The Personal Finance Podcast - 13 Things Every Stock Market Investor Should Know

Episode Date: December 8, 2021

83. 13 Things Every Stock Market Investor Should Know Here is the FREE stairway to wealth printable! This will show you what order you need to put your money in!  We have a YOUTUBE channel! Check it out here!  Our Latest Videos:  5 Index Funds to Hold for Life!  What Would Happen If You Maxed Out Your Roth IRA By Age?! (These Results Will Amaze You!) How to Become a Millionaire With a Small Amount of Money (Is it Really This Easy!?) Got questions? Ask me on Instagram Here. @mastermoneyco This is the fastest way to get a re Thank you to Ladder Life Insurance for sponsoring the show! Check them out at ladderlife.com/pfp Thanks to ButcherBox For Sponsoring the show! Right now new members get a free turkey with their first box when you head to butcherbox.com/pfp. Thanks to our sponsor Manscaped (Manscaped.com) for sponsoring this episode of the podcast. Use code PFP20 at checkout for 20% off + Free Shipping! Thanks to OurCrowd for sponsoring the show! Invest in Venture Capital at OurCrowd.com/PFP Thanks to Masterworks for Sponsoring the show! Invest in art at masterworks.io/pfp Thanks to Boll and Branch for Sponsoring the show! Get the best sheets in the world at bollandbranch.com and use promo code PFP.  Thanks to Public for sponsoring the show. Visit public.com/PERSONALFINANCE to download the app and sign up using code PERSONALFINANCE.     Want to Support the Show? Follow on Spotify or Follow and Leave a 5-Star Review on Apple Podcasts! Today We Discuss:  Why you need to control your emotions.  The best way to invest.  Lessons from Warren Buffett Episodes Mentioned More Episodes You Will Love:  How to Negotiate Your Salary Like a Pro How to Negotiate Your Bills (and Save over Six-Figures!) The Stairway to Wealth 2.0 (The Order You Should Put Your Money in!) Emergency Funds: The Ultimate Guide to Saving Money How to Break The Paycheck to Paycheck Cycle  Check out all the Stuff I Recommend!  M1 Finance Open a Roth IRA Personal Capital Free Wealth Management + Budget App and Fee analyzer!  CIT BANK (Best Savings Account) Best Personal Finance Books  The Simple Path to Wealth - J L Collins  The Millionaire Next Door - Thomas Stanley I Will Teach You To Be Rich - Ramit Sethi  Rich Dad Poor Dad - Robert Kiyosaki DISCLAIMER: I am not a financial adviser. This Podcast is for educational purposes only. Investing of any kind involves risk. While it is possible to minimize risk, your investments are solely your responsibility. It is imperative that you conduct your own research. I am sharing my opinion.  AFFILIATE DISCLOSURE: Some of the links on this channel are affiliate links, meaning, at NO additional cost to you, I may earn a commission if you click through and make a purchase and/or subscribe. However, this does not impact my opinion. Check us out on social fam!  Twitter Dollar After Dollar Instagram www.thepersonalfinancepodcast.com www.dollarafterdollar.com www.mastermoney.co Learn more about your ad choices. Visit megaphone.fm/adchoices

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That's how TD is making banking more human. On this episode of the personal finance podcast, we're going to talk about 13 things every stock market investor should know. What's up, everybody, and welcome to the personal finance podcast. I'm your host, Andrew, founder of mastermoney.com. And today on the personal finance podcast, we're going to be talking about the 13 things that every stock market investor should know. If you have any questions, hit me up on Instagram at Master Money Co. That's Master Money CEO. And follow us on Spotify, Apple Podcasts, or whatever podcast player you love listening to this podcast to. And make sure to hit those notification bells on those

podcast players as well so you can see when new episodes come out. And if you want to help out the show, leave a five-star rating and review on Apple Podcasts. And don't forget to check us out on YouTube at Master Money on YouTube. We're putting out fresh content, two videos a week, every single week. Now today, we're going to be talking about the things every stock market investor should know. And these are extremely important to understand because if you're in this game for the long run, if you're in this investing game for your entire life like I am, and you want to build tremendous wealth for you and your family, you have to understand certain things about the market.

You have to understand how it ebbs and flows day in and day out, but over time it goes up. You have to understand how to control your emotions in the market. You have to understand how to do it. all of these things so you can build massive wealth and you can get rich within the stock market. This is extremely important to understand. Now, some of these things we're going to go through are things that you should be avoiding when you're investing in the stock market. And some of these things are things that you should be doing when you're investing in the stock market. Now, this has nothing to do with the type of investor you are. You could be an active investor.

You could be a dividend investor. You could be a value investor. You could be an index fund, passive investor like I am. Any of these situations, all of these will apply. to each of those situations. So you have to understand that all of these are things that you need to keep in the back in your mind. And if you understand all of these, you're going to have a massive, massive opportunity ahead of you. So whether you're consistently investing or you're doing a deep dive looking for value stocks,

all of these principles will apply to you and your investment strategy. So if you're into that thing, let's get into it. The first one is inflation can be good for stocks. we've been talking about inflation a lot on this podcast because there's been an acceleration of inflation within current events as we've been looking at. The inflation rate is accelerated from an average of about 2% to over 6% in the year that I'm recording this. And inflation is probably something that a lot of you understand now. It's the cost of goods rising over time. Now, there are major impacts to your money when it comes to inflation. And the reason why we invest, the reason why we're even talking about

this and the reason why you want to invest your money, one of the major factors is inflation because you want to get your dollars working for you so that you can beat inflation because every single year, inflation is eating away at your buying power. It reduces the value of your money. But inflation could also help certain things, specifically if you're in debt, or it can also help businesses. So think about this for a second. The prices of things are going up. The prices of costs of goods and services are going up. The raise of those prices is due to shortages in high demand. So in the short run, if inflation goes up for a short period of time, the consumer doesn't earn more, but companies do earn more. Now, companies whose costs increase significantly, maybe the

cost of materials have increased significantly because they can't get shipping over here, or the cost of their labor has significantly increased because people don't want to be working right now. All of those are real things that could happen to companies. But the companies that can maintain the same cost margins, but increase the margins of profit, are the way. ones that are going to do massively well. So it doesn't impact those type of companies. So looking for companies like that in inflationary periods is something that you can really, really benefit from.

So you can look at companies with massive competitive advantages. Warren Buffett talked about companies with a giant moat around them, meaning companies that are big leaders within their industry, companies like Apple or Microsoft, where they have people who are hooked on their products, who are not going to leave their products. They have a huge economic moat surrounding their business. that is something that you can look into investing and say, hey, this company's not going anywhere. If it gets reduced because of an inflationary period and people are trying to sell it off because we're in an inflationary period, that's just a short-term problem and I'd be buying into some of

these stocks and getting in while the price is low. Now, if companies can't control the raise in these costs, if a business costs are really rapidly rising, then that's not a business you want to be a part of because margins are king when it comes to this. So if the gap between revenue and expenses is growing, they can really skyrocket their profits. But if it's not, then it's something you just want to avoid. So just look into this because stocks are a great way to hedge against inflation. The second thing that you should know is stocks have an underlying value. So the thing to understand is when you're buying a stock, you're actually a partial shareholder of a business. And this is something a lot of people don't think about because in the short run, a lot of people

get into the market and they think they're throwing out bets and just throwing money all over the place. And you don't see that you're actually a partial owner in the business. And stocks have an underlying value. Each business has an actual value. And Warren Buffett, who's the greatest investor of all time, was so successful because he was the best in the world at finding the underlying value of a company. He was the best in the world at it.

Because the stock market, you could think of it sort of like real estate, where each house that you buy is really just bricks and stone and flooring and tiles from the roof. You're buying a bunch of different things combined into one. The same thing goes for a company. And this is an extremely powerful place to put your money, no matter how small the amount. So if you think about it and keep the comparison with real estate, the reason why real estate goes up is a number of reasons.

It appreciates because land is finite. They're not making more land. They can't produce more land. If you're in an area where there's massive growth and they can't make any more land, the only thing to do is for prices to start to rise because demand is so high. So if you're in a really high demand area, prices are going to increase for a very long period of time. and if you're in a high demand area for a long period of time, then really prices are going to increase.

You can look at different cities and how massively been impacted. Look at Nashville. Look at Austin. Look at Tampa. All of these cities are massively growing because land is finite in those areas. And a lot of people want to move to those areas. And so the value is going up. Stocks work the same exact way because there's a certain number of shares.

And when a company grows, they make more money, which makes them more profitable and more attractive to own. And as the earnings start to rise and they keep their costs low, more people want to buy in because it's a really attractive thing to be a part of because they're going to be making profits. They're going to share those profits with you, the shareholder, and make more money. And this causes the share price to rise. So understanding that stocks have an underlying value is majorly beneficial for you in your investing career. Number three, beating the stock market is not the goal. Yeah, Warren Buffett beat the stock market for 10 years.

Warren Buffett is goals. But every pro stock trader out there wants to beat the market. But here's something really cool. I'm going to lay it out for you guys. Guess what? You can be lazy and you can be rich. This is one of my favorite things about investing. Because for the long-term investor,

just having market returns, turns out that you can become extremely wealthy. Massive wealth can be built just by putting your money into average market returns. So here's the craziest stat that I want you to understand. This is something I want you to understand so you don't try to go out there and beat the market. 90% of the money.

of professional investors every single year do not beat the market. Their entire job and their entire goal is to try to beat the market and 90% of them don't beat the market. So that means 10% per year beat the market. And out of that 10% per year that does beat the market, guess what? They're not the same every single year. So what that tells you is the majority of the time, the majority of investors who are professional investors can't beat the market.

So what makes us, the average investor, think that we can go out there and beat the market? This is why I love index funds. And this is why I personally buy into index funds because I'm just going to become the market. I'm just going to buy into the market and watch my wealth grow over time. This is the best part about investing. You can not look at it. You can just put a certain amount of money every single month allocated towards your brokerage account or your 401k or your Roth IRA, whatever it is. Every single month, you don't even have to look at it and it's going to grow over time.

You can be lazy and rich. Number four, nobody really knows anything about the future. So what you're going to hear when you start investing, if you start looking at investing news or like CNBC or any of these shows, is that people are going to start pounding the table, telling you they know which direction the market is going to go. One of my favorite authors of all times is very famous for doing this in the short run. That's Robert Kiyosaki. He has said the market is going to crash for 10 years straight.

If you followed that advice, you would be looking at a situation where you are not making any money at all because you're waiting for the market to crash. We've had record gains in the last 10 years. And you're going to see this all the time on CNBC, MSNBC. It doesn't matter what channel you watch, but you're going to see people pounding the table experts, quotations, experts saying they know what's going to happen with the market. Well, guess what?

These experts do not know what's going to happen with the market. It's massively beneficial to not listen to them. And instead, dollar cost average put a certain amount of money every single month into the market and continuously invest consistently over time. Being informed is great, But too much information, specifically opinionated information, is truly going to hurt your results. Investing for the long term without reacting is the way you want to invest your money. Number five, there's always massive opportunities. So opportunity in the market is always knocking.

But here's the thing you don't want to hear. This isn't sexy or anything like that. I know a lot of people like to look at market things that are sexy. But the only way to truly take advantage of market opportunities is to read. And you're going to be reading very boring financial reports. But when opportunity is knocking, the only thing to do is to let it in. That means you have to dig into quarterly reports, yearly reports, roll up the old sleeves and get those eyeballs moving. The only other way is to take risks. But taking those risks are typically uninformed if you're not reading financial reports

or looking at the business as a whole. So when are times that there could be opportunities that you could look at? One of the best ways is recessions because when recessions happen, stocks are on sale, Walmart's on sale, targets on sale, Amazon's on sale, Netflix is on sale, Apple, Microsoft, all of these stocks are on sale because people panic sell. So this is one of the best times to get in on companies when there is a massive dip. Now, I'm not saying to keep cash and hold cash for dips because that's not something you should be doing. We'll talk about that a little bit later on here.

What I'm saying is if stocks are on sale, don't be fearful. Don't be fearful when things go on sale. Put your money in, continuously invest because those are probably going to be your greatest returns, especially if you catch them at the bottom. The same thing goes for companies that have short-term. problems. A few years back, Target had credit card fraud. Some hacker got in and stole a bunch of credit card information from a bunch of people. The stock dropped to below $50 at that time when that happened. It was a very short-term problem. Now Target is well above $200 per share. So you can make a tremendous

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an investor to reduce their emotions when they're investing. So if you understand specific trends, things like there's a recession every 10 to 15 years in the market. And understanding that, when the next recession hits and there's a pullback, you're not going to panic and sell everything. Understanding trends when economic factors happen, there's a very short-term pullback that happens in the market. Don't panic. Understanding that there's market fear, there's political factors. Day to day, the market's going to go up and down.

There's volatility. Understanding these small things will really help you as an investor because it keeps you calm. And what you're trying to do is just know that staying calm is what the biggest, most important factor can be when it comes to investing your money

or building a business or whatever else you're doing is controlling your emotions. Because if you can control your emotions, you can become absolutely unstoppable because you're rationally thinking about each and every situation. Number seven, timing the market is for suckers. So you've heard me say this a million times.

It's not about timing the market. It's about time in the market. And we talked about this earlier, where we're talking about professional money managers can't even beat the market. And they're trying to time the market would be an even worse situation for them. Peter Lynch, one of the greatest investors of all time, said this.

More people have lost money waiting for corrections and anticipating corrections than in actual corrections. So more people have lost money just waiting over time for corrections to happen instead of just investing their dollars. So you can think about it this way. Imagine you're waiting for something to pull back. Say a stock is $70 a share. And you're waiting for it to pull back to $60. But then it jumps up to $80, then $90, then $100. You missed out on all those gains just because you're waiting for the stock to pull back. So don't try to time the market. Invest consistently every single month. Invest your dollars every month and continue to be consistent so that you're

you can build tremendous wealth for you and your family. Number eight, stocks go in one direction over time. If you've been listening to this podcast for a long time, you've heard me talk about this. But pull out your phone and pull out your favorite stock app. Now change the chart to the longest possible time horizon there is. And then turn your phone to the side. Which direction does that chart go? That chart goes only in one direction.

It goes up. So understanding this that over the long run, the stock market historically has only gone in one direction, it's gone up, is going to help you hold when time. times get stressful, or there's market dips. Warren Buffett famously said, in the short run, the stock market is a voting machine. In the long run, it's a weighing machine. What he means by that is in the short run, the market's going to ebb and flow. People are voting, putting in bets.

There's amateur investors all over the place, and the market's going to go up and down in the short run. You can see that if you're looking at the chart on your phone. The market's going up and down in the short run, but in the long run, it stays steady in one direction. because in the long run, the market is an indicator of good business. It's a weighing machine. It's an indicator of good business.

That's one of my favorite investing quotes of all time because if you understand it, then you know you should be in this game for the long run because compound interest is what matters to you. And investing your dollars allowing compound interest to take over is what is going to change your life forever. Number nine, active investing is not for everyone. So a lot of people want to do the sexy thing. They want to go out. They want to day trade. They want to have 15 screens in the middle of their bedroom.

and day trade in and out and say they made a million dollars in a day. The majority of people get too emotional. They don't know how to invest properly. They're not willing to do the massive research that you have to do to even be able to invest that way. And instead, when they go out to try to actively invest, they just lose money. If you intend to be an active trader,

ask yourself a couple questions. Do you have an edge? Do you have an edge? Do you have a passion where you're going to be glued to your screen 24-7? If you've answered no to either of these, then this is probably not the thing for you. And do your emotions flutter every time? the market makes a change because if that's the case for you, then you absolutely should not be

an active investor. Which leads me to number 10. Fear and emotions are the enemy of investing. Young GZ once said, scared money don't make no money. And that's true for stock investing as well. See, I've talked to a lot of new investors. And when the market starts to fluctuate slightly when they put their first couple thousand dollars in, the market drops 1% for example. And they start to panic and say, should I sell this? What's going on? Why is this happening? That kind of fear will get you in trouble when you're investing your money. You have to stay calm, cool, and collected. And emotions will absolutely destroy you when you're investing your money. When the recession hit in 2007, a lot of stocks dipped 50%. Now, it takes a lot of guts to keep your money into a stock

when it dips 50%. But guess what? That's the best time to buy more. And if your emotions get in the way where you let fear get in your way, then you're going to start selling stocks. And a lot of people lost a lot of money because they sold their stocks during that time. And if they would have just held on to those stocks, they would be tremendously rich right now. But too many people sold when the market dipped, which caused them to lose a lot of money. You're not going to lose money until you sell the stock. And if you're in a company that you know is a good company, has a solid financial foundation, then you're going to see massive results over the long period of time.

Number 11, this is a huge one. Don't buy the dip. So we're going to have an entire episode on this because I think this is a fascinating thing to study. So make sure you're subscribe and have the notification bell on, as well. so you can see when this episode comes out. But a lot of people scream by the dip. This is a lot of meme stock people you're going to hear say this all the time.

Buy the dip. Every time a stock dips, buy the dip. That's what you should wait for. Keep hoarding your cash and then buy the dip when the dip comes. Well, Nick from Dollars of Data, I'll leave a link to this article below because this is one of the best finance articles you can read, I think. It's a simple read as well. But Nick from Dollars of Data did a study. And his study was if you bought the dip at the lowest possible point, let's say you're God,

and you know when the dip is going to be at the lowest possible point. What would happen to your returns versus someone who just dollar cost averaged every single month the same amount of money? The people who tried to buy the dip at the lowest possible point performed worse than the people who dollar cost averaged 70% of the time. This is absolutely amazing because it's the opposite of what you would think. So people who bought the dip performed worse 70% of the time. Now, this is the lowest possible point.

This is a complete hypothetical. This is if you were the perfect investor instead of just dollar cost averaging. This is why time in the market is so much more important than timing the market. Number 12, don't be in a rush to sell. So all of my biggest investment mistakes have been because I sold stocks too early. I thought I was smart and I thought the stock was going to turn and I was just going to sell the stock. Every single time I feel like I do that, the stock just, keeps going up. So understanding that if you have a good company and you bought into a good company,

you know it's going to go up for a long period of time. Selling a stock because of short-term factors like political factors or recessionary factors or anything like that never makes sense. Instead, you want to hold on to these companies for a long period of time. Make your motto for those good companies to never sell unless something wild happens like they have fraud or majorly bad financial reports or management changes and it just goes down the hill. There's a lot of many factors that could happen, but most of the time, if the company is great and has great products, they are going to do well for a long period of time. Number 13, and this is the last one, and this is one that I really had to learn the hard way

a bunch of times. Sometimes it's just best to buy a stock, even if it continues to go up. So I have missed out on so many opportunities because I was waiting for stocks to either slow down or take the dip. Like we just talked about, don't buy the dip. But instead, what I've learned lately is buy good stocks, even if they're surging ahead. For example, companies that were all-time highs, Tesla or Netflix or Amazon or Apple, I would try to wait for those companies to maybe have somewhat of a pullback because I thought, oh, it's going to be too high and it's going to come back. And all of those companies have surged thousands of percent since I've said that. So understanding that even if a stock is a great company, it's fine to buy it as it's going up. And I have this Instagram post that I did a while back. I'll repost it coming up here in a week or two. But it's talking about my stock market timing plan. And it has a chart that's going,

up and it's going down. And at every level of that chart, I just wrote buy, buy, buy, buy, and that's basically my philosophy now to continuously buy good companies, whether they're up or they're down, because over time, the market goes in one direction. Listen, I hope you guys enjoy this episode. Thank you so much for listening to this podcast. And if you have any questions, hit me up on Instagram at Master Money Code. That's Master Money CO. And follow us on Spotify, Apple Podcast, or whatever podcast player you love listening to this podcast to. And if you want to help out the show, leave a five-star rating and review on Apple Podcasts. Thank you guys so much for leaving those five-star reviews.

They truly do help out the podcast. And thank you so much for sharing this podcast with your friends and your family. We are truly grateful to each and every one of you that shares this podcast with your friends and your family. Don't forget to check us on YouTube as well. We're putting out a bunch of content on YouTube. I want to make sure that you guys check that out as well. Thank you guys so much for listening to this episode.

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