Good morning, everyone! Anthony Speciale here, and welcome to A Better Way to Wealth!
I told you yesterday that there are two approaches for me when it comes to the market.
Both approaches serve the same purpose, which is passive trading for massive income.
And the first topic I want to discuss with you today is value investing.
What is Value Investing?
Value investing is looking for a publicly-traded company that offers us great return potential.
How do we find these types of companies? Well, there are a few things we need to look for…
First, we’re looking for a low PE (price to earnings ratio).
In addition, we’re looking for past and future projected earnings, sales growth, whether there’s any cash flow and, if so, we’re going to want to know what’s been done with it.
We need to ask whether or not they are using this cash to pay down debt, buy back stock or to provide investors dividends.
These are all things we need to know and look for when utilizing this type of investment strategy.
What we need to do is take a deep dive into each one of these companies and then decide which ones best fit our investment strategy.
The purpose of doing this is very simple but may be better understood in this hypothetical situation…
A Simple Breakdown
Let’s say you have a local diner that you patronize on a regular basis. This diner is very popular and doing very well financially.
The owner is kind and has a good head for management, reinvesting his earnings back into the business for maintenance and expansion.
Whatever the case may be, this restaurant owner is doing well and now wishes to open additional locations across town.
In order to raise enough capital to accomplish this goal, he must take drastic measures and sell off some shares of his diner business.
How does this relate to us?
Well, in this situation, those shares would essentially be what we, as investors, would be buying.
We’re not buying the entire diner (or company). We’re buying shares of this business and helping the owners with their financial needs, allowing us to tag along for the company’s growth (or decline).
Now, as new shareholders in this business, we want to continue to see this diner grow.
We want to see the owner continue his good business practices by reinvesting our money in the business, creating an opportunity for better earnings for everyone involved.
We certainly don’t want to now see this businessman driving a brand new sports car across town!
Rather, we want to be able to trust that our money will be spent well and offer us a chance for a return on our investment.
So, what happens to us as the shareholders as this company grows?
Well, the value of the shares we bought of this diner, originally a single location and now expanded to several, has significantly increased!
This means, should we decide to sell those shares of the diner at this time of progress, they would be worth more than our initial investment and bring us a significant return.
In theory, they would be worth several times more as this business grew from one diner to a franchise.
The objective when investing in a comparably much larger business is exactly the same.
Eventually, it all breaks down to the same tasks, looking for good businesses that we believe hold upside potential.
In addition, we’re looking for great management, financial savvy, whether or not the employees are happy… Again, pretty much any signs that tell us this is a well-run and profitable business.
We want to buy shares in a company that’s very small and when growth looks inevitable.
We then want to sell those shares once that growth has happened and the business is doing incredibly well.
Buy low and sell high! This is exactly what we are doing when we value-invest and purchase stock.
I hope this explanation has helped you better understand how this process works.
My goal here was to break down this info in a very simple manner, connecting it from Wall Street to Main Street and then back to Wall Street so we can clearly see the path as it comes full circle.
With that said, I look forward to seeing you at the same time tomorrow.
I’ll be discussing more of a technical approach to the market where the passive trading for massive income strategy could be utilized to help make money for ourselves and our futures!
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