and the s p 500 hitting a new high on friday
there are fears that the dow will drop and drop quickly and we're already seeing that
futures over the weekend were down so much that they actually had to
put an emergency trigger that stopped trading and the expectation and fear
is that we will see markets in free fall this morning in the wake of the global pandemic that
shocked the world in 2020 here is part two of our top 10 tips to invest in the stock market
hey guys it's amber and jared here here at holy city family our goal is to empower you
to achieve financial independence and provide the best education for your children so that everyone
can pursue their dreams and ambitions if it's your first time here thank you for joining us and
make sure to hit the subscribe button below to see our weekly videos and we look forward to learning
saving and growing together with you all of our videos are for informational purposes only and
do not constitute financial advice please do your own research and consult a certified and trusted
financial planner who will put your interests above their own before following any advice we
may offer so we left off at number five guys so let's start with number six market crashes are
opportunities let's walk through a great visual on bowl and beer markets learn how to prepare for a
crash and take a look at our own custom watch list here's a great visual from first trust advisors on
the history of the us bear and bull markets from 1926 to 2018 and as you can see a bull market is
when the stock market drops 20 percent and then reaches new market highs the average bull market
lasts 9.1 years and has an average return of 476 percent in a bear market is when the stock market
drops 20 or more and the average bear market is 1.4 years and the average return is a loss of 41
be prepared for a crash well in advance so we recommend at least two weeks of research per
company that you're looking at make sure you read the earnings reports and then in one of
our next videos we're actually going to walk you guys through what to actually research
so now let's actually take a look at our custom watch list here is what we created and used during
the last stock market crash in march of 2020 and we actually created an algorithm that ranks each
company based on the data points that are most important to us on the far right you can see
that we have valuations the average fare value the buy target margin of safety the percentage over or
under the target so that we know which stocks we need to keep our eyes on at any given time
number seven determine the intrinsic value let's take a look at a berkshire hathaway shareholder
letter and learn how to find the intrinsic value of a stock when we think about intrinsic value we
think about this quote from warren buffett in his 1989 berkshire hathaway shareholder letter
which is something he does every year it's far better to buy a wonderful company at a fair price
than a fair company at a wonderful price and the first time i heard this that that made sense to
us but we wondered what is a fair price and how do people know uh what that is it's important to
know what a company or stock is worth in order to know where you should buy it and potentially sell
it here are a few methods out there number one is the benjamin graham valuation method and this is
really similar to what warren buffett uses next is the pe model and then there's a similar model
which is the peg or peg ratio and this is similar to the pe model based on earnings but it also has
a component to account for growth type companies another method is the pb ratio and last is the
current value number eight invest over time it's amazing how often we hear about people investing
all of their money at one time and then actually getting poor results yeah we actually recommend
buying into a company over time and four or more purchases at 10 10 increments as the price
falls here's a great visual from rhymes standard poor's and this dates from 1948 to 2017 and as you
can see from left to right it shows the average frequency and then the length in days below that
and from left to right it shows negative five percent or more happens about three times a year a
ten 10 drop or more happens once a year a 15 drop happens once every three and a half years a 20
drop happens once every 6.3 years so if you think about it all of these times when when there's
drops from negative 5 to negative 20 plus percent are great opportunities to add to your position
warren buffett calls investing over time diversification of price
this helps you ensure that you don't buy at market top so here's a great example of how we bought
sky work solutions over time this chart from tradingview.com shows a dotted green line which
is our buy target so once the price fell below this line we purchased a quarter of our position
and made our first purchase as you can see on the chart and then when the stock continued to fall
in 10 increments we bought again and again all the way down to the the fourth purchase at the bottom
make sure you subscribe to our channel and follow us on instagram to watch our latest videos number
nine have a margin of safety for invisapedia the definition of a margin of safety is
a principle of investing in which an investor only purchases securities when their market price
is significantly below their intrinsic value so having a margin of safety is a buffer for unknowns
and mistakes it's like buying something on sale warren buffett targets 40 margin of safety and we
do the same so let's go back to our skyworks solution example from tradingview.com to see
how we use margin of safety in our charts here we draw a purple intrinsic line at 184 dollars
and then below a green line for margin of safety at 120 in this particular example the margin of
safety is set at 40 and then we update these lines as valuations change on a regular basis so that we
always know where we stand number 10 know when to sell here are some of the few reasons to sell your
stock number one when the buy was a mistake number two the business fundamentally changes number
three when price has driven dramatically and becomes overvalued this tesla chart we're going
to show you from the beginning of this year is a great example of this you can see clearly on this
chart how tesla's price rose dramatically and is now overvalued if you fast forward on this chart
you can see that it dropped nearly 40 percent from that high in february and it's starting to
make its way back up now so here's a quick recap of part two of our top 10 tips number six market
crashes are opportunities number seven know your intrinsic value number eight invest over time
number nine have a margin of safety and number 10 know when to sell hey guys if you like this video
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