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RTC6: An introduction to stocks and the stock market · The Curve

• 0:00
  Welcome to the Curve Podcast, a conversation for women who want to learn more about money,
• 0:06
  their money for the future they want to have. We're all busy in the pursuit for financial
• 0:12
  confidence and increasing your wealth should be a simple one. That's why the curve was created.
• 0:17
  This podcast is for women to learn about investing in a non-scary or intimidating way.
• 0:22
  With short episodes you'll have time to learn, digest and understand everything to do with the
• 0:28
  world of investing. Don't expect to be an expert on day one. No question is a silly question.
• 0:34
  If you're asking it, so is everyone else. So thank you for being here and for listening,
• 0:39
  because together we really can raise the curve. Well this is very exciting episode six.
• 0:47
  And I feel like today's going to be a bit wolf-of-war, isn't it? We're talking about stock market.
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  Yeah, we're not going to be throwing any dwarves against, I think it's targets or anything,
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  but okay, not people's bums, no. That's all I think about when I think of wolf-of-war
• 1:00
  strikers, what was that film? Wolf-of-war strikers? Oh my god. Wow, that's crazy.
• 1:09
  Generally when the stock market comes up in conversations, it's just like a light up.
• 1:13
  Yeah, it's like how long do we have? Yeah, it's one of those topics that I think really
• 1:18
  is especially when it comes to people who are new to investing. The stock market shares,
• 1:23
  share price, all that stuff is kind of overwhelming. And what does a share price mean?
• 1:28
  This is my first question. What does a share price mean? Please tell me.
• 1:32
  So I guess coming back to fundamentals, what are you buying when you're buying a share in a business?
• 1:39
  You're buying exactly that. You're buying a share in a business or in a company.
• 1:44
  So you're a part owner? Exactly. You're becoming a part owner. And that's why we always
• 1:49
  are harping on about picking a good company to invest in, a company that you know well or
• 1:54
  because you're effectively sharing in the company's profits and the growth of that company.
• 2:00
  So if you're looking at a company to invest in and you don't think it has a good outlook
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  or you don't think it's going to be able to grow, why do you want to be a part of that?
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  You don't. You also probably want to at least vaguely understand the business too, right?
• 2:15
  Exactly. Otherwise there's no kind of personal investment there and by the sounds of it,
• 2:20
  you are personally invested, right? Yeah. And there's a lot of technology companies out there that
• 2:25
  do really obscure technology or a health key company which invests in a really intricate type of
• 2:33
  medicine. And I'm never going to understand those businesses. And I'm not going to use my resource
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  in my time to learn those businesses. When there's so many other businesses I use and I understand
• 2:44
  and therefore I feel more comfortable owning. Well, I guess because share markets, the stock market,
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  whatever it's called, it can be so overwhelming, there's so much to learn to then put on top of
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  that learning and entire industry or business or what kind of companies are going to be successful
• 2:59
  in the tap industry. Like I know nothing about taps and I'm not that interested in taps either.
• 3:04
  So you're right, it makes sense to go for me to like, I don't know, health and well-being for
• 3:08
  example. And if you're interested in health and well-being and you're interested in that business,
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  you're going to find it a lot more exciting and not as much of a chore to research or a chore
• 3:18
  to understand. You know, you're going to be interested and want to know more and want to know about
• 3:24
  the competitors and the industry dynamics. And it's just a bit more interesting. I guess
• 3:30
  also wanting to see a company succeed too because say you're interested in, I don't know,
• 3:36
  vitamins and you decide to invest in to be pure, for example, that New Zealand brand and you've
• 3:41
  researched it and you really believe in the ethos and everything they're doing, you want them to
• 3:45
  succeed. So putting many towards them growing is in your personal interests. And when you're using
• 3:51
  the product or using the service, you're researching without knowing it. Does that make sense?
• 3:58
  If you're purchasing these vitamins because you like them and because you think they make
• 4:03
  your feel good, you're already doing the research without having to sit down and read something,
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  which is kind of what people think research is about. You're going out there and you're using
• 4:13
  the product, seeing if you like it and the fact that you like it and then you buy shares in the company,
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  that's research. Okay, so basically what you're saying is rather than getting too overwhelmed with
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  the idea of the stock market and wolf of Wall Street and every company in the world's listed
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  and all of that stuff, start with the basics, look around you. What are you using? What are you
• 4:32
  interested in? And then maybe start with those companies to maybe invest in? Exactly. Yeah,
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  coming back to the vitamin example again. If you see a new vitamin that's on the market and you
• 4:44
  start to use that instead, you're also doing research and it's having the thinking of
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  why did I change? Does that mean everyone else will change? And therefore the outlook and the growth
• 4:56
  trajectory of that business might not look as good as I first thought. And it's kind of always
• 5:02
  having that investment hit on. And this is what I really struggle is to turn it off. When I go
• 5:09
  about my day and I use all these products and these services, or I see a product that has flown
• 5:15
  off the shelves, not toilet paper, I'm not talking about that. But for example, when I
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  feel like just by the way, that would have been a really good investment. Yeah, very short term,
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  but yes, you know, it's looking at those trends, looking at the products that everyone's
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  using and the services that everyone's using and thinking, you know, is that investible?
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  But coming back to your initial question about what actually is a sheer price? I just want to
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  break it down a bit further because we're kind of felt like we're not a bit of a tangent about
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  what to invest in, which we'll get back to in a bit. But it's more about, you become a shareholder.
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  And when you buy a share in a business, you become a part owner of that business, you become
• 5:56
  a shareholder because you're buying a share. And if you buy multiple shares, then you're still a
• 6:02
  shareholder, but you're buying more than one share. So say a business was publicly listed and you
• 6:08
  could buy shares for a dollar. You bought $10,000 worth of shares in that business. You would
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  own $10,000 shares. And it might have $100,000 shares that are publicly issued. So anyone could buy
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  them. And so you would own $10,000 out of that $100,000. You become a shareholder.
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  So then how is the price determined? Like, if Sophie Hallwright wants to buy a share in a company
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  and she's bought it in 2014, for example, I don't know why I'm speaking in third business.
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  Say I wanted to buy something and then in three years time someone else wants to buy a share
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  from that same business. How does the price of that differ? And what changes it?
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  It all comes down to the valuation of the business, which we won't get into in this episode because
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  we can go into a lot of detail with how to value businesses. But to keep it very high level,
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  it's all about the outlook for the earnings and what you expect those earnings to be in the long
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  term. So when I look at businesses and I am making a decision on whether to buy a business or not
• 7:06
  and make that investment, I tend to think in my head, can I see this business doubling in five
• 7:12
  years? And if the answer is yes, and like, look, we're never going to get it right. You know,
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  don't beat yourself up if it doesn't double or, you know, if it takes 10 years to double. But
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  it's a small rule of thumb that I try to follow. So all this business double in five years. If so,
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  that's a 15% return per year on average. And I'm very happy with that. But let's look at
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  Microsoft, for example, that company in the last five years, it delivered 36% return per year.
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  I know. That's crazy. I need to invest in Microsoft instead. I mean, some people would have
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  guessed that some others wouldn't. But that's pretty phenomenal for a business of that size. So there
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  are those businesses out there. And you know, I get it also a lot, oh, isn't it best to invest
• 7:58
  in small companies because they're more likely to have a better growth trajectory? Because it's
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  finding the diamond in the rough, right? It's finding a small business that hasn't got big years.
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  And I'm not used to there are other businesses, but there's also large businesses like Microsoft,
• 8:12
  like Amazon that have done fantastically well. And we can continue to do well. Exactly.
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  We were sitting here five years ago. We could have been having the conversation saying, oh, no,
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  they won't double again. And you know, it's just it's all about what do you think the growth
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  trajectory of that business will look like? That's what dicks really, the prices and the valuations
• 8:31
  of those businesses. But I guess to summarize, it's the price that you pay to become an owner of
• 8:36
  that business is what a share prices. You know how you're using the Microsoft example and saying
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  that maybe five years ago we could have said, oh, Microsoft isn't going to double again. It's just
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  not going to happen. But if you don't know the plans of the business or what they're going to be
• 8:51
  doing that year, I mean, surely there's only so much that you can figure out before you even invest.
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  Exactly. And that's kind of coming back to the point that we said before, it's investing in a company
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  that you understand that you can see the growth outlook or you understand the growth outlook. You
• 9:08
  can see people using the product or the service or they might have a really strong brand like Nike,
• 9:15
  for example, or Lulu lemon, all those companies have strong brands. And I think personally,
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  having a strong brand is pretty key to the success of business. It's not the only success,
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  but it does help in creating that competitive advantage. The cool new thing always is going to take
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  over, isn't it? And if you use the product or using the service, you can also see when you stop
• 9:38
  using that service or when you don't or you see another product that's better or there's all those
• 9:42
  elements that come into what you think the growth outlook for the business will be. And so then
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  going back to the share price and what makes it go up and down, what other factors is it important
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  to think about like when to buy a share this, when to sell a share? Well, the share market,
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  it's exactly that. It is a market. It's a marketplace. So just like when we go to the French markets
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  or the French market, it's a marketplace where you buy and sell shares. So you can kind of think
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  about it as imagine everyone goes to the French market, but instead of selling bread and croissants
• 10:16
  and coffee and I'm hungry. They're selling, they're going there to buy and sell shares. They've
• 10:21
  bought their shares in Microsoft. They don't want to own them anymore. So they've got running around
• 10:25
  trying to find someone else to buy those shares. It's a bit of a strange analogy, but that's
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  effectively what the share market is within a digital form. So it's a marketplace. It's all about
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  supply and demand. It's basic economics. The more buyers you have and the less sellers, the more
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  the price is going to go up. The more sellers you have and the less buyers, the price is going to
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  go down. Which is scary because you never want to buy something. It's like you go past a cafe and
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  there's no one in there. You're not really wanting to go into that cafe. It's the same
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  way of buying a share. It's like no one's buying it. It's probably for a reason. The difference
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  between that and researching to then take an educated punt is kind of where I think I lose confidence.
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  Yeah. And there's a bit of following the crowd, what we call momentum trading, which is kind of
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  when you're talking about the cafe with nobody in it versus the cafe that everyone's at.
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  Sometimes it's good not to follow the crowd because you don't want to be the last one that buys
• 11:20
  that stock. You don't want to be the last one that's buying those those Amazon shares before
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  they start falling. If you're not coming back to the research argument and you're not coming back
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  to your fundamentals of why you're buying that company. If you're just following the following
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  the pack and have no reasoning for your investment decision, when that share price starts to fall,
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  you've got nothing to fall back on. Whereas if the share price starts to fall and you're like,
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  hang on a sec, nothing's changed. I still really like that product or that service. I still think
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  it's a very well run business. I think it's still got plenty of opportunity to grow. I'm going
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  to buy some more. It's getting away from following the crowd because that can be quite a dangerous
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  game when investing. Do you think it's a good way to start or not at all? No.
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  It's quite scary. I don't even know how I would look at a share price of a company when
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  everyone's selling and think, oh, I know more than all these other people. What do I know?
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  It depends why the share price is falling. What are other reasons? I guess just the market
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  fluctuations. There's a good quote which a colleague told me. He said, there's three certain things
• 12:35
  in life. Death tax is a market fluctuation. It's so true. Markets are always going to go up and
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  down. There's always going to be opportunities to buy and sell shares. Say during COVID,
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  I keep coming back to COVID because it's the most relevant massive market creation that we've
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  had in our lives. The global financial crisis happened before I was in the investing world,
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  so I didn't really experience it. Whereas COVID for me was really an eye opening and bloody scary
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  time. Was it quite scary in terms of your personal and work investment? Oh, totally. It was
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  the markets and kind of full mount down. The economies are shutting down. Nobody knows what the
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  world's going to look like. Nobody knows how long we're going to be in this predicament. We're
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  also trying to work from home and we're away from our colleagues and we don't have that dialogue
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  and that discussion and it was a really eye opening time and trying to remove that emotion
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  of getting caught up and going, oh my gosh, the market's down 30%. I've never experienced this
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  in my life to going, hang on a sec. Let's look at this market. As it is right now, what do I think
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  are some good opportunities to buy? Who cares what's happened yesterday? Who cares what's happened
• 13:47
  day before? Right now, these companies are 30% cheaper because the market's fallen. So it was also
• 13:54
  a great opportunity as much as it was. There's nothing that's changed. Admittedly, some companies
• 14:00
  say flights into, for example, their outlook had completely changed. We didn't know when people
• 14:05
  were going to travel again. We didn't know how long the lockdowns were going to go on for
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  and admittedly 12 months later, we're still in lockdown. It's RAP travel.
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  So it was assessing, okay, which companies are going to be stronger, the likes of Amazon,
• 14:17
  the likes of PayPal and Visa and Mascade? Everyone's doesn't want to hold cash online, yeah.
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  So it was looking at who's going to be the beneficiary there and who's going to take longer to
• 14:27
  come out of this. And I think there was a lot of companies in there that it would have been
• 14:32
  great buying opportunities if you just removed the emotion and gone, okay, nothing's changed.
• 14:37
  I'm going to buy, even some of the best fund managers struggle to do that, to remove that emotion
• 14:43
  and get involved. So I don't expect anyone listening on this podcast to have been able to
• 14:49
  pick the bottom and invest all their money that's, and if you did, well done. Please get in touch
• 14:55
  by this way. The market will always move up and down and it's all about just finding good
• 15:02
  companies, quality companies that you want to invest in that you know well.
• 15:06
  I was going to say it's hard to think, okay, you're going for companies and invest in shares and
• 15:10
  companies that you feel connected to, but then don't fall in love with the stock. It's like
• 15:15
  you're personally invested or you know a lot about that industry or that company and you use the
• 15:19
  product or service, but then also keep it at arms length. It's definitely contradictory.
• 15:24
  Yes, find a company that you love and that you want to support.
• 15:28
  And then it's like, oh, but don't fall in love. It's like dating.
• 15:34
  It's like playing hard to get, but no.
• 15:37
  It's just more about having an open mind and looking at that company is what it is.
• 15:43
  It's a company. It doesn't know or care that you own its stock or that you're a shareholder.
• 15:49
  Don't get too involved and yeah, like you said, don't fall in love with it because
• 15:54
  Outlooks change with businesses. New competitors come to market. New management teams that run
• 15:59
  that business will come in and maybe run it worse than the previous management tech.
• 16:03
  There's lots of changes that go on. And so if you're falling in love with this company,
• 16:08
  you're going to be, love is blind. You're going to be blinded by that and you're,
• 16:13
  you may continue to hold it when you shouldn't.
• 16:15
  So what you're basically saying is the share prices, the stock market goes up and down,
• 16:20
  but the most important thing and the most defensive way that you can protect your
• 16:25
  finances and your growth is to be objective and look at what's happening constantly.
• 16:31
  And if it's feeling as though even though you love that company and you want to stay invested in it,
• 16:36
  you know, the new manager, for example, sucks, then you might need to take action and decide,
• 16:41
  okay, I don't want to be. I don't want to host something anymore.
• 16:44
  Yeah. Yeah. And it's what you're doing is you're giving your money to that company to grow.
• 16:50
  You want to be a part of that action. So you want to invest your savings into that company.
• 16:56
  So you've got to be a bit selfish. You want your money to grow. So don't let it sit there with
• 17:01
  a company that's not growing it for you. It's about giving fuel to the fire. You want to support
• 17:07
  these businesses. You want to give them your money or your capital and to help them grow.
• 17:12
  But equally, you want to benefit from it too. You want to benefit from it. And,
• 17:16
  and in reverse, if they're not doing what they say they're going to do or you don't think
• 17:20
  that the earnings outlook looks as good as it previously did, then take that money out and put
• 17:24
  it somewhere else because that's your hard-earned money. Don't just let it sit there and watch it
• 17:29
  slowly fall or sharply fall. For Pete's sake. Well, I aged five. Who's Pete? Yeah, I wonder who
• 17:40
  it was. Mary DePete was obviously having a real rough time. It's also just a bit selfish.
• 17:45
  It's your money. You need to make sure that it is in a company that you admire and that you
• 17:51
  want to help grow. And I guess the reality as well is that, as you're saying, you can lose everything
• 17:56
  if you're not on your ball. On your ball? I don't. Well, it really got some great course.
• 18:01
  Wow. If you're not on the ball, I've mastered it. I'm on this third day of my juice cleanse.
• 18:06
  So my brains are not as sharp as it normally is. And you're probably going to the bathroom
• 18:11
  to five times. So honestly, the amount of like, would you have to drink is so terrifying.
• 18:16
  So basically, you're saying that if you invest in shares, yes, you need to be going into it with
• 18:21
  your eyes open, continuously taking note of what's happening within the industry, within that
• 18:27
  company, etc. But you also need to be realistic about the fact that you could lose all your money.
• 18:31
  Yes. With any investment and particularly in shares, there's so many factors that come into play
• 18:38
  in terms of it's not just the business. It's the the share market. It's other people are buying
• 18:42
  something. Whenever you buy a share, someone's selling that to you. So they've got a different view
• 18:46
  to you about the outlook of that company. Wait, but aren't sometimes the shares just from the company
• 18:51
  and not from a person selling it? That's an IPO, which we'll get into in a few episodes. That's when
• 18:57
  a company first lists or first comes to market, first offers its shares publicly. And that's when
• 19:04
  it's raising a lump sum of money and it's going, here you go, guys, can you buy these shares so that
• 19:09
  we can have some money to grow? But once it's listed, you're buying and selling, you're transacting,
• 19:14
  just like coming back to the marketplace, you're transacting with someone else. So I could be sitting
• 19:19
  across from you, which I am. Hey, that. And I could say to you, so I don't want these Microsoft,
• 19:26
  you can be to Microsoft great company. Microsoft sounds so old and boring. It feels so boring.
• 19:31
  I mean, the fact that it's still doing well, I honestly thought it was dead in the water when Apple
• 19:36
  came along, obviously not. It's, it's all about the cloud. What's a better example then?
• 19:40
  At Visa or Musk? What about converse shares? Oh my god, I'm bad at embarrassing, I'm like,
• 19:46
  I just don't think they're listening. So it's like, we're sitting opposite each other and I don't want
• 19:51
  to hold my Lululemon shares anymore. And I go to you, so if, hey, so would you buy these shares
• 19:56
  off me because I don't want to hold them anymore? And there could be a ton of reasons why I don't want
• 20:00
  to own the shares anymore. True. It could be nothing to do with the company success. It could be,
• 20:05
  I want to go buy a new boat. Dreams of free. There's just so many reasons for selling. And there's
• 20:12
  really only a few reasons for buying. And that's that you think that this is going to do well. So
• 20:17
  it's, it's not getting hung up on the fact that there's another person transacting or selling you
• 20:23
  those shares. It's just something to wear off. You could lose everything, not getting overwhelmed
• 20:27
  when the market's down 20% or the same when the market's up 20%. You've got to keep coming back,
• 20:34
  take a step back, take a deep breath and ask yourself, what are you actually buying here? Keep
• 20:39
  coming back to that. You're buying a part share of a business so you need to think like a business owner.
• 20:44
  Just the same if you're going to buy, say, a part share in your friends, fashion business,
• 20:49
  all your friends, here dressing business. You need to do your research on what you think the growth
• 20:55
  of that business is going to look like. And it's very easy when you're dealing with publicly
• 21:00
  traded or listed companies to get caught up in the day-to-day market fluctuations or the market
• 21:05
  movements. So that's why we try to not look at our investments all the time because you forget
• 21:10
  the reason that you bought that business and you get caught up with the day-to-day market fluctuations
• 21:14
  is super distracting and you make a rational decisions. And I guess it's also that instantaneous
• 21:19
  nature that is 2021. We want things now. We want success now. We want someone to reply to our
• 21:25
  texts now. There's never that patience to sit back and think from a long-term perspective. And that
• 21:30
  if I remember anything Victoria is that long term is what we're going for. It's patience. And yes,
• 21:37
  we all want that that quick win and that stock that's going to double overnight. But when it comes to
• 21:42
  investing and sustainable investing and wealth creation, it's all about patience. Patience patience
• 21:50
  patience. I'm going to write it on my mirror. I must say we're definitely getting to the end of
• 21:54
  this episode and I definitely need to use the bathroom. But is there any other key points that
• 22:00
  people need to write down? Remember take away when they're thinking about shares stock market?
• 22:05
  Is there any other kind of key information to go over? We say that you're a part owner of this
• 22:09
  business that you're investing in it. So you've got to think like a business owner.
• 22:13
  The only downfall or the only thing to remember when you are investing in these businesses is that
• 22:20
  you don't have any rights. Which might sound harsh, but it's quite hard. You're a tiny owner and
• 22:26
  you don't have any rights to stand up and change the board of directors. So they're the people that
• 22:32
  kind of govern the business. Well, you don't have the right to stand up and say we want to change
• 22:36
  the management team. Well, the color branding. Yes, exactly. You don't like other business really.
• 22:41
  Yes. So even though you're a part owner, don't think that you can go in there and change the
• 22:46
  hot if you're a part owner. I've spent $300 on your company. Just remember, if you want to change
• 22:51
  the branding or change the management team or anything really, you don't really have those rights.
• 22:55
  You're at the whim of the management team that's running their business. So make sure that you're
• 22:59
  investing in a company with a good management team that's historically delivered on what they
• 23:04
  say they're going to deliver on. And we'll touch on more in a few episodes about what makes
• 23:10
  a winning investment and what to look for. How to find a stock that you think is going to be a good
• 23:14
  investment because that's a whole another ball game. Yeah, exactly. I'd love to know as well where
• 23:19
  you even find the businesses. When you find them, what do you look for? You know, that's all way
• 23:24
  over my head. Yeah. But we can do that next episode. I think that's a whole episode in itself.
• 23:29
  Yeah. Well, tune in for our episode seven when we talk about it. We actually should talk about
• 23:33
  that next ocean wave. Yes. Okay. Great. Do you feel cool? I do feel like I learned a lot though.
• 23:37
  Thanks, but no worries. Thank you so much for joining us on today's episode of Raising the Curve.
• 23:45
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• 23:50
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• 23:55
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