Stock market investing is hard whether you are a stock market beginner or a stock market professional, it is easy to get lost in the noise of the stock market. Will stocks crash, are we in a recession, are we in a new bull market, what will the FED do etc. Those questions are impossible to answer so we have to focus on the stock market’s fundamentals that always give the answer. I have created a 10 step handbook that will guide you when it comes to investing for the long-term. This video is about step 1: setting a clear investing goal with a few examples of how one can get there!
Q1 2020 hedge fund letters, conferences and more
1) The importance of setting a clear investing goal
2) Eliminating the stock market's noise
3) Investing example and compounding
4) Creating new cash flow streams
5) Stock market crashes are irrelevant
Next steps in videos to come:
2) IT STARTS WITH SAVINGS OR MORE
3) BASIC INVESTING FUNDAMENTALS
4) AVAILABLE ASSET CLASSES TO INVEST IN
5) INVESTING IN REAL ESTATE - the rule of 66!
6) INVESTING IN STOCKS
7) FINDING A BROKER
8) INVESTING STRATEGIES (being an owner, diversification)
9) LONG-TERM INVESTING AND COMPOUNDING – building your wealth
10) Back to you – the right MINDSET – always believe the world will be a better place
Stock Market Investing Fundamentals - Step 1: Set An Investing Goal
Transcript
Good day fellow investors. The stock market is definitely crazy up and down, money printing, everything is going on. But don't worry, crazy things have been going on since like ever and will be going on forever. Therefore I really thought that the highest value I can give you in this moment is to discuss investing fundamentals that work, always that work, real evergreen investing fundamentals.
And the first thing the first step you have to do when investing is to set up a goal. You need to set up an investing goal because the stock market is crazy and you can easily get lost in this craziness down 30% from February to March, up 50% since then. Then again if you look at it on a daily basis, first day down 6% crazy, crazy, crazy, just in one day.
If you look at individual stocks, the situation is even crazier. Nikola Corporation Up 450% in the last three months. If you look at the bottom to the top take probably 10 times up. And then on the other hand, some companies do go bankrupt Hertz Global Holdings down 97% over five years.
This is definitely a crazy environment and I was thinking, okay, how can I give you the most value? Stock market crash videos are entertaining, but those are not actually giving any value. And then I said, Okay, Sven let's sit down, let's write down a handbook, like let's make a series of videos that can really give value to all of you.
So I've written down 10 steps that each one has to go through understand when it comes to investing. So this will help stock market beginners but also seasoned investors because it's easy to forget about the 10 crucial things given all the noise in the environment.
And the first step is really to set an investing goal, you start by setting a clear, realistic goal, you find a way to get there and then you compound your way get there. The goal eliminate the craziness, the noise of the market, you focus on the fundamentals, you focus on what is sustainable to focus on for years and decades. I'll give you an example of someone that invested in something over 80 years, which is really stretched, but we'll give you the right mindset. And then we'll also give you an example of what compounding is and how you compound towards your goal.
Even if you read Ray Dalio, the first principle is about evolution. The second principle in life is already about setting clear goals. If you don't have a clear goal when it comes to investing, then you know what you have to do these days. Don't think about the market. Think about setting clear clear goals.
So Dalio's Principles, page 169 have clear goals, identify and don't tolerate problems that stand in the way diagnose problems, design plans that will get you around them, do what is necessary to push these designs through results. And the same applies to investing. By first setting a goal you take control of the market, you don't allow it to take control of your finances, you eliminate the noise.
So step one, and principle one setting a goal. Then you're the one that decides whether the stock market or a specific stock is the vehicle for you or not. So you eliminate the noise, the problems that doesn't fit you is eliminated.
If you have something that doesn't fit you, you diagnose problems, Ray Dalio step two in the process and three. And then by setting an investing goal, you will be looking for vehicles that will lead you there. You start taking control of your financial life, you start finding and designing ways to get to where you want to get. You start designing a plan and when you start designing a plan, you will start doing what it takes to get to that goal that you have set. And when you have a good plan, it's much easier to stick to it and execute it.
So let's say you set the goal that in 20 years, you will have a million dollars in your stock market portfolio or whatever your goal is, real estate portfolio.
You visualise that. I'm a big fan of visualisation, because then when you have something visualised, you can reverse engineer the way for you to get there. And visualisation also helps you in keeping the goal in mind, not straying away from that and reverse engineering makes you find the way to get there.
Let me give you some examples and also this is my goal. I have two portfolios that I manage on my research platform, the lump sum portfolio started with 100,000. And the model portfolio. And both of them have an investing goal to reach 1 million in 10 years. This started with 100,000.
And this smaller portfolio started with 10,000 and where I add 1,000 per month. So if I use a simple savings calculator, it's always a nice exercise the model portfolio that I have that I started with 10,000. If I add 1000 per month, and I managed to achieve an average return of 12%. over those 20 years, I'll be at 1 million, I should be at 1 million, perhaps even higher, you never know what the situation is.
On the 100,000, of course, if I keep adding but I stopped adding the money. Let's let's put $1 for the algorithm here, and then we are at offer close to a million with 12% return. So I have my goal, my clear goals, I have my initial position. And then this is what I have to design a plan, what I'm working on that will bring me here.
That's what I do. Also you can play with this savings calculator to see what are your realistic goals. What are the ways, what are the things you can find to get you where you want to get in your financial life.
So you can set the goal. Here are some examples in 2014 I want to be a millionaire 2030 I want to be a millionaire, in 2035 I want to retire on dividends. I need 100,000 per year in dividends after taxes, and then play with the savings calculator set it at 5, 7, 8, 10% depending on what you think you can find, and wherever you set it you will find a way later to get there because that's how the world works.
If you don't think there are 10% returns out there, I made a few videos about Berkshire very known stock that is likely to give 10%, 9-10% returns over the long term. And the calculation the value can also reach a trillion in the future, so it will probably double. This is an okay investment and you can watch my video. I'll also put the video of Berkshire in the link in the description below of the videos.
And when you set the goal when you start with a small sum, you'll see how the market over the long term if you invest in a good business will reward you. If you don't have a clear set goal and you don't focus on fundamentals you focus on the market, you'll get lost in this. You will get lost in what's going on in the market, the ups and downs, the crashes, the pundits that say this will happen or that will happen. If you don't have a goal, you'll get lost here definitely.
This is the importance of having a goal to help you with reaching that goal, I really focused on doing this writing a handbook about it. You can also read about this video, I written already the first chapter how to start a goal. And then there are other steps that one has to really be focused on.
And this is the fundamentals of investing that is really the key. When you have these fundamentals of investing, then you can really become an investor. And you will see what investing really means because the stock market is crazy with stocks with everything, but there is investing that works in a different way.
And as an example, we'll discuss my favourite Warren Buffett, he's just number five on the Bloomberg billionaire list, but he did it as an investor and that's very, very interesting. So Warren Buffett with Coca Cola example, my favourite investing example.
When he was seven during hot Omaha summers, he used to buy six bottles of Coca-Cola for 25 cents, and then go around the city and sell them for a dime each. That was 100% profit in an evening and he would always sell all of them. However, when it comes to investing, he knew about Coca Cola since 1937.
But only 50 years later, was the time when he made his first investment and many think that the stock crashed or something that's why he made the investment. No, the stock was flat for a while. It was much, much higher than where it was in the 1980s, early 80s, 70s. But he thought that it was a good company at a good price. The dividend yield was just 3% and he was right.
He was right, not so much He doesn't really care that the stock market and everything exploded later. Coca Cola didn't go anywhere from 1998 till 2017, almost 20 years and was down severely. He focused on other things.
What did they focus on? Well, let's start here. He bought 400 million shares, adjusted for splits, of course, 9% of the company and he invested 1.3 billion. If we look at what he's getting now from Coca Cola, that's $640 million in dividends, so he invested 1.3 billion, he's getting 50%. Now of that in dividends, and that is what he invested in, not the stock price that goes up and down like crazy. He invested in cash flow streams that create new cash flow streams.
This is an extreme example over 80 years, he was patient for 50 years to buy it but he now has a 50% yield on cost. And that's something, that's a message that very few see, when it comes to investing. Everybody's looking at the stock price. Oh, I can make 20% here, 50% there.
Nobody is thinking, Okay, where can I get the 50% yield on cost in 20, 30 years. And then I went to the Coca Cola company didn't find any charts. So be careful when using those data providers, I had to adjust the stocks for all the splits and this is Coca Cola dividend charts since Warren Buffett bought.
It was eight cents per share, now it's 1.6 dollars per share. And this is what investing is, compounding dividends by creating new streams of cash flows. And this is the money he got he started with 30 million on the 1.3 billion investment so not that much.
Now he's getting much much more now. It's crazy 50% yield on cost dividend but this is investing, investing into growing future streams of cash flows and not caring about stock prices. This helps you in eliminating the noise. So in total, he got 8 billion out of his Coca Cola investment plus, he has 19 billion in the shares.
So that would be what 27 billion. But you have to keep in mind that all this 30 billion was reinvested at a good return, created new cash flow streams. And this is the present value if I put the dividends at 8% since he got them first. 8%, this is the present value of those dividends.
So Warren Buffett got 8 billion in dividends, he probably turned those 8 billion into another 20-30 billion. So let's say he got 40 billion out of his 1.2 billion investment. That's about a 13% returns because all these dividends are reinvested and created new streams of cash flows. This is how investing works. So 40 times your money in 30 years.
That's what you can do by investing by having a clear goal by finding great investments. You can have high dividends in 20-30 years, but you have to focus on the right things, not on whether the market goes up and down in the next month here or something.
So this is investing, compounding dividends by creating new streams of cash flows. And then you say yes, Sven but the stock market is crash, whether it's better to buy now, to buy tomorrow, to wait for a crash. Sven, how could we work with that noise? You don't work with that noise.
You simply become an investor. If the stock market crashes, think my cash flow streams that I'm getting or the businesses that are reinvesting are now reinvested at the higher return, which means I make more money. If the stock market explodes up, then I have more money to deploy accordingly into new cash flow streams. So when you become an long term investor, you don't care about the market. If it goes up well, okay.
If it goes down great, I can buy all those stocks for cheaper and create higher returns on my new cash flow streams. Investing is pretty boring. But this is what works over the long term, too many got focused on the short term noise, and that's why they will likely underperform or have unsatisfying returns in the long term.
And then if the stock market crashes, this is since Warren Buffett founded, bought Berkshire. The stock market didn't go anywhere for 15 years. But these were his most profitable years because he managed to buy things really, really on the cheap. When nobody was wanting to touch stocks, he was buying like crazy 1982. That's Warren Buffett and these bad years enabled him to get to those cash flow streams that allowed him to buy Coca Cola, Apple, Burlington, etc, etc. That created him now the fifth richest person in the world. So nobody knows what the market will do if it crashes, cheaper cash flow streams if it booms more options for cash flow streams, so just give it time and have a go.
Please subscribe for more investing videos. Check my stock market investing course where you'll get a free handbook of about 100 pages, comprehending the 10 steps we will discuss through videos and the first one that we have discussed here. And for sophisticated investors looking for stock market analysis, this is what I actually do, please check my stock market research platform. So don't forget, set the goal, let's say a million, visualise it and you will find a way to get there. Thank you for watching and I'll see you in the next video.
