Invest with knowledge, not noise

Hello, investors! Are you starting to get interested in investing? Are you constantly searching online for answers to your questions? Do you want to find out which broker is the best, or would you like to learn fundamental analysis? If so, you are in the right place. Here, on this page, I will show you the basic information that every beginner investor should know. Before you start investing, it is important to understand that investing is mainly for patient people who want to build wealth and improve their financial future. You should forget the idea that you will become a billionaire overnight. As you have probably heard before, investing is a journey measured in decades, or even a lifetime.

Think of a security as a digital or paper confirmation that you own something of value. It is essentially an official document proving that you have lent money to someone or that you own a small part of a company. Today, you will rarely see most securities in physical form because they exist mainly in computer systems, but the basic principle remains the same. They have a defined financial value and can be traded, meaning they can be bought and sold on an exchange.

To make this easier to understand in practice, securities are most commonly divided into the following groups:

Stocks – These are small ownership stakes in a specific company. When you buy a stock, you become a part-owner of the company and gain a claim on a share of its profits.

Bonds – These are essentially proof of a loan that you provide to a company or a government. In return, they promise to repay your money after a certain period and usually pay you interest along the way.

Mutual Fund Shares – These are proof that you have invested money in a mutual fund. Your money is pooled together with money from other investors, and a professional fund manager then invests it collectively on your behalf.

Compound interest is often described as the eighth wonder of the world because it is one of the most powerful tools available to long-term investors. Compound interest is the process in which your interest or investment gains are not kept separate but are added back to your original investment. In the next period, the return is therefore calculated not only on the money you originally invested, but also on the gains you earned earlier. This means that the longer you invest, the more your money can grow. Why is it so important to start early? Because the earlier you begin investing, the more time compound interest has to work. Even a small amount invested at a young age can be worth much more in retirement than a larger amount invested later in life.

It means spreading risk. In other words, you are not betting on just one horse, but on the whole stable.

Why Is It So Important?

If you buy 5 shares of a single company for your portfolio and that company falls by 20%, you lose 20% on each of those 5 shares. But if you DIVERSIFY those 5 investments across 5 different companies and 2 of them decline, you still have 3 other holdings that can help reduce the overall impact of the losses.

Think of an index as a giant thermometer that does not measure air temperature, but instead measures the health and mood of a financial market. It is a selected group of dozens or hundreds of companies whose stocks are combined into one basket. The performance of this basket then shows how that market is performing as a whole. Why are indexes important for investors? Because they allow investors to compare the performance of their own investments with the broader market. If your portfolio grows more slowly than a major market index, you may be doing something wrong. Some of the best-known indexes include:

The S&P 500, which consists of five hundred of the largest and economically strongest companies in the United States.

The Nasdaq Composite, which focuses mainly on modern technology and the internet. This index includes many major technology giants.

The Dow Jones Industrial Average – It consists of thirty selected large companies with a long tradition and history in the United States. It is one of the oldest indexes in the world and is widely followed as a traditional indicator of the stability of large American industry and business.

An ETF (Exchange-Traded Fund) is a fund traded on a stock exchange. These funds track indexes (see: What Is an Index). Each ETF consists of several different stocks, which is why they are often considered a safer way to invest. Why? Because the money you invest is spread across all the holdings included in the selected ETF. To make this easier to understand, imagine investing 100 USD into an ETF that tracks the S&P 500. In practice, your 100 USD is spread (diversified) across the companies included in that index. Why should you consider having at least one ETF in your portfolio?

Their long-term return is around 10% per year, which is something a regular savings account is unlikely to offer.

They can serve as a stabilizer and a defensive asset in your portfolio.

An ordinary person cannot simply walk onto a stock exchange and say that they want to buy one share of Apple. Stock exchanges do not work that way and generally accept orders through licensed market participants. A broker is the intermediary that gives you access to the market. You tell the broker what you want to buy, and the broker executes the order for you. In the past, if you wanted to buy stocks, you often had to call your broker by telephone or visit their office in person. You would tell them which stock you wanted and how many shares you wished to buy. The broker would write everything down and then process the trade. Today, a broker is usually not a person in a suit constantly calling the exchange. In most cases, it is a mobile app or website that you use on your phone or computer. There are many brokers available, and each has its own advantages and disadvantages, so you should compare them and choose the one that suits you best. If you are still unsure which broker to choose, you can learn more here.

The intrinsic value of a stock is simply an estimate of what the stock should actually be worth based on the company's performance, regardless of the price at which it is currently trading on the stock market.

Imagine that you want to buy a small coffee shop. You would not only care about the price the owner is asking. You would also want to know how much money the coffee shop could generate in the future. If it earned a lot of money consistently, you would probably be willing to pay more. If its earnings were low or highly uncertain, you would pay less. The same principle applies to a stock.

For example, suppose a company's stock is trading at 400 USD, but your calculation estimates its intrinsic value at 550 USD. This may suggest that the stock is undervalued. On the other hand, if the stock trades at 700 USD and you estimate its value at 550 USD, it may be overvalued based on your assumptions.

The important thing to remember is that intrinsic value is not one perfectly precise number. It is an estimate that depends on how much you expect the company to grow in the future, how much cash flow it will generate, and how much risk you are taking with the investment.

This is exactly where we can use DCF – Discounted Cash Flow to estimate the value.