What’s up, everyone? Thanks for checking out this video. This is going to be a concise beginner’s guide to the stock market.
When I checked out some of the other videos on the stock market, while some of them said they were for beginners, they were an hour, hour and a half long. And they very quickly got into some fairly advanced concepts, different SEC filings, 10-K, 10-Q, 8-K, S-3 forms, P/E ratios, acronyms, things like that. And I feel like that’s not really beginner stuff. That stuff is important, and if you’re really inspired, and excited after watching this concise beginner’s guide, by all means, dig into that more advanced stuff. But let’s keep this high-level.
So this is going to be a beginner’s guide to the stock market. And I want to talk a little bit about becoming a trader. So high-level, what is the stock market? Well, the stock market is a place where individual investors, like you and me, can buy shares of what are sometimes huge companies like Apple, Facebook, Netflix, Tesla, et cetera. When we buy a share, even just one share, we become a fractional, little, tiny owner of this huge company. And, of course, when we buy, the price of the company at the time that we buy it is based on a number of factors. One factor, certainly, is their profitability. But a big factor is their perceived future potential, and future profitability. That’s why sometimes you’ll see companies that actually aren’t really profitable, or aren’t profitable at all, but still trade at a very high price because people believe in the company’s future earnings potential, their growth, their future value. So, there’s a lot of speculation in the market.
But in any case, when you buy a stock, at the time that you buy it, the price is whatever it is, if the company is successful in achieving that future growth over time, the company will increase in value. The total market cap will grow, the value will go up and therefore, your fractional ownership, your one share, or whatever it is, will increase in value.
So, the reason people have been attracted to the market for so long is because historically the market has been producing 7.5% per year return. And that means $100 put in the market 20 years ago would be worth about $450 today. $1000 put in the market would be worth 4500. 10,000 would be worth 45,000. 100,000 would be worth 450,000. 100 million would be worth 450 million. 1 billion, 4.5 billion. Because there’s no limit really to scalability in the market, you have seen the amount of money that some of these big hedge funds have. And so the market has a very low barrier to entry, even with $10 or $100, you can be invested. But there’s also really no limit. And that’s why people always have been trying to master the market.
But let’s talk for a second about why do these companies, these huge companies share in the profit with little retail traders, or investors like you and me? Well, think about it like this, the whole origin of the market, if you go way, way, way back, the idea was someone had an idea. They said, “I want to do this thing.” And let’s just say I tell you, “I want to buy this apartment building.” It’s $10 million. It produces a million dollars a year in revenue. So, that’s a 10% ROI, that’s after expenses and we should buy it, but I don’t have the 10 million. But I find 10 investors.
And so, let’s go to the whiteboard here. So let’s say, and this is going to be like a company. So, we have this stock here. Well, in this case, it’s our building. And so, let’s say this is up a pie with 10 slices. The building is $10 million that we buy, and it produces a profit. So, each year these investors receive a dividend. And then, at the end of maybe 10 years or 15 years, the property’s actually increased in value to let’s say 20 million. And so, each of these investors, when they go and sell their shares, they cash out, they make 100% on their money. Plus, they got the dividends for all that time that they were invested.
Well, that’s the same with a stock. The reason that these big companies sell shares onto the market, when they do an initial public offering, let’s say they sell 10 million shares at $20 a share, they’re gonna raise 200 million and what are they going to do with that 200 million? That 200 million goes back into the company to fund the initiatives that the company has laid out as part of their appeal to IPO, as part of their appeal to shareholders to buy the shares. This is what we’re going to do with the 200 million we’re going to get that’s going to let us grow. And if they are successful in achieving that growth, it’ll be reflected as the share price increases over time. And if they’re not successful, price goes down, the shareholders are unhappy. I mean, it’s as simple as that.
But one of the things that’s kind of interesting here, you have to think about why people are so excited to be in the market. And there’s a couple reasons. And one is inflation. So if you put, and let’s go back to the whiteboard, if you put $100 in a checking account 20 years ago, it would still be worth about $100 today. A checking account, some don’t even earn any interest at all. So, over the course of 20 years, that $100 doesn’t grow at all.
In contrast, if you put $100 in the market, growing at 7.5%, you’ve got 450 bucks. So, not only have you actually produced growth, you have beat inflation. And if you’re in control of a lot of money, which a lot of these big pension funds, institutional traders, these hedge funds are. They not only are trying to beat inflation, which is right now high, but has averaged about 2%. They need to get at least 2% just for the money to still be able to buy as much as it was the year before. They also want to beat the market. And they want to outperform. They want to try to do better, and better, and better. And those that do are rewarded as investors want to give them their money, so they can go into the market and invest it.
But one of the things about the stock market that is, certainly, important to know… Well, two things. So, one in order for companies to list their shares on the exchange, they have to provide financial disclosures. They have to share with investors, how they are performing. And that’s where they filed with the SEC. They file their 10-K and their 10-Q, their quarterly earnings and their annual earnings. So you can see their cash flow. You can see their balance sheet. And it’s fully transparent. So you, as a potential investor, can do your due diligence. And make sure that this is a company that you feel comfortable investing in. You wouldn’t want to invest in something that doesn’t provide any financial transparency. How would you possibly know whether or not it’s safe?
But, at the same time, we know that the price of a stock and its ultimate value is based not just on the earnings they report, but market sentiment. How people feel about the company, how people feel it’s going to perform over the long haul. And that can be very difficult to gauge. And so, one of the risks for investors is what’s called single stock exposure. If you take that $100 and you put all of it into one stock, and leave it there for 20 years, it’s possible that you could far outperform 7.5% per year. You could have a stock that goes up 400%. Or you could have a stock that goes bankrupt, that goes bust.
And so what a lot of savvy investors will do, there’s a couple different things. Some investors who feel very confident selecting their own stocks, which is fairly rare because you have to have some training, some expertise that actually gives you an edge, but some people do feel confident choosing their own stocks. They’ll invest in Tesla, they’ll invest in Netflix because they drive a Tesla, they watch Netflix. And they invest in Amazon ’cause they shop there, they buy what they know. That’s what Warren Buffet always says, buy what you know.
But to reduce the pressure and the risk of single stock exposure, what a lot of people will do is they’ll invest into an index. And these in indices are a fund. And so, let’s go back to the whiteboard. So one of the popular funds, and we’ll just reuse this here is the S&P 500. So, the S&P 500 is a fund that is a measure of the 500 companies that make up the S&P 500. The Dow Jones Industrial Average is an index that includes 30 companies. And so, by investing in the S&P 500, or by investing in the Dow Jones Industrial Average, you are reducing your single stock exposure.
Now, if one of those stocks go bankrupt, if one of 500 stocks go bankrupt, is it going to hurt the performance of the fund? Sure. But it’ll probably be offset by the one or two that do really well. And so, you get to just benefit from a nice average. And you also are rewarded for the risk you take by buying into these funds with dividends. So, you get these dividends coming in, which is really great for cash flow, and really great for people that are looking for fixed income. So, that’s a concise, very high-level beginners guide to the stock market.
And now, let’s talk about what it takes to become a trader. So, becoming a trader means you’re someone that is actively buying and selling shares of stock. And so, I’m a trader, and this is something I’ve been doing for a long time. And I do it every single day. I actually day trade. But you don’t have to be a day trader, or you could still trade, and buy something, and hold it for a week, and then sell it later. And what the idea is here is that you’re profiting from short-term fluctuations in price.
Certain events can happen for a company. A company can have good news that comes out, or bad news that comes out and following the release of that news, we would call that news to be a catalyst, the stock can make moves. And we’ve developed with some degree of predictability, and understanding that certain catalysts result in certain types of moves. And certain chart patterns, which are the technical analysis that active traders use, can be indicative of price action that is yet to come. We’re trying to predict the future. No one can do it with 100% accuracy but, as a trader, if you’re right, 65, 70% of the time, you would be considered to be doing pretty well, which means you can also be wrong 30% of the time. And that’s totally okay. So, being a trader means you’re buying, and then turning around and selling the shares within a fairly short period of time. And looking to capitalize on short periods of volatility, and change in price.
Now, one of the things that a lot of traders will do is they’ll use a larger position. That way, if the stock goes up, let’s say 15% or something like that with a larger position, they can actually really capitalize on that very nicely. Now, you might think, “Geez, a stock would never go up 15% in one or two days, or one or two weeks,” but it actually happens all the time in the market. Now, these are the outliers, but these are the types of stocks that active traders, like myself, are looking at. So, every morning I do a morning show right here on YouTube. And if you’re subscribed to the channel or you hit the thumbs up, you can get recommended the morning show. You’ll see it as soon as I pop up and start broadcasting it’ll show.
And so, during that broadcast each morning, I’m walking you through what I think are the leading stocks each day that have the potential to make a big move. And these are always going to be stocks that are already moving up and, generally, have some type of news catalyst. And so my job, as a trader, is to try to buy the stock, and then sell it a few minutes, or 15, 20 minutes, or maybe an hour later for a profit.
One of the things that’s interesting is that if you want to buy the stocks, you might think, “Well, how do I even buy shares of a stock? Do I call my bank? What website do I go to? How do I do this?” And so in each country, the stock market is fairly regulated. And so, here in the US, if you want to buy stocks, if you want to buy shares of a company, you have to go through, what’s called a broker dealer. They’re an intermediary between you and the market.
And, if we go back to the whiteboard, the way it used to work old fashioned, old school, and my, my great-grandfather was actually working on the exchange in 1929. So, I’ll draw a little picture of my great-grandfather here. So, he’s working on the exchange, and he’s got one of those like big top hats, ’cause they probably did in 1929. And so, he’s down there on the exchange and I’m over here. So this is me, I’m over here. And let’s just pretend that I’m a farmer. So, I’ve got a pair of overalls on, or whatever.
So, I pick up the phone and I say, “Hey, I’d like to buy some shares of General Electric.” And so, who I have to call is my broker right here. He’s a fancy guy in the middle. And he says, “Okay, I can get you shares of General Electric. They’re currently trading at,” whatever, “$12 a share.” And so he says, “Okay.” And then, he calls his man down on the floor of the exchange. And this guy walks over to the General Electric desk and says, “I want to buy this number of shares.”” And then he calls him back and says, I got the shares. Hey, good news. We got him for $11.50,” whatever. And then I get the word passed on to me. And all of that takes maybe 5 minutes, 10 minutes, maybe longer, depending on a number of factors.
Today, it’s essentially entirely electronic. And this is what the market looks like. So, right here, you could see these charts. And literally from your phone, from your computer, you can access the market, and you can start trading. And so, I’ll show you. Let’s see, this is what this kind of looks like right here. This, it’s 100% digital. So, I can go in here, and just as an example, I’ll just do a test stock. With the press of a button, watch this. I just bought 1500 shares like that instantly, instantly, I own them like that. And I press one more button and I sold them just like that. And that is the power of the market tonight.
From your phone, from your computer, with an internet connection, you can access the market and you can become a trader. But just because you can become a trader very easily, doesn’t mean you can become profitable very easily. I’ve been doing this for a long time. I have over $10 million of gross profit to my name. I’m a pretty good trader, and my results are not even close to typical. Most traders lose money. So, if you’re thinking about learning more about the market and you want to become a trader, what I encourage you to do next is to start research about different strategies.
Now, whether you want to learn one of the strategies that I trade, that’s fine. I could put some links at the end of the video. You want to learn other strategies, that’s fine. But I would encourage looking at trend based trading, which is called momentum trading. Momentum trading is when you’re looking for a stock like this, that’s moving up strongly. The stock that I traded the most on today, RVSN, this one this morning, experienced strong momentum going from about a $1.60 up to $2.50 cents. So, this is a stock that, let’s see, let’s just check the percentage gain. It’s still up 53% in one day. And I’ll just put that back on screen share so you can see real quick, that’s the type of stock that you want to be looking at.
Now, again, it’s totally your choice how you approach the market. You may be someone who says, “Well, gosh, I’m not going to be a day trader. I don’t have the time for that. I’d rather just buy my one share of Tesla, or whatever it is.” And that’s fine too, but you still have to go through your intermediary. So, my intermediary is this broker here. You may use TD Ameritrade. You may use E-Trade. You may use Interactive Brokers and that’s fine. And in some countries you can even use your bank. Although, the platforms that banks provide are usually not very sophisticated compared to the platforms that really professional broker dealers, who cater to traders every single day, they have really good software. The software that allows you with the press of a button to get in and out. The software that provides really great charts, so you can see what a stock is doing in real-time.
It’s crazy to think about the fact that 30, 40 years ago, this whole thing of being able to actively trade on the computer from home, this was not a thing. If you wanted to be a trader, you had to be down on Wall Street. And, most likely, you had to have gone to a school, a really good school, gotten a business degree, majored in finance, all that stuff. It’s so different today.
So I hope you’re inspired. I hope you’re excited. I hope that, for you, this was indeed a concise beginner’s guide to the stock market, and gave you a bit of a sense of what it’s like to become a trader. So, if you want to learn more, I’m going to put two videos, one right here on my simplest day trading strategy. You could check that out, if you’re interested. And I’ll put another right here that might get you inspired. It’s the story of a janitor, and this is someone that I actually knew, who amassed a fortune of 8 million. He worked as a janitor. How did he do it? A penny saved as a dollar earned. He kept putting money away, and it grew exponentially. So, check out those two videos. My simplest day train strategy, and the janitor who made 8 million bucks. All right, thanks for tuning in for this episode. And I hope you did hit the thumbs up and subscribed to the channel.
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