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1 Stock Investing Investing 101 Copyright 2016 by Young Investors SocietyAll rights reserved. No part of this publication may be reproduced, distributed, or transmitted in any form or by any means, including photocopying, recording, or other electronic or mechanical methods, without the prior written permission of the publisher, except in the case of brief quotations embodied in critical reviews and certain other noncommercial uses permitted by copyright law. For permission requests, write to the publisher, addressed Attention: Permissions Coordinator, at the address Investors Society5551 Colodny DriveAgoura Hills, CA 1: THE SEVEN GOLDEN RULES OF Investing .

2 3 Introduction ..3 ARE YOU AN INVESTOR? ..3 SECTION 1 ..5 Who are Investors? ..5 Starting Early ..6 WHAT DOES IT REALLY MEAN TO INVEST IN THE Stock MARKET? ..7 SECTION 2 ..9 BEATING THE MARKET ..9 QUESTIONS TO CONSIDER: ..10 SECTION 3 ..11 THE SEVEN GOLDEN RULES ..11 LESSON 2: THE VALUE OF A Stock ..16 Introduction ..16 SECTION 1 ..17 WHY DO Stock PRICES FLUCTUATE SO MUCH? ..17MR. MARKET ..17 SECTION 2 ..19 WHAT IS THE VALUE OF A BUSINESS? ..19 SECTION 3 ..24 UNDERSTANDING THE TERMINOLGY ..24 THE GO-TO WAY TO VALUE A BUSINESS: P/E RATIO ..25 LESSON 3: WHAT MAKES A GOOD BUSINESS?

3 27 Introduction ..27 SECTION 1 ..28 HOW DO I KNOW IF A COMPANY IS A GOOD BUSINESS? ..28 SECTION 2 ..30 WHATEVER FLOATS YOUR MOAT ..30 Types of Economic Moats ..30 LESSON 4: FINDING stocks TO INVEST IN ..41 Introduction ..41 SECTION 1 ..42 HOW DO I COME UP WITH INVESTMENT IDEAS? ..42 SECTION 2 ..44 Stock SCREENS ..44IS THE COMPANY GOOD? ..45 TABLE OF CONTENTSIS THE COMPANY GROWING? ..45IS THE Stock CHEAP? ..45 THE S&P 500 & THE DOW JONES: ..47 SECTION 3 ..48 RESEARCH REPORTS: ..48 GIVING DUE DILLIGENCE ITS DUE ..49 LESSON 5: LEARNING TO SPEAK THE LANGUAGE OF FINANCE.

4 52 Introduction ..52 SECTION 1 ..53 WHY DO COMPANIES PREPARE FINANCIAL STATEMENTS? ..53 WHO USES FINANCIAL STATEMENTS? ..53 WHAT ARE THE THREE FINANCIAL STATEMENTS? ..54 THE BALANCE SHEET ..54 SECTION 2 ..56 THE INCOME STATEMENT ..56 THE STATEMENT OF CASH FLOWS ..57 SECTION 3 ..59 HOW DO I FORECAST REVENUES OF A COMPANY? ..59 HOW DO I FORECAST MARGINS OF A COMPANY? ..60 COMPANIES ..63 APPENDIX A: SELECTED FINANCIAL STATEMENTS ..64 LESSON 6: THE INVESTMENT THESIS ..73 SECTION 1 ..75 WHAT IS AN INVESTMENT THESIS? ..75 SECTION 2 ..78 LESSON 7: INTRINSIC VALUE.

5 82 SECTION 1 ..84 SECTION 2 ..86 Determining the Intrinsic Value of a Company ..86 The Discounted Cash Flows method ..86 SECTION 3 ..89 The Relative Valuation Method ..89 Two Primary Valuation Options ..92 GLOSSARY OF TERMS ..935 LESSON 1: THE SEVEN GOLDEN RULES OF Investing Welcome Young Investors! It is our goal to make you master investors. Many of the lessons you will learn have been used by successful investors over several generations. You will notice that a recipe for success is easy to follow but is actually followed by few. Let s start with a question:ARE YOU AN INVESTOR?

6 Are you a spender or an investor? Pop Quiz. Ready. Go. Question #1 I ll give you $100 today or a new Mercedes next year? Which one will you take?A) The cash B) The carC) Why are you even looking at other options, you d be crazy not to take the car! Question #2I ll give you $100 today or $100 next year. Which one will you take? Think about A) The cash todayB) The same cash tomorrow C) Of course you wouldn t wait! What s the point? You wouldn t get anything in return for waiting. In one minute we ve narrowed down whether you are an investor or a spender.

7 You re a spender if you don t get a return. You re an investor if the future is worth somewhere between $100 and a new car. The question of whether you will invest is really just a question of how much you believe tomorrow can offer. How much could the future be worth for a bit of sacrifice today?That is the key question that every investor asks TO CONSIDER:1. How much cash would you be willing to give up today in return for a promise to receive $500 5 years from now from that investment? $50? $100? $300? $450? 2. What does a low number ($50) say about you?

8 What does a high number say about you ($450)? YOUNG INVESTORS SOCIETY . Stock Investing 1017 SECTION 1 Who are Investors?The truth is that WE ARE ALL investors. When we hear the word investors, we may think of a high-flying Wall-Street banker in a blue-pin striped suit. That is certainly one type of investor, but so is the business owner, the family trying to save for their kids college, and the college student trying to scrape up enough quarters to eat dinner. We all need to manage the money we make, and we all hope to end up with as much money as possible.

9 The question of building wealth in your life will really boil down to two questions?1) Are you able to save each year?2) When you save, where do you put the money? HypotheticalLet s assume you re 20 years old and just took a job as a fireman, your childhood dream (what kid doesn t want to be a fireman, right?). Your salary is meager, but you make the goal to save $1,000 dollars per year and put it in a retirement account. You work and save for the next 50 years until you retire. Does it really matter where I put that money, I mean it s only a thousand bucks a year?

10 Well you have a couple of options, let s ). The savings Account (otherwise known as the Under the Mattress approach). The easiest and safest thing is you could just put the money in cash. Nice and safe! It will never go away and it won t go up and down. Average Annual Return: 0% Amount Accumulated in 50 Years: $50,0002). Bonds or Real Estate. Most people say that they get most of their retirement funds from Investing in their home and watching it increase in value. Or Investing in bonds. Both of these options will grow in line with inflation, which on average is about 3% per year.