How to Change Your Money Identity to Stock Market Investor

How to Change Your Money Identity to Stock Market Investor

by | Jan 10, 2023 | Investing in stocks

The other day I spoke with a former student who bought her first stock because she wanted to change her money identity.

She called it an “identity investment”.

A what?

Yes, you see…

She came from a family where security was valued and stocks were considered risky.

When she started my eight-week Value Investor course, she quickly bought some shares in a company – without even going through the checklist to define it as a wonderful company as I had taught her.

When I asked during a recent strategy call why she had invested in that company, she said, “Well, that one. It was an identity investment.”

She bought the stock with the sole purpose of changing her identity. She wanted to move from being someone who doesn’t have the courage to buy shares to someone who identifies as a shareholder. 

I actually think the concept is brilliant.

Your Money Identity Rules Your World

Why is this a good concept?

Maybe you haven’t been aware of it until now, but there’s a lot of identity built around money.

Many of the decisions you automatically make are not rational decisions, but emotional decisions that originate from a deeper place within yourself.

Maybe it’s something you were brought up not to do (like buying stocks because it’s “gambling”). Maybe you think you belong to a group that is against investing (who call wealthy people “filthy rich” and think stockowners are capitalists who exploit the world).

You wonder why you get sick to your stomach every time you think about investing or learn something about it, and you don’t quite understand why. Maybe it’s because you feel it’s dangerous or wrong? Maybe it’s contradictory to your identity?

What is Your Money Identity?

When we think about it, it’s obvious that identity tends to have a money element. Consumption and identity are closely linked. Why else would so many companies spend so much money on brand building?

Some people are willing to spend fortunes to buy a Porsche or dress in Louis Vuitton. Why? Because they want to possess the identity that the brand promises them.

Of course, there is also an identity built around how we do NOT spend or invest our money. There are some things that we CAN’T buy or invest in because it doesn’t match the way we think about ourselves.

If you think about money and start a sentence with:

“I’m the kind of person who….”

What comes to mind next?

Or if you’re thinking about stocks and need to finish the sentence:

“In my family…”

What comes to mind next?

You Can Break Away from This by Making an “Identity Investment”

To break free from your image and your social heritage, you can throw yourself into making an identity investment.

But what is it, really?

Let’s try to define it.

1. It can be buying stocks for the first time

It’s an investment that you make because you want to break out of a limitation that has bothered you in the past.

It may be the first share you buy. With the purchase of your first share, you actually change your identity. Now you can call yourself a shareholder.

2. It can be a change in what kind of shares you buy

If you’ve always invested in funds, it might be time to buy shares in a company, so you know that option is open to you too.

3. It can make you go beyond national borders

If you have always only invested in American companies, it may be time for you to buy a few shares in a foreign company today to establish that this is also an option for you.

4. It can be a large or a small investment

It doesn’t have to be a big investment. It can be a single share.

But if your pattern is to only buy stocks for small amounts even if you have a lot of cash savings, you may need to test your identity by making a slightly larger investment.

Combine Your Investments with Knowledge

It’s best to pair your identity investment with investment books or even a course.

Warren Buffett says that knowledge is the best way to manage risk.

It’s essentially the same as everything else. It’s also safer for you in traffic if you know the traffic rules and have taken driving lessons. It’s safer for your child in the swimming pool if they receive swimming lessons first.

That’s why I really recommend you read my investment book (which you can download below) before you jump into changing your identity through shares.

In my e-book Free Yourself, you can learn much more about building wealth by holding stocks. You can download it here.

What are your goals for 2023? What qualities do you need to be successful in your goal? Do you have an inner type that you can put to work?

To learn more about my style of investing, you can download my e-book Free Yourself here. 

How to Reduce Taxes on Stocks 2022

How to Reduce Taxes on Stocks 2022

by | Dec 1, 2022 | Investing in stocks, Your money

Taxes can eat up a big chunk of your capital gains, and they really affect the long-term effect of compounding. 

The good news is that there are steps you can take to minimize the taxes you pay on stock gains. The tax regulations are different from country to country, and I’m trying to generalize, but most of the examples that I use are from the US tax system.

Let’s get cracking. Here are a few things you can do.  

1. Maximize Your Contribution to Accounts that Offer Tax Advantages

In most countries, there are some kind of savings accounts that give you tax advantages.

These could be 401(k) plans where you can contribute a part of your paycheck before taxes, thereby reducing the amount you have to pay taxes on (if you are self-employed, the equivalent is a SEP IRA).

This could also be a Roth IRA that lets you contribute money you already paid taxes on, where your money can grow tax-free. In other words, putting money into an Roth IRA doesn’t reduce your taxable income the year you make the contribution, but you get a tax benefit on the back end.

The UK equivalent would be an ISA account.

These types of accounts have a different name in every country, so you should research your options and take advantage of them. You might want to call an accountant or call your local tax authorities to learn what accounts that offer tax advantages are available to you. 

2. Invest Long-Term

If you don’t sell your stocks, you don’t pay taxes on them. 

Did you know that Warren Buffett pays a lower tax rate than his secretary? How come one of the richest men in the world doesn’t pay a lot in taxes?

That’s because Warren Buffett doesn’t sell shares.

Warren Buffett’s income is actually very modest. His annual salary from his company Berkshire Hathaway is just $100,000 a year, and his secretary is rumored to make at least $200,000.

Warren Buffett’s wealth comes from holding just one stock: Berkshire Hathaway, and he doesn’t sell it – which means he pays no taxes on his accumulating personal wealth.

Some countries give you a more favorable treatment if you are a long-term stockholder. In the US, you pay regular income tax on a stock you hold for less than one year. If you hold it for one year and a day or more, you pay capital gains taxes, which are lower than regular income taxes. 

3. Combine Gains and Losses Strategically 

If you have an investment that has gone bad, you can sell it off strategically to offset capital gains.

If you sell shares with a loss in your taxable brokerage account, that loss can help offset other short-term or long-term gains. 

How does that work? In most countries, you only pay taxes on your net gain (the amount you have realized in gains minus your losses). So if you know you have some realized gain, you have an opportunity to realize some losses too to offset that gain. This is called tax harvesting.  

Of course, you don’t want to have any losing position on purpose just to avoid taxes, but if you happen to have an investment that didn’t go as planned, you can be strategic about when you sell it.

4. Structure Your Investment for Tax Efficiency

On some accounts, you don’t pay taxes, and on others you do.

You can position your investments so you get the best of each system. 

Why not place the very long-term investments in your taxable brokerage account where you only pay taxes when you sell them?

Why not place dividend paying stocks or short-term investments in your Roth IRA, where you don’t pay taxes? 

Don’t Let Taxes Overshadow Your Investment Strategy

You should buy or sell investments based on your belief that they will gain or lose value over the long term. Don’t make investment decisions just to reduce your tax burden.

Taxes are a luxury problem. If you pay taxes, it means you’ve made money. Don’t forget that. Be grateful for it.

Also remember all the things you contribute to with your taxes: roads, hospitals, schools, universities, police and security.

Like my uncle used to say, “I pay my taxes with gratitude.” 

Try to pay your taxes with a sense of gratitude and think of how you contribute to society.  

Don’t forget the e-book Free Yourself.  It’ll teach you how to calculate how much a company is worth. You can get it for free here. 

Five Types of Companies You Should Avoid in a Recession

Five Types of Companies You Should Avoid in a Recession

by | Oct 23, 2022 | Investing in stocks

Warren Buffett says there are only two rules in investing:

  1. Never lose money.
  2. Never forget rule number 1.

It sounds so simple.

But how do you avoid losing money?

The most important thing is to avoid investing in companies that go bankrupt.

In a recession, more companies will fold. This means you have to be extra careful on the edge of a recession.

So what should you avoid?

There are five types of companies that you have to steer clear of.

1. Companies Without Turnover

Avoiding companies that don’t sell anything at all might sound like a no-brainer to most… but you’d be surprised how many people throw their money at companies that don’t even have a product yet.

Those could be biotech, fintech or even blockchain companies. A lot of private investors hear the story about what the company wants to change in the world, they get seduced by the idea of eradicating bone cancer or revolutionizing banking in the third world – and they never look at the numbers or the annual report to see that it’s a fantasy or a product that doesn’t exist yet.

Some of the things that get the most hype turn into hot IPOs without revenue. If the company has no revenue, they have no product on the market yet.

The hard truth is that credit lines dry up really quickly in a recession, and you need to get something on the market to survive that.

2. Companies That Lose Money

Then there are all the companies that might sell something, but actually lose money on selling their product.

They simply don’t make any profit yet.

There are plenty of companies like that.

Some may defer profits by investing heavily in new business ventures (as Amazon did for many years), but as a private investor it’s difficult to discern whether they are deferring profits as a strategy or if they’re just plain lousy at making money.

If the company is continuously losing money, you have to steer away from them.

3. Cyclical Companies

Cyclical companies experience drastic dips in sales – and stock prices – when we enter a recession.

What is a typical cyclical company?

It’s all the companies in transport and property development.

This means car manufacturers (and anything related to the mobility industry – batteries, tires, you name it), airlines, logistics companies, construction, and property development.

Avoid these companies before a recession, but feel free to buy them when we are on our way out of a recession. At this point, their share price will begin to bounce back – if they survived the recession, that is.

4. Companies With a Lot of Debt

Companies burdened by a high level of debt are also at a high risk of folding during a crisis because they are weighed down by their debt. Maybe they can’t honor their creditors as the market and sales dip.

It makes sense, right? It’s the same with people. Let’s say two people lose all or part of their income. Maybe they or a spouse get fired. The one with a lot of debt – car debt, credit card debt, a mortgage on the house and the country cottage, some old student loans – is at a higher risk of having to sell their house to avoid foreclosure than the one who has no debt.

As a rule of thumb, the company should be able to repay the long-term debt within three years with their free cash flow.

You will find the long-term debt on the balance sheet. Free cash flow is often calculated in the 10K too.

5. Companies Whose Product You Don’t Understand

You need to be able to understand and perhaps even test the company’s product.

If you don’t know what the company sells, you’re in danger of investing in something that, in the worst-case scenario, turns out to be a pure sham.

This happened in Denmark with a company called IT Factory. The CEO was making everything up, and intelligent people invested with him. Afterwards, everyone asked how the investors could be so stupid. It’s simple. Did they ever look at the product or test it? Of course not. They took his word for it.

Warren Buffett says always to invest inside your zone of competence – and you should. Only if you really understand the product – and test it – can you evaluate whether it has a competitive edge… and a future.

What Else?

Obviously, there are other things that you should keep an eye out for before you invest.

You should research the company in detail and find out whether you believe in the product, trust the management, and can vouch for the company’s values.

Then you figure out whether you believe that the company will be bigger in 10 years. You can only estimate the growth if you analyze their competitive advantages.

If you want to learn more about the road forward – how to actually invest, you should attend my free webinar that takes place oct. 25th and 26th. You can sign up right here. 

You can also read more about how to find good companies in my free e-book that you can get here. 

Whether Stocks Will Fall or Soar and What You Should Do About It

Whether Stocks Will Fall or Soar and What You Should Do About It

by | Aug 29, 2022 | Investing in stocks

This year has been a difficult time for many stock market investors.

Shares dived the first six months of the year, and few of them have escaped the plunge.

In fact, the major U.S. stock index S&P 500 has had its worst first six months in half a century, according to an article in the WSJ.

Since then some stocks have made a bit of a rebound, but the nervousness still lingers.

The question a lot of people are asking right now is:

What now? Is the market going to drop again? Or is it going to continue up?

The other question behind this question is: shall I buy or sell now?

Warren Buffett addressed this very clearly at his company Berkshire Hathaway’s annual meeting in May 2022:

“We don’t have the faintest idea what the market is going to do on Monday.”

Well, the major indices did drop by quite a lot that following Monday after the Berkshire Hathaway meeting.

Warren Buffett has been phenomenal at “timing” his investments. How is that possible? Especially when he says he doesn’t know how to time?

Well, he doesn’t time. He does something much simpler.

He invests without taking into account the macroeconomic trends and stock market forecasts. He focuses exclusively on the company in front of him.

I call it investing with blinders on. Like the horse on the road, you can’t let yourself get scared by a passing truck or noise from an airplane overhead.

You need to focus on the road and take one good step after another. That’s your job.

Here are three steps you can take to be a good investor in any market – bull or bear.

1. Focus on the Company and Its Products

First and foremost, you need to find good companies that you think will sell more in ten years.

As Warren Buffett says, you should only buy shares in the company if you’d be willing to buy the entire company and wait ten years without selling any stocks. This makes you think twice, doesn’t it.

Of course, that doesn’t mean you have to have billions in your trading account to buy the whole thing. It just means that you need to be ready to evaluate the company as a whole and equip yourself with patience.

If it’s a good company, that will show over time on the stock price – even though there may be short-term drops.

This, of course, depends on you not buying at inflated bubble prices. More about that in point 3.

2. Take the Company Through a Checklist

How do you know if the company has a better future in ten years?

You will need to take the company through a checklist.

I’ve made my own checklist, which you can download in summary form here.

The most important thing is that you assess whether you understand the product, whether you trust the management, whether the company’s finances are sound – growth, profits, sound cash flow and low debt – and whether they have competitive advantages that make customers stick to their products.

You can read more about how to take the company through such a checklist in my e-book Free Yourself here

3. Buy Shares When Cheap

Even the best company can prove to be a bad investment if you buy shares when the company is overvalued on the market.

For example, if you had bought Microsoft during the dotcom bubble in 2000, you would’ve had to wait 16 years before the stock was worth the same amount again.

How do you calculate what a company is worth?

There are several methods. My favorite is Warren Buffett’s owner earnings, which you can also learn more about in my e-book Free Yourself.

What I Do

By the way, in the picture above, I am on my way from Portugal to Denmark, where I opened my investment company, Grünbaum Value Invest, at the end of June.

Many observers have complimented me on “being good at timing the market”.

As you probably guessed by now, I’m not timing the market.

I’m only looking at whether there are opportunities in the market that I’m ready to act on.

And yes, great companies are now trading at reasonable stock prices. It’s a good time to get in, if you ask me. But you have to watch your steps carefully.

Learn how to identify great opportunities in my e-book Free Yourself right here. 

The Top 20 Online Sites For Stock Market Investors

The Top 20 Online Sites For Stock Market Investors

by | Jun 12, 2022 | Investing in stocks, Value investing

There are a lot of tools available for you as an investor, but it’s easy to get lost on the internet.

This list will help you cut to the chase and find the best sites quicker. 

Here are the 20 best online tools and websites for value investors: 

1. The Company’s Own Investor Relations Site

The first source of information should be the original source, and by that I mean the annual report, quarterly statements, and other information from the company itself.

There should be a link to the subsite for investor relations on the home page.

If you still can’t find it, just google the company’s name + investor relations. 

2. Google 

You should google the company to see what comes up.

There could be awful – but truthful – reports from short sellers (people betting on the stock falling), big insider selling, or some lawsuit that hasn’t been settled yet.

Always, always google the company you are researching. 

3. News Media  

Take a look at the headlines on the major news sites every day.

I check:

Make it a part of your daily routine to check the websites. You don’t have to read a lot of articles from start to finish – this is about getting the big picture. 

4. Reuters 

Reuters.com contains a stock site that can be really useful to get an overview of a company’s development. 

You can use the search function to find the company.

On the “profile” page of the company, you can see things like how many shares there are. You’ll need that for several calculations when you want to figure out what price you would want to pay per share. 

5. Bloomberg

Bloomberg.com is similar to Reuters – they both sell data to the financial sector. 

Bloomberg has a more aggressive paywall on their website though, but you can still use it to look up the numbers of shares outstanding.

6. Insider Monkey 

InsiderMonkey.com is useful for checking if insiders are dumping the stock.

You don’t want to touch something that the insiders are doing a fire sale of.

History has shown us that insiders often try to unload the stock they own before it’s obvious to the public that a company is going bankrupt. 

7. Gurufocus

Gurufocus.com showsou what the big value investors invest in. 

You can see the portfolio and their latest trades. Just be aware that the investors only have to report their US investments every quarter, so the information is never going to be completely updated. 

8. Dataroma

Dataroma.com is a more simple version of a value investor tracker.

It includes different investors from Gurufocus, so it’s a nice addition – Li Lu is on Dataroma, but not on Gurufocus. Who wants to miss out on what Li Lu is doing? Charlie Munger trained him, and some people speculate whether he has a future role to play in Berkshire Hathaway.  

Whalewisdom       

Whalewisdom also tracks the big value investors. I like their heatmap.

10. Seeking Alpha 

On Seekingalpha.com you can find a lot of investors’ analysis and stock ideas.

They have a morning briefing podcast called Wall Street Breakfast. You can find Seeking Alpha’s podcasts here.

11. Investopedia

Investopedia.com is for investors what Wikipedia is for normal people.

If you find something in an annual report that you don’t understand, try looking it up on Investopedia before you panic.

12. The Motley Fool

The Motley Fool, also called Fool.com, is run by two brothers, and it helps you invest through blog posts, podcasts, videos and so on.

It’s possible to receive stock recommendations if you sign up for the paid version.

13. Morningstar 

I use Morningstar.com for researching ETF and other funds. It’s an easy way to look up their performance and costs.

You can also enter and track your portfolio on Morningstar. 

14. Yahoo Finance 

You can use Yahoo Finance for a lot of stuff, like setting up a stock screener, entering your portfolio, creating a stock alarm, and many other things.

15. Trading View 

Tradingview.com is great for charting.

It’s got plenty of other functions like a stock screener. If you’re into Bitcoin and other cryptos, you can chart them here too.  

16. Finviz 

On Finviz.com you can chart, build portfolio and stock screeners, get an overview of the news, backtest your latest trading idea, and much more.

17. Market Screener 

Marketscreener.com lets you chart, build a portfolio, a screener – and many of the other features that the two previous financial sites also offer.

You’ll have to test them and see which one suits you the best.

18. Simply Wall Street 

Simply Wall Street is a value investor site that evaluates investments for you.

I get a little confused about the warning signs that they show, so I prefer to do my own analysis, but I see no reason why you can’t get inspired by Simply Wall Street – as long as you go to the original source (the company’s report) and do your own analysis as well. 

19. SEC Edgar 

The Securities and Exchange Commission’s website Sec.gov contains a lot of information… if you have the patience for the not-so-user-friendly system.

The funds trades are there – which means you can find all the big investors investments and trades.

Be careful though – you might click on something that fills your screen with code language or html.

The SEC communicates in a semi-cryptic language – here are some of the most important form codes to remember:

  • 13F : Funds reports of their investments
  • 10-k : Annual report
  • 10-q : Quarterly statement
  • 4 : Changes in insiders’ ownership

20. Money and Freedom 

You’re here, aren’t you? It’s worthwhile following this blog for the weekly posts and lists. 

You’ll automatically be signed up for the weekly investment tips if you download the e-book. Which brings me to…

Don’t forget to read my free e-book that explains my whole investing process – including my favorite way to calculate what a company is worth. You can get it here.

Crush the Excuses Keeping You From Investing in the Stock Market

Crush the Excuses Keeping You From Investing in the Stock Market

by | Oct 11, 2021 | Investing in stocks, Newbie

Are you outside the stock market despite wanting to be in it?

Maybe you’re suffering from the very common disease called “bad excuses.”

Read this list of the five most common bad excuses and find out how to cure them.

Excuses grow like weeds in your mind, and you need to pull them out so they don’t strangle your budding courage.

It’s about pulling them up by the root as soon as you spot them.

How do you do that?

Bad excuses are just phrases and stories that we tell ourselves, so the easiest thing is to tell yourself a new story.

Here are five of the most common excuses – and the way to get over them:

1. “I can’t figure it out.”

Repeat after me: “I can do it.”

Another phrase you can say is, “I’ve never tried that before, so I can probably do it.” That’s a Pippi Longstocking quote, by the way.

This excuse is very common among women.  

I hope that by being public about my story, I can give other women courage to invest.

The good news is, you don’t have to be the strongest girl in the world like Pippi or possess any other superpowers or supernatural abilities. You don’t even need a particularly high IQ. And you definitely don’t have to be a man. The stock market doesn’t care about sex, color, race, IQ, or whether you have children or not.

This is really good news, because there is a level playing field.

You need a calm approach and a dose of patience to make it work for you.

Just remember, there are a lot of people who want investing to look complicated because they have an interest in you believing it’s difficult.

The entire financial sector would like to sell you their products.

When you think it is difficult and complicated, it’s easier for them to sell you some expensive products.

2. “I’m too old / it’s too late.”

Instead, tell yourself:  “I have the right age and experience to start investing.”

It’s never too late. Never.

There was a German lady who started investing in stocks at an advanced age (after she turned 60). She became rich by value investing, and she also became famous (in Germany) for her strategy when she was in her 70s. You can try searching for her. Her name is Beate Sander, and she is referred to as “Börsenexpertin” and “Millionärin.”

And by the way, Warren Buffett and his partner Charlie Munger are both over 90, and they’re still very active investors.

3: “I’m too young and too inexperienced.”

Say: “This is the best time for me to start investing. I’ll learn and grow.”

I invest my 5- and 8-year-old boys’ savings. I tell them what they own so that they can learn from it. They’re already learning little by little about value investing.

If you’re reading this blog, you are definitely older than my kids.

I always get so excited when very young people contact me. I think about how much their money can grow. If you’re young, you can really take advantage of the effect of compounding.

Even a little bit of savings can turn into a fortune if you have the time and patience.

The excuse of being too young is probably also related to the perception that you first have to spend all your money on studies, homes, weddings, and future children before you invest.

But this is not an either-or decision. You can invest 100 dollars a month as your life develops and you study, get married, and have children. No, I’m not going to mention any cafe lattes. You can have your coffee. You’ll figure out where you want to save – or grow your income.

4: “I don’t know which platform I should use.”

Repeat after me: “Money loves speed, and I make quick decisions about small things.”

Just pick a platform.

You can open accounts and deposits in as many banks as you want, and it’s not like you’re forced to pick only one and stick with that.

Why not just start with your own bank and get some investing experience there? You can always open another account somewhere else.

In the vast majority of cases, the fees will not mean much because as a value investor you don’t trade that often.

Each platform has introductory videos that can get you started, but to be completely honest, I’ve never watched any of them myself. Most platforms are as intuitive as online banking.

If you are afraid of pressing the wrong button and losing a lot of money in a mysterious black hole on the platform, start with a small amount and give it a try. You’ll be more comfortable with the experience.

5: “It’s too risky.”

Repeat after me: “I seek knowledge and invest with a solid strategy.”

The truth is that you learn and build knowledge, and that makes it less risky.

It’s only risky to invest if you don’t learn along the way how to select companies or funds, or if you don’t do some basic research about what you’re buying stocks in.

Unfortunately, most private investors pick stocks at random.

Many beginners buy shares in a company because they heard it mentioned in a podcast or because someone brought it up at a dinner party. Dude, that’s not research.

But not you, because you read this blog post every week (right?).

You’re already smarter than most private investors out there.

Obviously, you’ll research before investing, and you know what to look for because you’ve read my e-book Free Yourself, which you can download right here.