How do you find things worth investing in, and how do you decide on a stock?
I'm Suzanne with Arvabelle and in this video I'm going to explain how you can find things
that will be good for you to invest in.
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on money and mindful living.
Alright, what are the best stocks to buy that will make you a profit?
And where should you start?
When you're looking for stocks, the first thing you need to ask yourself is am I trading?
Or am I investing?
And if you're not sure what the difference between trading and investing is I will link
to my last video up there and also in the description box where I explain that.
It's important to know if you are trading or investing upfront because the best stock
for a trader is not necessarily going to be the best stock for an investor.
The first rule of picking stocks is to only invest in things you understand.
Your first investment is probably not going to be your best investment.
But that's okay.
With practice you will get better and more confident at picking stocks.
But the best way to start out is to start with companies and industries that you are
familiar with.
For example, if you have a career in the crude oil industry, you probably already have a
working knowledge of what goes on.
You're probably already familiar with the factors that drive oil prices up and down,
and you may also know some of the most profitable companies.
Or you know of some new startup companies that are doing really well or even related
industries like suppliers or manufacturers.
In that scenario, since you already have sort of this built of knowledge of the oil industry,
you may want to first look into crude oil ETFs or companies that are related to oil.
Only investing in things that you understand will keep you from giving into FOMO or the
fear of missing out.
FOMO is when you buy into something, either because you're afraid that you'll miss out
on some great profit, or because you feel like you're missing out because everyone else
seems to be getting into this supposedly great opportunity.
It's important to understand that you start venturing into some dangerous territory when
you are investing based on other peoples opinions.
So you have to do your own research and filter out the outside noise coming from the media
or from your coworkers or wherever it's coming from filter it out.
Because when you start investing based on other people's opinions and other people's
investments that is when you start getting into the territory of what we would consider
gambling.
Right?
Because you don't know what's going on, you're kind of just throwing money at it, and hoping
that it turns out okay.
And that is where people get into trouble and lose a lot of money.
In the chance that you take a stock tip from someone or you just invest in something on
a whim and it goes okay, good I guess?
You got lucky.
But where are you going to go from there?
You have no way of replicated that in the future because you had no idea what was going
on.
So what is your next plan of action?
You need to know what numbers and patterns to look at so that you can invest wisely and
you can also replicate your investments so that you can continue to make profits.
You're like yeah yeah yeah okay so what are these numbers and patterns that I'm supposed
to be looking for?
For investing you're going to use more fundamental analysis, and for trading you're going to
use more technical analysis.
And there's a little bit of crossover I think it's good to look at a little bit of both
regardless, but let me explain what these are.
For fundamental analysis you're trying to determine the intrinsic value of the company.
So that means you are looking at the business itself, not necessarily just the stock price.
You're trying to determine what is the true value of this company?
Is it overvalued?
Or is it undervalued?
And you want to buy when you find a good company that's undervalued.
So what do you need to look at to determine if a company is undervalued and if it is worth
investing in?
Before you look at numbers, you want to make sure that that company has good management.
So is their original founder still running it?
Or do they have a good CEO that's worked on similar companies or scaled similar companies?
And what is their management team like?
Do they have a strong effective management team?
Or do they seem to have a lot of internal confusion and conflict and they're always
changing out their internal teams?
These are all things to look into and to consider.
But then actually looking into the numbers, what you're going to want to look at is their
balance sheet, their cash flow statement, and their income statement.
So what do you need to look for within these?
You'll want to look at their revenue.
Is their revenue increasing?
Are they bringing in more money?
And with that what are their profits?
Are they actually making any money?
You'll want to look at their profit margin as well because that number indicates how
much money is left after they cover all of their expenses.
To put that into context if you buy a textbook for $70 and you flip it and sell it for $100,
$100 is your total revenue right?
But you only made $30.
So you had a $30 or a 30% profit margin.
Next is the debt to equity ratio.
This will basically give you an idea of how much money the company has and how much money
the company owes.
You want to ask yourself, will this company be able to repay their debts?
Or if some catastrophic event happens within their company, do you think that they will
go bankrupt and just totally run out of money and not be able to pay anyone?
Again, all things that you need to think about and consider.
The next thing to look at is going to be the price to earnings ratio.
And this is going to be one of the main ones to look at to determine if a company is overvalued
or undervalued.
The price to earnings ratio shows what the market is currently willing to pay for a stock
based on that company's past earnings or future earnings.
If that ratio is high, that means that that company is possibly overvalued.
The stock price is a little bit high relative to the company's earnings.
If the ratio is low, that may indicate that the company is undervalued and if and only
if you have looked into all of the other things it may be a good time to buy.
There are definitely other numbers and ratios to look at, but those are sort of just the
basics.
And actually if you have another number that you like looking at before you buy into a
stock, leave a comment down below and let me know what that is.
So what if you're not investing and you're just looking to trade?
What do you want to look for then?
Well like I said earlier, with trading you are going to use more technical analysis.
So that is looking more at the short term price changes and patterns, and you're trying
to predict short term which way a stock is going to go.
Technical Analysis for Dummies is a good book that I will link to down below, there's also
this bigger book and there's a section in here on technical analysis but I'm not gonna
lie, it's not the easiest thing to read and probably not the easiest thing to start with.
The easiest way is going to be looking up youtube videos because it's a lot easier when
you can visually see what people are looking at, what these patterns do, and a lot of times
you can find videos of people actually trading and explaining things as the market is moving.
So I will give you a list of things you can start looking up when you are searching on
YouTube.
You want to look up volume, relative strength index or RSI, chart patterns, candlestick
patterns, price trends, support and resistance levels, momentum indicators, and moving averages.
And I will also have a link to Ricky Gutierrez's channel down below.
He goes over all of these, multiple times, in multiple videos.
He legitimately has over 1,000 videos you can watch, and he is much better at explaining
it than I will ever be.
So, that should get you started with picking stocks to invest in and as always, Google
anything that you are confused about or any terms that you hear and that you don't know.
Because that is going to be very beneficial for you.
If this video was helpful, drop a like, hit the subscribe button, visit our blog Arvabelle.com,
and I will see you next time.