Well! Hi everyone, welcome to another wise money tools video. Glad you could join me. So we're pushing into part three if you will, on the six major items that most traditional financial planners talk about and push as their financial planning practice. And we're on to number four. Number four is something that I pretty much disagree with wholeheartedly from traditional financial planners. And that is don't buy individual stocks. Now, let me say I can see where that comes from. Because most people who buy individual stocks sadly, get their tip from going to breakfast with a friend go into their barber. And this is where they're getting their advice, that does not work. But this is a silly argument that over the years has been pushed down investors throats by financial advisors, who basically just aren't willing to give up control and their fees, I can only go by the greatest investor, arguably ever.

And that's Warren Buffett and his sidekick Charlie Munger, they essentially say something like this, if you understood how easy this was, financial advisors would not exist. Now, there are some advisors who work with estates and businesses. And there's certainly gonna be a market need for that. And there's a lot of reasons that financial advisors can do some good. But from the investment side, it's not too likely in our modern technological age, that you need someone holding your hand to buy mutual funds. In fact, you're better off for the most part, just buying the index, a low cost index on your own since managed money underperforms the end index more often than not. But the real way to build your wealth is understanding individual stocks.

When you look at an individual stocks, you want to look at it as if you're buying the company as a whole. So let me make it kind of easy. There's really a four steps process that you need to know to be a good investor. And by the way, there are now ways that you can simply follow gurus as well. You want to invest exactly how Warren Buffett does, you can actually track his portfolio. And there are brokerage firms that you can literally just buy into that style or those companies that Warren Buffett owns through Berkshire halfway or you can just buy Berkshire halfway. Anyway, there's several you can use, and just copycat and simply follow what they're doing. So if you like what a particular guru has been doing, and the kind of things that he talks about and teaches, you can just copycat.

Anyway, so back to the four simple steps. Each step carries with it further explanation, but I'm gonna have to save that for further videos and get into those details. And I'm gonna have it in my investment course, because it does take a little bit more to develop. But we kind of want to look at this from a 30,000 foot view. So first off, you want to make sure it's a company, you know, you maybe even love this company. You certainly buy from them in some fashion, you understand what they do, and you can figure out how they make money. Start with companies again, that you buy from and that you trust, that's a really good start. Next determine what their competitive advantages if you know what their competition is, who their competition is, why they have that competition, why not? What makes them stand out from their competitors?

Can you see them in business and even growing for the next 10 years. So the next thing you want to do is look at what's called the intrinsic value of the company. This is often referred to as the book value, it's really pretty simple. If the company totally went out of business, liquidated all their assets, what does one share of stock? What is one share stock worth? So if they liquidated, one share stock was worth $10. That is the intrinsic value or the book value of the company. Next thing we want to do is we want to know some numbers. And again, you don't have to be a CPA, you don't have to go too crazy. But there is a short list of numbers that you want to know. You certainly want to know the the revenue of the company how much they're selling each year, and the revenue they bring in.

And then the cash flow of the company, the free cash flow of the company, what kind of debt they have. Their ultimately what their profit is, and then what their growth has been over the last number of years, say 10 years and see what how that's transitioned over the last decade. And actually, these numbers are really easy to find in pretty much Google, what's the cash flow of XYZ? What's the cash flow of Google, what's a cash flow, Costco or whatever. Once you have all that you can pretty easily determine what a fair price to pay for the company is. In other words, you want to pay a price that you feel like you're gonna do well with over the next 10 years. But here's the real key and kind of the last part, you want to build in a margin of safety. That means that when you come up with that fair price, you want to pay 50% less than what you think the company's worth.

So if it appears, you could pay $10 a share for this company. And it'd be a really good buy for you, then you want to be patient and wait until you can buy that for $5. Now, this takes some major patients, Warren Buffett sitting on 100 and $510 billion in cash, because he's very patient. He wants to make sure he buys with a margin of safety. And again, Who should we be a copycat? You know, Who should we be following the greatest investors out there. And what a margin of safety does as well is it protects us just in case our numbers aren't perfect, and then we're off a little bit. Alright, so to end all this, what you're gonna find is that it's really not that hard to find what the market value of a company is. Then we have to be patient wait for a pullback, a recession, a crash, we're gonna call it and then like Buffett, we can buy wonderful companies at a bargain price.

Oftentimes, an event can trigger this as well. Probably one of the best examples I can give us a few years ago, you might recall this Chipotle Mexican Grill, wonderful restaurant very well run. They had a little D coli scare with some of their chicken. And man, their stock just dropped off the planet. Well, that was become events that maybe become a really good buying opportunity. Because you feel like. Okay. Chipotle's gonna clean this up, they're gonna do what they can to make this so that never happens again. Very well managed, that gives you opportunities to buy. So look for events along the way, then you can apply this just about to any other investment that you're interested in. You don't have to be just in stocks, you can do real estate, buy a business, maybe you want even do some lending, there's a lot of things that you can do using the same similar principles.

Okay, well, we got a little far off little too long again. So I'm gonna have to hit the final two items in our next video. So what's left, the last two items are by term insurance, because that's all you're ever gonna need, again, promoted by many traditional financial advisors. And then the last one isn't necessarily an item but it's the absence of an item. It's the absence of talking about real estate being a viable option as well. So if you have any questions, shooting the questions at wise money, tools.com answer just as quick as I can. Don't forget to subscribe. If you want to have a quick little strategy session, click on the time trade link below. Otherwise, stay tuned and we will talk to you next week. Until then, take care.