Investing Habits: A Beginner’s Guide to Growing Stock Market Wealth

76 Pages·2016·0.88 MB·English

by  Steve Burns

Investing Habits:

A Beginner’s Guide to Growing
Stock Market Wealth
By Steve Burns & Holly Burns
Contents
Foreword
Introduction
Get Started Now
A Different Way to Make Money
Be an Employee and an Investor
Pay Yourself Before You Pay Taxes
The Power of Compounding Returns
The 100% Return That Most People Miss
How the S&P 500 Index Beats Mutual Funds
Don’t Buy-and-Hold Through Bear Markets and Crashes
Investor’s Cash Flow
Dollar Cost Averaging
Appendix: Investing Habits Summary
Grow as a Trader
© Copyright 2016, Stolly Media, LLC.
All rights reserved. No part of this publication may be reproduced, distributed,
or transmitted in any form or by any means, without the prior written permission
of the publisher, except in the case of brief quotations embodied in critical
reviews and certain other noncommercial users permitted by copyright law.
Disclaimer:
This book is meant to be informational and should not be used as trading or
investing advice. All readers should gather information from multiple sources,
and create their own investment strategies and trading systems. The authors
make no guarantees related to the claims contained herein. Please invest and
trade responsibly.
“A habit’s a routine of behavior that’s repeated regularly and tends to occur
unconsciously.”
– Wikipedia
Foreword
“Speculation = timing the movement of money. Investing = converting time into
money.”
– @Jesse_Livermore on Twitter
This is a different kind of stock market beginner’s guide. The purpose of this
book is not to study the history of Wall Street and waste time on facts that very
few care about. This book focuses on the ten key principles that you can do right
now to start building and fortifying your own investing accounts, regardless of
where you are on your own financial journey. I didn’t write this book based on
theories or opinions, rather I am sharing my personal experiences and the
strategies I used to build my own accounts.
If you combine discipline and effort with the right strategies over time, magic
can happen. It’s no small feat to open an account and take it to six figures in a
few years, and it requires dedication, self-awareness, and an understanding of the
system. This book is not about the details of the stock market as much as it’s
about you, and the habits that you can develop to be a successful investor and
make money.
I am an avid nonfiction reader. I love to read books that not only share
knowledge, but can also empower me to change my behaviors and my life. In
this book I hope to share some things that you can start doing right now that you
may not being doing, or may be unsure about. I it will give you more confidence
in your future and you will be able to grow your capital beyond your wildest
expectations.
Introduction
"Successful Investing takes time, discipline and patience. No matter how great
the talent or effort, some things just take time: You can't produce a baby in one
month by getting nine women pregnant."
– Warren Buffett
Here is a quick lesson on the stock market for those readers looking for the
basics before we dive into the action steps.
The stock market has a very low barrier of entry. Almost anyone can own a
publicly traded company’s stock and potentially grow their own investment
account. Actively trading and investing in a successful company’s stocks helps
to diversify your ability to create income instead of selling your time for money
at a job.
Companies raise money when they go public by selling their stock on the stock
market through an Initial Public Offering. If a company has an IPO for 1 million
shares offered at $20 a share, then they will take in $20 million if the market
buys all their stock at the offering price. Once a company takes in the money
from their initial share of stock through the IPO, their shares trade on the open
market and the price is determined by what investors and traders are willing to
pay for the stock at any given time. The value of a company is set by the price of
the stock multiplied by the number of shares of the stock that were issued. If a
company has 1 million shares of stock and the price of the stock is $100 per
share, the company market capitalization is $100 million, meaning the company
is worth $100 million.
The company doesn’t determine the value of its stock, the market does. The
price of a stock is set by the last traded share price, because the stock market is
essentially an auction where there is a ‘bid’ and an ‘ask’ price at any given time.
The ‘bid’ is what someone is willing to buy the stock for, and the ‘ask’ is what
someone is willing to sell the stock at. When the stock is physically traded, that
becomes the stock price.
The company is separated from the buying and selling of its own stock unless it
issues a stock buyback program. During a buyback, a company will go on the
open market and buy its own shares and lower the share float available for
trading and investing. Share float is the actual number of stocks available for
trading at any one time.
A company can also issue dividend payments to reward investors with a share of
company earnings. Dividends are usually paid four times a year (quarterly) on
stocks. A dividend stock’s yield is determined by the amount of their annual
dividend payments divided by their current stock price. If a company pays four
annual dividends a year at $1 each for $4 in total annual dividends, and the stock
price is $100, then the stock’s yield is 4%.
Additionally, the company could also have a secondary offering of stock to raise
additional capital, but this brings more supply into the market and dilutes the
existing shares. A secondary offering is looked at negatively because it shows
the company needs to raise more capital because it doesn’t have adequate cash
flow inside the business to operate.
As mentioned above, the company can also buy back its existing shares and
lower the amount of shares available in the market. A buyback program provides
support for a stock price and takes supply of shares out of the market, helping to
increase the demand for the stock. Stock buybacks are looked at as a positive
sign, because it shows the investors that the company believes that its best use of
extra capital is to buy back its own stock.
This is the basics of how companies are related to their stocks. The company and
the stock itself are two different things. The stock market can be both a wealth
building and wealth destroying machine. It goes through cycles of long term
uptrends (Secular Bull Markets) and long term downtrends (Secular Bear
Markets) that can last for years.
The stock market can also experience short term bubbles like the dot com era of
the late nineties into March of 2000, when earnings and sales expectations for
the next decade were already priced into stocks and reality hit investors hard.
Likewise, it can have short term corrections with prices dropping 10%, short
term bear markets when prices drop 20%, and even crashes when the market as a
whole can plunge 50%, like late 2008 and early 2009.
The stock market is not the Holy Grail of riches where all you do is buy stocks
and win. The stock market is a game of survivorship. Some post IPO stocks go
on to rise by 1,000% over the next decade and eventually end up in the Dow
Jones Industrial Average as leaders of an industry. Others stock values may lose
half their value in six months, eventually being delisted as the underlying
company goes bankrupt.
The stock market is a reflection of free market capitalism with both winners and
losers. The leaders in the U.S. stock market have reflected advances in
technology, and the stock market is the mechanism for participating in the
growth of the modern economy.
Your ability to use the stock market as a wealth building tool will be based on
how well you can consistently do things that expose your money to good
opportunities and uptrends in the stock market as a whole, and in individual
stocks that are going up in price as their sales and earnings rise. When you have
captured some nice trends, your next job is to know when to exit with profits and
not allow them to be taken back during the next bear market, or when the
company makes a misstep and loses its competitive advantage.
There is a time to be in the stock market and a time to be out. This book will be
help you maximize your chances of making money long term, while minimizing