The Investing for Beginners Podcast - Your Path to Financial Freedom

By Andrew Sather, Stephen Morris, and Evan RaidtBusiness Investing

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The Investing for Beginners Podcast - Your Path to Financial Freedom episodes

August 29, 2018 IFB70: The 3 Major Types of Investment Risk and How to Combat Them

Welcome to Investing for Beginners podcast this is episode 70. Tonight Andrew and I are going to discuss risk, we’re going to talk about all the different types of risks there are with investing and we have a very interesting show coming up for you.
So without any further ado I’m going to turn over to Andrew and he’s going to start us off.
Andrew: yeah so when I think about risk and when many people define risk and whether you talk to investment advisor you talk to maybe an individual investor who is more experienced and kind of understand what the risks are when it comes to investing your money.
Well there’s kind of like three major ones so we’ll discuss each of those and it’s very important to talk about risk and think about risk. If you go back to the very basic definition of an investment which I always love to refer to when I’m talking about dividends.
But if you say investment 101 what is that it’s essentially money that you put it you put money at risk and in order to be compensated for that risk you have a reward you have gains you have an income stream and that’s essentially what an investment is.
And that’s no matter how what kind of investment you’re making that’s going to be how it works even if you do something like as simple as lending money to somebody and charging them an interest rate there’s going to be risk there. There’s risks that you lose all your money because some of the skips town and then they don’t pay you those payments right.
And so obviously our shows focus a lot on the stock market we’ll talk about the stock market risks and some of the various factors that maybe somebody who’s a little bit more green or if that’s the right term somebody more new to the market some of these not as educated they might not have thought about these different things.
It’s important to think about them important to learn them but also important to have a solution right to be able to understand that there is risk but historically and moving forward there are different ways to mitigate that risk and it can help it can help your overall returns it can help the type of results that you will see from your investing.
And so make sure that’s something that you’re thinking about and you are forming your strategy in order in order to fight those risks.
The first one this is very common commonly talked about in finance it’s a market risk and so just the fact that you’re in the stock market in general you’re going to have market risk. Another way it’s kind of referred to as it’s called systemic risk and basically it’s the risk that you get for putting yourself into the system.
This is something that you are not able to really have an easy solution to go against. So if you think about the other two risks so a big one is business risk and that’s the risk of a stock you’re owning of the company going bankrupt that’s called unsystematic risk and then you also have like interest rate risk.
With market risk you can’t diversify your way out of it so for unsystematic risk this is business risk a business of any one stock losing a lot of value or even going bankrupt and you lose your whole investment.
You can the way you counter that is by reinvesting I’m sorry not reinvesting uh the way you counter that is by diversifying if you have enough eggs in the basket and one goes bad one cracks at least you have those nine other eggs those 19 other eggs and so you still have a big part of your investment capital intact.
With market risk you cannot diversify that away unless you spread out unless you put less money into the market so because it’s stock market risk away.
You can essentially combat that is by holding different types of assets and so that...
46 min
August 28, 2018 IFB70:The 3 Major Types of Investment Risk and How to Combat Them
Welcome to episode 70 of the Investing for Beginners podcast. In today's show, we discuss the three major types of investment risk and how to combat them.

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50 min
August 22, 2018 IFB69: Listener Q&A: ESPP and Ally Brokerage

Welcome to investing for beginners podcast this is episode 69, tonight Andrew and I are going to take a few minutes we’re going to answer some listener questions. We got some great questions over the last couple weeks, and we wanted to take a few moments to read through those and answer those on the air, so without any further ado I’m going to turn it over to my friend Andrew, and he’s going to go ahead and start us off.
Andrew: yep cool so let’s get going got an email it says.
Hi, Andrew and Dave thank you so much for your podcast which is very helpful to me as a beginner I also enjoyed Andrews free ebook I feel like both of you guys have a lot of useful insight for people trying to get into the market as beginners.
My question is a bit specific and then is about employees stock purchase plans ESPP particularly the one that my employer. I’m not going to say which employer he has. But let’s see he says the cool thing about the ESPP is that in addition to being a no-cost except for on sales which I wouldn’t plan on regularly doing Drip plan I get a 15% discount on the market price of the stock at the time of the buy for every buy.
Also get the discount when shares are purchased with automatically reinvested dividends then when I stop then when I sell the stock I get the full market price at the time of the sell for taxes. The capital gain would be the same would be the sale price plus the disc – the discounted price not the market rate at the time of the buy.
I still get taxed on the bonus 15%, and he says while this sounds like a great deal I have been hesitant to participate. The main reason is simply that I am unsure as to whether the stock is a good investment, so and then he asks he talks about the particular stock in some of the characteristics in there.
He also says the other obvious reason is that it will limit my ability to diversify properly since I have a pretty limited amount of extra cash for long-term investment. I do participate in my employers 401k as well which is also great matches 50 percent up to eight percent though doesn’t offer much flexibility regarding which funds to choose from. I also have a small amount and other dividend stocks and ETFs that’s all meant for the long term.
He talks about the stock how he’s worried about the price crashing he says now I’m not worried about the stock price crashing he’s just wondering if there are better stocks out there including the discount. Wondering what my thoughts were on this should I start investing a small amount in the ESPP see how that goes or do you think definitely stay away with the debt-to-equity so high thanks so much.
Jay from Boston
This is a really great question and I know for two of the companies I’ve worked for they offer ESPP it’s going to be different depending on your company, and the terms are going to be different so obviously it’s very important to understand what those terms are first for those of you who don’t know what ESPP is generally from what I’ve heard and seen and obviously in this question as well is they’ll give you as an employee you will get an option to buy stock in the company.
What you tend to see they will incentivize you to buy stock in the company by giving you some sort of discount on it, so I’ve heard of 15% that’s what I’ve seen Jay talked about 15% here.
What that means is they take your money out of your paycheck just like a 401k and then they will buy shares for you at the certain purchase date and then so let’s say if the company that you’re working at their stock is trading that like ten dollars you would get 15% off of that. so essentially I apologize because I am not thinking of the math so 15% a dollar 50 so you’d be able to buy the stock at 850 even though the stocks trading that 10...
47 min
August 21, 2018 IFB69:Listener Q&A:Benefits of ESPP and Ally Brokerage
Welcome to episode 69 of the Investing for Beginners podcast. In today's show, we answer some questions from our listeners. We talk about a broad range of topics, including ESPP and Ally Brokerage.

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52 min
August 17, 2018 IFB68: A Simple Balance Sheet Primer for Beginners

Welcome to Investing for Beginners podcast, this is episode 68. Tonight Andrew and I are going to talk about the balance sheet and give a kind of a brief overview of that. We’re also going to talk a little bit about some ratios that you can derive from the balance sheet.
This will be a great primer that you can use to look at 10ks, 10-qs and also kind of combine it with the cash flow statement analysis that we did a while back. Without any further ado I’m going to turn it over to Andrew and he’s going to start us off.
Andrew: so that cash flow statement episode you’re talking about that’s episode 17. We went super in-depth into that one but it was a good overview on the different financial statements and some of the key things you can kind of pullout from that. Last week we talked about basically earnings and what companies do when they get earnings.
We talked about how they can reinvest in the business they can hold the cash they can pay out dividends or they can do they can do share buybacks. The other thing they could do which I forgot to mention is they can use that cash and use those earnings to pay down debt.
And so I think that’s something we should focus on today. I am very anti debt I don’t like to invest in businesses that load on a lot of debt and so on the flip side of that when I see a stock where management has decided to aggressively pay down their debt.
They see using current profits you’re essentially you know not necessarily worrying too much about the short-term you’re really taking a long-term approach and so I really like that one that. When the stock is doing them the last eletter pick that just went out yesterday had a stock that really did that aggressively.
And so that’s something I like to see and I’ll kind of give an overview right so what the bounce she is how do you look at the bounce she obviously it’s very confusing but is there a way to for somebody who’s not an accountant some of these just an everyday person can they really understand what a balance she is I believe you can hopefully this episode will help you do that.
So turn it back to you Dave if you could break down the balance sheet and give us the simplest overview of what it is like if I had to pick three lines from the balance sheet that I want to know which they would be and why.
Dave: three main I guess compartments or you know yeah compartments is probably the easiest way for me to look at it it’s simply both goes down to assets liabilities and shareholders’ equity at a specific point in time.
So when you look at a balance sheet it’s actually a snapshot of what the company owns what it owes and what its worth at that particular time. So if we pick today which is August 2nd then the balance sheet of you know Company A would be have all those items listed in it.
So assets are simply things that generate money for the company whether it’s products whether its inventory whether it’s a physical building there’s all these different aspects that you can really dive into.
Liabilities is what you owe people so when you buy things you order stuff and you wait 30 days 60 days 90 days whatever it may be whatever your contract is to pay those back those are liabilities because those are monies that you have that you have to give to somebody for our product or service that you’ve purchased.
And then shareholders equity is what the equity of the company is worth and all those things add up into the balance sheet.
Now part of the sheet so when you look at a balance sheet the first thing you’re going to see are all the different assets and that includes cash and cash equivalents and all the other assets that we talked about.
29 min
August 17, 2018 IFB68:A Simple Balance Sheet Primer for Beginners
Welcome to episode 68 of the Investing for Beginners podcast. In today's show, we are going to give a brief overview of the balance sheet and a few important ratios that can be derived from the balance sheet.

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32 min
August 07, 2018 IFB67: Are These Record Share Buybacks Good or Bad?

Welcome to Investing for Beginners podcast this is episode 67. tonight Andrew and I are going to talk about share buybacks, this has been a hot topic on Wall Street lately and Andrew and I wanted to do a little deep dive into share buybacks and talk a little 101 about how they work what they are and how they can benefit the company and you.
Without any further ado I’m going to turn over to my friend Andrew and he’s going to start us off.
Andrew: yeah love it. I feel like it was meant to be right well media talking all about buybacks obviously a big impact from the tax cuts that Trump did. So it’s very timely and it’s also good segue from last week’s topic. so if you remember last week we talked about owners earnings and how that can be a better way to kind of calculate how a company is using not only what’s the company earning from the core business whether its profits.
But also how is it allocating those profits once it has once the company has that earnings so owners earnings is a way to do that and one way that companies allocate cash once they receive those profits is through share buybacks and so that’s what we’re going to cover today.
You’ll hear called several different things share repurchases stock buybacks share buybacks it’s all referring to the same thing. So if we really get down to like the base route of what share buybacks is it’s simply the company taking cash and buying back shares.
What that means is they’re reducing the shares outstanding what that does for investors who already own the stock is it pushes everything up so it will push the market cap up because the company is buying these shares it’s going to push the price up right so I’m sorry the market cap stays the same the price goes up because the shares go down and then you also get anything that’s valued on the per share basis will go up so earnings per share arguably Wall Street’s biggest focus that goes up because now you have less shares and book value per share goes up cash per share goes up all those things go up.
And so Wall Street tends to like share buybacks and it’s kind of debatable whether it’s good or not for a company it’s very contextual but before we get too deep into like the concepts between whether it’s good or bad or whether it’s optimal I want to share a couple of articles that I’ve seen that are recent about share buybacks and so one of them here is talking about this is July 10th recording this end of July.
Tax cut triggers 437 billion dollar explosion of stock buybacks so there’s I feel like a general misunderstanding in the public of share buybacks and how they impact a company. Because a lot of I don’t want to get political but a lot of the critics of the tax cuts they will argue that the tax cuts are only tax cuts for the wealthy and they will also say that workers are not being benefited by it.
I think we do need to address those things because there’s no doubt that once you understand how the stock market works how stocks work that share buybacks are almost all the time great for investors great for the people involved in the company and it’s great for the economy overall.
If we can understand some of the more intricate details of share buybacks then we can understand exactly why that is the case so you have to think first off when we’re talking about the wealthy it is true they say the top and this is coming from the this article from CNN. The top 10% of households owned 84% of the stocks in 2016.
What you have to understand is that’s more of a byproduct of a capitalist society if you want to have small business owners what’s the draw for a small business owner to open the business? If they let’s say open the pizza shop and they have to hire ten employees in order to run the pizza s...
32 min
August 02, 2018 IFB67:Are These Record Share Buybacks Good or Bad?
Welcome to episode 67 of the Investing for Beginners podcast. In today's show, we discuss share buybacks and whether or not they are good or bad for investors or the economy.

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35 min
July 25, 2018 IFB66: Should You Research Owners Earnings or Options?

Welcome to Investing for Beginners podcast, this is episode 66. Today we’re going to talk about several different topics, we’re going to talk a little bit about owners earnings. Which is one of Warren Buffett’s favorite formulas, if you will, or thoughts and ideas on how he looks at a business. And we’re also going to talk a little bit about options and before we start talking about those I’d like to tell you about a book I just read recently.
Just a quick note, there are several affiliate links sprinkled throughout the transcript.
It’s called F Wall Street and it was a fantastic book it was very easy to read and it is not full of jargon if you will. There’s not lots of technical terms in there.
He’s very good at explaining and breaking down different ideas like owners earnings. For example, he also talks a little bit about intrinsic value. He also talks about certain types of cash flows.
But again it’s not super jargon there’s not a lot of math and even the math that’s in there is super simple and the other thing that’s kind of cool about it is he comes from it as an angle he’s a quote unquote insider he’s somebody that works in the business he buys and sells stocks for people that want to invest.
But he comes at it as an angle of everybody in Wall Street’s out to get something from you and he’s not and it’s very his language is very it’s not rough but he’s very sarcastic is probably the best way of putting it.
Especially attitude yeah thank you that’s the better way of putting it yeah there’s a lot of attitude and he’s definitely coming in at have added advantage of looking at Wall Street as sort of the enemy and when I say Wall Street he’s really talking more about the big funds and people that are out there trying to hustle as opposed to somebody’s they’re trying to help you invest your money and it’s a great book I really enjoyed it it’s not very long it’s about 250 pages give or take and it’s very fascinating.
I would highly recommend it it’s something that something new that I came across. I know Andrew would read it recently and he never you never sale yours that I didn’t read a little bit of it uh and uh he had recommended it to me based on his partial reading of it and I really enjoyed you didn’t really recommends that book for Jae Jun he does and I think he gets you can tell by some of his writing that he gets some of his ideas from that book so it was pretty cool so Andrew why don’t you start us off talk a little bit about owners earnings and we’ll have a little roundtable on that and we’ll talk about options.
Andrew: yeah sounds good so what’s the purpose of owners earnings Warren Buffett was the first one to really kind of popularize this idea and so I guess to kind of explain owners earnings we need to explain what earnings are and at the risk of getting too technical need to explain how earnings is kind of tabulated.
Obviously earnings drives Wall Street right so when you see earnings growth that’s what the analysts are all focused on they’re looking at revenue growth earnings growth and that tends to make the stock either pop up or dive down and sometimes it can happen even though it’s not logical right so a company could do better than their expectations with earnings growth and still have the stock pop up or up or down.
That’s kind of a discussion for another day however the basic idea of earnings growth makes a business grow once you have more earnings you have more profit you can reinvest in the business yo...
33 min
July 25, 2018 IFB66:Should You Research Owners Earnings or Options?
Welcome to episode 66 of the Investing for Beginners podcast. On today's show, we will discuss owners earnings, Warren Buffett's favorite measure of earnings for a company. In addition, we will have a brief discussion of options.

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36 min

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The Investing for Beginners Podcast teaches you how to buy your first stocks and build long-term wealth in the stock market— without the hype or confusing jargon.