Course of Study for Beginning Investors
Why Invest in Stocks
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Course of Study for Beginning Investors
WHY INVEST IN STOCKS?
Ann Cuneaz
Education Program Manager
BetterInvesting
Ken Kavula
President
Mid-Michigan Chapter
Course of Study for Beginning Investors
Why Invest in Stocks
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Course of Study for Beginning Investors
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Disclaimer:
All stock references are meant to be used for
educational purposes. No recommendation for
purchase or sale is intended or implied.
This presentation is being recorded
for future use!
Course of Study for Beginning Investors
Why Invest in Stocks
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Course of Study for Beginning Investors
Goals for Tonight’s Class
Understand the
importance of making
financial goals and
plans.
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Course of Study for Beginning Investors
Why Invest in Stocks
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Course of Study for Beginning Investors
Tonight’s Goals…
Become familiar with
the concept of
compounding.
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Why Invest in Stocks
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Course of Study for Beginning Investors
Our Goals (cont.)…
Understand why a
long-term view of
investing minimizes
risk.
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Why Invest in Stocks
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Course of Study for Beginning Investors
Our Final Goal…
Understand why the
BetterInvesting
method is preferred
for people that want
to manage their own
money.
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Course of Study for Beginning Investors
Why Invest in Stocks
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Course of Study for Beginning Investors
FINANCIAL FREEDOM
• What does it mean?
• Some examples
– Travel anywhere, anytime
– Help the grandkids
– Eat steak and sip good martinis
– Not worry about emergencies
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Course of Study for Beginning Investors
Why Invest in Stocks
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Course of Study for Beginning Investors
WANTS AND NEEDS
• Travel
• Dining out
• New car every three
years
• Charitable
contributions
• Plastic surgery
• Gasoline
• Health insurance
• Pay bills on time
• Property insurance
• Prescription drugs
• Food
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Course of Study for Beginning Investors
Why Invest in Stocks
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Course of Study for Beginning Investors
HOW WILL YOU REACH YOUR GOALS?
• Fully fund your 401K
• Move to Jamaica
• Create and fund an IRA
• Win the Powerball lottery
• Invest small sums regularly in stocks
• Stuff $100 in your mattress every payday
• Marry a wealthy widow(er)
• Buy US Savings Bonds
• Buy a bigger house
• Expand a collection
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Course of Study for Beginning Investors
Why Invest in Stocks
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Course of Study for Beginning Investors
ARE YOU IN CONTROL?
• Lottery
• IRA
• 401K
• Inheritance
• Passbook Savings Account
• Savings/Corporate/Municipal Bonds
• Stock Portfolio
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Course of Study for Beginning Investors
Why Invest in Stocks
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Course of Study for Beginning Investors
DO YOU HAVE A PLAN?• An Oil Well
• A Written Budget
• Collectibles
• A Pension
• The Winning Numbers
• Investments
• Social Security
• Annuities
• A Combination of Strategies
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Course of Study for Beginning Investors
Why Invest in Stocks
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Course of Study for Beginning Investors
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WHATEVER YOUR PLAN,
PAY YOURSELF FIRST!
INVEST IN YOUR
FUTURE!
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Why Invest in Stocks
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Course of Study for Beginning Investors
THE POWER OF COMPOUNDING
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Why Invest in Stocks
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Course of Study for Beginning Investors
Which would you take?
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A million dollars or one cent
doubled each day for 30 days?
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Why Invest in Stocks
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Course of Study for Beginning Investors
COMPOUNDING
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Day 1 $.01
Day 2 $.02
Day 3 $.04
Day 4 $.08
Day 5 $.16
Continue this pattern for 30 days……
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Why Invest in Stocks
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Course of Study for Beginning Investors
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…… Day 29 $2,684,355
Day 30 $5,368,709
What was the growth rate?
100% compounded daily
What kind of growth might be
reasonable?
How about doubling your money
in five years?
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Why Invest in Stocks
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Fifteen percent yearly growth over five years
doubles your money!
Take your calculators and start with $100.
Multiply by 1.15 to see the value after one
year at 15% annual compounded growth.
Do this four more times to see the value at the
end of five years!
Interest $100 * .15 = $ 15
Principle $100
TOTAL $115
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Why Invest in Stocks
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$100 x 1.15 = $115 at end of Year 1
$115 x 1.15 = $132 at end of Year 2
$132 x 1.15 = $152 at end of Year 3
$152 x 1.15 = $175 at end of Year 4
$175 x 1.15 = $201 at end of Year 5
HERE ARE THE NUMBERS!
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Why Invest in Stocks
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Course of Study for Beginning Investors
WHAT ARE THE BEST INVESTMENTS?
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Why Invest in Stocks
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WHAT GENERATES THE BEST RETURNS?
• Savings Account or CDs
• Bonds (Government, Corporate, etc.)
• Common Stocks
• Real Estate
• Gold
• Collectibles
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Here’s how some of
the financial asset
classes stack up.
All asset classes
begin in 1925 with a
value of $1.00.
Source: Morningstar
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Why Invest in Stocks
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Course of Study for Beginning Investors
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If common stock is the best
investment over the long
term, what is the potential
risk?
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Why Invest in Stocks
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Course of Study for Beginning Investors
Yearly Returns (S&P 500) Since 1941
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2012 2009
2010 2003
2006 1999
2004 1998
2011 1993 1996
2007 1988 1983
2000 2005 1986 1982
1990 1994 1979 1976 1997
1981 1992 1971 1972 1995
1977 1987 1968 1967 1991
1969 1984 1965 1963 1989
1962 1978 1964 1961 1985
2001 1960 1970 1959 1955 1980
1973 1957 1956 1952 1951 1975
2002 1966 1953 1948 1949 1943 1950
2008 1974 1946 1941 1947 1944 1942 1945 1958 1954
-40 to -30 -30 to -20 -20 to -10 -10 to 0 0 to 10 10 to 20 20 to 30 30 to 40 40 to 50 50 to 60
POSITIVE
RETURNNEGATIVE
RETURN
Data source: http://www.moneychimp.com/features/market_cagr.htm
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Why Invest in Stocks
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Course of Study for Beginning Investors
Five-Year Blocks of Time
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Since 1945, the majority
of 5-year annualized
returns have been
between 0% and 20%.
History suggests that we
can expect better returns
from a long-term
perspective.
2007
2001
1993
1990
1985
1984
1982 2000
1980 1996
1979 1995
2012 2006 1968 1992
2010 1994 1967 1991
2009 1981 1965 1988 1998
2011 2005 1972 1964 1987 1997
2008 1978 1971 1962 1983 1989
2004 1976 1966 1961 1953 1986
2003 1975 1963 1959 1952 1958
2002 1973 1960 1957 1951 1956
1977 1970 1950 1948 1946 1955
1974 1969 1949 1947 1945 1954 1999
-10 to -5 -5 to 0 0 to 5 5 to 10 10 to 15 15 to 20 20 to 25 25 to 30
POSITIVE
RETURNNEGATIVE
RETURN
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Why Invest in Stocks
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Course of Study for Beginning Investors
10-Year
Blocks of
Time
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There are only two
negative numbers on
this chart!
2000
1999
1998
1997
1996
2012 1995
2007 1993
2006 2004 1992
2005 2003 1991
2002 2001 1989
1982 1994 1988
1981 1990 1987
1980 1986 1963
1979 1985 1961
1976 1984 1960
1973 1983 1959
2011 1972 1967 1957
2010 1971 1965 1956
1978 1970 1964 1955
1977 1969 1962 1954
2009 1975 1968 1953 1952
2008 1974 1966 1950 1951 1958
-10 to -5 -5 to 0 0 to 5 5 to 10 10 to 15 15 to 20 20 to 25 25 to 30
POSITIVE
RETURN
NEGATIVE
RETURN
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Why Invest in Stocks
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Course of Study for Beginning Investors
INVESTING METHODS AND THE
BETTERINVESTING WAY
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Why Invest in Stocks
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CONVINCED?
If stocks show the best return over
time, then becoming an INVESTOR is
key to your financial freedom.
What kind of INVESTOR will you
become?
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Why Invest in Stocks
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INVESTING METHODS
• Fundamental
• Technical
• Speculative
People make money using all of these
methods!
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Why Invest in Stocks
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Course of Study for Beginning Investors
INVESTING ORIENTATION
• Value
• Income
• Growth
People make money using all of these
orientations!
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Course of Study for Beginning Investors
Why Invest in Stocks
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Course of Study for Beginning Investors
KEYS TO SUCCESS
• Pick a method and an orientation
• Learn the discipline
• Practice
• Practice
• Practice
• Maintain the discipline
• Do not jump from style to style to style
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Course of Study for Beginning Investors
Why Invest in Stocks
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Course of Study for Beginning Investors
BetterInvesting
• Educating investors since 1951
• Fundamental Investing
– Buy high quality growth stocks at a fair price
• Goal oriented
– Aim to double your money every five years
• Long-term focus
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Course of Study for Beginning Investors
Why Invest in Stocks
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Course of Study for Beginning Investors
BetterInvesting Method
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• Sleep-at-Night Investing
• Long-term
– Generally, aim to hold a stock at least five years or as long as it’s a good investment
• Conservative
– Purchase companies with consistent history of growth and quality
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Why Invest in Stocks
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Course of Study for Beginning Investors
Measuring Success
• BetterInvesting 100 Index
– Created in January, 2008
– Index made up of top 100 holdings of
investment clubs
– Rebalanced at the beginning of every year
– BIXX
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Course of Study for Beginning Investors
Why Invest in Stocks
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Course of Study for Beginning Investors
BetterInvesting Methods Work!
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BI Top 100 has outperformed the S&P 500, the Dow Jones
Industrial Average and the Russell 2000 over the past 5 years!
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Why Invest in Stocks
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Course of Study for Beginning Investors
PRINCIPLES OF BETTERINVESTING
• Invest Regularly
• Reinvest All Earnings
• Diversify
• Invest in Quality Growth
Companies
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Course of Study for Beginning Investors
Why Invest in Stocks
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Course of Study for Beginning Investors
BetterInvesting
• The BetterInvesting Stock Selection Guide (SSG) is our key to evaluating and purchasing stocks
– Provides a method to evaluate the quality of a stock
– Uses your judgment to determine whether the stock is a BUY at today’s price
– Calculates potential compounded annual return for next five years
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Course of Study for Beginning Investors
Why Invest in Stocks
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Course of Study for Beginning Investors
BetterInvesting Believes in
Investment Clubs
• Meet and invest together
on a regular basis
• Share the responsibility
for stock studies
• Provide support and
education for investors at
all levels of experience
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Course of Study for Beginning Investors
Why Invest in Stocks
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Course of Study for Beginning Investors
KEEP LEARNING
Next Steps
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Why Invest in Stocks
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Course of Study for Beginning Investors
Learn How with BetterInvesting
• Open House: Sample Classes and Tools
– www.BetterInvesting.org/OpenHouse
• Online Tools and Tutorials
• Online Stock Selection Guide Trial Version
– Try it free!
tools.BetterInvesting.org/StockAnalysis
• Chapter Classes
• National and Regional Conferences
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Course of Study for Beginning Investors
Why Invest in Stocks
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Course of Study for Beginning Investors
The Next Introductory Session
Understanding the Jargon (free)
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Introducing basic vocabulary and
investing concepts
This is a recommended prerequisite to the
Introduction to the Stock Selection Guide series.
Learn more at www.betterinvesting.org/IntroSSG
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Why Invest in Stocks
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Course of Study for Beginning Investors
Introduction to the Stock Selection Guide (SSG)A Series of Five Classes
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Learn more at www.betterinvesting.org/IntroSSG
1• Selecting the Best Companies
2• Determining a Fair Price
3• Estimating Future Growth
4• Estimating Future P/Es
5 • Review and Practice
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