Are you walking the tightrope of investing without a safety net? This episode will instill you with the confidence to navigate the ropes of the financial world, starting with debunking the misconception of investing being the same as speculation. Inspired by Warren Buffett's mentor, Benjamin Graham, we'll navigate the difference between the two, and discuss how to transition from speculation to informed investing. You'll learn about the true risks in investing and how to avoid them, ultimately enabling you to take control of your own financial future.
Investing doesn't have to be complicated. Let's break this myth together as we explore the straightforward strategies for protecting your investments and the importance of tuning out the media noise. Drawing on the wisdom of Peter Lynch, we'll demonstrate how investing is not rocket science but a skill you can develop. You'll discover the importance of simplicity in investing and identify valuable resources to further improve your investing skills.
I cover the following investing myths in this episode:
- Investing on your own is risky
- Investing on your own it complicated
- Investing on your own is time consuming
Watch till the end to get 10% off coupon code for Simply Investing.
Learn more at: https://www.simplyinvesting.com/
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In this episode, I'm going to cover the three most popular misconceptions that people have when it comes to investing. Hi, my name is Kanwal Sarai and welcome to the Simply Investing Dividend podcast. The first misconception we're going to talk about is true or false Is investing on your own risky? Then we're going to answer the next question true or false, investing on your own is complicated. And then, after that, the last one we're going to look at again true or false is investing on your own time consuming. So let's get started with the very first one True or false? Is investing on your own risky? And the answer is investing on your own isn't risky if you know what you're doing. So, of course, if you don't know what you're doing, investing is going to be a risky proposition. Now, we covered a lot of this in episode 36 about the topic of investing versus speculation, so if you haven't watched that yet, please go back and take a look at episode 36. I cover this topic in detail, but we're going to touch on it today because it's important to our very first misconception Is investing on your own risky? And, of course, it's going to be risky if you're speculating versus investing. So what's the difference between the two. Well, I'm going to share with you a quote from Benjamin Graham, and Benjamin Graham was Warren Buffett's mentor and teacher at Columbia University, and Benjamin Graham is known as the godfather of value investing, and you can see it up on the screen here. The quote from Benjamin Graham, and I quote it's a direct quote, so I'm going to quote now, and it says an investment operation is one which, upon through analysis, promises safety of principal and an adequate return. Operations not meeting these requirements are speculative. So you can see the key words that I've highlighted on the screen, which is and the first word is analysis, which means research. After that, the other key words are safety of principal, so you don't want to put your money at risk, and, of course, you're looking for an adequate return with any investment. So if you're missing those three pieces, which is analysis, safety of principal and an adequate return, then you are not investing, you're speculating. Now here's sort of a simple, consolidated version of what Benjamin Graham is saying. And what he's saying is investing is when you do your research or your homework before you invest in any stock, and speculating is not doing any research or any of your homework Before you invest. So what makes investing risky. So there's a couple of things here and I want to cover them with you up on the screen. Investing is risky when you buy stocks because a friend or a co-worker gave you a hot tip, or Because you read online that a stock was going to skyrocket, so you just went ahead and bought it. Which leads me to the next point, which is you went ahead and bought the stock without any research or doing any homework. And then the next one is without any knowledge of the company you're buying, and that's what gets a lot of people into trouble there. They have no clue as to how a company is making money. Is the company profitable? Does it have a history of being profitable? Does it have a good, solid track record? Without any of that, they'll just go in, open up their phone, bring up the stock trading app of their choice and Just put in the stock symbol and invest in the company. So you don't want to do that. Every time you do that, you're putting your money at risk. Now I got three more things here I want to cover with you. So investing is risky when you buy stocks because you think you can get lucky with it. You know you have a feeling that the stocks going to go up. Right. That's, that's not doing your homework. And the last reason here is because everyone else is buying the stock, and you see that many, many times in the stock market, when Certain stocks or certain industries become hot and they're talked about quite a bit online, people will rush in and invest in those types of companies. But again, that is not Investing, you're just speculating. So then, how do you move from speculation to investing? And the key here is you have to gain Investing knowledge. It's education. You have to learn About investing. You have to learn how to invest Before you spend even a dollar of your hard-earned money. And this is the same not just for stocks, but also for putting money in index funds or ETFs or mutual funds. You have to have the knowledge first, and so the question is why? Why do you want to do that? And the answer is because no one cares more about your money than you do, so not your financial advisor, your financial planner or your stock broker. No one's gonna care more about your hard-earned money than you. So you owe it to yourself to educate yourself on how to invest. Okay, so how do you do that? So there's a couple of options up on the screen here, and We'll start with a couple of the free options. So the first option is there's lots of great books on investing, so you can go to the library and you can get the books from there. And what I recommend here is take a look at episode 41. If you haven't seen already. Go back and watch episode 41 and I give you three book Recommendations in that episode. So if you go back and watch that, that's gonna be three excellent books and they've been instrumental in helping me to become a successful investor. The next option is to take a look at the Simply Investing blog and it's on our website, simply investing calm, at the very top. Just click on blog and I've written over 240 articles and each of those articles are written and In an informative way. They're educational. Each of those articles are educational and they're there to teach you how to invest Responsibly. And then we have the Simply Investing dividend podcast. You're listening to it right now. We're watching it right now and, as of this recording, we have over 40 40 episodes that I've Created and, again, each of those episodes are educational and they're teaching you different things about investing. And then, of course, lastly on the list is the Simply Investing online course, which I've created, and I'll talk about that a little later, toward the end, towards the end of this episode. Now another misconception and I want to bring this up here because we're talking about risk. So another misconception. That's out there and you may have heard people talk about this and they'll say well, you need to take a higher risk if you want to get higher return. And that is not necessarily true and I don't agree with that and I Talked about this in episode 7. So please go ahead and watch that if you haven't watched it already. But in episode 7, I provided you with three examples of where that term, you know, higher risk equals higher return isn't necessarily true. With the dividend investing approach and that's what I've been teaching, that's what I've been practicing for over 20 years our approach is to invest safely and reliably, but we also want to get the high returns. So in episode seven I cover this in more detail, but for now, I'll share with you very quickly the three examples. So one of them was with Coca-Cola, and I showed you in episode seven how a $4,600 investment eventually turned into over $7 million and that investment today would provide you with over $200,000 a year in annual dividends from Coca-Cola. And then the next example I showed you, again in episode seven, was with Home Depot, and I showed you how a $2,100 investment in Home Depot turned into over $10.8 million and that investment today would provide you with over $259,000 each year in dividends. And then the last example I went into in episode seven was with Walmart, and I showed you how a $1,650 investment in Walmart today would be worth over $29 million and today it would provide you with over $458,000 each year in dividends. So again, I've just kind of gone through these three examples very quickly, but if you want to see more detail, you want to see all the numbers behind everything I just talked about, please go ahead and take a look at episode number seven. Okay, so we're going to close off the first misconception, and I started in the beginning by asking true or false, is investing on your own risky? And now we've seen that it is false. It is not risky if you know what you're doing and you get that knowledge and education first. Now let's move on to our misconception number two True or false, is investing on your own complicated? And the answer is it isn't complicated if you know how to invest. Now, look, it's not rocket science. Dividend investing or value investing what we're talking about here today is not rocket science. You don't need a degree in accounting or economics or finance in order to become a successful investor, and I know this because I've done it myself for over 20 years as a dividend investor. And that's what I teach, and I've taught people from all walks of life, from 14 year olds to 80 year olds, and they are successful investors. And again, these are not people that had fancy degrees or very high levels of academic experience in the investing world. So it's not rocket science. And I'm going to share with you a quote from Peter Lynch and Peter Lynch is a very famous, very wealthy investor and a value investor. And Peter says I quote 20 years in the business convinces me that any normal person using the customary 3% of the brain can pick stocks just as well, if not better, than, the average Wall Street expert. So again, what Peter is saying there is this is not rocket science. Now, of course, the difference is investing versus speculating, right? If you're speculating, then it's going to seem like investing is complicated and you're going to spend a lot of time trying to figure out what to invest in and where to invest and how to invest Now. I talked about speculating a little earlier in the beginning of this episode. Now I want to focus on investing. So an investor is someone who understands how a company is making money Again, you don't have to be, you don't have to be an expert or subject matter expert and how the company is making money, but a general idea, a general understanding of how a company is making money. If you can explain it to your grandmother or a 12 year old of how a company is making money, that's fine. So let's move on to the three other points I want to bring up here. So an investor is one who protects themselves from losses by investing in quality companies when they're priced low. An investor is also someone who ignores the media noise touting the latest, next big thing. And, lastly, an investor is one who keeps investing simple. So I'm going to share with you a quick example of simplicity in investing Right. This is just to further emphasize the point that this isn't rocket science. So let's take a look at this quick example. So let's say we're looking at company A and company B and we're trying to figure out which company is a better investment. So first, you know, we'll take a look at the share price and you could see company A is currently trading at $25 a share, company B $24 a share. So now you might look at that and say to yourself, well, the price is almost about the same. Company B is cheaper. It's $24 versus 25. So maybe company B is a better investment, maybe. But let's take a look at something else. Now we're gonna take a look at the dividend. So the company A is paying to the shareholders a cash dividend of $1.15 per share, so that's pretty good. Company B is paying a dividend of $1.18 a share. So again, the dividend is almost the same. Company B is paying a slightly higher dividend. So if you were just looking at this information up on the screen, you might say to yourself well, maybe company B is a better investment. Stock price is a little bit lower, the dividend is a little bit higher. That might be a good investment. However, now let's take a look at the debt and you can see that company A has a debt level of 1%. That's our long-term debt-to-equity ratio. So debt is 1%. Company B has a debt of 800%. So again, like I said before, this isn't rocket science. You can determine just by looking at the information on the screen, that company A is going to be, all things considered, equal. Of course, there's other things we need to look at, but in this example, all things considered equal, company A is gonna be a better investment. The company has very little debt the debt is sitting at 1% versus company B that has a debt of 800%. So this is a very quick check. We're just doing a simple check here, and this is to show you that investing is not complicated. So then, how do you become a successful investor? Become better educated when it comes to investing. Now, I showed this slide earlier before, so I gave you a couple of sources that you could go to to learn about investing. So there was the book recommendations that I give you in episode 41. I mentioned the Simply Investing blog, the podcast and the course. Now here's something else that's unique. You'll notice in the blog I have over 240 articles. You'll also notice in my podcast, and there's over 40 episodes. And you'll notice in the Simply Investing course it is 100% jargon-free. I don't bring up technical terms. We don't complicate or overcomplicate everything. I don't know why, but the industry seems to like doing that and it just confuses people, and so all of my content, the blogs, the podcast, the online course they are 100% jargon-free. So my goal is to teach you how to become a better investor and to keep it simple. So now we go back to our original question. For our misconception number two True or false Is investing on your own? Complicated, and the answer is false. It's not, if you know what you're doing. Now let's move on to misconception number three. True or false Is investing on your own time consuming? Think about that for a moment, because a lot of people have this misconception where they think it is going to take a lot of time a lot of time to research which stocks to buy and, of course, if you're doing day trading, that is going to take a long time. That is essentially a full-time job, so you will spend eight to ten hours a day Determining what to invest in, what not to invest in and a whole slew of other, looking at an Incredible amount of data. But we're not talking about day trading here. I'm not a great day trader and I don't advocate day trading for most people. What we're talking about here is how to invest safely and responsibly for the long term, and all of my Students and my clients. The majority of them have full-time jobs and kids and they don't have hours and hours to spend on stock research. So here's the thing you only need to spend time researching stocks when you have money to invest. So if you're only going to invest once a year or twice a year, well that's when you have to sit down and determine what to invest in and what to avoid. So this is not something that you have to spend hours and hours a day or hours and hours a week or every month. When you are a Do-it-yourself investor, you don't need to. So think about that. I'm going to say that again. This is important. You only need to spend time researching stocks when you have money to invest, and A lot of my clients and students they invest Twice a year, maybe three times a year, maybe four times a year, and that's pretty much it, so you can save time. Okay, when it comes to investing and number one I'm going to come back to this again We've talked about this. This entire episode is educating yourself first, so that's key. Then you need to ignore the noise social media, the news, the radio Publications there is a whole lot of noise there and that's just going to confuse. It's going to confuse you and it's going to make things more complicated, seem complicated, and it's going to take a lot of time. And Then the last point I want to mention here is you can save time investing by eliminating the jargon and simplifying, and I gave you an example earlier about how easy it is to simplify investing. So we go back to our original Question that I asked in this section of our episode, misconception number three true or false? Is investing on your own time consuming? And the answer is it's false, it's not. It's not time consuming if you know what you're doing. So now let's get into a little bit details here, a little bit more in detail, and I know you're thinking well, how much time does this take? So there's two options, and that's what I've been teaching, that's what I've been practicing for over 20 years. Option number one is the complete do-it-yourself approach, and that's what I teach in the simply investing course, and I'll talk about that in just a minute, and so that will take approximately an hour to two hours of your time. In the beginning it may take two hours and then the next time around, you know, six months from now, when you Sit down and decide what stocks to buy it'll. It'll go a little, it'll go a little quicker, and then the third time it'll be a little quicker, but it's approximately one to two hours of your time. Now, again, this is not every day, every week or every month. It's only when you are ready to invest, when you have money to invest. Okay, so if you're only investing twice a year, then this is this should only take two to four hours total in the entire year. Okay, that's option number one. Do-it-yourself Option number two is the do-it-yourself approach with help, and that's where we use the simply investing platform, and I'll talk about that in a couple of minutes too. So that's a little quicker. That could take anywhere from 15 to 25 minutes of your time. And Again, if you're gonna invest even four times a year, then that's one hour for the entire year, or less than an hour, okay, so that's not too bad. Both options are great. They will get you to the same destination, which is finding good quality stocks to invest in. Option number one seems to be more appropriate or fitted to individuals who want to do it themselves completely and are comfortable with using the tools that I provide in the simply investing course. So let's talk about both options very quickly. I'm just gonna go through them right now. And you have to understand our approach to investing. It's to invest safely and reliably for the long term. Okay, we're not day traders I already said that before and we don't think in terms of weeks, months or years. We think in terms of decades, and so when we make investing decisions, they're always for the longterm, because that's how we can lower our risk. So how do we do that? Our approach is to invest in quality dividend stocks when they are priced low. So not just any stock. It has to be a dividend stock and not just any dividend stock. It has to be a quality stock. And once you've figured out if it's a quality stock, then you wanna make sure that it's priced low. You don't wanna buy when the stock is priced high. So how do you know, when you're looking at a company, if it's a quality stock and how do you know if it's a price low? So to help you with that, I've created what I call the 12 rules of simply investing, and this is your option number one that I talked about, the true do-it-yourself option, and if you're watching this, you can see the 12 rules on the screen. If you're listening to the audio version. I'll just go through them right now. Rule number one do you understand how the company is making money? If you don't, skip it, move on to the next company. Now I just wanna mention here this is your checklist, right? We wanna keep things simple. We've eliminated the jargon. There's no jargon in the 12 rules here. We wanna keep things simple. These are your 12 rules. This is your checklist. Before you invest in any company, make sure it passes all of the 12 rules, not just nine out of 12 or eight out of 12, but all of the 12 rules. Okay so rule number two 20 years from now, will people still need its product and services? Rule number three does the company have a low cost competitive advantage? Rule number four is it recession proof? Rule number five is it profitable? Rule number six does the company grow its dividend? Rule number seven can the company afford to pay the dividend? Rule number eight is the debt less than 70%? Rule number nine avoid companies with recent dividend cuts. Rule number 10, does it buy back its own shares? Rule number 11, is the stock price low? So we check for three things there the PE ratio, the current dividend yield compared to the 20 year average yield and the PV price to book ratio. And then rule number 12, keep your emotions out of investing. So for those of you that are interested, that's option number one is the simply investing online course, and I cover all of the 12 rules in detail in the course. The course itself is divided into 10 modules. We start with the investing basics, then we cover the 12 rules, then you learn how to apply the 12 rules using a Google Sheet and you can apply the 12 rules to any stock anywhere in the world Once you enter all the numbers in the Google Sheet. The next module is looking at the Simply Investing Platform. Then I take you step by step and I show you how to place your first stock order. After that, you learn how to build and track your portfolio. Then you learn when to sell, which is just as important as knowing when to buy. We talk about reducing your fees and risk. The next module I provide you with your action plan to get started. And then, finally, the last module, number 10, I answer your most frequently asked questions. So all of this is option number one. Option number two is to look at the Simply Investing Platform. The platform applies these rules to over 6,000 companies in the US and in Canada every single day. So when you log into the platform it's a web app it will show you which companies pass the rules, which companies fail which of the rules, so you know exactly what to focus on and which companies to avoid. So if you're watching this episode or listening to it, make a note of the coupon code SAV10, s-a-v-e-1-0. Sav10 is gonna give you 10% off of all of our product and services, and it includes the course the platform I also do one-on-one calls personal assessments, and you'll get 10% off any of our product and services. So if you enjoyed this episode, be sure to hit the subscribe button, hit the like button as well, and if you want more information about everything I've talked about today, take a look at my website, simplyinvestingcom. Thanks for watching.