what's up YouTube this is Ryan Hildreth
coming to you from the sunny sky deck
here at my apartment and today marks the
second episode of our investing series
we pick stocks and why do we pick them
well let's first talk about how we make
money in the stock market if we buy a
stock let's say we buy a share of Apple
for $100 and at the end of the year that
shares worth one hundred and twenty
dollars we made twenty dollars or twenty
percent on our investment so number one
we make money from the stock market when
the share price goes up okay but number
two which is most important in a long
term strategy as dividends okay
dividends are cash that is paid to
investors for investing in their company
meaning if I invest in Apple they're
gonna pay me you know that I think they
pay a two percent dividend for investing
in their company so on top of the 20
percent that I made in one year they're
also going to give me an additional two
percent in cash so I made 22 percent
throughout the year the reason we want
to focus on dividends is because in a
long-term strategy dividends are king
versus capital our share appreciation so
there's two books that I've read that
prove this statistically one is the
dividend the strategic dividend investor
by Daniel Paris and number two is stocks
for the long run
by dr. Jeremy Siegel where they compare
a growth stock such as IBM back in 1950s
versus ExxonMobil and they compared the
stocks over a 50-year time frame
and even though IBM did explode in
growth
ExxonMobil proved to be a better provide
better returns for investors because
they pay high dividend and the share
price goes up so three criteria that
we're gonna focus on for investing in
stocks are p/e ratio dividend and
revenue growth and dividend yield I'm
going to talk about the first two today
in this video because the last one
dividend yield is a very important topic
and I want to really dive deep into it
but let's start off with the p/e ratio
okay so the first thing I look at when
choosing a company I look at their p/e
ratio what is that it's their share
price which is given you go on Google
Finance or Yahoo Finance and you can
look at their share price so it's price
divided by their earnings per share what
are their earnings per share what does
that even mean
well let's I like to use Apple as an
example because I love their products
and I do own them as well let's say we
buy a share of Apple for $100 okay they
take your hundred dollars they make
iPhones with it they sell the iPhones
and they make an additional hundred
dollars of profit right so now they have
$200 they have your hundred dollars that
you gave them and they have $100 profit
that they made for selling the iPhone
well with this hundred dollars they
might give you you know five dollars of
it in via a dividend so you have your
share price worth 100 and an additional
five dollars that they paid you just for
investing with them they that's
basically a thank you it's basically
saying thank you for believing in our
company and taking that risk we're gonna
pay you a nice dividend in addition to
buying our share so PE p/e ratio the
market average p/e ratio is 18
meaning investors are willing to pay
right now 18 times what a company
actually earns for their stock okay so
when I'm looking at a company I want a
p/e ratio that is lower than the market
average of 18 so for example apples p/e
ratios 13 meaning I'm only paying 13
times what they actually earn for the
stock whereas if you choose a company
like Amazon number one they don't even
pay a dividend but the growth in Amazon
isn't spectacular right they've grown
you know hundreds of percent thousands
of percent percentage points within the
past ten years but the thing is is
Amazon's p/e ratios 255 so you're paying
255 times what they actually earn which
is not necessarily a bad thing
but for a long term strategy that's not
the approach you want to go with a long
term strategy we want to buy companies
at a discount it's like buying you know
it's like going to Starbucks and they're
selling the coffee you know 50% off for
that day you could get the same white
chocolate mocha that you love but for
half off it's like it's a deal so when I
choose companies for my long-term
portfolio I'm choosing companies that
have a p/e ratio below the market
average and it'll show on your returns
later on down the road you'll you'll
thank me because you're gonna buy these
companies at a discount and they're
gonna pay you a really high dividend and
grow throughout the years so number one
p/e ratio number two is dividend and
revenue growth why do we care about
these things well revenue growth we want
to see a consistency in their profits
right we want to make sure that their
revenues are constantly increasing at
least I would say by five percent per
year so that they're able to pay their
investors dividends and we want to focus
on dividend growth as well because if
they're not growing their dividends by
five percent and the revenues aren't
growing as well then you know why are we
gonna invest in stock for the long term
we don't we want to make sure that this
company is stable their revenues are
growing and they're paying out their
investors higher in a higher amount
every year so those are the first two
things you want to focus on a p/e ratio
and dividend and rub
growth in the next video I'm going to
dive into dividend yield but just
remember when you're choosing a stock
make sure the p/e ratio is lower than
eighteen lower than the market average
because you want to find these stocks at
a discount that's the optimal way to go
and make sure that their dividends and
revenues are growing at a consistent
basis I'm gonna have a spreadsheet if
you're interested in the spreadsheet go
ahead and email me I have a list of
stocks and I do all the analysis with
you know the criteria that we're going
to be talking about and I'll go ahead
and shoot that to you guys just send me
email for the Excel spreadsheet and I'll
get back to you thank you
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