Investing For Beginners: The Ultimate Guide To The Stock Market | Proactive Thinker | Skillshare

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Investing For Beginners: The Ultimate Guide To The Stock Market

teacher avatar Proactive Thinker, Investing, Stock market & Productivity

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Taught by industry leaders & working professionals
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Watch this class and thousands more

Get unlimited access to every class
Taught by industry leaders & working professionals
Topics include illustration, design, photography, and more

Lessons in This Class

9 Lessons (36m)
    • 1. Intro

    • 2. How does the stock market works?

    • 3. Brokers

    • 4. Why invest in the stock market

    • 5. What are the financial statements?

    • 6. How to pick a good stock

    • 7. Index Funds

    • 8. Investing Strategies

    • 9. Class Project

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About This Class

I have been investing in the stock market for over 7 years and this course an introduction to the stock market for beginners. It will teach you everything from the basics of the stock market to how to analyze stocks.

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Proactive Thinker

Investing, Stock market & Productivity


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1. Intro: Hey, welcome to this course on investing, where you're going to learn everything from how the stock market works to how to analyze talks to different investing strategies. This course is going to be short, simple and straightforward, and fully animated. A little bit about myself, your instructor. I've started investing in the stock market more than seven years ago and still actively invest to this day. I believe it's the best tool to build wealth in the 21st century, especially since internet has made it much easier. On top of that, I have a bachelor degree in accounting and finance, which helped me understand the world of finance and pushed me to start investing. Over the last few years, I've been teaching investing on YouTube and have made about a 100 videos on investing in the stock market. Some of them got a few 100 thousand views, are there's a few millions and over 0.5 million people have subscribed to the channel to learn more about investing. In this short course, I have summarized all the basics of the stock market and explain the most important concepts in simple and animated for much. If you're ready, let's start with the first lesson. 2. How does the stock market works?: Here's a simple way to understand what the stock market is. Suppose you come up with an idea of selling stuff online. You hire a bunch of developers to build the website for you. For the sake of simplification, let's say you decide to name your website It's a simple creative name that accidentally crossed your mind to make things easier. Let's say you start selling books. Like for you, business is going awesome. But you have a problem. You're making money, but not enough to expand faster. Theoretically, you can start selling everything on your website, from electronics to kitchen equipments, but you need the capital to rent a place and build your infrastructure. If you're not going to do that first, your competitors might take advantage of that and will crash you. But don't worry, here is a brilliant idea. You can sell a portion of your company and use that money to expand your business. Let's assume your company is valued at a $100 million. Divide your company into 1 million stocks, with each stock priced at a $100. Let's say you could convince an investor to buy a 100 thousand stocks for $10 million. Congrats. Now you have the money to expand your business and that investor gets a 10 percent stake in your valuable business. You're doing great. You're businesses growing, but you want to expand even faster. Since you have made a name for yourself. There are tons of people in the country or even worldwide who want to buy a small piece of your company. But you can simply sell pieces of your company from your office. You need to list your company in a place called the stock market. A market for companies where people come to buy and sell small portions of companies called stacks, such as the New York Stock Exchange or the nasdaq. Since your own 90% of your company. Remember you sold 10 percent of it to an investor. Let's say you list 200 thousand stocks on sale in the stock market and raise millions of dollars to expand. So the stock market is essentially a place for companies to sell portions of their businesses and raise money to fund their operations. But most of the stocks in the stock market are not sold by the companies directly, but rather by people who have purchased them when the company listed their stocks for the first time. That's known as IPO, initial public offering. It's when the company offers, it's stuck to the general public for the first time. So if you participate in an IPO and purchase stocks directly from the company, that's the primary market. But if you hit the stock market to buy some Apple stocks, for example, you probably won't be buying them from Apple directly, but from someone else who owns a bunch of Apple stocks and wants to sell them. That's the secondary market. To join the stock market, a company must meet a certain criteria, such as habitat least for 100 shareholders, meet the basic earning standards, and a few others. Since it's going to become a publicly traded company, the company is obligated to share its financial statements every quarter so that investors and shareholders can keep a track of how the company is performing. Now, since we know what is the stock market and how does it works, let's find out how you can buy stocks. 3. Brokers: Since you know how the stock market works, the question that you might be wondering is, how do you buy stocks? Do we have to go somewhere? Is there an actual place cold the stock market where you can pay a visit and buy some stocks? The answer is both yes and no. We have already explored in a previous video that the stock market is an actual place where companies trade their stocks, but not everyone is eligible to directly buy stocks from there. Unfortunately, you can't get into your car, drive to the stock market, find an Apple store and buy some Apple shares. That's not how it works. In order to be allowed to buy and sell stocks, you need to pass several exams and get a brokerage license and become a broker. On top of that, you need to pay a membership fee to be able to trade stocks in that particular stock market. But if you don't want to go through all of that hassle, you can simply ask a qualified broker to buy or sell stocks for you. That's why if you want to buy stocks, you always need a broker. When you buy a house, you always need a real estate agent. That's the case with stocks as well. But a broker isn't necessarily should be a person. It could be a company or an investment bank. So if you want to buy Apple, Amazon, or whatever shares from the stock market, you need to find a broker. Usually, they have to get paid for their hard work for helping you to buy or sell stocks by charging you as small commission fee, it could be a fixed amount portrayed or a fixed percentage of the total trade. Most banks do, they also provide such services. In the past, things were a little complicated. You had to call your broker and tell him to bias certain stock for your, for a certain price. Once there will be such a stock for such a price, your broker would seal the deal for you. But these days, things are slightly different. Brokerage firms and investment banks came up with apps such as Robinhood where you purchase stocks from the comfort of their smartphone. So how do you buy stocks? You simply open a brokerage account in one of the brokerage firms, which these days is a simple app and deposit the amount of money you want to use to buy stocks. And then by whatever stock you want with a single click. It doesn't matter in what part of the world are you. The process is similar in every country and you can trade the US stocks even if you're not in the United States. In the next lesson, we are going to learn how to profit from the stock market and how do investors actually make money by investing in the stock market? 4. Why invest in the stock market: The only reason that you're interested to invest in the stock market is certainly to make money. But why would you give the money you have earned with blood and sweat to these multi-billion dollar corporations that make so much money that they can buy entire countries. So what are the different ways investors make money from the stock market? To be fair, there are many ways from day trading to shorting to margin investing. But we're only going to explore two of them, which are the most popular ones. Since this course is designed to help you understand the basics. Let's say hypothetically, company a produces and sells cars and has a total number of one hundred, ten hundred shares, where each year costs $100. So the total value of the entire company is a $100 thousand. If let's say next year company a build another factory, hire more people and eventually sells more cars. The company's total value will rise, let's say, to 130000 dollars. But since the company consists of a 1000 stocks, each stock cost a $100 individually, each stock will increase by $30. The company as a whole rose by 30%. So if you have purchased one stock from company a last year for a $100 today, it would worth a $130. You can sell it and make a profit of $30. In other words, when you're investing in the stock market, you're buying portions of businesses, which are called stocks. And as these businesses grow, so the value of your stock. However, you might be wondering if by buying a stock, I become one of the owners of the company. Shouldn't they share with me the profits, the company mix? Yes. They have to. They are known as dividends. Apple, for example, paid a dividend of over $3 for each stock in 2019 to find out how much dividends that's big company pays, just Google it stock price. At the bottom where all the numbers are, you will find the dividend yield. In the case of Apple at this particular time, when I'm preparing this course, it's 0.62%. Which means for every stock you buy, Apple will pay you annually 0.62% of the stock price, or 82 cents in this case. By now, you probably think that instead of saving money, I can buy stocks and my wealth will grow. Theoretically, yes. One of the companies that grew rapidly in recent decades was Apple. Since iPhone sales were increasing year after year. In 2014, as single Apple stock use the cost around $20.6 years later as the company kept expanding and introducing more and more products and increasing their sells, the stock price rose to a 100, thirty-three dollars at the time of me writing the script for this course. In other words, you $20 invested in Apple worth $379. When you buy a single share, it doesn't make a big difference. But let's say you have invested $20 thousand, your investment would worth a handled 33000 dollars if more than tripled your investment in just six years. But before you throw your money into the stock market, because it looks so easy, hear me out because there is a catch. Not everything is sunshine and rainbows. Because these talks are listed on the public exchange, The number of factors that influence the price of the stock are too many. And often, the price of the stock does not represent the real value of the company. Let's say hypothetically, there is an electric car company that gets a lot of hype around it. For the sake of simplicity, let's call it Tesla. The company might generate a lot of hype around it because it's CEO is a marketing genius. A lot of people might get excited and start purchasing Tesla stock. And according to the laws of economics, when the demand outweighs the supply, the price increases, the price might double or triple in a matter of a few months or maybe days. It's real value did not double or triple. The demand, artificially increased it. That's just a hypothetical example. As an investor, you either want to buy stocks of companies that represent the real value or stocks that are undervalued because both will rise in the future. Of course, that's not an easy job. You have to analyze companies, read their financial statements, assess their business models, and make rational decisions based on facts and numbers, which is what we're going to do in the next few lessons. 5. What are the financial statements?: In this lesson, you're going to learn what are the financial statements. We will explore three most important ones and understand what do they mean and what makes them so important. These statements are used by investors to evaluate how the business is performing. The first statement we will explore is the balance sheet. Understanding with the numbers in the balance sheet mean is extremely important. Don't worry, you're not going to get into the details for that. You will have to take a degree in accounting. A balance sheet is a financial statement that reports company's assets, liabilities, and shareholders equity at a specific point of time. It's a statement that provides a snapshot of what a company owns, an OS, as well as the amount invested by shareholders. Sometimes the balance sheet is referred to as a statement of financial position or a statement of financial condition. So don't be afraid if you come along such names. The entire balance sheet could be summarized in this short equation. Assets equal liabilities plus shareholders equity. An asset could be anything from amount of cash that the business owns, the buildings to inventory. A liability is anything that the business owes, such as debts, dividends that it has to pay to shareholders, or even wages that it has to pay. And finally, equity represents shareholders taken the company or the capital that shareholders have invested in the business. This is Apple's balance sheet for 2020. As you can see that on the top are the list of assets that are owned by Apple. For example, Apple has an inventory worth of $3.9 billion at that particular period of time. On the bottom are the company's liabilities and equity. And as we have learned that assets equal liabilities plus shareholders equity, you can see that the company's total assets equal to its total liabilities plus equity. The second statement is the income statement. As the name suggests, it illustrates, company's income is revenue minus expenses equals profit or loss. It is probably the simplest statement out of three. This is Amazon's income statement. On the top is the company's total revenue for that period based on its total sales. The statement also shows Amazon's expenses during that period. So if we did that, the cost of the goods, we will find the gross profit. But businesses usually have other expenses besides the cost of the goods, such as rent, wages, electricity, Internet Bill, research and development, and so on. If we did that, all other expenses, we will find out how much the company really earn, which is the net income. But a portion of that income will go to taxes. So the number that we have to find out is the income after taxes to find the final amount that the business earned during that period. The final statements we'll talk about is the cashflow statement, the income statement nor the balance sheet, illustrate how the cash moves in and out of the business. That's why we have the statement of cash flow. It illustrates all the cash at the business receives due to its operations and cells. All the cash that leaves the business as a results of its operations. The statement gives the investors abroad image of all the sources of income that the business has and how exactly is the company spending that cache? For example, if the company receives most of its cash-flow from its operations, then it means the company is stable to a certain degree and had a stable business. However, if the company receives most of its cash from raising money, then it's probably a startup or still has a long way to profitability. As you can see in Apple's cashflow statements, the company has listed, how much did it make from each source of its income? It's not enough to just look at the final numbers of these statements. Investors usually analyze them to find out company's profitability, liquidity, or valuation and many other metrics. But it's not enough to just look at the financial statements in order to find out if the company is going to grow in the future, which is what should concern you the most. You have to take a look at their business models. How are they're planning to double or triple their market cap, who is leading the company. In the next lesson, we're going to take a look at three main criteria that you should be looking at when analyzing any company. 6. How to pick a good stock: In this lesson, we are going to discover three most important components to look for when investing in a certain company. If the company has all of the traits, it most probably will keep growing. These traces are based in Warren Buffett's philosophy of investing. You don't necessarily have to follow them. But after years of investing in the stock market, I think these are the three most important traits to look for when analyzing a certain company. As a long-term investor, you shouldn't care about what the company is going to be tomorrow, next week, or even next year. Your primary concern should be where the company is going to be 10 or 15 years from now. But it's quite difficult to predict that if the company is too complicated. So look for businesses that are simple and direct. This is the product of these are the customers and this is why they are going to buy it. You don't have to be a genius to understand their business model. It's so simple that even someone who is far away from the world of investing would understand their business model. Because the simpler the business model is, the easier it gets to predict its future and understanding of their products are going to stay relevant ten years from now. The second trait is, will the customer buy the product again? And why? If you have the kind of a product that would sell once and the client would need that anymore, then your market is limited. A great product is when your clients keep coming back for age, whether it's every day or every week or even every year. If you're selling bread, for example, you would expect the exact same customers to come back tomorrow or next week over and over and 10 years from now, people will still buy bread. You might sell it in a different way or in a different form. You might improve its quality, make it taste your package, it fancier, but it's still the same products that people would keep coming back for. And that's what makes iPhone, by the way, one of the greatest products in history. Because people kept coming back for it every September, even though it's not like a necessity, like bread. In fact, it is so crucial that it led to the rise of subscription business models, where businesses will charge you and little fee every month like Netflix, for example, or every year like Amazon prime, because it's a more sustainable strategy in the long run. And the third component is the brand. People have that tendency to buy from the companies that they feel connected to and familiar whose sneakers with you by the first ones are from a brand that you have never heard off. And the second ones are good old Nike's. Even if their sneakers from the unknown brand look fancier and cheaper, You probably will hesitate to buy them. You might not even look at them. But when it comes to Nike, you feel some kind of deep connection and trust. In fact, if the brand is strong enough, consumers would buy almost anything from that company. Take Coca Cola, for example. It has all the three traits. First of all, that a business model is so simple that anyone would understand it. What do they sell a drink? Who are their potential customers? Pretty much anyone who is thirsty the entire world. Is it a onetime product or their clients would keep coming back for it every now and then. Of course they will come back for it. Some people drink like four or five cans a day. It's a product that satisfies one of our most important, neat. And once you get used to it, it's addictive. It's not easy to quit, even if it's unhealthy. However, it has a lot of competitors. I mean, the shops are filled with endless numbers of soft drinks. There's so many of them that it seems like there is a new soft drink company emerges every other day. But the Coca-Cola brand name is so powerful that out of 20 or 30 options, you easily recognize it. Most people would probably pick Coca Cola without even thinking. And if it's out of stock, you probably would go to another store instead of choosing one of the third, the other options they have. Think about it. 1.8 billion cans are sold every single day. If the company will earn a single penny out of every candidate they sell, that's $18 million a day or $6.5 billion a year. But with such a powerful brand that they have, they can charge more than a penny for every can. That's why Warren Buffett boat, $1 billion of Coca Cola shares back in 1988, it his biggest investment. He was confident that 10, 20, or even 30 years later, this company will just keep growing. Regardless if the economy will crush or another financial crisis is on the horizon, and that's exactly what happened. Let's take a look at another example. In 1989, Warren Buffett invested $600 million in July, but the company that makes razors, if you give it a closer look, delete holds the exact same position in this industry is Coca Cola Bazin beverages. There like twin brothers. Regardless of what happens, people still shape and their products are just filling that basic human need. You don't need to have an IQ of a 150 to understand why people are buying razors and why they will keep coming back for that product even ten years from now. But of course, Gillette isn't the only company in its industry. It has a lot of competitors. However, if you ask people to name a razor brand other than Gillette, 90% of people won't be able to do that. Do you see how it perfectly matches with all the requirements that we have talked about? It has a simple business model with products that people would keep coming back over and over. And it has a strong brand name. But not everyone wants to spend hours and hours to analyze companies to find out a good investment. Isn't there a way to invest in companies that will definitely grow by a decent margin in the long run. Luckily, there are such options, they're called index funds. And in the next lesson, we'll find out what are the index funds and how do they work. 7. Index Funds: Hey, welcome again. And in this lesson, you're going to learn what are the ETFs index funds and how to invest in the S and P 500. And ADF, or an exchange traded fund, is a security that includes within itself multiple other securities such as stocks, bonds, real estate. It's basically a financial management company that takes investors money and invest them in a certain type of assets. But at the same time, their stocks are traded in the stock market like any other publicly traded company, It's a great way to diversify your investment portfolio. Etfs usually track a particular index. The most famous ETA of tribe you're probably heard about is the ones that track the S and P 500. S&p 500 is a stock market index that measures the stock performance of 500 large companies listed on stock exchange in the United States. There are around 3700 publicly traded companies in the United States alone. So as an investor, you have a pretty big choice. However, it's not easy to analyze so many companies and find out what are the best and the same time, the safest investments. That's where the S and P 500 comes into the picture. It filters the best and safest stocks out of this basket. There are certain criteria that a company needs to meet in order to join the S and P 500, such as the company should have at least $8.2 billion of market cap. Most of its shares should be in the public's hand. The company should be in the stock market for at least a year and many other criteria. But that doesn't mean that every company in the index fund is going to do great in the long run. But since they are the largest 500 companies in the country, most of them in the long run, are going to grow at different rates. And judging by historical data, since its inception in 1926, it has been growing approximately at 9.8% annually. However, there were several years for the index declined by over 30 percent during crisis. The 10 largest S and P 500 companies account for 26 percent of the index. Companies such as Apple, Microsoft, Berkshire, alphabet, Johnson and Johnson, and a few others. If you realize that at least half of them are tech companies. So if they suddenly rise for one reason or another, there will have massive influence over the market and drag with them the rest of the market. But on the other side, if they fall, they entire market could be down. Just because tech companies are in doing great. And now let's find out whether the mutual fans, a mutual fund is similar in many ways to an ETF that functions in a slightly different way. Instead of passively investing in a certain index or an industry, managers at the mutual fund strive to beat the market, but leaves a small margin. So before picking up a company, they would analyze their financial statements and try to invest only in companies they believe would do the best. Investing in a mutual fund is like hiring a bunch of financial experts who will choose where to invest your money in. But that doesn't come at a cheap price. Mutual funds usually charge a percentage for their hard work to manage your money, which is typically between 0.52%, 0.75%. Anything higher than that, most probably doesn't worth it. 1% might not seem like a lot of money if you're investing $1000. But if your portfolio is around a million dollars for example, then that's at least a $10 thousand difference. If that's the case, why would anyone invest in a mutual fund? Well, you see, when you have a huge portfolio, let's say a $100 million beating the market even by a small margin, like 1% is a lot of money because that will equal to $1 million enough to provide you with a luxurious life for the entire year. Imagine if they beat the market by two or 3%, the difference would be massive. So the question is, where do you find ETFs or mutual funds to invest in? One of them was popular. Etfs are from the Vanguard Group. The Vanguard Group is a financial management company that has multiple ETFs and mutual funds under their wing. About $6.2 trillion in global assets under management. They have ETFs that invest in bones or different industries, or mega cap indexes such as companies that have a market cap of over $200 billion, like MVC, you can scroll down through their website and find out the right ETF or a mutual fund for you. Then was famous ETF that invests in the top 500 US companies is VOO or the S and P 500 ETF. Its assets worth almost $600 billion with its top 10 investments representing 30% of its assets. Since most of them are tech companies such as Facebook, Amazon, Apple, and so on, which also makes it a slightly risk investment in the short run. That's why fan guard puts it at level four risk. Tech companies are quite volatile, which means they quite often either significantly rise or dramatically drop. So if you're a short-term investor, that it's probably not the best option for you. It makes more sense if you're looking for ten years or more. By the way, it has an expense ratio, but it's really low at 0.03%. That is insignificant. This ETF was created back in 2010, and since its inception, it had an average rate of return of 14.7%. That is incredibly high. But you have to take into account that the last 10 years where the longest period of economic expansion in the history of the United States and tech companies that make up 30 percent of its portfolio skyrocketed in the last 10 years. That's why it doesn't mean it's going to have the same rate of return for the next 10 years. Since if this ETF was created three years earlier, back in 2007, numbers would be completely different because in 2008, we had a financial crisis. The S and P 500 was down by almost 50 percent and financial prices happen every now and then. Another ETF worth taking note is DTI, or total stock market ETF. It's huge with assets reaching almost a trillion dollars AB because it was created back in 2001. So it has been around for almost 20 years. That's why it can give us a more accurate rate of return, which has been historically 7.8% to invest in one of these ETFs, all you need is a broker. As we have discussed in previous lessons, the process of buying ETF stocks is almost identical to buying other stocks in the stock market. So far, we have discussed everything from what stock market is, to how to read the financial statements, to how index funds work. And now it's time to find out what investing strategy fits you. 8. Investing Strategies: There isn't one investing strategy that fits everyone. We're all different and we have different financial goals. Some art in the stock market to trade and Mexico caches soon as possible. Others are there for the long run, while you might just want to invest in companies that are risk-free. Apple is one of the companies that made a lot of investors, millionaires and billionaires. But if you would have invested at $1000 and apple in June 2008, how much do you think you would have made by January 2009? Negative 50%. If you went into risk tolerance, you would have sold your steak, afraid you might lose more if you do not exit. But if you have kept it, it would have increased by 3,650% by December 2020. Economic crashes like 2000 age or 1929 are a fact of life and happen time to try. And thus, you need to ensure that you can take a big head and survive. This means you should have a diverse stock portfolio so your investments don't get all hit at once. If you are too emotional, then consider investing in low risk securities such as government bones or ETFs. If you think you can handle stock market's daily ups and downs, then you might be able to take slightly higher risks and invest in tech companies, for example, I'll expect higher returns once you have found out a stock that you have determined to be safe and sound, you will want to set your investments on autopilot. Start by committing yourself to a certain amount of money, like 50 bucks, which you will invest every month. You're investing strategy should fit your personality and your level of temperament. 9. Class Project: Congrats for taking this course. If you have listened carefully and took some notes by now, you should be familiar with the basics of the stock market and understand what the stock market is, how does it works? Why do companies go public and how to invest in the stock market? In order to test your knowledge. We're going to have a class project. Don't worry, it's going to be simple, but it's going to help you find out how much did you learn from this course. Once you take the test, you can upload it and I will personally check it and provide you with some feedback. Pick up any company and find out the following information about it. When did this company go public? How much dividends does the company pays based on its balance sheet? Find out its total amount of liabilities. Based on its balance sheet is well, find out company's total amount of assets and provide three reasons why this company is going to grow in the future. Thank you for taking this class. I hope you have enjoyed it and most importantly, found it helpful. See you next time.