The number one way to ensure that you will be rich in your lifetime is to
leverage the power of stock investing the stock market has made tons of people
rich but sadly the majority of individuals shy away from using the most
powerful money-making vehicle on earth but why is that simply put they don't
know where to begin when it comes to investing and this lack of knowledge is
holding them back from realizing their true financial potential luckily boss in
this video i will share with you how to value a stock and invest to be rich and
if you're new to the channel then hit the subscribe button below for more
life-changing content now before we go through how to value a
stock you must understand what attributes of a company and the stock
that represents it on the market so that you can select and invest in stocks that
will not just return you a handsome profit but will help grow your wealth
over time the first attribute is the price knowing the price of shares in
their history as you evaluate a company's stock will indicate whether or
not you may be able to acquire a profitable stock
second there's revenue growth when a company's revenues increase typically so
it's share price buying company stocks that are consistent with revenue growth
is generally a safe bet thirdly there are dividends search for companies that
pay high dividends to their shareholders and invest in those
only thriving companies can pay high dividends not to mention if you hold a
stock in its value doesn't appreciate as fast as you would have liked you are
still realizing a benefit from the cash or stock dividends that this share
provides you so you are insured to progress in your wealth building journey
next is market capitalization companies with large market caps are usually large
and diversified enough to be negatively affected by a small change in market
factors think about companies like coca-cola or
exxon mobil they are large diversified companies who have given their investors
good returns for decades next are historical prices when on the
hunt for stock it isn't just enough to look at the current value of the shares
also take a look at the company's share history you can date back 5 10 or 15
years just so you know how the company has been performing over long periods of
time companies who have good historical share prices are your best bet however
keep in mind that the pass doesn't necessarily define what will happen in
the future yet it still remains an excellent indicator of what you can
expect finally there's the industry before you
buy stocks you need to take a look at the industry in which the company
competes if it's a failing or fading industry then be advised to back off on
the other hand if it's an industry that is on the rise then you can feel safe to
invest in its stocks now that you know the key elements of a
business and its respective stock it is essential to understand what financial
indicators you must use in order to see if that stock is positioned in a way for
you to profit from it there are typically four indicators that will
determine a stock's value and when used in combination will be exactly what you
need to make wiser investing decisions indicator number one the price to book
ratio the price to book ratio represents the value of a company if it's torn up
and sold today this is useful to know because many companies in mature
industries falter in terms of growth but can still be valuable based on their
assets the book value usually includes equipment buildings land and anything
else that could be sold including stock holdings and bonds in simpler terms the
book value is the difference between the assets a company owns and the
liabilities it holds and this is important to understand because some
companies have weak book value positions and can make for disastrous investments
take the example of enron the company's stock price was driven purely by
speculation and the asset they had possessed had little value which is why
the company ultimately went under now certain companies book value will
fluctuate more than others with purely financial firms the book value can
fluctuate with the market as these stocks tend to have a portfolio of
assets that go up and down in value industrial companies tend to have a book
value more based on physical assets which depreciate year over year
according to accounting rules in either case a low p to b ratio can protect you
but only if it's accurate when the price is low compared to the book value this
means that the price is a more accurate depiction of the true value of the
company and is less affected by market speculation nonetheless an investor
using the price to book ratio to value stocks has to look deeper into the
actual assets making up the ratio indicator number two the price to
earnings ratio the price to earnings ratio is possibly the most scrutinized
of all the ratios a stock can go up in value without significant earnings
increases but the pde ratio is what decides if it can stay up without
earnings to back up the price a stock will eventually fall back down an
important point to note is that one should only compare p e ratios among
companies in similar industries and markets this is because certain
industries are more speculative than others for instance an oil refinery
business operates on the prospect of finding new oil and a new discovery can
drive up stock prices even if revenues from this discovery haven't been
realized today on the other hand a household goods company's value is
totally based on the revenues it earns meaning that its price to earnings ratio
will be more indicative of the money it is actually bringing in effectively a
price to earnings ratio can be thought of as how long a stock will take to pay
back your investment if there is no change in the business
a stock trading at twenty dollars per share with earnings of two dollars per
share has a price to earnings ratio of 10 which is sometimes seen as meaning
that you'll make your money back in 10 years if nothing changes the reason
stocks tend to have high priced earnings ratios is that investors try to predict
which stocks will enjoy progressively larger earnings an investor may buy a
stock with a p e ratio of 30 if he or she thinks it will double its earnings
every year shortening the payoff period significantly if this fails to happen
the stock will fall back down to a more reasonable price earnings ratio if the
stock does manage to double earnings then we'll likely continue to trade at a
high priced earnings ratio indicator number three the price to earnings
growth ratio because the price earnings ratio isn't enough in and of itself many
investors use the price to earnings growth ratio instead of merely looking
at the price and earnings the price to earnings growth ratio incorporates the
historical growth rate of the company's earnings this ratio tells you how a
company a stock stacks up against company b's stocks the price earnings
growth ratio is calculated by taking the price to earnings ratio of a company and
dividing it by the year-over-year growth rate of its earnings the lower the value
of your price-to-earnings growth ratio the better the deal you're getting for
the stock's future estimated earnings by comparing two stocks using the
price-to-earnings growth ratio you can see how much you're paying for growth in
each case a peg of one means you're breaking even if growth continues as it
has in the past a peg of two means you're paying twice as much for
projected growth when compared to a stock of a peg of one this is
speculative because there is no guarantee that growth will continue as
it has in the past comparing the two the price to earnings
ratio is a snapshot of where a company is and the price to earnings growth
ratio is a graph plotting where it has been armed with this information an
investor has to decide whether it is likely to continue in that direction
indicator number four dividend yield it's always nice to have a backup when a
stock's growth falters this is why dividend paying stocks are attractive to
many investors even when prices drop you get a paycheck the dividend yield shows
how much of a payday you're getting for your money by dividing the stock's
annual dividend by the stock's price you get a percentage you can think of that
percentage as the interest on your money with the additional chance at growth
through the appreciation of the stock although simple on paper there are some
things to watch for with the dividend yield inconsistent dividends or
suspended payments in the past mean that the dividend yield can't be counted on
like water dividends can ebb and flow so knowing which way the tide is going like
whether dividend payments have increased year over year is essential to making
the decision to buy dividends also vary by industry with utilities in some banks
typically paying a lot whereas tech firms which often invest almost all
their earnings back into the company to fuel growth paying very little to no
dividends in fact there are many people who rely upon dividend income to fuel
their retirements for instance say you have two million dollars in dividend
yielding stocks that return an annual dividend of three percent you would be
earning sixty thousand dollars a year by simply holding these stocks and if
that's enough for you to live on then you've reached financial independence
and can kiss your job goodbye at this point you should have a good
understanding of what indicators to review when valuing and subsequently
purchasing stocks that will help build your wealth one thing to keep in mind is
that just because the stock's numbers look promising one day that doesn't mean
they will forever for investors who want to leverage the power of the stock
market to build their wealth without reviewing all the financial information
i just mentioned there is a simpler option and that option is index
investing this is where you invest in funds that mirror the market and this
strategy can help you achieve solid returns over time luckily with
consistent effort buying undervalued stocks or simply contributing to index
funds can grow your wealth over time but the one factor that will determine just
how much money you make is time time is required to put compound
interest to work and the sooner you start investing the better let's use an
example to illustrate just how beneficial it can be to start investing
at an early age say we have two men justin and ryan justin begins investing
at age 19 and puts two thousand dollars into a 12 interest bearing investment
vehicle every year until age 26 for a total of eight contributions and yes 12
is a higher than average return but bear with me as this rate is just for
demonstrative purposes now ryan puts off investing until he is
27 years old then contributes two thousand dollars into a 12 interest
bearing investment vehicle every year until age 65 for a total of 39
contributions who do you think will have more money at
age 65 justin who only invested 16 000 over 8 years or ryan who invested 78 000
over 39 years if you guessed ryan you would be absolutely incorrect in fact
not only does justin end up with more money at age 65 he is ahead by more than
seven hundred thousand dollars with a total fund worth two million two hundred
and eighty eight thousand nine hundred and ninety six dollars versus ryan's 1.5
million dollars as you can see often not even investing more money can help make
up for the gains that time will provide so whether you invest in individual
stocks mutual funds or index funds the key is to start as soon as you can hey
it looks like youtube thinks this next video is the one that will change your
financial life forever give it a watch and let's see if they're right