Investing 101 - Wayne State University
Investing 101BySyed Masud Mahmud, Ph.D.April 30, 2020Copyright 2020
Outline of the Talk Disclosure Introduction Part I:Basic Concepts of Investing Part II:Investing in Sectors Part III:Hedging using Financial Derivatives Part IV:Efficient Market Hypothesis versus Beating the MarketInvesting 101 By Syed Masud Mahmud, Ph.DCopyright (c) 20192
DISCLOSURE I am not a financial adviser. This talk is for information purposes only. I am going to share the lessons that I have learnedover the years, by reading financial news, analyzingfinancial data, and actively participating in thefinancial market. If you want to invest in the financial market, first,you need to do your own research, and then invest.Investing 101 By Syed Masud Mahmud, Ph.DCopyright (c) 20193
Introduction This talk is prepared mostly for the people, who are in their 20sor 30s. The purpose of this talk is to make you a better long-terminvestor. Investment is necessary for everybody, but someone needs tounderstand the basics of investing for becoming a successfulinvestor. Someone also needs to understand how the professional moneymanagers have been doing, so that the person can understandhow easy or difficult the game is. If you are disciplined and follow the rules of investing, there is avery high chance that you will be a very successful investor.Investing 101 By Syed Masud Mahmud, Ph.DCopyright (c) 20194
Why do you need to invest? To have enough money for retirement. To beat inflation. To afford rising Healthcare costs. Now, an average nursing home costsabout 90,000/year/person. When you will be 65, there may not be any Social Security. Due to the power of modern science, many of you will celebrate your 100thbirthday. Therefore, if you don’t start investing early on, you may outliveyour money. Money isn’t everything, but it gives good mental strength during bad times. Financial troubles can create stress, and stress can create health problems.Investing 101 By Syed Masud Mahmud, Ph.DCopyright (c) 20195
How much do you ur-age-and-income/Investing 101 By Syed Masud Mahmud, Ph.DCopyright (c) 20196
How much do you need? (continued) After your BS degree, if you start a job at 70,000/year, your salaryafter 40 years of work should be at least 200,000 to 250,000. Youwill need at least 3 millions to 4 millions to retire. Without Social Security you will need t-no-longer-work-like-they-used-to/ar-BBVu6rr?ocid spartandhpInvesting 101 By Syed Masud Mahmud, Ph.DCopyright (c) 20197
How much can your money grow? Assume that you invested 7,000 (10% of your starting salary) during your firstyear. After that, every year, you increased your investment amount by 2%.Portfolio Balance at age 65StartingAgeReturn on Investment per Year7%8%9%10%25 1,787,299 2,276,923 2,920,138 3,766,98135 812,125 962,651 1,145,632 1,368,32945 333,723 370,418 411,846 458,636 The above table shows that the sooner you start investing, the more money youwill have when you will be ready for retirement. The long-term average return from the stock market is between 9 and 10%.Investing 101 By Syed Masud Mahmud, Ph.DCopyright (c) 20198
Part IBasic Concepts of Investing
Different Types of Investments Real estate:Investment return depends on three things, which areLocation, Location and LocationProperty management could be a headache and a time-consuming task. Commodity:Examples: Gold, Silver, Soybean, Corn, Oil, etc.Commodities are very volatile. Bond:Examples: Corporate Bonds, Municipal Bonds, US Treasury Bonds, etc.Short-Term US Treasury Bonds are the safest, then Municipal Bonds,and after that, Corporate Bonds.Returns from bonds aren’t high.Investing 101 By Syed Masud Mahmud, Ph.DCopyright (c) 201910
Different Types of Investments Individual Stocks:These are issued by various corporations.Examples: MSFT (Microsoft), FB (Facebook), AMZN (Amazon), etc.These are more risky than bonds, but generally they give higher returns. Actively Managed Funds (known as Mutual Funds):Yearly management fees: It’s about 0.5% to 1% of your portfolio balance, meaning about 50 to 100/year for a portfolio balance of 10,000. Sometimes, the fee could be as high as 2%/year, meaning 200/year for aportfolio balance of 10,000.Investing 101 By Syed Masud Mahmud, Ph.DCopyright (c) 201911
Different Types of Investments Exchange Traded Funds (ETF):These are baskets of stocks. These are not actively managed. Investing via ETF iscalled passive investing. Components of the ETFs are also changed from time totime, but not too frequently.Examples:XLF : It tracks a basket of financial stocks (BRK.B, JPM, BAC, WFC, C, etc.)XLE : It tracks a basket of energy stocks (XOM, CVX, COP, SLB, etc.)XLK : It tracks a basket of technology stocks (MSFT, AAPL, INTC, CSCO, etc.)IBB : It tracks a basket of biotech stocks (GILD, VRTX, AMGN, BIIB, etc.)Investing 101 By Syed Masud Mahmud, Ph.DCopyright (c) 201912
Different Types of Investments Difference Between Mutual Funds and ETFs: Transactions (buying and selling) for Mutual Funds are executed at the end of theday. ETFs can be bought and sold at anytime during the day, while the market is open. Index Funds: These funds track the performance of a large group of stocks, say 500 stocks or 3000stocks. The components of an index are also changed, but not too frequently. The fee for an index fund is very low. The yearly fee for an Index Fund could be as small as 0.015% of the invested amount,meaning 1.5/year for a portfolio of 10,000.Examples: S&P500 tracks the performance of the top 500 US stocks DOW tracks the performance of the 30 major stocks of US.Dow stocks are called Blue Chips.Investing 101 By Syed Masud Mahmud, Ph.DCopyright (c) 201913
List of S&P500 and DOW CompaniesS&P500 Companies:https://en.wikipedia.org/wiki/List of S%26P 500 companiesDOW Companies:https://en.wikipedia.org/wiki/Dow Jones Industrial AverageInvesting 101 By Syed Masud Mahmud, Ph.DCopyright (c) 201914
Some Statistics from 1950 to 2015.Increase in Cost of Goods:Cost of goods increased by about 10 times from 1950 to 2015.Increase in Salary: Average salary increased by about 13 times from 1950 to 2015. Workers’ productivity kept the cost of goods down compared to salary increase. Productivity increased due to modern technologies.Investment Return from S&P500:From 1950 to 2015, investment in S&P500 grew by over 400 times.Increase in Cost of Goods10 TimesIncrease in Salary13 TimesInvestment Return from S&P500400 Times !!!!Investing 101 By Syed Masud Mahmud, Ph.DCopyright (c) 201915
Investing Isn’t Gambling – The Stock Market Isn’t a Casino Many people believe that the stock market is a casino. If it were a casino, S&P500 couldn’t have converted 1000 to over 400,000 from 1950 to 2015. S&P500 also converted 1,000 to over 60,000 from 1976 to 2018. However, the short-term volatility of the market makes it look like acasino. Experienced and successful investors ignored the short-term volatilityof the market. They focused on the long-term growth of the market.Investing 101 By Syed Masud Mahmud, Ph.DCopyright (c) 201916
Speculators or Short-Term Traders Speculators try to predict some short-term movement of the marketor some stocks, and then buy or sell based on their speculations. Most speculators don’t pay attention to the fundamentals of thestocks. They use their gut feeling or some tools to buy or sell. Speculators can also be called as the short-term traders. Speculation is kind of like gambling because there is too muchuncertainty. Vast majority of the speculators lose money in the market. Only veryfew of them make money over the long-term. Many of them try to Get Rich Quick, and this is a recipe for a disaster. Most average individual investors are speculators or short-termtraders. That’s why their performance is very poor.Investing 101 By Syed Masud Mahmud, Ph.DCopyright (c) 201917
Over the Long Term, Average Investors Underperform theStock Market by about 6.5% perYearThere are many reasons why average investors underperform the market. Some of thereasons are: They mostly chase HOT stocks.If their HOT stocks go down, they sell and chase other HOT stocks.They do panic selling during a market downturn.Many of them try to time the market.They trade too much Economics Nobel winner, Eugene Fama, said, “Your money is like a bar of soap. The more youhandle it, the less you’ll have.” Another Economics Noble winner, Richard Thaler, said, “Be a lazy investor — Buy and .edu/odean/papers/returns/Individual Investor Performance Final.pdfInvesting 101 By Syed Masud Mahmud, Ph.DCopyright (c) 201918
Over the Long Term, Average Investors Underperform theStock Market by about 6.5% per Year The average return from the market over a period of 40 years is about 9.8%/year.At this rate, 1,000 is converted to 42,000 during that 40-year period. Average individuals’ return is about 3.3%/year. At this rate, 1,000 is converted to 3,600 during that 40-year period. There is a huge difference between the return from the market and that fromaverage individual investors. It’s 42,000 versus 3,600. Therefore, the best way to grow your money, with less effort, is by investing inthe total market.Investing 101 By Syed Masud Mahmud, Ph.DCopyright (c) 201919
Successful Investors Successful investors focus on the long-term growth of the market. They ignore the day-to-day volatility of the market. They build their wealth by focusing on the fundamentals of the stocks andholding those stocks for a reasonably long period of time. Most long-term investors hold stocks for 3 to 5 years. Some of them hold for evenlonger periods.Examples of Successful Investors: Benjamin GrahamWarren BuffettPeter LynchJohn Templeton Seth Klarman Ray Dalio John Paulsonand many moreNone of them were speculators or short-term traders.Investing 101 By Syed Masud Mahmud, Ph.DCopyright (c) 201920
Warren Buffett is the most Successful Investor If someone invested only 1,000 in Warren Buffett’s fund in 1964, now that 1,000became about 23 million. If someone invested only 1,000 in his fund in 1976, now that 1,000 became about 11million. Benjamin Graham, father of value investing, was Buffett’s mentor.Buffett’sMentorBenjaminGrahamBuffett’s sonHowardGrahamBuffettBuffett named his first son “Howard GrahamBuffett” to honor his mentor Benjamin Graham.https://en.wikipedia.org/wiki/Warren tt/#764bea5d4639Investing 101 By Syed Masud Mahmud, Ph.DCopyright (c) 201921
Security Analysis by Benjamin Graham and David L. DoddInvesting 101 By Syed Masud Mahmud, Ph.DCopyright (c) 201922
Quants People who use quantitative analysis for trading stocks, they are called Quants.Quants use sophisticated algorithms and statistics to trade.Track records show that not many quants were able to beat the market.The most successful quant is James Simons. He was a code breaker for NSA andalso a math professor. Average investors can’t become a quant because he/she may not have thenecessary background and skill Simons’ Net worth as of Dec 2019 is 21.6Bhttps://en.wikipedia.org/wiki/James Harris SimonsInvesting 101 By Syed Masud Mahmud, Ph.DCopyright (c) 201923
Lessons from the Successful Investors"Be greedy when others are fearful and be fearful when others aregreedy." - Warren Buffett"The time to buy is when there's blood in the streets." - BaronRothschild (An 18th century British nobleman who made a fortunefrom investing.)The four most dangerous words in investing are “This time it’sdifferent.” - John TempletonInvesting 101 By Syed Masud Mahmud, Ph.DCopyright (c) 201924
How are the Professional Money Managers doing in Investing? Every year, about 70 to 80% of the professional money managersCAN'T beat S&P500. Over a 15-yr period, about 95% of the professional money managersCAN'T beat ng 101 By Syed Masud Mahmud, Ph.DCopyright (c) 201925
What’s the best choice for an average individual investor? An average individual investor has a full-time job and a family tospend time for. An average individual investor may not have time to do enoughresearch for selecting stocks. Even after doing enough research there is no guarantee that anaverage individual investor would be able to beat S&P500. An average individual investor should focus on his/her main job, andperiodically invest, from his/her pay-check, in an index fund, e.g.S&P500.Investing 101 By Syed Masud Mahmud, Ph.DCopyright (c) 201926
Some Basic Terminologies Outstanding Shares Float Shares Market Capitalization or Market Cap Revenue Earning Dividend Bull and Bear Markets BubbleInvesting 101 By Syed Masud Mahmud, Ph.DCopyright (c) 201927
Some Basic TerminologiesOutstanding Shares:Total number of shares that a company has.Float Shares:The number of shares that are available for trading (buying and selling).Float Shares Outstanding Shares – Restricted SharesMarket Capitalization or Market Cap:It’s the value of all the outstanding shares of a company. It’s determined bymultiplying the number of outstanding shares of the company by its shareprice.For example, if there are 100 million outstanding shares of a company, and theprice of each share is 15, then the market cap of that company is 1.5 billion.The market cap of a company changes everyday because its share price /m/marketcapitalization.aspInvesting 101 By Syed Masud Mahmud, Ph.DCopyright (c) 201928
Some Basic TerminologiesRevenue:It’s the amount of money collected by selling the goods and services of acompany.Earning:Earning Revenue – All ExpensesDividend: It’s a part of the earning that is returned to the shareholders as cash. A company which is growing at a rapid pace, normally doesn’t pay anydividend to its shareholders. Instead, the company uses that cash to expandits business. Examples: Facebook doesn’t pay any dividend, but AT&T pays over 6%dividend.Investing 101 By Syed Masud Mahmud, Ph.DCopyright (c) 201929
Some Basic TerminologiesBull and Bear Markets: Bull Market: When the market is going higher and higher due toeconomic expansion, that’s called a bull market. Bear Market: The market is down by at least 20% from its peak.Bubble: The market is extremely overpriced. During this time, the little guysare sucked into the market. Also, during this time, people talk about the stock market at everygathering and say how rich they have been becoming lately, whichthen sucks more little guys into the market.Investing 101 By Syed Masud Mahmud, Ph.DCopyright (c) 201930
Performance Chasing or Cult Following Normally, most individual investors are late in the game, and they startto chase those stocks, which have already gained a lot. Even manyprofessionals chase performance. This is one of the reasons why theycan’t beat S&P500. The investors who keep on chasing the performance, they are calledCult Followers. We are going to look at the quantitative analysis of PerformanceChasing based on the performance of various sectors from 2007 to2018. Even Sir Isaac Newton lost money by chasing performance. In the early18th century, he lost about 10 million of today’s money by chasingSouth Sea 13268/Investing 101 By Syed Masud Mahmud, Ph.DCopyright (c) 201931
How Sir Isaac Newton went Flat Broke Chasing a Stock BubbleInvesting 101 By Syed Masud Mahmud, Ph.DCopyright (c) 201932
A Janitor was able to grow a portfolio of size 8 millionsHow did he do that?1. He was NOT an active trader.2. Time was on his side (he lived until hewas 92 years old)3. He invested in dividend payingstocks.4. He didn’t speculate. He bought BlueChip types of stocks.5. He had a diversified portfolio withat least 95 .aspxInvesting 101 By Syed Masud Mahmud, Ph.DCopyright (c) 201933
Making Money from the Stock Market is NOT About HowIntelligent You Are A janitor was able to grow his money to 8 million, where as, Newtonlost about 10 million worth of today’s money. Therefore, it’s notabout how much intelligence or education you have. Newton being one of the greatest physicists lost money in the stockmarket because he was a Cult-Follower. After losing money in the stock market, Newton said that he 'couldcalculate the motions of the heavenly bodies, but not the madnessof the people.’ Making money from the stock market depends on how well you cancontrol your FEAR and GREED.Investing 101 By Syed Masud Mahmud, Ph.DCopyright (c) 201934
Large Cap, Mid Cap, Small Cap and Micro Cap stocksLarge Cap StocksMarket Cap of the company is at least 10 billion. Large cap companies are wellestablished and mature companies. These are relatively safer companies.Mid Cap StocksMarket Cap of the company is between 2 billion and 10 billion. Some of the mid capcompanies are still growing and they are on their way to become large cap companies.Small Cap StocksMarket Cap of the company is between 300 million and 2 billion. These are relativelynew companies. One day, some of these will become large cap companies, and somemay go out of business. Some others may be acquired by large companies.Micro Cap StocksMarket Cap of the company is between 50 million and 300 million. These are verynew companies. Some of these may not have any revenues yet. These are very riskycompanies.Investing 101 By Syed Masud Mahmud, Ph.DCopyright (c) 201935
S&P500 is a Large-Cap Index S&P500 contains 500 large-cap stocks. It represents over 75% of the total US market. It is used as a Benchmark by the large-cap money managers. The goal of every large-cap money manager is to beat this index, but95% of them can’t do it over a 15-year period, and 99% can’t do itover a period of 20 to 30 years.Investing 101 By Syed Masud Mahmud, Ph.DCopyright (c) 201936
S&P500 is the best choice for average Individual Investors By investing in S&P500, average individual investors can not only dowell in investing, in fact, they can beat 95 to 99% of the professionalmoney managers over the long-term. The stock market is the only place where an averageinvestor can beat the professionals. It’s not possible in anyother fields.Investing 101 By Syed Masud Mahmud, Ph.DCopyright (c) 201937
Some Statistics Based on Real S&P500 DataThese statistical results are generated based on the following assumptions:- Initial Salary 1,000/year- Amount Invested 20% of salary- Dividend 2%- Investment Frequency twice/monthStatistical results are generated for two investment periods: 35 years and 40 years.InvestmentPeriodTotal Investment Amount for Various SalaryRaises per Year4%3%2%35 Years 14,730 12,092 9,99940 Years 19,005 15,080 12,080Investing 101 By Syed Masud Mahmud, Ph.DCopyright (c) 201938
Some Statistics Based on Real S&P500 Data (continued) 1000/year initial salary, 4%/year salary raise, 20% of salary is invested and dividend is 2%Starting YearPortfolio Balance After35 Years40 Years1950 49,621 122,0341955 72,220 108,6841960 70,958 258,6831965 171,489 161,0071970 107,954 113,8331975 71,659 152,5111979 84,917 132,175Average 89,831 149,847Average after removing the Lowest andthe Highest Portfolio Balance 81,542 136,312Investing 101 By Syed Masud Mahmud, Ph.DCopyright (c) 201939
Some Statistics Based on Real S&P500 Data (continued) 1000/year initial salary, 3%/year salary raise, 20% of salary is invested and dividend is 2%Starting YearPortfolio Balance After35 Years40 Years1950 43,869 106,7411955 63,116 94,1051960 62,243 225,5031965 152,129 141,9181970 97,311 101,7641975 65,240 137,5031979 77,199 119,114Average 80,158 132,378Average after removing the Lowest andthe Highest Portfolio Balance 73,022 121,408Investing 101 By Syed Masud Mahmud, Ph.DCopyright (c) 201940
Some Statistics Based on Real S&P500 Data (continued) 1000/year initial salary, 2%/year salary raise, 20% of salary is invested and dividend is 2%Starting YearPortfolio Balance After35 Years40 Years1950 39,126 94,3511955 55,577 82,2181960 54,948 198,0421965 135,659 125,8941970 88,156 91,5791975 59,734 124,9201979 70,656 108,255Average 71,979 117,894Average after removing the Lowest andthe Highest Portfolio Balance 65,814 109,000Investing 101 By Syed Masud Mahmud, Ph.DCopyright (c) 201941
Summary of Statistics Based on Real S&P500 DataParametersInitial Salary 1000/yearInvestment Amount 20% of SalaryInvestment Frequency Twice/MonthInvestment Final Salary for Various Total Investment Amount forPeriodSalary Raises/YearVarious Salary Raises per Year4%3%2%4%3%2%35 Years 3,946 2,814 2,000 14,730 12,092 9,99940 Years 4,801 3,262 2,208 19,005 15,080InvestmentPeriodDividend 2% 12,080Average Balance of the Final Portfolio (afterremoving the Lowest and Highest PortfolioBalance) for Various Salary Raises per Year4%3%2%35 Years 81,542 73,022 65,81440 Years 136,312 121,408 109,000Investing 101 By Syed Masud Mahmud, Ph.DCopyright (c) 201942
An example, using Real S&P500 Data for an Initial Salary of 70,000Table IInvestment Amount 20% of SalaryInvestmentPeriod4%35 Years40 YearsTable IIInvestment Amount 10% of SalaryAverage Balance of the Final Portfolio (afterremoving the Lowest and Highest PortfolioBalance) for Various Salary Raises per Year 5.71 millions 9.54 millionsInvestmentPeriod3% 5.11 millions 8.50 millions2% 4.61 millions 7.63 millionsAverage Balance of the Final Portfolio (afterremoving the Lowest and Highest PortfolioBalance) for Various Salary Raises per Year4%3%2%35 Years 2.85 millions 2.56 millions 2.30 millions40 Years 4.77 millions 4.25 millions 3.82 millionsInvesting 101 By Syed Masud Mahmud, Ph.DCopyright (c) 201943
Take advantage of your company’s 401K plan1. Start investing in your company’s 401K plan from day one.2. The contribution in 401K is tax deferred, meaning you don’thave to pay taxes on that money until you withdraw duringyour retirement.3. If you are in 24% tax bracket and contribute 20% of yoursalary, your take home pay will go down by about 15%.4. If you can’t afford to contribute 20% of your salary, at leastcontribute up to that amount which is needed to get the fullmatching from your company.5. If you don’t take advantage of the matching part from yourcompany, you are giving away free money.Investing 101 By Syed Masud Mahmud, Ph.DCopyright (c) 201944
Which funds should you select from your company’s401K plan?1. Your company’s retirement plan may have many funds tochose from, and many of those funds will charge high fees.2. Every company’s retirement plan should have an index fund.Select that index fund. The fee for that index fund should bevery low.Investing 101 By Syed Masud Mahmud, Ph.DCopyright (c) 201945
Steps to Build a Large Enough Retirement Nest Egg1. Pay off student loan and any other loans where you pay morethan 6 to 7% interest.2. Save and Invest through your company’s 401K plan.3. Contribute to your company’s 401K at least up to the amountthat is needed to get the full matching from your company.4. If you don’t have any student loan or high interest loan to pay,contribute to your 401K plan as much as you can afford.5. If your company doesn’t have a 401K plan, invest in IRA or RothIRA.6. Build an emergency savings fund to protect you from a loss of jobor any other short-term financial problem.7. Don’t try to beat the market (even the professionals can’t do it)Invest in an Index Fund like S&P500.Investing 101 By Syed Masud Mahmud, Ph.DCopyright (c) 201946
Steps to Build a Large Enough Retirement Nest Egg (continued)8. Automate your retirement contribution from your pay check9. If S&P500 is down by over 30% and you have extra money to invest, slowly addthat money into S&P500 over a period of 6 to 12 months.10. Make a budget and stay within that budget11. Make sure that you have bought various types of insurance to protect you fromvarious financial disasters. If you don’t have enough insurance, your net worthcan go down significantly, or you may need to file for bankruptcy when somedisasters strike you.The types of insurance that you need to buy are: Life insurance to protect your loved ones. Insurance for your cars and house. Medical insurance. Additional disability insurance, when your company doesn’t give enoughdisability coverage to its employees. Long-term care insurance to afford nursing home.Investing 101 By Syed Masud Mahmud, Ph.DCopyright (c) 201947
Why can’t the professionals beat the market?1. They have bosses, and they need to satisfy their bosses. Therefore, theytry to beat the market. In the process, they make lots of trades. Lots oftrades mean there are lots of possibilities of making mistakes.Sometimes human emotions can be involved at every trade.2. They also have clients to satisfy. If they don’t do enough trading or don’thave HOT stocks in their portfolio, the clients may think that they aren’tdoing anything, but collecting only fees.3. For every trade, there is a person on the opposite side. Therefore, if onemanager gains from a trade, the other manager who is at the oppositeside of trade loses.4. Trading isn’t a Zero-Sum game. It’s a Negative-Sum game because thereis a transaction fee for every trade.5. There are many other reasons, why professional fund managers can’tbeat the market.Investing 101 By Syed Masud Mahmud, Ph.DCopyright (c) 201948
How to invest in S&P500? Many financial institutions, such as Vanguard, Charles Schwab and Fidelity,have created index funds for S&P500. Examples: VFINX, SWPPX, FXAIX, etc. The buy and sell orders for these funds are executed at the end of the day.CompanyVanguardFidelityFundVFINXFXAIXYearly Fee/Expense Ratio0.14% ( 14 fee for a 10,000 portfolio)0.015% ( 1.5 fee for a 10,000 portfolio) Very Low shot?FundId 0040&from TPV&FundIntExt INTInvesting 101 By Syed Masud Mahmud, Ph.DCopyright (c) 201949
How to invest in S&P500 (continued) You can also invest in S&P500 through ETFs. Examples: SPY, IVV, VOO,etc. The ETFs for S&P500 can be traded at anytime during the day, whilethe market is open. These ETFs will also charge you a fee/expenseratio. In the past, when you traded these ETFs, you were also chargeda transaction fee. Now, most brokers don’t charge a transaction fee.Investing 101 By Syed Masud Mahmud, Ph.DCopyright (c) 201950
Understanding the Fundamentals of Stocks Investing in individual stocks is very time consuming because you need tounderstand the fundamentals of the stocks, and sometimes it’s not that easy. You can understand the fundamentals by studying the balance sheets and incomestatements of the corresponding companies. That’s what most professionals, whowant to hold stocks for few years, do. But, still 95% of them can’t beat S&P500over a 15-yr period. Warren Buffett buys stocks based on the fundamentals of stocks.Let’s Look at the Fundamentals of Some Stocks by Looking at Their Financial DataAAPL (Apple)F (Ford)BA (Boeing)Investing 101 By Syed Masud Mahmud, Ph.DCopyright (c) 201951
Technical Analysis of Stocks In this analysis, people look at some moving average lines (technical lines) ofstocks to make their buy and sell decisions. Most often, they look at 50-day and 200-day moving average lines. There are some people who want to make their living from their trading income.Some people may be able to do that, but these are NOT the ways how people builttheir wealth over the long term. There are hundreds of books on technical analysis. If these analysis could buildlots of wealth, the authors of those books would have made tons of money usingthese techniques. But, that’s not the case. They make their livings by selling thosebooks, but not by using those techniques. There are all kinds of people out there who will try to sell you lots of things abouthow to make money. Don’t believe those.Investing 101 By Syed Masud Mahmud, Ph.DCopyright (c) 201952
Charts of Boeing (BA)Investing 101 By Syed Masud Mahmud, Ph.DCopyright (c) 201953
Part IIInvesting in Sectors
Investing in Sector Funds/ETF Individual investors, who don’t have time to do the research,should invest in S&P500 only and stay away from theindividual stocks. They should also stay away from the day-to-day volatility ofthe market. They should invest in S&P500 and focus on their main job, sothat they can prosper in their career. That way, they will havemore money to invest and will be able to grow their portfoliomuch higher.Investing 101 By Syed Masud Mahmud, Ph.DCopyright (c) 201955
Investing in Sector Funds/ETF (continued) If you decided to become little bit adventurous, you can start to investin sectors. But, still stay away from the individual stocks. Even if you want to invest in various sectors, keep most of
Investing 101 - Wayne State University . investing.
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