Five Myths About Stock Investing That Can Hold You Back

Five Myths About Stock Investing That Can Hold You Back

by | Feb 14, 2021 | Investing in stocks, Mindset

The first time I spoke to my friends about investing, I received a very blunt and defensive response.

“It’s very risky,” said one of my friend’s sisters who was also at the birthday dinner.

I explained that I knew what I was doing, so it wasn’t that risky, but she wasn’t listening at all.

She interrupted me.

“You can lose all your money,” she said.

I couldn’t change her mind about investing being risky, and maybe I wasn’t meant to either.

She needed to justify why she wasn’t investing. She needed to look right in the eyes of her sister. 

Her statements were about her and how she wanted to be perceived – not about investing at all.

No one around the table was interested in hearing anything about the stock market, because they had each their peg to hang their decision not to invest on.

We can use myths as an excuse not to take action and invest. That’s why it’s so important to be aware of them and challenge them.

Here are the five most common myths:

Myth 1: You Need a Lot of Money

Some people think you need to be a millionaire to invest, but most millionaires became rich exactly because they invested in shares, property, their own firm, or something else.

You can easily buy shares for less than 100 USD (obviously it depends on the price of the stock, but there are stocks trading for less than 100 dollars per share).

Some will argue that the fees will swallow up too much if you invest only 100 USD, but you must remember that investing experience accumulates like money.

That’s why it’s important to get into the stock market even if you only start with a little.

Myth 2: It’s Too Hard

It doesn’t have to be complicated. There are easy ways to invest.

You can choose an index fund (like an ETF), and you can set up the investing platform so it automatically buys shares in the fund for the same amount each month.

There are several advantages to this:

1. You only have to set it up once, and it’ll take you around half an hour. You can go on and live your life, because your investing will be automated and take care of itself.

2. There’s a built-in diversification, meaning that you’ll invest in many companies with just one click. That’s a safe strategy. All the companies in an index won’t go bankrupt at the same time, so there’s no way you’ll lose all the money.

3. When you buy for the same amount every month, you get an average price for the stock, and this means you’ll avoid investing all your money at the top. This is called dollar cost averaging.

Myth 3: It Takes Too Much Time 

It’ll take as much or as little time as you want it to take.

If you choose the road of passive index funds, it’ll take you half an hour to set it up and the rest will take care of itself.

Some of us love investing in individual companies that we choose ourselves.

That’s called stock picking, and of course that takes more time. It’s more exciting for two reasons.

1. If you get good at it, you’ll see a higher return.

2. Understanding companies and following them turns into a hobby.

Myth 4: It’s Too Risky   

It’s only risky crossing the street if you don’t know the rules of traffic.

If you don’t know the basic rules, trying to go anywhere will be pretty complicated and dangerous.

It’s a really good investment to do some research, take a course, or read a book. You can download my book about investing right here.

We don’t send our kids into traffic without teaching them about the traffic rules. We don’t send them swimming without swimming lessons first.

It’s a great idea to gain some knowledge, but that’s not the same as saying that it’s too complicated.

Crossing the street is pretty easy, but not if you don’t know what the red light means.

Myth 5: It’s Boring   

You have no idea.

It’s anything but boring. It’s exciting. It’s addictive. It’s all-encompassing.

As a student once told me:

“I just bought my first stock, and I’ve spent 15 minutes watching it go up and down. It’s fun.”

Your Best Defense Against the Myths

If you constantly encounter the myths in your circle of friends, there is only one thing to do: ignore them and change the subject.

Don’t try to change anyone’s mind.

It can be quite tiring trying to convince others that you aren’t wasting your savings, and that you’re not addicted to gambling because stock investing isn’t gambling.

There’s no point in arguing, because sometimes people have made up their minds that investing isn’t for them, and they’ll defend it till the day they die.

The best thing you can do for yourself is to find someone at your level to talk to about shares and stocks with.

You’re welcome to join my Facebook group “Managing Money Freedom” right here.

The first time I spoke to my friends about investing, I received a very blunt and defensive response.

“It’s very risky,” said one of my friend’s sisters who was also at the birthday dinner.

I explained that I knew what I was doing, so it wasn’t that risky, but she wasn’t listening at all.

She interrupted me.

“You can lose all your money,” she said.

I couldn’t change her mind about investing being risky, and maybe I wasn’t meant to either.

She needed to justify why she wasn’t investing. She needed to look right in the eyes of her sister. 

Her statements were about her and how she wanted to be perceived – not about investing at all.

No one around the table was interested in hearing anything about the stock market, because they had each their peg to hang their decision not to invest on.

We can use myths as an excuse not to take action and invest. That’s why it’s so important to be aware of them and challenge them.

Here are the five most common myths:

Myth 1: You Need a Lot of Money

Some people think you need to be a millionaire to invest, but most millionaires became rich exactly because they invested in shares, property, their own firm, or something else.

You can easily buy shares for less than 100 USD (obviously it depends on the price of the stock, but there are stocks trading for less than 100 dollars per share).

Some will argue that the fees will swallow up too much if you invest only 100 USD, but you must remember that investing experience accumulates like money.

That’s why it’s important to get into the stock market even if you only start with a little.

Myth 2: It’s Too Hard

It doesn’t have to be complicated. There are easy ways to invest.

You can choose an index fund (like an ETF), and you can set up the investing platform so it automatically buys shares in the fund for the same amount each month.

There are several advantages to this:

1. You only have to set it up once, and it’ll take you around half an hour. You can go on and live your life, because your investing will be automated and take care of itself.

2. There’s a built-in diversification, meaning that you’ll invest in many companies with just one click. That’s a safe strategy. All the companies in an index won’t go bankrupt at the same time, so there’s no way you’ll lose all the money.

3. When you buy for the same amount every month, you get an average price for the stock, and this means you’ll avoid investing all your money at the top. This is called dollar cost averaging.

Myth 3: It Takes Too Much Time 

It’ll take as much or as little time as you want it to take.

If you choose the road of passive index funds, it’ll take you half an hour to set it up and the rest will take care of itself.

Some of us love investing in individual companies that we choose ourselves.

That’s called stock picking, and of course that takes more time. It’s more exciting for two reasons.

1. If you get good at it, you’ll see a higher return.

2. Understanding companies and following them turns into a hobby.

Myth 4: It’s Too Risky   

It’s only risky crossing the street if you don’t know the rules of traffic.

If you don’t know the basic rules, trying to go anywhere will be pretty complicated and dangerous.

It’s a really good investment to do some research, take a course, or read a book. You can download my book about investing right here.

We don’t send our kids into traffic without teaching them about the traffic rules. We don’t send them swimming without swimming lessons first.

It’s a great idea to gain some knowledge, but that’s not the same as saying that it’s too complicated.

Crossing the street is pretty easy, but not if you don’t know what the red light means.

Myth 5: It’s Boring   

You have no idea.

It’s anything but boring. It’s exciting. It’s addictive. It’s all-encompassing.

As a student once told me:

“I just bought my first stock, and I’ve spent 15 minutes watching it go up and down. It’s fun.”

Your Best Defense Against the Myths

If you constantly encounter the myths in your circle of friends, there is only one thing to do: ignore them and change the subject.

Don’t try to change anyone’s mind.

It can be quite tiring trying to convince others that you aren’t wasting your savings, and that you’re not addicted to gambling because stock investing isn’t gambling.

There’s no point in arguing, because sometimes people have made up their minds that investing isn’t for them, and they’ll defend it till the day they die.

The best thing you can do for yourself is to find someone at your level to talk to about shares and stocks with.

You’re welcome to join my Facebook group “Managing Money Freedom” right here.

How To Tell If You’re Addicted To Stocks

How To Tell If You’re Addicted To Stocks

by | Jan 31, 2021 | Investing in stocks, Value investing

This blog post is for fun – and then again, it’s dead serious. 

I remember a wonderful spring day when a friend I hadn’t seen for years was visiting Copenhagen. We had studied together in New York almost two decades earlier. 

We were sitting at a winery in Copenhagen, drinking a glass of Chardonnay before dinner while waiting for some more people to join us.

At a moment when she was on the phone to explain our exact wine-drinking location, I discreetly logged into a stock market app on my phone.

“You’re checking the stock market,” she said when she got off the phone, and she sounded completely appalled.

At that moment, I felt like one of the crazy characters in a Woody Allen movie. I could see myself through her eyes. I was like the crazy stockbroker who could only do two things: cheat on his wife and yell “sell” into a phone.

Well. Maybe it was a bit odd to check the stock market. We hadn’t seen each other for so long. She had a lot to tell me. New country, new boyfriend, new career, and a baby. We had to catch up on a decade or more. 

I wanted to enjoy the Chardonnay and the warm spring day, and I wanted to hear all about her adventures. But the market was falling, and that opened the possibility for some interesting option trades that I had been waiting to do.

If only I could sneak away for 15 minutes…

It’s so tempting to check on the stocks, and once you check, you can get sucked in.

Have you ever felt that way? Have you ever checked on your stocks at an inappropriate moment? 

Why does this even happen?

I’ll tell you why. When you check your stocks, you get a dopamine kick.

It’s similar to what happens when you check your social media, but much stronger, I would argue.

Seeing your stocks go up affects your primitive brain more than seeing someone like your post.

Some of us even get a kick when we see the stocks go down, because we know that’s when we make money. 

The line between checking and getting addicted to checking is a blurry line. 

How do you know that you’ve become addicted? Well, here are five signs to look for…

1. You Check the Market Right When the Exchange Opens – Every Day 

If you’re knocking at Wall Street’s gate even before it’s really open, and doing that every day, it’s a sign. 

It’s fine to check the stock market prices, but you should also be able to tolerate forgetting about it occasionally or doing it later. 

2. You Check Your Portfolio Even on the Weekends 

You checked the portfolio Friday at market close, and you know the market is closed on Saturdays and Sundays, but it’s just so nice to see those numbers on the screen. All those wonderful green numbers – or even the red ones. 

You’re actually looking forward to Monday so the digits start moving around again.

3. You Think There Are Too Many Official Holidays

You get annoyed that the market is closed on holidays, and you’d rather be at work than at home with the stock market closed. You just won’t verbalize it.

Speaking of work, you’ll check the stocks at work too. That’s when the market is open, so you have to right?

4. Life Outside the Trading Platform Feels Dull

You find it hard to focus on reading a book or watching a show.

Even social media seems boring compared with the numbers going red and green.

Some social events feel like a bore too. You’d rather get back to making money.

5. You Check Stocks In Bathroom  

Oh, I’ve been there. Remember FAANG stocks getting crushed in late 2018? 

I tried hiding from my kids on Christmas Eve so I could buy some Apple stocks that suddenly reached my target price.

I didn’t succeed because my kids were banging on the door and being impatient about Christmas and presents.

After that I promised myself NEVER to do that again.

The Road To Recovery

Did you recognize any of these signs?

If so, then you need rehab.

You have to learn that you can make sound investment decisions without constantly getting a stock market fix. 

In fact, your investment decisions will become sounder if you take a step back.

So how do you take a step back?

1. Enter Your Trades as Limit Orders in the Off Hours

You don’t have to enter your trades when the market is open.

In fact, it’s better not to, because all those numbers running up and down sends a signal to your brain that you should act on it.

You’ll be a better investor if you’re less updated. That’s something you’ll have to experience over time to know, but for now you just have to trust me.

2. Go Cold Turkey For 30 Days

Just like with a sugar addiction, you need to reboot yourself by stopping the actual intake for a while.

When I say cold turkey, I mean that you shouldn’t check the market at all in 30 days – not even when it’s closed.

You have to learn that nothing will implode if you’re not updated for 30 days. 

During those 30 days, you can arrange for someone to let you know if any of your positions fall more than 20 percent or if the market crashes.

After going cold turkey, you can easily go a day without checking. 

3. Force Yourself Into Another Neutral Addiction

Maybe now is the time to watch that Netflix series everyone is talking about? 

There are three kinds of addictions: negative, positive, and neutral. 

A negative addiction takes a toll on your health, your finances, or your relationships. 

This would be something like smoking, gambling, or having extramarital affairs.

A neutral addiction doesn’t harm anyone, but it doesn’t do any good either. This could be watching Netflix or checking your social media accounts. 

A positive addiction would be running or going to the gym. 

If you could find a positive addiction to replace your stock market fixation, that would be perfect, but it might not be realistic to replace that dopamin kick with chewing veggies.

So the next best thing is a neutral, pleasurable choice like a Netflix series. 

Afterwards, you can always take a cold turkey break from Netflix because you’ll have strengthened your willpower and ability to abstain. 

If you want to learn about solving intellectual puzzles and investing with a strategy, you can read my e-book Free Yourself here. 

Ten Crazy Signs of a Stock Market Bubble

Ten Crazy Signs of a Stock Market Bubble

by | Jan 24, 2021 | Investing in stocks

How do you know if there’s a stock market bubble?

The thing about asset bubbles is that you only know for certain that they were there when they’ve popped.

But still, there are signs that you can look for.

What are those signs?

I’ll take you through the top 10 signs that are showing right now.

1. Individual Companies’ Stock Soaring

As Tesla’s stock reached new heights in January, Tesla’s founder Elon Musk became the richest man on earth. 

“How strange,” he wrote in a comment on Twitter, and a second later: “Well, back to work.”

Even he is astonished at what’s going on.

Tesla’s market cap is higher than Toyota, Volkswagen, GM, BMW, Daimler, Honda, and Ford combined, despite the fact that their combined revenue is 36 times higher than Tesla’s. On top of that, Tesla is struggling to make a profit. 

Tesla’s P/E has surpassed 1500. A reasonable level for an average company would be 15.

A P/E of that level means that you pay 1500 USD for 1 dollar of earnings.

2. IPOs Skyrocketing 

IPOs are more frequent in times when the stock market is doing well. That makes sense. Who would want to sell their life’s work in a depressed market? 

However, what’s unusual is the way the market receives IPOs these days.

Shares in Airbnb more than doubled on the first day of trading in December. They went from 68 USD per share to 148 USD per share.

Even new issues of small companies with no revenue might shoot through the roof. A lot of it is due to private investors gambling that it will shoot up precisely because it’s an IPO.

3. Bloggers and YouTube Stock Channels Exploding  

YouTube videos that promise “hot stocks to 10x your money” can get half a million views in days. 

Newbie investors quit their jobs to make Y0uTube videos about stock investing. They can make a better living off the ads from their videos – even if they have nothing more to say than to explain how to open an account and buy Tesla shares.

This tendency is a sign that people are searching for this information and that advertisers are willing to pay a lot to get some airtime with the stock-interested audience.

4. Your Cab Driver’s Favorite Subject Is His Stocks 

I remember some taxi rides before the financial crisis that puzzled me.

I was a news journalist, and I took a lot of taxis going back and forth from press meetings to the newsroom.

The cab drivers in 2007 and 2008 loved talking about flipping houses and how much money they made buying houses, renovating them, and selling them.

The barista, the hairdresser, and the cab driver have another favorite subject these days. They love talking about stocks where they made a quick buck.

They’re investing their savings, betting on a quick gain, and exiting. They aren’t investing for their retirement. They’re gambling and betting on a quick in-and-out to make money in a few weeks. 

5. Lots of New Trading Accounts  

Robinhood, a trading platform popular with teenagers, opened more than 3 million new accounts in 2020.

In my home country of Denmark, Nordnet, a platform that targets young people, gained 80,000 customers in 2020 and increased the total number to 200,000. It’s really impressive if you think about it. 

6. New Investors Talk About the Old School Having Lost the Touch

Warren Buffett had a tough time during the dotcom bubble. 

The number of attendees at Berkshire Hathaway’s annual meeting dwindled. One person even had the guts to take the microphone and ask if “he didn’t have enough brain cells to pick one or two tech stocks.”

Value investors are scorned whenever there’s a bubble. When you invest with reasonable valuations as criteria, you’ll miss out on some of the fun when the going gets exuberant. 

If you hear people say that Warren Buffett has “lost it”, you should actually pay attention. It’s a sign. The market is foaming with greed. There’s no longer patience with a reasonable approach. 

7. A Penny Stock Can Soar 6,000 Percent on a Misunderstanding

In January, Elon Musk said that he’ll stop using Facebook’s WhatsApp and instead migrate to the donor-based, open source messenger service called Signal.

Signal is not on the stock market, but another company called Signal Advanced is.

Signal Advance’s stock surged from 0.60 USD to more than 60 USD in a few days. It has since settled, but the fact that it exploded on a misunderstanding says a lot about both the frothy state of the market as well as the psychological makeup of Elon Musk’s and Tesla’s fan base. 

8. “This Time It’s Different”

Whenever there is a bubble, there’ll be justifications and some kind of theoretical explanation of why gravity has stopped working.

It happened in 1929 (the excuse was modern inventions), during the dotcom-bubble (the excuse was the internet) and before the financial crisis (this time the excuse was that migration to the cities justified forever-rising real estate prices in certain areas).

It’s also happening now, with the main line of argument being that interest rates will never go up, and therefore there’s no alternative to investing in stocks. 

These arguments can sound as far-fetched as conspiracy theories, but their proponents are very verbal and insistent.

If you hear someone explain that “it’s different this time” or “times have changed”, pay attention. It’s one of the signs.

9. Shiller P/E Above 30       

The Nobel prize-winning economist Robert Shiller warned that markets can become irrationally exuberant. The Shiller P/E ratio measures the market’s level of sanity or insanity.

Right now it’s above 30 – which it has only been three times in history: During 1929, during the dotcom bubble, and now.

In 1929 it reached 30. Right now it’s at 34. 

Did you know that it took 29 years before the Dow Jones reached the same level it was at in 1929? That means you’d be almost 30 years older before your money was worth the same.

10. Buffett Indicator at All-Time High 

Warren Buffett says that the single best measure of where valuations stand is comparing the market cap to GDP.

The Buffett indicator takes the very broad index called Wilshire 5000 and holds it up against GDP. 

What does it show? Well, it’s never been higher. It should be around 50-75. If it reaches above 90, the market is in bubble territory.

It’s not only above 100 – it’s around 200.

It has never been that high before.

Maybe it’s not so strange that Warren Buffett holds around 130 billion dollars in cash (or cash equivalent).

What do you think? Is Warren Buffett being prudent, or has he lost the touch? 

You’ve probably figured out that I’m on team Buffett. Which one are you on?

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.

How to Reduce Taxes on Stocks

How to Reduce Taxes on Stocks

by | Dec 6, 2020 | Your money, Investing in stocks

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

I’ve thought a lot about that during the COVID-19 pandemic.

I live in a country (Denmark) with one of the highest tax rates in the world, but also in a country with one of the best free healthcare services in the world. I’ve been fortunate enough to feel safe throughout the pandemic – and that means a lot when you have small children.

I try to pay my taxes with gratitude and think of how I 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. 

Top 20 Best Websites for Stock Research

Top 20 Best Websites for Stock Research

by | Nov 15, 2020 | 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 shows you 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.  

9. 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.

Five Signs of an Owner-Oriented Management

Five Signs of an Owner-Oriented Management

by | Nov 7, 2020 | Investing in stocks

Good management can turn an ailing company into a great one, and bad management can ruin an otherwise good company.

When you invest, it’s important to evaluate the leadership.

You want a CEO who thinks like an owner of the business.

How do you find that? What should you look for?

No worries. I’ve got you covered.

Here’s my list of five signs of an owner-friendly management.

1. Management Is Honest and Direct

You want management who doesn’t try to sweep anything under the rug. Not even the smallest thing.

If they issue a press release about a problem that hasn’t previously been known to the public, you should see that as a good sign.

You want them to be very honest and admit to any mistakes that have occurred.

Looking back through history, we know that the companies who failed bigtime – with accounting fraud and bankruptcy – had a history of covering things up and reacting aggressively to criticism:

  • Like Lehman Brothers’ CEO Dick Fuld who wanted to “squeeze” and “rip out the hearts” of short sellers (those who bet on the stock going down).
  • Like German Wirecard who accused two Financial Times journalists of trying to manipulate the stock. The journalists had written about accounting fraud in the company before it was public knowledge that one-third of the balance sheet was fiction.

If the management is prone to lash out and throw lawyers and lawsuits at opponents, you want to stay away. 

You should also look at the language they use in general when speaking to the public. Is it straightforward? Or is it full of lingo and jargon?

You want to be able to understand what they say. If you feel like they talk a lot but say nothing, it’s a bad sign.

Don’t invest in something you don’t understand – or in companies with a CEO who you don’t understand.

2. Management Makes Owner-Oriented Decisions 

You want a company that isn’t afraid of making choices that are good for the stock in the long run but not in the short run.

This means:

  • You don’t want them to run up too much debt. They should be able to pay long-term debt back within three years with free cash flow. 
  • If they make buybacks (buying back their own stock), they only do this when the stock is cheap. They don’t do it when the stock is expensive.

Buyback programs make the share go up, because the pizza will be shared in fewer slices, so each slice should be more expensive.

This can make the current management look good almost instantly.

But at what cost? How much do they pay for each slice of pizza on the open market?

Is it fair to the owners?

3. Management Owns Shares – and Keeps Them  

Owning shares for the long run makes you think like a real owner. We like it if management is faithful to the company they work for. 

If they sell large chunks of shares it may be a warning sign that something is wrong.

Enron’s top management was very busy making a fire sale of the shares before it became public knowledge that they had cooked the books. Anyone paying attention to insider trading had a chance to get out before the company crashed and went bankrupt. 

4. Management Has an Ambitious Goal 

Companies that set big goals do better than companies with lukewarm goals.

What’s a big goal? You know it when you see it because it might almost sound like megalomania.

Let’s look at some examples (these are not stock recommendations at all – other things must be in place too):

  • Facebook’s Mark Zuckerberg wanted to connect the whole world, and he did. He made it possible for everyone to find their high school sweetheart. When that was accomplished, he set another goal of building strong communities.
  • Tesla’s Elon Musk wants to accelerate the world’s transition to sustainable energy. With SpaceX he wants to reach and colonize Mars.
  • Amazon’s Jeff Bezos wants to create the world’s most consumer-oriented business. Imagine how that sounded when he was selling books out of his parents’ garage?

5. Entrepreneurial Managers  

There are two kinds of CEOs.

The kind that invites a journalist to his mansion, opens the door wearing shorts and flip-flops, serves a glass of Chardonnay, calls his wife to enter the room and tells the story of how he stole her from his best friend.  

Then there’s the other type who is all dressed up in the corporate attire when his secretary leads the journalist to his glass office. He stays behind a big desk and only he can see the family portrait on it.

It’s the difference between the founder CEO who built a business and the bureaucrat CEO who is hired by the owners to take the company in a certain direction – and who can get fired. 

If you can find a wonderful business where the founder is still somewhere in a leading position – either as CEO or as Chairman of the Board, you should pay extra attention.

Founders and entrepreneurs are excellent managers. They have vision and guts, and they can take the company to the next level in a way that bureaucrats can’t.

The second-best option is a company with a CEO that the founder picked and trained – like Steve Jobs groomed Tim Cook for running Apple. 

Evaluating Management Is Part of Your Investing Checklist

You don’t invest in Apple, Amazon, Tesla, or the likes just because you like the founder CEO.

There are a lot of other things that need to be in place. You have to make sure that:

  • You agree with the values
  • The company is profitable
  • The company is growing
  • It’s cheap enough to invest in
  • …and a lot of other things.

Evaluating management is just one step on a longer checklist. You have an investing checklist, right? If you don’t, you are welcome to use mine. You can download it right here. 

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.