Notes
Summary
Recording session for "The Only Investing Video You'll Ever Need (Start With $0)" YouTube video, structured as a comprehensive investing guide for beginners with four main parts.
Part 1: Philosophy & Basics of Investing
Part 2: Why & How to Invest in Stocks and Shares
Part 3: Common Fears & Concerns
Part 4: Fast Lane Investing
Notes
Transcript
So if the point of investing is to magically grow your money, you might be thinking, okay, but like, how does that actually work?
How does investing actually make you money? And the whole idea here, and here we're gonna introduce the term asset. An asset is something that An asset is a thing that puts money in your pocket. So for example, if you think about buying a house and then putting it on rent, You kind of make money in two separate ways from that particular equation. Firstly, Firstly you buy the house and then you put it on rent, therefore you get rental income coming in from your tenants every month.
And that puts money in your pocket. And secondly, hopefully the value of the price And secondly, hopefully the value of the house also goes up over time. This is called capital appreciation. So let's say you win the lottery, you win a million dollars in the lottery and you put all of it in to buy a house in cash and you're able to rent out that house for, I don't know, $2,000 a month. Every year you are making $24,000 in rental income from the house.
And hopefully, And then, hopefully over time, the value of the house And maybe if you sell the house ten years later, maybe it'll be worth 1.5 million, and so you've theoretically made an extra 500,000. from the sale of, from the capital, from the capital appreciation of the property. In reality, of course, you probably use a mortgage. In reality, there's property taxes, there's inflation itself and all sorts of more complicated factors.
But essentially, in this context, you are earning money through rental income and through appreciation of the asset itself. Now houses are an interesting example because they're quite easy to visualize. Like you can imagine buying a house, if you're kind of bored, what are you gonna do? Like even if you can't afford it, you can imagine theoretically owning a house and then theoretically becoming a landlord and having someone pay you rent because you probably pay rent to someone else.
And so this is very easy to visualize. And so this is very easy to visualize. And so most people, when they think of investing, they think, I should get on the property ladder in some degree, especially if your parents were into that sort of stuff many decades ago. But for the most part, for most people, owning a house is actually a relatively inaccessible thing if you are just getting started with investing.
And so we want to be looking to different sorts, and so we want to be looking to a different kind, and so we want to be looking to alternative asset classes. Now there is a long list of assets that you could potentially choose to invest in. There's stocks, shares and equities, which is sort of the same thing. There are hedge funds, there are index funds, there are government bonds, there are corporate bonds, there are fancy watches, there's fine art, there is crypto, of course.
And all of this stuff can get very complicated very quickly, and so we are going to simplify things. And a lot of this stuff can get very complicated very quickly, so we are going to simplify things and we are going to be focusing on stocks and shares. The reason we're going to be talking about stocks and shares, and this is most people, most sensible people's recommendation when it comes to investing your money.
Is that it's super easy to do in most countries people in that it's Firstly, because it is super easy to do in most countries, like you and me can, for the most part, just buy stocks and shares without having to work too hard for it and without having an enormous amount of money. Firstly, because it is very accessible to normal people like you and me. Secondly, you don't need a huge amount of money to get started, unlike buying a property.
Thirdly, you don't need to take on huge amounts of risk, unlike investing. Certainly you don't need to take on huge amounts of risk unlike something like crypto And fourthly, you don't need to be an accredited investor, which is some fancy thing that like... And fourthly, you don't need to be an accredited investor of any kind. Like, for the most part, normal people can just buy stocks and shares. And so what this means is, for example, you would, and so what this means, for example, Actually, no, there's another.
So part two, why and how to invest in stocks and chips. So what does it actually mean to buy a stock or a share? Well, when you're investing in stocks and shares, you're basically buying a small percentage ownership in the company that you're investing in. So let's say I wanted to buy shares in Apple. Apple is a publicly traded company, which means the public can trade Apple stock. We're gonna talk.
We're going to talk later in the video about exactly how you buy Apple stock. Like you don't just go to apple.com/buyastock unfortunately. There's a little bit more complicated than that, but it's not that much more complicated than that. We'll talk more about that later in the video. But first let's answer the question of what even is the point of owning, for example, Apple stock? And the point is that there are two, Basically the point is that there are two ways to make money from Apple stocks.
And the point is that there are two ways to make money from stocks and it's actually similar to the rental income example that we talked about. The first way you make money from investing in stocks is that The value of the company increases over time and therefore the value of your stocks or shares increases over time. So if for example I buy $1,000 of Apple stock right now, I'm hoping that 10 years later it'll be worth a lot more money, so if I sell it 10 years later I'll make money through the capital appreciation.
But secondly, certain companies pay what they call dividends. For example, in the UK there is a company called BT, British Telecom, that pays dividends.
And so if you own a piece of BT, even if it's just like a tiny percentage, You're not just hoping that the price increases over time, they are also literally paying out some of their profits to their shareholders. So if for example, you owned 20% of VT, then every time they declare a dividend, which might be like once a quarter or once every six months or once a year, They would be distributing profits to their shareholders and so you would get 20% of the profits that they would be distributing to their shareholders.
In reality, you and me probably won't earn 20% of it. In reality, UMB probably wouldn't own 20% of a huge company because that would cost hundreds of millions, if not billions of dollars. It's dead. Instead, we might own 0.0001% of a bunch of different companies, and then each quarter you would get $10 here, $15 there, $5.47 there, $7.43 there. And obviously the more of a, and obviously the more dividend And obviously the more dividend stocks you own, i.e.
Shares of companies that do pay off dividends Then you sort of get this almost like quarterly rental income coming in without having to do anything purely by virtue of being a shareholder of the stock. purely by virtue of being a shareholder of the company. So we've established that there are two ways to make money from stocks and shares. Price goes up over time. and/or you get dividend. Price hopefully goes up over time and maybe if it's a dividend yielding stock you get some dividends over time as well.
The next question we have to get to is how do you choose which companies you want to invest in? Maybe you have an iPhone and you're like, "Man, Apple seems pretty good." Maybe you're like, "Hang on, you know, this AI stuff seems interesting. I should invest in Nvidia." Maybe you're an Elon fanboy and you're like, "Man, I should invest in Tesla." Maybe you were to live to Netflix and you're like, "Man, I should invest in Netflix." Now here are the advice Now here's the advice from most sensible people who give advice about this stuff.
Not me, I'm not a financial advisor, but sensible people who are basically say, You should not do this. You should not try and pick stocks. This is a wonderful book by a chap called J.L. Cummins. This was how I got started with investing like 10 plus years ago. He says you should not try and stock pick. Warren Buffett himself says you should not try and actively pick stocks.
In general, if you try and pick stuff In general, there is a better and safer approach to investing and that is to buy an index fund.
So we're going to talk about what is an index fund and then we're going to talk a little bit about why is that better for most people than trying to pick individual stocks and hoping that you come across the next NVIDIA.
So what is an index fund? Well, an index fund is a fund So what is an index fund? Well, an index fund can be divided into two words: index and fund.
So a fund is basically just like a group of stocks and shares.
And then the index component means that the fund tracks a particular stock market index. So for example, in the US, there is a very famous stock market index called the S&P 500, which is basically the top 500 biggest companies in the US.
For example, at the time that I'm recording this video, NVIDIA makes up 7.18% of the S&P 500, Apple makes up 6 and a bit percent, Microsoft makes up 4 and a bit percent. Other companies that you have heard of are Amazon, Alphabet, which is the parent company of Google, Meta, which is the parent company of Facebook and Instagram. Tesla, Berkshire Hathaway. And that is all the way down to number 496, which is Campbell's Soup, which makes up 0.01% of the index.
And interestingly, company number 498 out of 500 is Match Group, which is the company that owns the dating apps Tinder and Hinge.
which also makes up around 0.01% of the index. Now the point of the S&P 500 index is that it gives you a single number that you can track over time to see how valuable as a whole the US stock market is. And the vast majority of the value in the US stock market is in these 500 companies. Now if you look at this graph, now if you look at a graph of the S&P 500 over time, you will see some dips. Now if you look at a graph of the S&P 500 over time, you will see that for the most part it goes up and to the right, which is what we'd like to see, but you'll see these moments of But you'll see these moments of decline.
And this is where you are in a recession or you've got like the 2008 financial crisis or you've got COVID that's just hitting or you've got like tariffs. So the market as a whole, i.e. the sum of the value of all the different companies goes up over time but sometimes goes down and then generally kind of continues going back up slowly.
So that is what the S&P 500 index is. Now, if you invest in an index fund, what basically happens is that All of the money that you put What basically happens is that the money you put into the fund gets distributed amongst the What basically happens is that the money you put into the fund gets distributed amongst the companies in the index. And crucially, this is... And crucially, this is split based on their weighting in the index.
So for example, if I invested $1,000 into the S&P 500 today, In reality, what's happened?
In reality, what's happening behind the scenes is I've got $71.80 of Nvidia. I've invested $65 in Apple, I've invested about $47 in Microsoft, and so on across these 500 companies. I've even invested like, I don't know, $10 in like Match Group and $10 in Campbell's Soup Company.
And this is exactly what Warren Buffett recommends for people who are new to.
And this is exactly what Paul, and this is exactly what people like Warren Buffett recommend in terms of how to get started with investing.
Cut to a clip of Warren Buffett saying "SP500 is great." Now the great thing here is that over time your money is going to track the market.
So you're not trying to So you're... So the money you invest grows at the same rate as the stock market as a whole if you invest in the S&P 500, which is the US stock market as a whole. You're not trying to come up with some crucial game-changing insight that, you know, you aren't trying to predict 10 years ago that Nvidia was suddenly going to do well or anything like that. You're not trying to do all of this research into all these companies to figure out which companies are like, you know, mispriced and like what their price to earnings ratio is and this sort of stuff.
You're just saying, you know what, I'm gonna make a bet that as a whole, the US stock market in this case is gonna go up over time and so I'm just gonna distribute my money across the top 500 companies. I'm not gonna think about it too hard. I'm just going to set it and forget it and I'm going to do better things with my time rather than comb through spreadsheets and try and research companies. Now at this point, whenever someone hears the advice of index funds for the first time, and what I was thinking when I first read this, I was like, okay, but like, why would I invest in like freaking Campbell's Soup Company?
Why would I invest in like Ralph Lauren? Like, these companies clearly aren't going to be big. Obviously, I should just invest in tech companies, or obviously I should invest in Nvidia, or I should invest in Apple, or I should invest in Tesla, or obviously I should invest in products that I actually use. I have enough insight that I can pick winning stocks that outperform the market.
Actually, rewind just before I talk about this. If we And if we take a historical average over the last, like, I don't know, 100 years or something, the S&P 500 grows roughly by somewhere between 7% and 9% on average every year. So if you put in $1,000 today, on average, chances are it might be worth $1,070 next year, and then that would compound by another 79%, and then whatever, and then over time you get the compounding graph, and then you make lots of money over time.
But at this point, Okay, and then we'll do the thing that I said around the I just picked stocks.
Now this makes a lot of sense because you might be thinking that 7-9% that's nothing, that's not that interesting.
I want to double my money, I want to triple my money. And in general, when it comes to the world of investing, you should not expect to double or triple your money because that tends not to happen, except in very few circumstances, which we're going to talk about at the end of this video. Having a 7-9% return rate is actually considered really solid. The best private equity firms in the world, which you and me don't have access to because they are private equity, so yeah.
The best private equity firms in the world, I think, aim for like 20% returns. But like normal people like you and me generally can't access private equity. But normal people like you and me generally can't access private equity anyway, and so most of us normal people are content with 7-9% annual compounding returns. Now I wanna talk about a little bit more about why you should generally not try and pick individual stocks.
And the whole idea is that chances are you are not actually gonna be. And the whole idea here is that unless you get really lucky, chances are you are not actually gonna beat the market.
There have been a bunch of studies and surveys where people have tried this over time. Warren Buffett even did a challenge where he challenged like, fund pickers who were like, literally specialists at making stocks, and basically just like, compared to their performance two just in Basically compared the performance of these like professionals who whose entire job it is to pick stocks, and compared their performance on average against the S&P 500, and basically found that the S&P 500 actually outperformed most funds most years.
If you take a long enough time to write it. And there is also a hidden cost of stock picking because even if you could theoretically beat the market, The way you do that is by investing loads and loads and loads of time in actually doing the research to be able to know what you're talking about. So, like spending hours every week reading financial reports and tracking the news and analyzing charts and wondering about whether you should be buying or selling an eating and worrying about whether you should be buying or selling at the...
and worrying about whether you should be buying or selling at each individual moment. Now that is time that you probably have better things to do with. You could probably spend it with your family or your hobbies or building a business. If you invest in an index fund, it basically takes like 30 minutes or less to get started and then you don't have to put any time into it. And then you don't have to put any time into it, thinking about it or worrying about it, whereas stock picking is quite different.
For me personally, I have a bunch of friends who have invested in individual stocks over time rather than an index fund. Basically, all of them have made less money than they would have done if they'd just invested in the index fund in the first place. And some of them have even lost money. And some of them have even lost money overall because they were so convinced that Company X was going to do really well and then Company X didn't do well and they put too much money in Company X.
So that's like a scenario in which you can actually lose money. But you're very unlikely to lose money if you just spread it out amongst the top 500 companies in the US or amongst the top 1,000 companies in the world. Now I do want to hammer home this point because at this point, if you were still with us on the video, you might be thinking, But surely stock picking is easy.
I mean, surely everyone, like, man, five years ago, I knew that Apple would do well. And if I'd just invested in Apple five years ago, I'd be rich right now. Or like, man, you know, 10 years ago, I had a good inkling that Nvidia was going to get big. You know, I just didn't get round to putting money in it, but man, had I put money into Nvidia, it would have gone to the moon.
And so what people do is that they get this sort of false sense of like thinking of themselves as being very good investors because at one point, maybe in 2013, you considered buying Bitcoin just like I did and never actually did it. Or like, I don't know, when Disney Plus was announced five years ago, I was like, huh, maybe I should invest in Disney stock. And I never did. And I'm like, oh man, Disney stock is so up.
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