THE 4 PILLARS OF INVESTING Fundamentals Module 4

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The 4 Pillars of Investing,A transcription of,FUNDAMENTALS. MODULE 1 2 3 4, Before we invest we ask what the goals are It s just like I said Should I buy gold Should I. buy silver Should I hedge What should I do We gotta know what our goals are For me I. separate this at the beginning level for three different goals And so this is where we now shift to. a personal fundamental analysis Now we re going to talk about what your policy is Now we re. going to talk about what you own because as an investor we have to do all three We gotta know. sovereign because everything that happens happens in the shadow of the sovereign Debt to GDP. ratio foreign sovereign debt European debt printing money inflation Okay well that affects. corporate Well we gotta know what we re buying corporately What are we getting value What s. the growth And do we want income or do we want growth What do we want. So let s start with real estate If I m selling my house I m gonna have a capital gain or a capital. loss Maybe you re like Armando Montelongo you want to be a house flipper Maybe you re like. Robert Kiyosaki you want to buy the house hold it for cash flow I ll bet Armando s probably. flipped a thousand houses Robert Kiyosaki s bought two thousand houses he s bought 2 500. houses plus five golf courses So one guy is flipping them and he s getting rich and becoming a. millionaire by buying low selling high buying low selling high buying low selling high A guy like. Robert he s on his way to becoming he s going to be a billionaire someday Trump is a billionaire. because they buy and hold and rent buy and hold and buy buy buy they never sell They buy it. and let it appreciate and hang onto it, So different philosophies both will get you rich which one do you want to do So we re gonna flip. the house we re gonna rent the house Or do we want to spend some money to insure our nest egg. here So in my mind those are the three things you want to do None are better than the other I. respect all three Hey I ve flipped houses I ve also got houses I hold for cash flow I have insurance. on all my houses What are our goals Well let s do real estate then we ll do stock. If we look at the fundamental analysis we can look at different parts of it and the heart is the. financial statement So if you re going for a capital gain that ll increase your asset it s either. The 4 Pillars of Investing Fundamentals Module 4,Tanner Training LLC All rights reserved. going to increase in value or maybe you have a housing bubble that decreases in value Well assets. minus liabilities is net worth So when you go for capital gain then you re either going to have it. go up in value down in value your net worth changes So you ask yourself as you do your personal. fundamental analysis what do I need Do I need to increase my net worth If I want to increase. my net worth maybe I buy some capital gain stocks buy some gross stock. Okay right here cash flow I m not focused on this one I m focusing on the cash flow I need. income to live on each month And that s my favorite because that s what ll help you retire Net. worth doesn t help you retire cash flow does That s an important distinction to make We ll talk. about that again in a minute Hedging that s just a liability I m not expecting anything back from. that money I m just buying something so that if the house burns down I can over it In Robert. Kiyosaki s latest book Unfair Advantage The Power of Financial Education what they ll never teach. you about school he asked me about this And I say the biggest difference between professionals. and amateurs is amateurs are always going for the capital gain professionals go for cash flow. Amateurs are always trying to hedge or trying to protect themselves with diversifying and yet. professionals use contracts like insurance, So if this were stocks we could do the same thing Some people want to buy Apple buy 300.
maybe you sell it at 600 Now your net worth s gone up You have more money than you did. before But maybe you want a dividend stock where you buy the thing and then it just pays you as. long as you own the stock as long as they declare a dividend One of the things you gotta realize is. that this does not solve the problem This is where 401Ks are right Your value your mutual funds. go up and down Very rarely are you taking a dividend out of that now It s usually reinvested in. for more growth to buy more stuff into the fund So a mutual fund generally is not a cash flow. thing There are some that are but most 401Ks you re not drawing money each month Your net. worth is going up and down, Well understand this someday we gotta have cash flow Look catch this If you have a nut to crack. let s say you got a 4 000 nut to crack each month Well having your net worth go up and down. isn t really going to matter You need what You need to pay this bill every month So what income. producing assets do is they produce cash that help crack this nut If you can get 4 000 in cash. flow coming from assets see most people have to get it from a job out here and the job is putting. in the money You can get rid of the job if you have the assets through producing the same cash. So you might do it this way wealth equals wealth is when you re passive income right There s. two types of income Active income is if you re making let s say you got a 4 000 nut to crack if. you re making 4 000 at your job that s called an active income We don t want that But if you re. making 4 000 from your assets that s called passive income If your passive income is greater. The 4 Pillars of Investing Fundamentals Module 4,Tanner Training LLC All rights reserved. than your expense number in other words if you can get this to 5 000 then you don t need this. job anymore, So I believe the key to wealth is cash flow Maybe we can look at it this way Maybe what we. might say is that net worth if a guy has a high net worth he s rich But if a guy has a passive. income above his expenses then he s independently wealthy In other words he has enough. wealth that he s independent from having to work You could be rich and still have to work You. can have a high net worth and still not be able to pay your bills You can have a huge 401K You. can have a million dollars in your 401K and still have to retire because you re young or what. have you What I don t like about a 401K is that it affects net worth But I like about income. producing assets is when they produce cash flow So I think one of the reasons I wrote the book. 401 k aos is people don t understand that They don t understand that they re trying to grow. their net worth and the sad thing is is often 401Ks what can they do They can go down right. And so your net worth goes down, But let s say you have a stock like P G the cash value of that might go up and down But if their. dividend keeps getting paid maybe the price of the stock goes down but that dividend is still. coming in consistent right So that s kind of the difference between those And there s other ways. as we talk about cash flow It s not just about dividends guys I got a whole we re going to do a. whole class just on cash flow So what we re doing is we re looking at a personal financial statement. now right What area do you need to focus on Do you need net worth Do you need cash flow. What do you need And we re going to work on buying assets and stocks to help fill those needs. I buy a lot of stuff just for insurance When we do risk management the risk class we ll talk. about put options We buy an option to hedge some risk and preserve capital All kinds of stuff. preserve our assets so all kinds of stuff we do here with our assets How do I find stuff This is. using technology Now I would imagine that you re going to want to do this in a cool way and be a. little bit more professional So I use technology Yeah you can do this on the Yahoo Finance thing. and all this that s cool but for example here s some technology Now this is called Fundamental. Score You ll notice here that there s this green thumb Well that means it s gone through all the. numbers already it s gone through the earnings the growth the revenue and it tells me is this. fundamentally solid Is this Blockbuster video Is it threatened to go out of business Hey it. could but the fundamentals say this looks pretty strong right now. If I want to short the market as we ll talk about I might find red thumbs with weak companies. that are going out of business I could short them for a bit of a capital gain So that s kind of cool. I can search for different criteria For example if you look closely on this one this one right here. says fundamental score so in the software I use there s 67 different things I can look for One of. The 4 Pillars of Investing Fundamentals Module 4,Tanner Training LLC All rights reserved.
those things is how strong are they fundamentally How strong is their fundamental analysis. So see I could go through all 14 000 stocks I could go to Yahoo Finance which is free and I could. type in Apple and compare it then P G and compare it then Microsoft then compare it then. Phillip Morris and compare it And just go through all these stocks one at a time and compare. That takes 14 000 stocks Or I can say hey just go find the ones with the most solid fundamental. analysis or the weakest fundamental analysis Fetch And go get them for me. Here I ve sorted by fundamental analysis See all the green thumbs the best of the best So I can. organize this it saves me a lot of time when I m looking for investing ideas right looking for what. I want to buy Filters and scans maybe I like certain want to compare apples to apples this is called. finance so I can look at just insurance or I can look at regional banks stuff like that So these are. called industry groups these are called sectors sector industry group I could filter it down just. save me a lot of time here A lot of time right Boom So that is software And this software that. I m showing you now was written by a friend of mine He lives in Chicago name s Tom Joseph. shout out to you Tom And Tom s not listening it s just you and me Here s the thing Tom the. reason I like him is I don t sell his stuff personally but I ll tell you what look into it because he s. not just a software developer The guy trades and he s an option trader so he kind of understands. what we look for for cash flow and stuff So nice software package Hey I don t care what software. you use There s some great ones out there Find what works for you But don t be cheap Make sure. you spend a little money here Remember it s not about price it s about value When it comes to. my investments do I want to trust that some cheapo thing you don t want cheap whiskey you don t. want cheap women and you certainly don t want cheap software so make sure you pay a little at. least for the software The others I don t know what you re gonna do so there you go. So we ve been talking about income and expenses and of course the more debt we have there s. often payments associated with that And debt is an accelerator right It s not good or bad it. simply gets us what we want before we have money for it So we want health care now we don t. want to wait for it til we can collect enough taxes we borrow money then we spend more than. we have Maybe not as wise but we want people to feel good If we want to grow our business we. certainly can t always wait for revenues to come in We say hey let s take on a little debt risk As. long as we re solvent our expansion should result in more revenues And so you can see there s. wise debt and unwise debt Well what debt is there s risk when we go into debt We want to make. sure we re solvent when we do it and so a lot of people do it for consumption and a lot of people. do it for investment, A lot of the debt that I hold is investment debt For example I have real estate but it is solvent. meaning that the income from the real estate pays for the debt I have a mortgage on the rental. The 4 Pillars of Investing Fundamentals Module 4,Tanner Training LLC All rights reserved. property Let s say the mortgage is 700 and maybe the rent is 1 000 That gives me 300 a. month cash flow that s locked in for 30 years The rent will likely grow the payment will likely. not 30 years from now the house will probably be worth more The rent will probably be charged. more but yet the payment will either disappear from being paid off or remain the same So that s. a very solvent situation My risk is what The tenant doesn t pay or the tenant moves out But as. long as I have good fundamentals of the area I say okay what s the average home worth What s. the average vacancy rate What s the average rent Oh the average rent is 1 300 okay I ll do. mine for 1 000 Now my tenants nervous that I ll actually kick him out and there s high demand. for what I have because I m giving a good value for the dollar. So people say What if someone moves out Well if you offer better value than everybody else. then no one wants to move out and when someone does you got someone ready to come in and. even pay more So really I don t look at that as that risky Homes are something one of the basic. necessities of life and if I m renting mine a lower price than most people and I keep it in good. shape then people will want to be there It s very very simple Lot less risky I think than being out. of control and having a job So I don t mind using debt one bit as long as the debt is solvent In. other words the program that I m in is paying for itself and it s making me money rather than. Robert Kiyosaki you want to buy the house hold it for cash flow I ll bet Armando s probably flipped a thousand houses Robert Kiyosaki s bought two thousand houses he s bought 2 500 houses plus five golf courses So one guy is flipping them and he s getting rich and becoming a millionaire by buying low selling high buying low selling high buying low selling high A guy like

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