The Investing for Beginners Podcast - Your Path to Financial Freedom

Welcome to Investing for Beginners podcast, this is episode 72. Tonight Andrew and I are going to talk about shareholder yield, this is a term that I came across when I read a book by Meb Faber. One of my favorite podcasters, he’s a quant investor that runs a ETF that he’s a fantastic guy really interesting super smart and sometimes he can be a little technical. But he’s very interesting and he wrote some great books that are on Amazon and quite a few of them were actually free. So the book that we’re going to talk about tonight that we’re going to reference let me rephrase that is actually free and I will put the link to that in the show notes. If you guys want to check out a little more deep dive into what Andrew and I are going to be talking about tonight that’ll give you an opportunity to check that out so well then further ado Andrew once you go ahead and start us off and talk a little bit about shareholder yield and capital allocation. Andrew: yeah so shareholders yield a metric it’s a good kind of description for a metric where you’re essentially looking at a CEO management of a company and seeing how are they allocating capital. You have earnings that you get right profits up that these companies have and as we’ve mentioned in previous episodes two to three episodes ago these companies have various decisions that they can they have various purposes that they can use this cash that they have for. And so shareholders yield is a measure to evaluate that and it can identify companies if there’s a high shareholders yield can identify companies that are really rewarding shareholders giving a lot of that cash and giving it back to shareholders and it doesn’t have to be in the form of a dividend that’s why it’s different than like the dividend yield. You have essentially the five ways that they can pay back shareholders and so they can reinvest back in the company and that’s good if the business if the core business is growing they can do a an acquisition a merger and acquisition. Where you’re they’re buying another company hopefully saving money by combining operations and obviously growing earnings and revenues in that way. They can pay down debt they can repurchase shares we talked about that extensively with the share buybacks episode and they can pay dividends. What we’re going to talk about today I think really gives a nice little measure and a way that you can take it one step further right. So we took the time to really introduce these kind of things and talk about them from a theoretic level. Hopefully you were able to learn that if you haven’t listened to those two episodes I definitely recommend doing that. But understanding the how it works and what these things are and then now this is a good idea of how you can apply it and use it practically to find good businesses good stocks to buy. I really liked the book that Meb Faber wrote shareholder yield he had like really cool kind of metaphor about the way some investors will look at stocks so he talks about this concept some I don’t know it feels like a legend or just a story. but there’s six blind men right and they’re all told to touch this elephant and they’re told to describe what this elephant is what it feels like and then kind of make some conclusions based off of that. One blind man might touch the tusk one might touch the tail one might touch the side or the bottom of his belly and they all describe different things but neither of them not one of them if they’re all just touching this one place they’re not able to accurately describe the whole picture and so when it comes to investing and buying stocks a lot of investors can fall into that trap as w...

  Welcome to the Investing for Beginners podcast episode 71. Today Dave is taking a break and I am taking over the reins. We have an interview for you today with somebody who has a really unique take on investing and it’s a cool little mix between investing and entrepreneurship. We have Greg Elfrink from Empire Flippers and what his company does is provide an outlet and a unique investing possibility and approach where like I said it kind of mends these two ideas of investing and entrepreneurship. And it quite literally is something that wasn’t available before the internet. This is something very new a new type of investment opportunity and for somebody who is particularly like me because I’m super passionate about entrepreneurship. I’m type A going to go out and spend way too many hours of my day kind of hustling and trying to make a secondary income and some of the who’s familiar with the online space is definitely this is a resource that you might be able to find useful for being creative and finding other investment opportunities. Greg welcome to the show thanks for coming on and thanks for joining us and giving us a couple ideas today. Greg: yeah thanks for having me Andrew I know this is probably going to be a bit different than your typical podcasts and like you said a relatively unique way of investing in creating a bigger thicker wealth machine for you in a kind of a different way not affected by the stock market and all that good stuff. Andrew: so yeah so I actually remember hearing about you guys I’ve mentioned Pat Flynn’s podcast on our podcast before. we’ve talked about passive income here and there so I heard about you guys on his podcast and I can’t remember if it was from him if it was for my guests but there’s something really cool you guys do and it’s essentially and you can correct me if I’m wrong or you’ll probably have a much more elegant way to put it than I do. But buying websites online or basically as businesses and then either working in them or kind of letting them run on their own and then collecting the income. Essentially buying a small business but you’re buying these websites online. Greg: yeah I mean that’s exactly it so what we do is we help people connect between the buyer and the seller and is it’s not always necessarily a website because it’s always a non-business but there’s a few business models on the internet that don’t really require a website which I know some weed sounds kind of weird. But like businesses we call them Amazon FBA so that’s like fulfilled by Amazon so that’s like an e-commerce business that’s using Amazon’s platform. So they don’t necessarily have a website but we’ve sold a ton of those businesses over the over the last two three years and obviously a bunch of websites as well. Andrew: okay yeah makes sense even that idea Amazon FBA is really new I don’t I don’t memory hearing about it like five years ago and then two or three years ago kind of everybody’s talking about it so that’s really good. Greg: for sure one of the interesting things too like even the concept of buying and selling on like businesses like you mentioned at the top it’s a pretty new concept I mean making money online is not even really 20 years old yet. There was some people doing it like in the 95 1995 and stuff but very few and far between and now we kind of reach this level where a lot of these businesses or are starting to mature as assets. So there’s an it’s a very interesting time so the buy and sell space still pretty young comparatively even two making money online. Andrew: all right so I know this might be unfair to you based on your experience or backgroun...

  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...

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...

  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.

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...

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...

Welcome to Investing for Beginners podcast this is episode 65. Tonight Andrew and I are going to answer some readers’ questions, we’ve gotten some fantastic questions over the last few weeks and Andrew and I wanted to take a few minutes to go ahead and answer those. I’m going to go ahead and start off with the first one so bear with me reading this so I have. Hi Andrew, I stumbled across yours and Dave’s podcast of the search for the ultimate truth and knowledge of investing. I have dabbled in investing, more gambling with Forex and options with a couple of stocks not good ones just losers. The thing I’m finding is there is so much info out there or leading you this way in that so the question I have for you is now that you’ve been investing for a while I’m probably still learning along the way if you had to start again or start your daughter if she was of age for investing of her own like fill town and his daughter where would you start and what steps would you suggest? I understand the concepts of Valle investing I believe by a good company for less than what it’s worth for a margin of safety and look for good businesses that I can understand. I’ve just finished listening to the value investor from Graham but the issue I seem to run into is it valuation of businesses or should I start looking somewhere else. I know you’ve both put out good info for stocks but how do you go about finding those I forgot to say thank you for both of you from probably every new investor for trying to help people realize that there is a way to have money for retirement. Tom Well Tom you’re welcome this is why we do what we do we love helping people and that’s a lot of fun to talk about this and Andrew and I get to geek out on air. Let’s see let me take some of these questions for you. so if I had to start we’ve talked a little bit about this but I’ll go back and talk a little bit about this again if I had to start again or start my daughter when she was of age oh I feel town on his daughter if you guys have not checked out that’s Invested fill town and his daughter Danielle talked a lot about investing Daniella is a newbie and fill town is a value investor and of the like that we talked about and it’s kind of a great interplay between he and his daughter is their he’s trying to teach her all about Wall Street and everything. so it’s kind of a it’s a cool podcast if you want to check it out. If I wanted to start Sadie off with investing I would just basically sit her down and talk about buying companies and so many people look at investing as buying a stock as a piece of paper or a ticker symbol on their computer or their iPad or their phone. And I would talk more about what you’re actually buying you’re actually buying a piece of the business and go about talking about how the business makes money and teacher the ways of businessman. Warren Buffett always says that he’s a great investor because he’s a great businessman he talks a lot about and kind of vice versa he’s a great businessman because his investor and they really go lockstep hand-in-hand with each other the more you learn about business and how they operate and how they make money you become much a better investor because as I’ve said before our we’re buying businesses. I would start with that and learning more about how businesses make money and where their revenue comes from and just learning the ins and outs of the business. And I’m not necessarily talking about learning how to read a 10k that I think would be overwhelming and kind of boring and I think that would put people off. But if you really started off with looking at things that you go and buy on a regular basis like Starbucks and have a conversation about  how the store makes...

  Welcome to Investing for Beginners podcast this is episode 64. Tonight we’re going to conclude our series on personal finance, this is episode 105 of our little series here. Andrew’s going to start us off we’re going to talk a little bit of passive income so Andrew go ahead and take it away. Andrew: so I really wanted to talk about this because I feel like a discussion on personal finance isn’t complete especially in my own situation if we don’t talk about creating passive income. By far creating a passive income stream has been the most if not influential is not the right word but it has had the greatest impact on my own trajectory my own path to financial freedom and that’s something that we definitely need to cover because I think it can be that way for a lot of people too if they’re willing to put in the work. I understand like I have a very entrepreneurial mindset kind of like a workaholic type a type person so I understand that maybe this episode isn’t going to apply for everyone and that’s fine and if that’s the case for you and you want to just focus on the investing side and that’s 100% okay and we’ll get back to it like we normally do. However we are talking about personal finance I am super passionate about creating passive income and when you’re doing investing, in general, you create a passive income that should be the goal with dividends and so obviously you need money to make money you can start small like we always talk about you grow that little income stream from dividends and your growth over time you reinvest it continues to get larger and larger and larger. If you couldn’t add this element of passive income whether that’s picking up a side hustle, getting a second job where at whatever that entails that can also compound for you over the long term. Because now obviously you’re getting free money that you can invest for example if you have all your bills set up you have your budget set up like we talked about in the previous personal finance episode. Then you could have a side hustle or a second job where all that money can go straight to your investments and it can really grow at a much-accelerated rate. And so the thing the things that I like about passive income and this is going to be something where I guess if you’re doing like a second job it doesn’t necessarily apply. And I don’t want to speak to like every single type of passive income you could create because if that’s something you’re interested in I highly recommend Pat Flynn Smart Passive Income podcast. But I think there are some things I’ve seen success with that I believe both Dave and I can shed some light on today experiences is often the best teacher and I still believe like the way I found success is something that’s very early in the game so to say and there’s a lot of opportunity for people to kind of pick up that torch and continue with on. And that might be kind of a stupid thing for me to say because I’m creating competitors as I say it but I’ve had like Porter Stanberry for example. He’s he has a podcast and I remember something he said that really stood out to me was the idea that the thing with investing I mean you can only create and I want to put words in his mouth. But the way the way I kind of took out of it was you can only create so much from whatever capital you have so even if we were to say we’re the best investor in the world right let’s say you’re Warren Buffett and you’re able to compound it like an insane twenty-two percent a year or something like that. If you’re broke is a joke and you’ve got five dollars to your name compounding of twenty-two percent a year isn’t going to make you a millionaire so I can make you a billionaire it won’...

  Welcome to investing for beginners podcast. this is episode 63 tonight we’re going to continue our discussion on personal finance, this is personal finance 104 and tonight we’re going to talk about designing your investment lifestyle. We’re going to talk a little about picking an investment strategy and different areas of that and I know Andrew had some things you wanted to start off with so when I turn it over to him. Andrew: yes so last week we talked about budgeting the next natural step is figuring out what to do once you have that extra money. so like they have mentioned you’re going to want to have to pick an investment strategy you want to look around and really try to understand you not just pick a strategy just off the onset just because it sounds good. But try to understand what’s going to fit so that might that might entail looking at a couple different things before you really make a decision and I’ll kind of explain why. But there’s a lot of different ways you can invest money we covered this in our back to the basics part 3 or we talked about stocks versus other investments we’ve talked in the past about how we’re both adamant value investors and why we kind of why we tilt that way and why we recommend that investors try to model portfolio a base approach trying to buy low trying to buy businesses that are trading at a discount to their intrinsic value. I don’t have what episode that is off the top of my head but we did talk about what kind of options you have as versus any other sort of investment I also talked about like value machine versus growth investing versus whatever other kind of strategies are out there so those are two episodes to help a broader base and a broader sense of kind of what all your options are out there. I wanted to start off though with a couple of things that maybe if I talked about it will help give like a mindset shift on why it is important to pick a strategy in this way and to kind of understand and conceptualize what I’m about to say. Basically when you break down investing there’s two forms of it you have passive investing and active investing. So passive investing is the type of vesting that’s usually recommended by investment professionals if you go see a financial advisor they’ll usually recommend that as well and basically what that means is you’re just buying stocks and then not touching them that’s the best way to do passive strategy. And it usually entails buying like an index fund and just passively holding it and not touching it so if a passive strategy fits your personality if it’s something you’re able to stick to then it can be a very great option for you. The other side of that is active and what active means is you’re trying to pick stocks you might be selling in and out you might not be a buying hold forever and although at least personally I really try to talk about buying stocks and holding them as long as you can ideally forever. I also understand that stocks go bankrupt and so that’s why I always talk about the bankruptcy research the negative earnings discussions I went to sell. But in general you want to try that hold your positions as long as possible so that’s what active is you’re buying individual stocks you’re making stock selections that way then you’re also making decisions on the opposite side of how long you’re staying in these stocks when you’re getting now how long when you’re getting down when you’re staying in and all those sorts of things. And I do believe like for the majority of investors that having a passive strategy is the best way to go. However I see a huge problem and I’ve kind of talked about this before but a huge problem with the idea that you’re just going to tell people...

  Welcome to Investing for Beginners podcast this is episode 62. Tonight Andrew and I are going to continue our series on personal finance. Tonight we’re going to talk about managing personal cash flow. Andrew why don’t you go ahead and start us off and we’ll chat a little bit between each other. Andrew: all right let me get some wild and crazy ideas out there cool. how am I put this nicely so there is a term in the fitness world that is called F around itis and it’s made popular by a guy who runs Lean Gains site his name’s Martin Berkman and basically the whole it’s like a great blog post went viral that all those sorts of things and basically his big thing with the reason why so many people aren’t finding progress in the gym is because they’re they have this condition called F around itis. And it’s basically because when you’re going through the gym you’re trying to do everything you can but if you don’t sit down and write things down and track it and measure and see where your progress is going. Then you don’t actually make any progress and you end up just kind of spinning your wheels. Another business management guy’s name is Peter Drucker he has a quote and he says if you can’t measure it you can’t improve it. And so I think when we talk about personal finances and you really try to get to the bottom of figuring out how to improve how your personal finances are working because it’s all like kind of a chaotic mess. Everybody solutions going to be kind of different and that’s why you have the personal part in personal finance. However, there is that key point that you need to be tracking something and measuring something and so I think Dave and I can throw out some ideas of how we feel about measuring the way that your money is flowing through your life. But if you really want to make progress and improve a just to be aware of how your money situations moving this time goes on and beat to hopefully see that progress and just by measuring it and tracking it has a bi-effect of making that situation better for yourself. I definitely have what works for me when it comes to tracking my personal finances I’m sure Dave has the system and I’m sure you take 10 people off the street and whether they’re financially whether or not I’m sure everybody else has their own situation to their own system sorry. It’s going to be different hopefully we can just throw out some ideas and if it’s something that speaks to you then you can make it stick. But the whole point of this episode I think is that when it comes to your money you don’t want to have a frown that’s you don’t want to be just enough flailing your hands blindly you want to have a plan and you want to have measurements and you want to be tracking your progress. I know this is not some sort of straight linear path trust me it’s not like they say success is never a straight line there’s always bumps in the road and when you look at finances I think that applies 110%. I’ve definitely seen in my own life and I’m sure other people can speak to and relate to that as well. Just when you think you have things sore that something major always pops up around the corner but there are ways that we can still take on those obstacles and those challenges and still make progress moving forward I think the most important part of that is like what Dave says is managing your cash flow and having in my mind it’s budgeting but I think having any sort of measurement system in place is really the first and probably the most important step. Dave: I totally agree with what Andrew was saying I think if you can’t measure what you’re trying to improve on you’re never really going to prove upon something and I really like what his...

  Welcome to Investing for Beginners podcast this is episode 61. We’re going to go ahead and talk a little bit about personal finance today. Andrew has a disclaimer he wanted to discuss before we get started so Andrew why don’t you go ahead and chat a little bit. Andrew: sure so real quick I know there’s like varying degrees of experience level with people who listen to us so I would say we’re going like super into the basics for the next couple of weeks. I would say if it’s stuff that’s going to kind of bore you or if it’s stuff that you already know I go through our archives and we get in swarmed the nitty-gritty in into the stocks and individual stocks and accounting and stuff like that in those. But Dave and I had a lot of fun last week talking about some of the basics and personal finance and figured we’d turn it into a little bit of a series. So we’re going to do we’re going to call last week’s personal finance 101, and we’ll call this one 102 and make a couple of episodes that way. There was a lot of fanfare when we did the back to the basics part 1 through 5 series, so this is going to be kind of similar but for personal finance and we’ll try to throw in some more advanced things, but I would say go through the archives. I know when I check out podcasts and some of the other ones there was a big one that I remember I listened through every single episode in the archive, and that helped me out, and I’ve done that for investing entrepreneurship and whenever there’s like a skill I wanted to learn. I always thought the archives were like a valuable resource and we got stuff on their blogs and stuff like that too if you are dying for content. But for now that’s where we’re going to head and yeah let’s talk about last week we were talking about some things that we would do some things we would say there were five-year-olds and try to give them some concept of money and making money investing money all those sorts of things. We talked about the importance of building the business building assets. But we didn’t say how to do that specifically, so I was going to say, Dave, what would you say is the first step if we do now want to take our discussion from last week and yep start building assets and how do we do that in the adult world. Dave: Well I think the easiest thing is to start a savings account that’s probably rule number one is to start saving money. Learning how to save money, and we talked a little bit about that last week with what we’re going to do with our daughters, and I know that I’ve talked to my daughter Sadie about that numerous times and she’s starting to kind of take to it. Last week when I gave her earnings she took two dollars of it and went ahead and set it aside and I’d even have to tell her that it was kind of cool. I think the first thing is setting up a savings account starting to save money and putting money aside whether you’re 14 years old or 24 years old I think that’s so critical to have extra money. There was a tweet going around earlier this week where there was a study done that said I think it was seventy-five percent of Americans have less than four hundred dollars in a quote-unquote emergency fund. So if your car breaks tire blows out you have some medical emergency, you break a tooth or something like that that you that the average American doesn’t have any money saved. And I can tell you from firsthand experience working in the banking world for those years that is right on the money there is lots and lots of people that have nothing they have no money saved that would have paycheck-to-paycheck. Some of some of it’s their own doing they live above their means but some people they just aren’t earning enough money,

  Welcome to Investing for Beginners podcast this is episode 60. Tonight we’re going to talk about money lessons for our five-year-olds. Andrew and I both have younger daughters and we’re going to talk a little bit about money and what we would teach our kids if we wanted to teach them more about money and I thought I would go ahead and start off and talk a little bit about some of my experiences with my little girlie and kind of go from there. Just to kind of give you a little bit of background my daughter’s going to be six here very shortly and we go to Walmart a lot to go shopping and stuff and she always wants toys and she wants Toys Toys Toys more toys. My wife and I have been discussing about whether we should give her an allowance, whether she should earn it and kind of going back and forth on what we should do. And so I thought that I should have her to help her learn the value of money that I should give her some air quote jobs to earn the money that we give her every week. And so what I thought of was kind of creating basically three buckets. The way I do it is that I have a little chart that we created and Sadie, my daughter and I sat down and we went through everything and we came up with jobs that she could do things like emptying the dishwasher, dusting, helping us vacuum, sweeping the floor, getting dressed every day because that’s something she likes to do at this stage. All those things we came up with dollar amounts and why not so at the end every Sunday we look at the chart together and then we tally up her money and then we hand it over. And so instead of just giving her the money and just letting her kind of run wild with it and going to Walmart or Toys R Us who was going out of business sadly. Whether we do any of those things and just let her go run rampant and basically blow all the money. I thought about my life in how I kind of learned money and I love my parents to death but they didn’t teach me much about money and I kind of had to learn it the hard way and I after working in the bank for all those years I noticed that very much so people are really not taught money. They’re not taught how to use it what its value is how to earn it  how to save any of those kinds of things we all have to learn it the really hard way I’ll give you an example just recently when I was in another restaurant I was working in I was away from the restaurant for a bit and a vendor came in and I needed somebody to write the vendor a check and the other manager that was on duty was a younger guy and I called him up as a hey can you write this check out for this vendor and he’s like no I can’t I’m like why he said I don’t know how to write a check and I thought wah wah ha ha. And he’s like I don’t know how to write a check and I’m like how is that even possible then I thought about it for a second he’s younger he’s worked in the electronic he’s lived in the electronic age and so with the internet and  the availability of online banking and debit cards and credit cards. Makes sense he’s probably never ever written a check before so I just thought to myself while I was talking to my daughter that this is something that I need to try to help her with. And so the avenue that I started with to kind of work on this and again this is always going to be a work in progress was I came up with a bucket of three buckets that she should put her money in and encouraged her to try to help her with these ideas. And so the first the first bucket is kind of your spending money so for five-year-old she doesn’t have to worry about rent or car payments she gets to worry about buying or Toys. What I did told her was is that you could put some of your money in there so that’s the money that we can go when we go to the store to go shopping that you can buy yo...

Welcome to Investing for Beginners podcast this is episode 59. Tonight Andrew and I are going to answer some reader questions, he’s gotten some emails and we wanted to go take a moment and read through those. We’re going to read some stories and we’re also going to answer some questions so I’m going to go ahead and start us off. The first one I’m going to read is from Anthony the letter starts with: Andrew, I just wanted to express my gratitude for what you and Dave are doing with your podcast. One of the things you both preach frequently it’s patience and resisting the fear of missing out. This recently saved me a decent amount of money. There was a stock that I really liked because they were selling in a bargain I mean this stock would look great. I invested once a month in research during the time in between about two weeks before I would normally make a purchase I noticed the price kept going up and going up. I felt like I needed to buy in NOW or else I would lose potential gains it took all of my willpower to just hold off and wait until the month was up before buying in. I’m sure you can guess what happened next they went back down to its original price the next week then I went down a little further by the time I bought it it was actually spent less than it would have been if I had bought it a month prior this just goes to show how little things like having a little patience can help you in your financial success. Thank you for your time and hard work you put in your effort is truly helping others towards achieving financial freedom. Thank You, Anthony Dave: well Anthony you’re welcome. Glad you are finding some value in what we’re doing that’s what we’re here for is to try to help you guys. Andrew: your thoughts that’s perfect that’s we’re going to start the show on the peak and it’s just going to all go downhill from here all right. Now that we pat ourselves on the back let’s actually help some people. Here’s two questions from Josh both good questions. so we’ll tackle them one at the time. Hi Andrew you talked about dollar cost averaging and its importance however how do you distribute across your portfolio all into a single position or spread out across multiple? How much is too much to put into an individual stock I have five thousand dollars putting a thousand dollars into 5 stocks makes sense. However is there awaiting to placing more dollars into one position versus another? Can you invest too heavily or not enough into a single position while neglecting other positions? Several questions sort of saying the same thing, love to hear your thoughts. Thanks Josh Dave: I guess my thought on what Josh’s question is equal waiting to start would probably a great thing to start with that’s kind of how I do it. But then as you find more information about the companies you can adjust that as you go along and get more comfortable with how you’re investing. There’s never really going to be a right or wrong answer this is really going to be more depending on what you’re comfortable with and how much volatility each of these particular stocks are going to have and how much you can stomach investing into a company that is air quotes losing money or is going down in price maybe not losing money is the best way but maybe the stock market is punishing the stock and you still think it’s a great position. Then that’s when your strength of conviction of what you’re doing is going to come into play. So that’s really kind of how I would look at it Andrew what are your thoughts? Andrew: yeah I agree and you’re kind of alluding to the idea where it’s going to change as time goes on so something that investors are going to have to think about.

  Welcome to Investing for Beginners podcast, this is episode 58. Tonight Andrew and I are going to talk about financial ratios and we’re going to talk about some ones that we have not discussed before so this will be fun. We’re going to take a shot at talking about return on assets, return on equity, and return on invested capital as well as maybe a few other tidbits so Andrew why don’t you go ahead and take our first shot at return on assets. Andrew: okay yeah I could do that. Return on assets so basically the three of these ratios a good way to think about them is they’re kind of like efficiency ratios. They are ways to evaluate whether a business is good at creating cash with what they have. We’ve talked about some ratios in the past we talked about valuations episode 11 really good for that so we should I think we also talked about the cash flow statement I know we did that we might have done the income statement so we’re trying to piecemeal these lessons here and there. These efficiency ratios are good to keep in your back pocket for doing the kind of stuff that some of these value investors like to do I know Buffett likes to use efficiency ratios like I think he uses ROE, Joel Greenblatt uses ROIC so these are some good ones to know and to understand obviously some of these accounting metrics are a little bit hard to conceptualize if you aren’t familiar with financial statements. I would recommend maybe that’s a little bit over your head to try to learn some of the basics first try to tackle a financial statement and then maybe go back to an episode like this and then you can really comprehend return on assets. so that’s simple like it sounds so when you hear all of these return they’re basically talking about like what a company is able to create as far as profits go so the simplest way to use this equation as to say return is net income and then you divide it by assets which is total assets. Pretty self-explanatory I would say you think about the type of businesses that are going to be scoring better on both return on assets and return on equity one that comes to mind would be like a Facebook right where they don’t need as many assets pretty much any financial website or why did I say financial that at least my brains on somewhat of the right general topic. But any website any business that isn’t very capital intensive doesn’t need huge expensive factories in order to run they’re generally going to score really well on ROA or ROE and so I think ROE is also self-explanatory Dave do you want to talk about that one and talk about anything I missed about our way. Dave: yeah the ROA what I like about it is it’s obviously it’s very simple to calculate and as Andrew was saying it is an efficiency ratio and I think that the thing that I like about return on assets is it gives you it gives you an idea of how effectively the company is converting its money into income. And obviously the higher the number the better it is and so as Andrew and I like to talk about a lot assets are really was drive a business earning more money and when you think about return on assets the best way to think about it when you’re using it as a way to value a company is to look at the financial ratio as a comparison to like companies. So for example you wouldn’t take a railroad and look at the return on assets and compare that to a bank or you wouldn’t take the railroad and compare it to Facebook because there are two different types of businesses. Where it’s going to be most effective is when you’re going to use it in in a relationship to other like to like businesses. Let’s say  the fang stocks which was  all the rage so if you take Facebook and maybe Google or alphabet and compare those return on assets those it’s going to be more e...