to your investments is really just the same as having bad debt.

Value Investing Basics #2: Investing is about YOUR investment goals

As a value investor you need to understand that the vast majority of what you hear about the market is not designed to make you money. Instead, it is designed to get you to keep watching, subscribing, or spending your money on their services.

Most investing advice is about getting you to come back, day after day, to the television program or internet site. Why? The main reason is that your attention is worth billions in advertising. The prolonged exposure to their own advertisers and products allow them to continue doing what they do. If that means pitching new get rich schemes or a new hot stock they will do that…even if it loses you money over the long-run.

This is the part where too many investors fail to lay the proper foundation and groundwork for their investments. Being successful at investing should be all about YOU and what YOUR goals are. This is where you make your plan – and then stick to it.


That means to be successful you will need to have a financial plan, which will evolve over time, understanding risk tolerance, and which types of investments are best for your plan.

Value investors tend to focus on finding undervalued companies – great companies at a fair value. This means having to play by YOUR rules and not what someone else says you should do.

This all starts with creating a personal investment plan, laying out your short term (1 year), medium (5 year) and long term (over 10 years) goals and what it’s going to take to get A personal investment plan will be your map of the path to your goals by understanding the amount of risk you need to take along with the necessary amount of investments you need to take on.

Value Investing Basics #3: Stick to the Five Tenets

The key to being a solid and successful value investor is adhering to the Five Tenets, that we spoke of in the article, Investing or Speculating: The Education of a Beginning Online Investor.

The first key tenant, investing in companies that you understand, is the foundation for all value investing. It is difficult, at best, to invest in something you do not understand, and even harder to invest in something that you lack conviction for. Investing is hard work at times, and investing in the new hot tip or in a company that you don’t fully understand makes it even harder.

Value investing is based upon this core principle of understanding what you own, which then supports the process of valuing a company’s leadership, long-term investing prospects, and finding a company that is truly undervalued.

There are many investing tools out there for investors, but value investors need to focus on making sure that the company they are purchasing has an intrinsic value, or a value where the assets and true value are in alignment with each other. I know that sounds difficult, but grasping this idea firmly and using it to help guide your valuing process will pay off greatly in the future.

This final tenant is only calculated after all three of the previous tenants have been met. Intrinsic value is how and why value investing helps generate long term growth of their portfolio. This ability to value companies makes all the hard work worth it to a value investor.

A value investor only purchase ownership of a company after all four of these tenants have been met. Only then would they apply the fifth tenant.


The true test of a value investor is finding and holding companies that are not only undervalued, but also have the track record of producing progressive dividends as well. What this means for the value investor is that even in bear markets these companies may reduce their dividends temporarily, but rarely cut their dividends completely.

True progressive dividend companies have a history of many years with at least twelve to fifteen years as the bare minimum. The stronger progressive growth dividend companies will usually have shown consistent growing dividend payouts over a 25 years or more, so even have over 120 years.

The value of this approach cannot be underestimated. Having the discipline to reinvest the dividends (aka DRIP) only accelerates the growth potential for your portfolio.

A great place to locate information on this process is through the Sure Dividends website. On the Sure Dividends website, Ben Reynolds has an excellent resource to help value investors to locate companies that have had at least 25 years of progressive dividend growth, which the call the Dividend Aristocrats, or a minimum of 50 years of progressive dividends, which is referred to as the Dividend Kings.

Like any source of information, they value investor will still need to do their due diligence on these companies to see if they meet all four of Warren Buffett’s Four Tenants.

Value Investing Basics #4: Don’t borrow money to play the market


This goes without saying, but to borrow money to play the stock market, even for a sure bet, is not what value investors do. In fact, it runs contrary to the values of a value investor.

The goals behind building a strong portfolio is to help the value investor withstand economic or financial setbacks in the future, as well as help them have enough in their retirement years to live comfortably.

Also, looking back on history (I teach US History), the Great Depression was set up by too many people speculating on the stock market and buying on margin – basically borrowing money to play the market. We all know how that went.

How Value Investing Helps Your Retirement Savings

Each value investor needs to take stock of their own situation, since each value investor has their own circumstances, income, risk tolerance, and education levels to consider. The value investing approach is not for everyone, but everyone can learn from this approach.

As an educator, the benefits of value investing far outweigh the downsides. Most states have severe issues with their state pensions, and those that are doing well (and that is but a small handful) are under stress as their teaching force starts to retire. It is not enough to just hope that your state is doing enough for you and your retirement funds. It is up to you to take control of your finances, and retirement, and look to find paths to help strengthen your retirement income. Value investing is that way to do that.

Value investing will help you minimize your potential losses will increase your return on your investment through finding great companies at a fair value. When coupled with the concept of progressive dividend growth, you have a winning combination.

Disclaimer

I am not a broker, a certified financial planner, an investment adviser or the like. I am just an educator that is self-educating himself in the world of value investing and is willing to share some insight, tools, and information on different ideas about investing and retirement. The information here is purely educational and is but one way of looking at investing.

My opinions are based on sources and information I consider reliable, but I do not warrant their completeness or accuracy, and it should not be relied upon as such. The statements and opinions on this site are subject to change without notice.


Investing or Speculating: The Education of Being an Online Beginning Investor

This is an age-old question every person that looks to the stock market must ask themselves – am I an investor or speculator? Or more importantly, what exactly is the difference between the two? The easy answer to this is that it really depends on the mindset, or underlying philosophy, of the person playing the market, and what their main goal they want to accomplish. Answering these two questions are essential to the education of an online beginning investor.

Here at Value Investing for Beginners, we work to alleviate some of those issues and make them less confusing for the average person. We spend our time learning and teaching those wanting to take control of their retirement the strategies and philosophies of the value investor. We look to people like Warren Buffett, Charlie Munger, Guy Spier, and Mohnish Pabrai for inspiration and guidance as we begin to build our own portfolios.

What does it mean to be a speculator

“The most realistic distinction between the investor and the speculator are found in their attitude toward stock-market movements. The speculator’s primary interest lies in anticipating and profiting from market fluctuations. The investor’s primary interest lies in acquiring and holding suitable securities at suitable prices.” The Intelligent Investor, Benjamin Graham

The mindset of most investors in the United States today represent more of what Graham would classify as a speculator – mainly they are trying to time the market and make a few dollars in the process. Granted, making money is never a bad thing, but the main impetus behind the speculator is that they are hoping to “time the market” or rely on gimmicks to make money and there is very little research to back their picks, and they tend to pick off of emotional basis rather than researched, logical basis.

The speculators, which encompasses the majority of the modern day investors, base their decisions to purchase a stock on the hopes that they can make money by selling the stock at a higher price than they bought it for. This approach pins the investor’s hopes on timing mechanisms and gimmicky market strategies that give up long-term commitments and investment discipline. Regardless of how great the draw is strategies for timing the stock market are more likely to leave the investor poorer than richer for having tried.

Speculating also eschews the first rule of the four main principles of Warren Buffett: buy stocks in companies that you understand. Most speculators tend to purchase stocks based on tips, news of something good/bad happening, or that the stock is ‘hot’ right now, yet really nothing more about the company than the stock price at that moment. The cause of the fluctuations can be anything and are unpredictable at best causing the risk to outweigh the rewards. Having even the most rudimentary knowledge of the company could help alleviate a lot of this risk, but the speculator is more concerned with making the dollar now rather than making more later.

What exactly is an investor

“Price fluctuations have only one significant meaning for the true investor. They provide him with an opportunity to buy wisely when prices fall sharply and to sell wisely when they advance a great deal.” Benjamin Graham, The Intelligent Investor

If speculating is based on the idea of making money quickly based on the fluctuations of the market, then investing would be the making of long term profit regardless of the market fluctuations. To put it more succinctly, “investing is forgoing consumption now in order to have the ability to consume more at a later date.” (2/6/210 www.daslee.com) In order to accomplish this feat, investors by nature have to have stronger discipline and research to back their decisions, and to supplement their mindset too.

Investors follow the Warren Buffett adage of when you buy a stock, you’re not just buying a piece of paper or a ticker symbol, but buying an ownership stake in a BUSINESS. Investors take the time to research a business/company/stock prior to purchasing the stock. They will look into the fundamentals of a company and compute several ratios to help them determine the value of the stock in relation to its price long before deciding to actually purchase the stock. They also see holding onto the stock for long periods of time as being beneficial to their financial success.

For those investors that are looking for a more stable approach to increasing their investments, the use of value investing would be the next evolution.

Value investing is the next evolution for those people that want to increase their potential earnings through a simple, yet effective process.

How does value investing help with retirement

An investor looks for long term profit from owning stock in a company. A value investor looks for good companies at a fair price and not fair companies at a good price. What that means is that a value investor takes what an investor does to the next level by adhering to four basic tenants:

  1. Invest in companies that they understand.

  2. Invest in companies with long term prospects.

  3. Look for companies with honest, competent managers (Buffett calls it vigilant leadership).

  4. Look for attractively priced stocks (aka undervalued stocks).

These four tenants, as outlined by Warren Buffett, are easy to do in theory, but will take some practice to become comfortable with. I would add a fifth tenant of:

5. Look for companies that have a history of progressive dividends.

Let’s look at each of these four, plus one, tenants further and apply them to being a beginning value investor.

  1. Investing in companies you understand

Each investor will have different areas of interest and expertise to fall back on, and those areas will influence what stocks and/or categories of stocks to invest in. Regardless, the value investor, by nature, spends a lot of time getting to know the stocks in their portfolio and carefully researching companies before investing into those stocks. An example from my own portfolio would be the sizable percentage of real estate investment trusts (REIT). Having spent the last three years researching, off and on, into the fundamentals of what makes a REIT successful. I am very comfortable adding specific REIT into my portfolio as a long term investment. I am also very picky as to which kinds of REIT I add to the portfolio too. Yes, there are sub-categories of REIT just like in every other stock category.

What I am not comfortable with is the technology and currency areas. Stocks that deal with things like emerging technology or cryptocurrencies (e.g. BITCOIN) are not in my wheelhouse, so to say. For those that understand them, there is a lot to made from them, but due to my lack of understanding and my specific level of risk tolerance they are not for me.

2. Invest in companies with long term prospects

This area takes research and the use of specific tools to truly understand what makes a company one that has long term prospects. Warren Buffett would refer to this as investing in a company that would be here for the next thirty years. A more reasonable approach would be to look for sustainable businesses. If you have any doubts that a company’s products will still be in demand in 10 years, that’s would be a big warning sign.

Warren’s reluctance to invest in social media stocks is based on this premise – he just doesn’t have enough of a track record for him to invest in these kinds of stocks.

3. Look for companies with vigilant leadership.

This one is the hardest of all of them to quantify, but with an astute eye one can look at the financial statements of a company to learn how the management runs a company. Usually stocks that have shown a long history of growth and investment (e.g. dividends) will have leadership that has a strong balance between growing the brand and repaying the owners (stockholders) and manage the finances of the company efficiency.

Ratios like return on equity (ROE) and net income are strong indicators towards a company’s strength, but those ratios will differ from industry to industry and sector to sector. I will have posts on those, as well as how to read financial statements later.

4. Look for undervalued stocks

Intrinsic value is the name of the game here and is one area that will take a lot of time, and math, to truly understand. Basically, what we are looking for here as a value investor is to find a stock that is selling for under what its true value is. Yes, I know that sounds obvious, but it is a little trickier to understand when a company is truly undervalued.

Finding the value of a stock takes some time and the ability to decipher what a financial statement is telling an investor. Dividend histories, debt to income, equity and liabilities, and all that jazz are essential components to the language of a value investor; and allows them to create a value for the company in relation to what it is really worth. I will have more posts on determining intrinsic value and tools to help a beginning value investor to help locate undervalued stocks.

5. Progressive dividend history

This is my own addition to Buffett’s Four Rules, but is one that fits nicely with my financial priorities and philosophies. This idea is not one that is new, but one that is overlooked by amateur and professionals alike, but has another compounding effect on a portfolio.

These are businesses that have both the desire and ability to pay shareholders rising dividends year-after-year. The idea behind this type of investment is to find stocks that increase their dividends each year thus increasing your portfolio’s earning power, especially if the investor reinvests the dividends to purchase more shares. The use of Dividend Aristocrats and Dividend Kings, as researched by the folks at Sure Dividend.

Conclusion

Value investing and investing for beginners is predicated upon the idea of owning and holding onto a stock, a piece of a company, for long periods of time and using the market fluctuations to increase their portfolios. Value investors are not in it for the quick buck, but seek to use time to their advantage by investing in great companies with a good value. This takes a patient and disciplined approach, yet lacks the stress and brokerage fees associated with those that speculate on the ups and downs of Mr. Market.

Granted, each approach has their own strengths and weaknesses, but it is of the opinion of those of us at Value Investing for Beginners to take the longer term approach to gaining value in our retirements.

Everyone wants to think that they have a purpose in life

What is your why?

Everyone wants to think that they have a purpose in life, and I am no different – other than it took me until I was 48, divorced, and in a position as a teacher to understand that I could be “too expensive” to move jobs. That is the reality of an educator. Years of experience are great as you hone your craft, yet when the conditions change where you are at, it makes it difficult to move without losing a lot in pay, seniority, and especially retirement. It was this stark realization that I started on my journey and found my second purpose in life.

What is that ‘second purpose I found?

Let me start with the most important part of that first – the why. As Simon Sinek stated, people (and their brains) are hardwired for the why. It is the reason Apple, which is just a computer company, is able to grasp and hold our attention, and our pocketbooks, and be such a driving force in innovation, yet is still just a computer company. The why is the purpose in many cases and it is the reason we do what we do.

Why did I want to create Value Investing for Beginners?

My why is very simple and based on my profession as an 8th grade social studies teacher. It has to do with upsetting the status quo and not just falling into the common misconception of teachers – those that can…do, those that can’t …teach. As an educator for over 14 years, I came to the realization that, even though I work in a state that has a decent retirement I am not happy with not having the ability to make my money work for me. I am basically saying that I don’t trust the State of Arizona Retirement System to do what is best for my financial plans, or to provide me with very much more than a basic level of retirement. I believe that I should be more involved in my own financial well-being.

Is Your Retirement Working As Hard As You Are?

The second part of my is also very simple – in the State of Arizona the max Social Security benefit is around $1600 a month. This really isn’t as bad as it could be, like it is in the 12 states that do not allow retired teachers to claim Social Security benefits. CLICK HERE if you want to see who those 12 states are. Granted 38 states still allow some part of Social Security benefits, but even as we speak several more states are looking to disallow Social Security benefits, and it is even getting to the point where states are looking to raid the pension funds of its public service workers to include teachers.

It is up to us as teachers to be vigilant with our retirement and to ensure that we will have enough to provide for ourselves as we move into our retirement years. That is the goal, or the why of this site, . To help assist fellow educators to educate themselves on the goings-on in the world educational finances, how to not be afraid of taking charges of your own retirement, and to understand the value of being a value investor and a long range view of investing.

Conclusion

As time and political forces tend to conspire against us, it is imperative that all of us and especially those who work in the public sector to take a good hard look at their retirement. We can’t always expect good fortune to ‘trickle down’ to us.


 

 

 

 

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DISCLAIMER –

I am not a broker, a certified financial planner, an investment advisor or the like. I am just an educator that is self-educating himself in the world of value investing and is willing to share some insight, tools, and information on different ideas about investing and retirement. The information here is purely educational and is but one way of looking at investing.

My opinions are based on sources and information I consider reliable, but I do not warrant their completeness or accuracy, and it should not be relied upon as such. The statements and opinions on this site are subject to change without notice.

Welcome to Value Investing for Beginners

Value Investing for Beginners is set up to educate people about retirement and how they too can take control of  it to make sure they are set. Too many people believe that their retirement and Social Security (if it is still around) will be enough to allow them to live comfortably. Unfortunately, 80% or more of the US population will need to rely on the government and their families to survive in retirement.

 

On this site I will be sharing my journey as I learn and apply the concepts of value investing to my own retirement, as well as act as an education reference point for those interested in learning how to take charge of their own retirement. As an educator for the last 14 years I find it my imperative to share what I know and to help others succeed.

 

I am not a financial planner, banker, stock broker, or anything of the like, but just an educator educating those that want to learn how to use value investing to increase their retirement savings.