Andris Veliks - Forbes

Day 1: Getting Started

Tue, 11 Aug 2026 18:53:00 +0000

You’ve taken the first step to empowering your financial future.

Day 1/10: Introduction

Congratulations on your decision to learn how to invest. You’ve taken the first step to empowering your financial future.

About This Course

Investing in the stock market is a proven strategy for building wealth and reaching your financial goals. This nine-part email course introduces the investing process, teaches you how to select stocks and identifies key considerations to building an effective portfolio.

Over the next nine days, we will walk you through these topics:

Foundational concepts: your goals, risk tolerance, risk vs. reward, asset allocation, investing life cycle and diversification

Mindset and practicalities: the emotional side of investing and the basics of getting started

Stock-buying strategies: investing vs. trading, plus active and passive investing, dividends and capital gains, growth and value investing and small-cap and large-cap investing

Valuation concepts and ratios: ratios you should understand to make money in the stock market

Five strategies to chart your own investing course: tactics to resist following the masses with your strategy

This guide assumes you are financially ready to begin investing. That means you have:

Selected an online brokerage or investment account

Saved enough in a cash savings account to cover three months of your living expenses

Paid down your high-interest credit card debt

Balanced your household budget and allocated monthly funds for investing

If any of the above action items are still outstanding for you, this guide can help you prepare.

Tomorrow, we’ll get started with foundational investing concepts!

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Day 2: Essential Investing Concepts

Tue, 11 Aug 2026 18:50:00 +0000

We'll cover foundational investing concepts to set you up for wealth-building success.

Day 2/10: Foundation

Today, we cover foundational investing concepts to set you up for wealth-building success. You will:

Document and validate your investing goal

Learn about the relationship between risk and reward

Evaluate your risk tolerance

Understand how diversification and asset allocation help you manage risk

Identify where you are in the investing lifecycle

Ready to get started? Let’s dive in.

Your Goals Shape Your Investing Plan

Why do you want to invest? Having a clear, concise answer to that question empowers you to make consistent and appropriate investing decisions.

The type of investing you do to fund retirement will be different from, say, how you’d invest to buy a home in 10 years. That’s why you need a clear goal from the start.

What’s your reason? Write it down now and include as much detail as possible. Examples of a solid investing goal statements are:

Amass $2 million in my retirement account by 2055.

Accumulate $200,000 in my child’s college fund by 2033.

Validating Your Expectations

With your investing goal documented, it’s time for a quick reality check. Use a savings goal calculator like this one to estimate the monthly investment required to meet your goal.

Any investment calculator will prompt you for an estimated interest rate. For context, the long-term average annual return of the stock market adjusted for inflation is about 7%. You could use a slightly higher interest rate if you plan to invest more aggressively, or a lower one if you prefer a more conservative approach.

Risk and Reward

Know that aggressive investing produces more volatility and less certain results. This is an important consideration. The 10-year bull market that ended in 2021 lured many investors into believing in gains without consequence—but there is always a trade-off between safety and expected return. To raise your potential return, you must assume more risk. To minimize volatility, you must invest more conservatively.

Your Comfort Zone: Understanding Your Risk Tolerance

Review the scenarios below and consider how you might react to each one:

The stock market crashes and your portfolio value drops from $200,000 to $150,000 in one week.

You buy a stock for $100. Six months later, that stock is trading for $50.

Your portfolio value swings up and down weekly or monthly, by as much as 10%.

Your reaction in these situations will range from panic to patience. If your heart rate ticked up while thinking through these scenarios, you are risk-averse. On the other hand, if you see these situations as temporary conditions that you can wait out, you are risk-tolerant.

YOUR INVESTING TIMELINE

Having the ability to wait out negative market conditions allows you to invest more aggressively. Here’s why. The frequency of market downturns declines significantly over longer timelines. In history, there have been many downmarkets that have lasted less than one year. A market downturn that lasts five years, though, is less common. Even more interesting: The stock market has never lost value over 20 years or more.

This is why it’s important to understand your investing timeline. A longer timeline is always safer.

What you want to avoid is having to sell your stocks in the midst of a downturn. That locks in losses and undermines your long-term returns.

Return to your investing goal statement now and verify that you’ve documented a timeline. To protect yourself from having to sell when stock prices are down, your timeline should be at least five years for stock investing. If it’s shorter, consider fixed-income or cash investing instead.

Risk Management: Diversification

Diversification is the practice of holding different types of investments. You can diversify across asset classes—as in stocks vs. bonds—or within asset classes. To diversify within the stock asset class, for example, you’d hold companies that represent different industries, geographies and market capitalizations.

Diversification ensures that your assets aren’t exposed to the same risks. The goal is to avoid the situation where all your holdings are losing value at the same time.

Many investors learned a tough diversification lesson recently. After a period of strength, the biggest technology stocks struggled between November 2021 and December 2023. The tech-heavy Nasdaq Composite dipped more than 30% in that timeframe.

Investors who’d doubled down on Meta, Alphabet and Amazon felt the full force of that industry-specific downturn. Those who held a more diverse portfolio weren’t hit as hard.

Proper diversification minimizes risk and maximizes return. As a general rule, aim to hold about 20 individual stocks with different risk profiles.

Risk Management: Asset Allocation

Asset allocation is the composition of your portfolio—it’s a way of putting numbers behind your diversification strategy. You can define your allocation in terms of asset class and asset type:

A common asset class allocation is 60% stocks and 40% bonds.

An asset type allocation breaks down the stock and bond allocations further. Within the stock allocation, for example, you might define smaller percentages for small-cap stocks, international stocks and large-cap stocks.

Setting an asset allocation strategy helps you tailor risk. If you are risk-tolerant and have a long timeline, for example, you would hold greater percentages of small-cap stocks and international stocks. These have higher growth potential and more volatility than large-cap, domestic stocks.

Your homework: Review your investing goal, timeline and risk tolerance. In light of these factors, can you draft an asset allocation that makes sense? Your response may be a guess right now and that’s okay.

You’ll revisit this question at the end of this course. You can then compare how the information you learn over the next few days changes your answer.

Tomorrow’s topic: The investing mindset and getting started.

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Day 3: Mindset and Investing Practicalities

Tue, 11 Aug 2026 18:42:00 +0000

Let's focus on a few practicalities.

Day 3/10: Obstacles

You have now defined your investing goal. You understand your timeline, risk tolerance and lifecycle stage.

Before we delve into the analytical aspects of investing, let’s pause to focus on a few practicalities.

Today, we’ll discuss a common obstacle that can prevent you from reaching your investment goals: your own emotions. We’ll also answer the questions that can affect your investing confidence when you’re just starting out. By the end of today’s lesson, you will:

Understand the conflict between generating gains and following the masses

Know why you are accepting the risks of investing

Identify the account type you need for investing

Be comfortable with the costs of investing and setting your investing budget

The Economics of Following the Masses

Knowing how to evaluate financial statements and compare key ratios makes you a better investor. But those skills will be even more useful if you also recognize the role emotions can play in your decision-making.

To quote billionaire investor Warren Buffett, "Success in investing doesn't correlate with IQ...what you need is the temperament to control the urges that get other people into trouble in investing."

Those urges include any action that's prompted by what other investors are doing, such as buying a stock because it's "hot" or selling because stock prices are falling.

Resisting the urge to trade based on the broader investing climate will be your most challenging job as a beginner investor. It's natural to assume that other investors are behaving rationally and so you should follow suit. Unfortunately, that's always not the case.

Investor excitement about a company, sector or an entire economy can sometimes push stock prices higher than they should be. A correction, or drop in stock prices, typically follows. Those corrections can be gradual or sudden. Either way, they're bad for the investors who bought when their stocks were peaking.

The opposite can happen, too. An overly tentative investing climate can push stock prices lower than they should be. We saw this happen in March 2020, when investors were spooked about the economic implications of the Covid-19 pandemic. In about a month's time, stock prices for the 500 biggest publicly traded U.S. companies, tracked on an index known as the S&P 500, lost 35% of their value.

Investors took one of three actions during that decline:

1. They sold their stocks—and regretted it. The S&P 500 recouped its losses in five months.

2. They did nothing. Their portfolios recovered in a few months and the downturn ultimately had minimal financial implications.

3. They bought when everyone else was selling. By the fall, these investors had notched some quick gains.

Here's what it comes down to: Blindly following the masses encourages you to buy when stock prices are high and sell when they are low. And that's not a formula that turns a profit.

So, how can you resist following ebbs and flows of broader investor sentiment? We’ll share five strategies at the end of this course. That way, you can kick off your investing journey with the right mindset, plus all the skills you need to start picking stocks.

The Questions New Investors Ask

For now, let’s build your confidence by answering the common questions new investors ask before making their first buy.

1. Why Risk My Money In The Stock Market?

You can lose money in the stock market. Knowing that, it's natural to ask why you should accept that risk at all. The answer is simple. Despite the risks, investing is the most accessible and reliable way to build wealth.

According to data compiled by Aswath Damodaran at the NYU Stern School of Business, the stock market's long-term returns outshine three-month Treasury bills, corporate bonds, real estate and gold.

Historically, the arithmetic average annual return of the S&P 500 is 8.27% after inflation. The next closest competitor is investment-grade corporate bonds at 3.91%. Gold, real estate and Treasury bills follow, in that order.

Note that the 8.27% average return includes every bear market and economic downturn between 1928 and 2022—including the Great Depression, stagflation in the 1970s and the global financial crisis in 2008. The lesson here? If you hold on through the bad times, the good times will reward you.

2. How Do I Get Started Investing?

The basics you need to get started investing are an investment approach, an account and a budget.

Investing approach: Your approach defines how you make investing decisions, your timeline and your asset allocation.

Your investment account: Many investors begin investing in a workplace 401(k). If you don't have a 401(k), open a low-fee IRA or brokerage account. Usually, opening an IRA or brokerage account takes minutes—you need only verify your identity and set a password. The next step is funding, which is usually done through an account transfer.

Budget: Defining a budget makes it easier to invest consistently each month. This averages your cost basis over 12 transactions throughout the year, which lowers your risk of mistiming buys. An example of mistiming is buying a stock the day before it loses 20% of its value.

3. How Much Should I Invest To Start?

Ideally, you should allocate 10% of your income to a long-term investing plan. If that percentage is out of your reach today, invest 5% or 2%. Then look for ways to increase your investing activity over time. Investing something is always better than investing nothing.

4. What Does It Cost Me To Invest?

Investing does cost you. You may pay administrative fees and trading fees in your investing account, for example. You'll also absorb fees if you buy mutual funds and exchange-traded funds.

Pay attention to these fees and avoid or minimize them whenever possible. The less you pay in fees, the more money you have to invest. Start by understanding the fee structure of your account, be it a brokerage account, 401(k) or IRA. If the fees are high, research the feasibility of opening a different account.

Once you are comfortable picking stocks, choose individual stocks over funds where it makes sense. When you do invest in funds, choose options with low expense ratios. All else being equal, the fund with the lower expense ratio will deliver higher returns.

5. What Are The Tax Consequences Of Investing?

You will owe taxes on realized gains, dividends and interest. You can put off some of those taxes by investing in a tax-advantaged account. In traditional IRAs and 401(k)s, you get a tax break on your contributions but pay the taxes on distributions. In Roth accounts, your qualified distributions are tax-free, but you pay taxes on your contributions.

You can also manage your tax liability in a taxable account by choosing the right investments. Individual stocks you hold indefinitely are ideal since you won't incur taxes until you sell. You'd want to avoid dividend-paying stocks and funds in your taxable account. Hold those in a 401(k) or IRA instead.

QUIZ:

Which stock market index saw the biggest dip due to the pandemic?

a. Nasdaq

b. Dow Jones Industrial Average

c. S&P 500

d. FTSE 100

The stock market index that experienced the most significant dip during the Covid-19 pandemic was the Dow Jones Industrial Average (DJIA). The pandemic caused widespread market volatility and led to a rapid decline in stock prices across the globe. The DJIA, which is comprised of 30 large publicly traded companies in the United States, dropped by approximately 37% from its peak in February 2020 to its low point in March 2020. Other major indices, such as the S&P 500 also experienced substantial declines, plunging 34% during this period. The Nasdaq Composite recovered most quickly. By August 2020, it had fully recovered from the pandemic-induced decline and surpassed its pre-pandemic levels.

That’s the end of today’s lesson. Your homework: Do some quick research on past bear markets. Note how long they lasted and how quickly they recovered. It’s important to get comfortable with these cycles. Ask yourself how you might react when confronted with a bear cycle. Then, decide on an account where you can start investing and establish your investing budget.

Tomorrow’s topic: Stock-buying strategies.

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Day 4: Stock-Buying Strategies

Tue, 11 Aug 2026 18:39:00 +0000

Developing a disciplined, long-term strategy.

Day 4/10: Investing vs Trading

In the world of investing, the old saying "We are our own worst enemy" holds true. Fear, greed, overconfidence, and following the crowd can drive us to make irrational decisions. Acknowledging these tendencies and adopting a disciplined, long term strategy can help counteract the detrimental effects of emotional biases on investment choices.

One great fact about the stock market is that, regardless of price fluctuations, new opportunities are always arising. With a little bit of effort, you can be rewarded by these opportunities that help you build wealth over time.

Investing vs. Trading

When it comes to investing and trading, you should know there is a difference. Investing involves purchasing securities with the goal of generating long term returns from income, capital gains, or both. Emphasis is on the long term. You will likely focus on a stock's intrinsic value and company operations, not on daily price movements.

Trading, on the other hand, involves buying and selling stocks because of price fluctuations. Traders focus on short-term gains, whether that be a few hours, days, or even months. While trading is often compared to gambling, it can still provide liquidity to the market though with higher risk relative to investing.

Active vs. Passive Investing

When investing, two common approaches to increasing capital are active and passive strategies.

Active investing involves selecting individual investments with the purpose of outperforming the market. By buying low and selling high, you can achieve capital gains and you can then reinvest the same profit for further growth.

Active investing requires more time for in-depth research to identify investment opportunities. Alternatively, you can tap resources that do the analysis for you with the end goal of beating the market.

Passive investing, however, involves choosing investments and simply holding them for the long term, waiting for them to grow in value and produce dividends or income. Unlike active investing, this buy-and-hold strategy typically aims to match the market's performance with low-cost index funds or undervalued stocks. It requires less effort than active management.

Small-cap vs. Large-cap; Growth vs. value

Over time and with enough experience, many investors have a preferred style, be it with varying degrees of risk and potential return. Market capitalization is a common focus, with preferences for large-cap, mid-cap, or small-cap stocks.

Valuation is another consideration, with either value or growth stocks in the mix.

Growth itself can be defined in several different ways. For some investors, a growth stock is one that has a relatively high price - book ratio (book value is a financial measure that represents the value of a company's assets minus its liabilities). For others, growth refers to a stock that has a higher-than-average expected rate of earnings growth.

Here are some of the most common investing styles:

Large-cap value. You’d want to consider investing in large-cap value stocks if you want reputable companies (blue chips) with a history of steady earnings. These companies have low price-book ratios and high market capitalizations, and they often provide generous dividend yields or payout ratios. However, they aren't without risk and may lack innovation, which could reduce demand for their products.

Small-cap value stocks have small market capitalizations and low price-book ratios. They usually have a steady income stream and operate in a well-defined market niche. They may also pay generous dividends, but the risk is that the market for their products may quickly change, and they may lack the resources to withstand major market upheavals.

Large-cap growth stocks have high price-book ratios and low dividend yields. They are expected to grow rapidly, and they tend to be innovative. However, their projects may fail and cause their earnings to be volatile.

Small-cap growth stocks usually have one big idea that is very promising, but they have never turned a profit and they rarely pay dividends. Investors perceive them as having value due to the potential for large returns.

Dividend vs. Capital Gains

Dividend and capital gains investing strategies represent two of the most common but different approaches to generating returns from investments. Let's explore the pros and cons of each strategy so you can decide which one is right for you.

Dividend Investing: Dividend investing involves selecting stocks or funds that provide regular income through dividend payments. Here are are some pros and cons of this approach:

Pros:

Income Generation: Dividends offer a steady stream of income, which can be appealing if you're seeking regular cash flow.

Stability: Dividend-paying companies tend to be more mature and established, often exhibiting stable performance even in challenging market conditions.

Compounding Growth: Reinvesting dividends by purchasing more shares can lead to compounding growth over time. This is important when you consider how since 1930, 40% of the S&P 500’s total return is from dividends*

Tax Benefits: In some jurisdictions, qualified dividends receive preferential tax treatment, resulting in potentially lower tax rates.

Cons:

Limited Growth Potential: Dividend stocks may not experience rapid price appreciation, limiting the potential for capital gains.

Vulnerability to Economic Factors: Companies facing financial difficulties or economic downturns may reduce or eliminate dividend payments.

Dependency on Company Performance: Dividend payments rely on the financial health and profitability of the underlying companies. If a company's performance declines, dividend cuts or suspensions may occur.

Tax Considerations: Dividends are typically taxable, and depending on your tax bracket, the tax rate on dividends can be higher than that on capital gains.

Capital Gains Investing: Capital gains investing involves buying assets with the intention of selling them at a higher price to realize a profit. Here are the pros and cons of this strategy:

Pros:

Profit Potential: Capital gains investing offers the opportunity for significant returns if investments are sold at higher prices than their purchase prices.

Flexibility: You have the flexibility to choose from a wide range of assets, such as stocks, real estate, or bonds, providing diversification options.

Market Timing: Capital gains investing allows for strategic buying and selling based on market trends, potentially maximizing profits.

Tax Advantages: Long term capital gains, from holding assets for over a year, may qualify for lower tax rates in some jurisdictions.

Cons:

Market Volatility: Capital gains investing can be subject to market fluctuations, which may result in losses if investments are sold at lower prices.

Timing Challenges: Accurately timing market movements is challenging, and mistimed trades can lead to missed opportunities or even losses.

Higher Risk: Investments focused on capital gains may involve higher risk, especially when investing in volatile or speculative assets.

Limited Income: Unlike dividend investing, capital gains investing may not provide regular income, which can be a drawback if you're seeking cash flow.

QUIZ

1. Which of the following is an example of passive investing?
A. Analyzing market trends
B. Monitoring individual stocks
C. Investing in an index fund
D. Selling stocks after a certain percentage gain

2. Which of the following is an example of active investing?

A. Investing in a mutual fund
B. Investing in an index fund
C. Analyzing market trends
D. Selecting individual stocks

Homework: Building wealth is a cumulative process. It’s often helpful to begin the process by taking a personal financial inventory. Create a financial balance sheet to get a sense of your net worth and how you currently spend your free capital. Evaluate your own income and expenses. Then, calculate the amount of capital you have available for investment purposes whether on a monthly, quarterly or annual basis.

Tomorrow’s topic: an introduction to financial statements.

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Day 5: Introduction to Financial Statements for Novice Investors

Tue, 11 Aug 2026 18:35:00 +0000

Learn about the three main statements and what each one contains.

Day 5/10: Meat of the Matter

You now have a solid knowledge base for moving forward with your investing education. You have a goal, an investing account and a budget. You understand diversification and asset allocation as risk management tactics. You recognize the dangers of over-enthusiastic investing climates and the opportunity in uncertain investing climates. And you have working knowledge of several stock-buying strategies.

For the next three days, we turn to the analytical side of investing, specifically, financial statements. At the end of the lesson, you will:

Learn about the three main statements and what each one contains

Be comfortable reviewing financial statements and making conclusions about them

Understand how to analyze statements from one company and how to compare statements from different companies

Corporate financial statements may not have binge-worthy plots, but they do tell stories. And if you plan on investing in individual stocks, those are stories you'll want to read. To be clear, you don't have to become the financial whiz who drops acronyms like DSO and COGS at cocktail parties—but you should be comfortable reviewing financial statements and forming opinions about them.

Fortunately, this is a skill you can learn. Grab a pen and paper for note-taking, and let’s get started with analyzing income statements.

INCOME STATEMENT

The income statement summarizes the company's revenues, expenses and profits over a period of time. A company can produce an income statement for any timeframe, but public companies typically release quarterly and annual income statements.

Revenue

The income statement's starting point is gross revenue or sales for the period. Gross revenue can be a single line item, or it can be broken down into business divisions or geographies. There may also be deductions to gross revenue for things like sales returns. Gross revenues minus any deductions equals net revenues.

Cost Of Sales And Cost Of Goods Sold

Below net revenues, the income statement defines the company's cost of sales or cost of goods sold. These are expenses directly related to producing a product or service. Retailers and service companies use cost of sales, while manufacturing companies use the cost of goods sold label.

Net revenues minus these direct expenses equals gross profit.

Operating Expenses

Moving down the income statement, the next section lists out operating expenses, sometimes called selling, general and administrative expenses (SG&A). These are costs that are not directly tied to sales. This bucket includes things like rent, marketing expenses, salaries, corporate overhead, research and development and depreciation and amortization.

Sometimes these expenses are itemized, but companies may aggregate them into one or two line items. As an example, sportswear brand Nike's quarterly financial statements show only two expenses in this section: demand creation expense and operating overhead expense.

Gross profit less operating expenses equals operating profit.

Other Income And Expenses

Below operating expenses, the income statement defines any other expenses not directly related to operations. This includes interest expense and interest income.

Other non-operating expenses you might see here are restructuring charges and gains or losses on asset sales, assuming the company's core business is not asset sales.

Operating profit less non-operating expenses equals profit before taxes.

Taxes And Net Profit

The last section of the income statement subtracts income taxes to arrive at net profit or loss. For public companies, you should also see earnings per share or EPS in this section. EPS is the net profit divided by the number of common shares outstanding. If the company generated a net loss, this figure will be a negative number, called loss per share.

Reviewing The Income Statement

On its own, the income statement doesn't reveal a lot about a company. You'll see right away whether the company is profitable, but the other numbers may not be telling unless you compare them to something.

There are two common ways to compare an income statement. You can evaluate it relative to income statements of other companies by looking at margins. You can also evaluate an income statement against prior income statements from the same company.

Margins For Peer Comparisons

Margins are percentage-based measures of efficiency and profitability. To calculate margins, you divide profits by revenue:

Gross margin is gross profit divided by net revenue.

Operating margin is operating profit divided by net revenue.

Net profit margin is net profit divided by net revenue.

You can use the resulting percentages to compare how well a company translates revenues into profits vs. its peers.

As an example, Nike reported a gross margin for its fiscal year 2022 of 46%. Competitor Adidas reported a higher gross margin of 47.3% for its year-ending December 31, 2022. Adidas' higher margin is better, because it means the company spends less on product for each $1 of sales.

Period-to-Period Comparisons

Comparing a company's income statement to its own prior income statements shows you which direction revenue and expenses are trending. You'd be concerned, for example, if you saw revenues declining for four consecutive quarters. You'd have the same reaction if the cost of sales was continually rising.

Ideally, a series of income statements would show rising revenues and consistent-to-rising margins. If you see something different, you'd want to review earnings releases and listen to the earnings webcasts to find out why.

Tomorrow’s topic: analyzing balance sheets.

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Day 6: Analyzing Balance Sheets

Tue, 11 Aug 2026 18:31:00 +0000

This financial statement defines the company's assets, liabilities and shareholder equity.

Day 6/10: Balance Sheets

Now we move on to balance sheets. The balance sheet is a summary of a company's financial health as of a single point in time. This financial statement defines the company's assets, liabilities and shareholder equity. The totals of these categories balance; assets always equal liabilities plus shareholders equity.

The balance sheet formula tells you that everything the company owns (assets) is funded either by debt (liabilities) or equity.

Let's review each of the balance sheet categories.

Assets

Assets are things a company owns that have value. This includes bank deposits, accounts receivable, investments, properties, equipment, inventory, patents and trademarks.

Assets are often grouped and totaled by their liquidity. So, current assets are those that can be converted into cash within a year. Non-current assets will not be liquidated within the year.

Non-current assets may be additionally broken down into fixed assets and intangible assets. Fixed assets include real estate, buildings and equipment. Intangible assets, sometimes called intellectual property, are things like copyrights, trademarks and patents. Fixed and intangible assets are reduced in value annually by depreciation and amortization, respectively.

Liabilities

Liabilities are debts. They can be short-term liabilities such as accounts payable and unpaid, accrued expenses or long-term liabilities like mortgages or bonds payable. Any debts that will be paid within 12 months are categorized as current liabilities. Debts that won't be paid within a year are grouped as non-current liabilities.

The table below shows Nike's line items for current and non-current liabilities.

The current portions of long-term debt and operating lease liabilities are the payments due on these facilities over the next 12 months.

Commitments are future contractual obligations the company expects to pay. And contingencies are estimated amounts that may be payable at some point. These are often related to lawsuits which the company expects to result in a liability. If you see this line item on a balance sheet, you'd want to read the notes to understand what's included.

Shareholder Equity

Shareholder equity is the value that's left if a company liquidated all assets and used the proceeds to repay its debts. This is also called book value. It should be a positive number. When shareholder equity is negative, the company owes more than it owns. That's a dangerous position which could result in bankruptcy.

The two main components of shareholder equity are invested capital and retained earnings. Invested capital includes funds raised through stock issues. Retained earnings are prior-period profits that are not distributed to shareholders. Corporate leadership teams use retained earnings to invest in growth initiatives, such as geographic or product line expansion or acquisitions.

Analyzing Balance Sheets

You can analyze and compare a company's balance sheet using ratios. Three types of balance sheet ratios are liquidity ratios, activity ratios and capital structure ratios.

Liquidity ratios tell you how easily a company can pay its debts:

Current ratio: Divide current assets by current liabilities to see how well the company can cover its debts over the next 12 months.

Cash ratio: Divide cash and cash equivalents by current liabilities to see if a company can pay its near-term debts from cash, without selling inventory.

Activity ratios measure how fast a company collects accounts receivable and sells inventory:

Accounts receivable turnover ratio: Divide net credit sales by the period's average accounts receivable balance to see how quickly a company collects amounts owed from customers.

Inventory turnover ratio: Divide cost of goods sold by the period's average inventory value. This shows how many times the company sold and replaced inventory during the period.

Capital structure ratios measure how much debt a company uses. High reliance on debt is a risk factor.

Debt-to-equity ratio: Divide total debt by total equity to understand how much debt the company relies on. A lower number is better.

Debt-to-assets ratio: Divide total debt by total assets. This is another way of evaluating the company's leverage.

QUIZ:

What is the purpose of a Balance Sheet?
A. To show the company’s profitability
B. To show the company’s financial position
C. To show the company’s cash flow
D. To show the company’s expenses

Tomorrow’s topic: interpreting cash flow statements.

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Day 7: Interpreting Cash Flow Statements

Tue, 11 Aug 2026 18:27:00 +0000

Cash flow statements segment cash inflows and outflows into three groups.

Day 7/10: Cash Flow

The statement of cash flows reconciles the income statement to changes in the balance sheet. It does that by itemizing how cash flowed through the business over a period. The sources and uses of cash net to an increase or decrease in the company's cash balance.

Cash flow statements segment cash inflows and outflows into three groups: operating activities, investing activities or financing activities.

Cash Flow from Operating Activities

The calculation of cash provided from operations adjusts net income in two ways. One, it adds back noncash expenses like depreciation and amortization. It also adjusts for changes in accounts receivable, inventory and accounts payable. Increases in accounts receivable and inventories are uses of cash. Increases in current liabilities are sources of cash.

Cash Flow from Investing Activities

The components of cash provided (or used) by investing activities include investment purchases and sales as well as the purchase of property, plant and equipment.

Cash Flow from Financing Activities

Financing includes debt and equity transactions. The debt side of this is straightforward: An increase in debt is a source of cash, while debt repayment uses cash. Equity transactions that appear in this section of the cash flow statement include share repurchases, stock issues and shareholder dividends.

The sum of cash provided (or used) by operating, investing and financing activities is the net change in cash for the period. Add that amount to the company's beginning cash balance and the sum equals the company's ending cash balance.

Analyzing Cash Flow Statements

At the end of the day, companies run on cash—not profits. To meet ongoing obligations, a company must have positive cash flow. When reviewing cash flow statements, note where the cash is coming from and whether the main sources of cash are changing over time.

You want to see cash generated primarily from operating activities. Investing and financing can fund a company through a temporary setback, but they are not sustainable sources of cash long term.

Free Cash Flow

One important metric derived from the cash flow statement is free cash flow or FCF. FCF is cash provided by operating activities less capital expenditures (capex). The deduction of capex is important—without maintenance of capital assets, profitability would eventually suffer.

FCF is essentially surplus cash that companies can use to pay down debt, return value to shareholders and/or invest in growth initiatives. Strong FCF over time is an indicator of financial health and profitability.

Cash Flow Ratios

As with income statements and balance sheets, you can use ratios to get different views of a company's cash flow performance. Cash flow coverage ratios, for example, measure how a company's cash flow compares to its debts:

Operating cash flow ratio. Divide operating cash flow by current liabilities. This tells you how well the company can pay its near-term debts from operating activities.

Cash flow coverage ratio. Divide operating cash flow by total liabilities. The cash flow-to-debt measures how long it would take a company to repay debt using operating cash flow.

You can also compare operating cash flow to share price as a valuation metric. The price-to-cash flow ratio (share price divided by operating cash flow per share) tells you how much cash the business generates for each share of stock.

Understanding Financial Statements

Analyzing financial statements gets easier with practice. You might start by reviewing recent statements from your favorite companies, noting your questions and conclusions along the way. Then research what the leadership teams have to say about those results. The leadership commentary should explain any significant changes in the financial statements.

Analyst coverage is also instructive. Those reports provide professional analysis of a company's performance. That analysis can show you what's happening with the company—and demonstrate how financial statements can inform that explanation.

QUIZ:

1. How can a cash flow statement help investors make decisions?

A. By determining the current cash position of a company
B. By determining the future cash position of a company
C. By providing an overview of a company’s financial performance
D. By providing an analysis of a company’s investments

Now it’s time for your homework: Identify two competing public companies you know, like Walmart and Costco. Visit the investor relations sections of their websites and locate their financial statements. Review and compare their income statements, balance sheets and cash flow statements. See what conclusions you can make.

Tomorrow’s topic: 10 ratios to make you money in stocks.

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Day 8: 10 Ratios To Make You Money In Stocks

Tue, 11 Aug 2026 18:24:00 +0000

It’s all about refining your requirements for investable stocks.

Day 8/10: Useful Ratios

By now, you have a solid investing foundation. You know about the most common stock-buying strategies and you can read and evaluate financial statements. Now, it’s all about refining your requirements for investable stocks.

Evaluating stocks to buy and sell can be a tricky business, even with all of the data available at your fingertips. There are dozens of ratios and metrics that give clues to the financial health of a company. Today you’ll learn about the 10 simplest and most useful:

PE Ratio

PEG Ratio

PS Ratio

PCF Ratio

PBV Ratio

Debt-to-equity

Return on equity

Return on assets

Profit margin

Dividend payout ratio

Let’s get to it. Here are 10 financial ratios that can tell you most of what you need to know when you’re scouring the market for good stocks to buy.

1. Price-Earnings Ratio (PE)

This number tells you how many years worth of profits you’re paying for a stock. To calculate PE, divide the stock price by earnings per share (EPS).

Note that the most frequently used earnings number in the calculation is total EPS over the past four reported quarters. You could also use “forward” earnings, which is the average of Wall Street’s forecasts for the current fiscal year.

All things equal, the lower the PE, the better.

Benjamin Graham, the legendary investor and Warren Buffett’s teacher at Columbia University, postulated that stocks should trade for a PE multiple equal to 8.5 times earnings plus two times the growth rate of earnings.

PE is Relative

A good PE ratio varies by industry and by the investing climate. It is a comparative measure, and you need context to determine if a PE is good or bad.

Here’s an example. For the market as a whole, the S&P 500 currently trades for about 23 times the past 12 months of reported earnings. The index’s average PE since 1935 is lower at 16. Compare those two numbers and the implication is that today’s market is a bit pricey.

Industries characterized by volatile earnings tend to trade at low PE multiples. Why? Because investors are cautious when earnings can tumble in a hurry. Homebuilders and commodity producers fall into this bucket.

Rapidly growing companies often have high PE ratios, for the opposite reason. Investors are more willing to pay a premium when they expect strong future profits. Tesla and PayPal are two examples, with PE multiples of 50 and 36, respectively.

Comparing PE Ratios

To evaluate an individual stock’s PE ratio, compare it to competitors. You should also compare a stock’s current PE with its average multiple over the past three, five or 10 years. If the current ratio is lower than the average, you may have spotted a bargain, assuming the company has growth potential.

This leads us to the next metric you should know, the PEG ratio.

2. Price/Earnings Growth (PEG) Ratio

The PEG ratio, another Benjamin Graham invention, attempts to measure the discount or premium you’re paying for growth.

To calculate PEG, divide the PE ratio by the expected annualized earnings growth rate. You can use different timeframes for the expected growth rate, but longer is better. If you have a good estimated growth rate for the next five years, use that.

A PEG ratio of less than 1 suggests the company is undervalued.

The downside of the PEG ratio is that future growth rates are notoriously hard to predict. Companies’ growth profiles can change, sometimes drastically.

Apple is an example. The iPhone maker’s PEG ratio based on five-year, expected growth is 2.85. The same ratio using a one-year outlook, however, is 2.31. And if you use the prior 12 months to calculate PEG, the ratio dips into negative territory at -13.65%.

3. Price-to-Sales (PS)

The price-sales ratio divides a stock’s market capitalization by total sales over the past 12 months. This metric was popularized by investment manager and longtime Forbes columnist, Ken Fisher. It tells you how much you are paying for every dollar in annual sales.

The price-sales multiple can be a better indicator of a company’s relative value than the PE for two reasons. One, there are times when cyclical companies have no earnings. And two, sales are more difficult to manipulate than earnings.

Like other ratios, you should compare the PS of a stock with competitors and with historical sales multiples. Know that a low PS ratio can be spoiled by an ongoing lack of profitability and/or big debt balances.

4. Price/Cash Flow (PCF)

To calculate PCF, divide the stock’s share price by its operating cash flow over the prior 12 months.

PCF can provide a more straightforward comparison than PE. This is because cash flow doesn’t include noncash expenses like amortization and depreciation. Excluding these items eliminates any differences in the way companies depreciate their assets.

Lower PCF ratios are preferable.

Note that the PCF ratio uses operating cash flow only, which means it overlooks a company’s cash flow performance from financing and investing activities.

5. Price-To-Book Value (PBV)

PBV describes how much you’re paying for every dollar of assets owned by the company. To calculate PBV, divide the market capitalization by the difference between total assets and total liabilities.

The idea is to approximate the money left if the business shut down and sold everything. As with most price multiple metrics, you should compare a stock’s current price-to-book to its historical averages.

When comparing two different companies, PBV is best suited for asset-heavy companies. The metric is less telling for service businesses or companies without substantial property, plant and equipment. For instance, United States Steel (X) trades for 0.52 times book value, while Apple fetches an astronomical multiple of 45.6 times book value.

6. Debt-to-Equity Ratio

We mentioned the debt-to-equity ratio yesterday in the context of analyzing balance sheets. As a recap, you calculate debt-to-equity by dividing total debt by shareholder’s equity. The resulting number tells you what percentage of a company’s assets are financed with debt.

A lower percentage is better, because high debt loads can become problematic in a downturn. Debt cuts both ways, though. In expansionary times, a company can boost profits by taking on more debt.

Heavy established industries like utilities and industrials generally have higher debt-equity ratios than rapidly growing companies. Caterpillar, for example, has a debt-equity ratio of 1.37 while Google’s parent company Alphabet is 0.05. The best comparisons are within industries and against a company’s historical ratios.

7. Return On Equity (ROE)

ROE measures a company’s efficiency at generating profits from money invested in the company. You’d calculate ROE by dividing shareholders’ equity into net income.

ROE is useful for measuring management’s effectiveness. The downside is that it’s not instructive for young companies that aren’t profitable. Uber, for example, has an ROE of -44%.

A higher ROE is better. A stock with a higher ROE produces more profit from each $1 of equity on its balance sheet.

8. Return On Assets (ROA)

ROA is another measure of management effectiveness. The formula for ROA is net income divided by total assets.

A higher ROA shows the company can grow profits more efficiently from a given base of assets. On the other hand, companies with a comparatively low ROA will need to borrow or raise equity to achieve the same amount of profit.

ROA is most useful for intra-industry comparisons. The trend over a multiyear period can be more instructive than ROA for a single year or quarter.

9. Profit Margin

Rising sales are great, as long as they’re not at the expense of profit.

Profit margin, introduced in our income statement analysis section, shows how much a company earns from each dollar of sales. To determine profit margin, divide the company’s profits by its sales.

As a reminder, the number you get depends on which profit number you use in the calculation:

Gross profit, which is sales minus cost of sales, is the simplest measure.

Operating profit is gross profit less overhead items. This is the best measure of profitability from ongoing business activities.

Net profit (income) is what’s left after paying taxes.

Margins vary widely by industry. They tend to be highest among manufacturers and decrease down the value chain to wholesalers and retailers.

Declining margins over time mean declining profits, unless the business can offset the margin drop with rising revenues.

10. Dividend Payout Ratio

Dividend payout ratio is the percentage of the company’s earnings that are paid out as dividends to its shareholders.

The ratio indicates how sustainable the company’s dividend is. Payout ratios vary by industry and business model, but you generally want to see this number below 80%. Higher than that, and the company is at risk of having to reduce its dividend in a downturn. And a severe dividend reduction is usually followed by a drop in share price.

Note that real estate investment trusts (REITs), by law, must distribute 90% of their taxable earnings to shareholders. So they routinely have very high payout ratios.

QUIZ:

1. Which of the following ratios is used to measure a company’s ability to pay back its short-term debt?

A. Price-to-earnings ratio
B. Earnings per share
C. Debt-to-equity ratio
D. Return on equity

2. Which ratio measures the amount of profit a company makes from its investments?

A. Return on assets
B. Price-to-earnings ratio
C. Earnings per share
D. Debt-to-equity ratio

Tomorrow’s topic: A closer look at dividend investing.

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Day 9: Spotlight on Dividend Investing

Tue, 11 Aug 2026 18:21:00 +0000

Let’s review how some of these ratios apply to one popular category of stocks: dividend payers.

Day 9: Dividend Spotlight

Over the last few days, we’ve shifted from conceptual trading strategies to practical, analytical techniques. You know the structure of income statements, balance sheets and cash flow statements. You also understand how to use ten metrics to evaluate the financial health of a public company.

Now, let’s review how some of these ratios apply to one popular category of stocks: dividend payers. Through bull markets and bear markets since 1900, stocks have delivered historical returns of about 7% annually after inflation. More than one-third of that return came from dividends—regular payments made by companies to shareholders.

After today’s lesson, you will understand:

The advantages and disadvantages of using dividend stocks for income

How to maximize the returns from your dividend stocks

How to identify bargain dividend stocks poised for growth

The Case For Dividend Stocks

Dividend stocks have two notable advantages

1. Dividend stocks pay you to own them, even when the market is down.

2. Companies that have paid dividends for decades are likely to stay in business. They’ll continue rewarding shareholders with higher dividend payouts over time.

In 2022, the S&P 500 was down more than 18% on a total return basis. Portfolios focused more squarely on dividend-paying stocks fared much better. As an example, the total returns for the WisdomTree High Dividend Fund (DHS) and iShares Select Dividend (DVY) ETFs were 7.9% and 1.8%, respectively.

Dividend Stocks Vs. Bonds

For investors who prefer income-producing assets, dividend stocks can be an attractive alternative to bonds. The advantages relative to bonds include:

In low interest-rate environments, dividend yields can outperform bond yields.

Dividend stocks can appreciate as they produce income.

Premier dividend stocks regularly raise their dividend payments for rising income over time.

The disadvantages of dividend stocks vs. bonds are:

Companies can cancel or reduce their dividends at any time.

Dividend stocks can lose value. (The face value of a bond doesn’t change, but a bond’s market price on the secondary market can fluctuate.)

To mitigate those disadvantages, seek out dividend stocks with low payout ratios, low debt levels and consistent cash flows. These characteristics can help a company survive tough times without changing its dividend policy.

The share price might drop, of course. But if the dividend remains intact, you get paid to wait for capital gains to materialize.

FORBES FOCUS: JOHN DOBOSZ

John Dobosz is the editor of three Forbes investment newsletters: Forbes Dividend Investor, Forbes Billionaire Investor and covered call writing advisory service, Forbes Premium Income Report. Prior to joining Forbes in 2001, he was a producer and reporter at CNN Financial News, focusing on stories about entrepreneurship. He has also worked as a field producer for Bloomberg TV in New York, and as a reporter/researcher at Inc. Magazine in Boston. Born in Tampa and raised across the bay, he graduated n 1990 from the University of Florida with a B.S. in business administration with a concentration in finance.

Reinvest For Maximum Compounding

When you buy a dividend stock, you must choose between reinvesting the dividends or receiving them in cash. Unless you are retired and need the income to pay your bills, you’ll want to reinvest.

Reinvesting dividends raises your share count with every payout. Each additional share or portion of a share produces more dividends. Over the long term, the compounding effect of this can be extremely beneficial because:

You’ll be reinvesting consistently. The reinvestments in down markets are particularly efficient, because you’ll get more shares for the same dividend payment.

Premier dividend payers raise their dividend over time. This pushes the yield relative to your cost higher and higher.

Mobile phone chip maker Qualcomm (QCOM) demonstrates the potential of rising dividends. In 2003, you could have bought Qualcomm for $17 just before the company made its first dividend payment of $0.025 per share. Today, Qualcomm’s quarterly dividend is $0.80—32 times that first payout.

If you are earning an annual dividend of $3.20 from QCOM on shares you paid $17 for, that’s a yield of nearly 19%.

Buying “Cheap” Stocks With Rising Payouts

One compelling strategy is to invest in temporarily cheap stocks of companies that regularly raise dividends. To be clear, cheap stocks aren’t penny stocks. They’re companies that are trading at lower valuation ratios than their five-year historic averages.

You learned about valuation ratios yesterday. The big ones are price-to-earnings, price-to-sales and price-to-cash flow.

Valuation ratios don’t tell a company’s whole story, of course. To steer clear of stocks that are cheap for a reason, also screen your prospective stocks for:

Expected sales growth over the next 12 months

Modest payout ratios (dividends to earnings and dividends to free cash flow)

Track record of increasing dividend payments over 15 or more

Stocks like those in the NOBL or VIG exchange-traded funds are excellent candidates.

QUIZ:

When are dividends typically paid?

A. At the end of the year
B. At the beginning of the year
C. Quarterly
D. Monthly

It’s homework time again! Choose two of the top holdings from exchange-traded funds NOBL or VIG. Analyze them in terms of PE, PS and PCF. Also review each one’s sales growth expectations, payout ratio and dividend track record.

Tomorrow’s topic: Five final strategies to chart your own investing course.

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Day 10: Five Strategies to Chart Your Own Investing Course

Tue, 11 Aug 2026 18:19:00 +0000

You'll be able to form your own opinions about stocks so that you are less influenced by prevailing market trends.

Day 10/10: Tying it all together

At this point, you’ve built a comprehensive knowledge base to kick off a successful investing practice. You have a goal, a place to invest and an understanding of various investing strategies. You’ve also learned the ins and outs of financial statements and had some practice using financial ratios in analyzing dividend stocks. Now we’ll return to the question of emotional investing and how to minimize it.

In this section, we’ll pull together many of the concepts we’ve already covered. At the end, you should feel confident that:

You can form your own opinions about stocks so that you are less influenced by prevailing market trends.

You have the financial security to invest with a long term timeline.

You know when to exit a position.

You can learn from investing mistakes and continually improve the quality of your trading decisions.

On Day 2 of this course, we discussed the problem of the herd mentality in investing. As a reminder, following the masses can often lead to poor trading decisions that ultimately reduce your long term results.

The five strategies below can help you resist the urge to buy or sell because that’s what everyone else seems to be doing. Use them to make independent decisions that suit your own investing needs and goals.

1. Look Beyond the Numbers

The right investments for you will meet your technical requirements, of course. But you should also look beyond the numbers to evaluate those prospective stocks. Questions to ask include:

How does the company make money? You should have a full understanding of the business model. If it's overly complicated, it may be hard for you to make independent decisions.

How strong is the company's competitive advantage? Competition can change a company's outlook quickly. Companies with a long-lasting competitive advantage—known as economic moat—have a more predictable future. They're also easier to hold through downturns because you know they'll manage better than their competitors.

Do you enjoy following the company and its industry? You should be motivated to read the company's news and financial releases. That's how you form your own opinions about where the company is headed.

Would you be happy owning the company if the stock market shut down for five years? This question is inspired by Buffett's investing approach. Buffett is strongly against investing in a stock just to make a quick buck. He recommends only buying companies you believe in enough to hold long term.

2. Keep Enough Cash on Hand

Cash savings protects you from a liquidity crisis. Without that protection, you'll be tempted to reach into your investment account when you're faced with a financial emergency. If you do that when the market's down, you'll realize losses, which only compounds your financial issues.

Liquidating at a profit isn't always the outcome you want either. For one, you'll incur capital gains taxes. You'll also reduce your future gains potential because you have less money invested going forward.

Protect your investing results by maintaining ample cash savings. Most experts recommend enough to cover at least three months of your living expenses.

3. Invest for the Long Term

If you’re going to invest, you will experience market downturns. It's wise to accept that you cannot predict when the next bear market will happen or how long it will last. You're better off assuming it can happen at any time and may last for several years.

You can build those assumptions into your investing process by investing for the long term. Don't expect gains next month or next year—that may leave you disappointed. Instead, look to build your wealth in the stock market over decades. The downturns that happen between now and 20 years from now are only part of the process.

4. Define Your Exit Parameters

At some point, a stock won't be performing the way you expected, and you'll think about selling it. In this scenario, having defined exit parameters can help you make this decision rationally rather than emotionally.

Exit parameters are the reasons why you'd close a stock position. They might include:

The company's competitive advantage has eroded.

You don't understand the company's new direction and/or leadership team.

A fundamental change has permanently limited the company's ability to create value.

Your money would be better invested elsewhere.

Your investment goals have changed, and the stock no longer suits your needs.

If you're taking the long term view on stocks, make sure your exit parameters are also long term. For example, a fundamental change in the company's business will affect the stock for the foreseeable future. But a one-time production disruption or a bear market will not. These are temporary problems, and you should not base long term decisions on temporary issues.

5. Note Lessons Learned

You will make investing mistakes—everyone does. Use those mistakes as learning opportunities. Evaluate what went wrong so you can improve your investing process over time.

A common mistake is underestimating your own risk tolerance. Let's say you invest aggressively to start. Your rationale is that you're young, you have decades to build your wealth and you can accept volatility now in exchange for higher returns later. But when you see that volatility affects your account balance, the fear of losing money starts to rattle you. You wonder whether you should be investing at all.

It's tough to make money in the stock market when you are constantly fighting the urge to sell out. Unless you make a change, you'll eventually give in. And that will undercut your long term returns.

In this scenario, you'll be a better investor going forward if you recognize there's an issue, note the lesson learned and adjust. You can take a step back and commit to overlooking tough market cycles. Or, you can shift into a more conservative asset allocation.

Note that you don't have to sell anything to shift into a more conservative asset mix. Simply change the composition of your new investments. This way you can shift your portfolio gradually, without incurring unnecessary losses.

Finalize Your Investing Process

You now have a solid base of conceptual and technical knowledge to support your investing practice. To recap, here are the steps needed to set yourself up for success:

Set a goal and timeline

Open an account

Define target asset allocation based on risk tolerance and diversification needs

Define quantifiable investing parameters (yield, valuation metrics, etc.)

List industries you feel comfortable investing in

Define exit parameters

Start investing

Monitor and adjust

Begin today and you’ll have more time to build wealth through compounding. Twenty years from now, you’ll look back and remember this as the day you took charge of your financial future.

We hope you enjoyed this course—and learned a great deal. Please take a minute and answer a few questions that will help us make it even better.

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