I'm gonna give you a Cliff's Notes version of what you need to know to get rich in the stock

market

Throughout history, out of all the asset classes out (stocks, real estate, commodities, etc), stocks have
made money over time for people.

The Standards and Poors 500 (an index of the 500 most successful companies in America, and the
benchmark fund managers use to see how well they're doing) has consistently gone up over the past
century (even through recessions, the Great Depression, the flash crash of 2008 and resulting financial
crisis that lasted 4 years).

A study done said that 96% of actively managed mutual fund managers CANNOT beat The S&P 500. Why
is that?

It's because they're busy trying to "pick the right stocks". But the stock market fluctuates A LOT in the
short term and it's very unpredictable. It's hard enough for a Wall Street professional to pick winning
stocks (and be able to do it consistently like somebody like Warren Buffett, who is a legendary investor
and the 3rd richest man in history). Wall Street pros have access to lots of tools and have technology
that can let them place trades a lot faster than a retail investor (the term for regular investors; pros are
known as traders or institutional investors, because they invests for investment banks, pension funds,
universities).

Also, SEC (the Securities and Exchange Commission; the government agency that oversees the stock
market and helps to protect retail investors like you and me) and FINRA (they license brokers) have less
rules for pros.

But even with all of these advantages, 96% still can't beat the S&P 500.

Jim Cramer from the show Mad Money on CNBC says that mutual funds are a bad choice because he
can't justify the fees they take and they still under perform.

So back in the late 70s - early 80s, a man by the name of Jack Bogle (founder of the world reknown
Vanguard Fund) introduced a concept that revolutionized investing. It's called an ETF (exchange traded
fund) or simply an index fund.

So you remember what I told you about the S&P 500 and how fund managers try to beat it but can't?
Well Jack Bogle came up with a solution for it. Instead of trying to actively beat the S&P 500, why not
just OWN the S&P 500 and ride it's coat tails?

The stocks (collectively) on the S&P 500 annually return 10% before inflation. After 2-3% figured for
inflation, it's around 7%. 7% is damn good!

The ticker symbol (the letters that represent each company on a stock exchange) for the S&P 500 is SPY.
(btw, ticker symbols are a throwback to the early 1900s when Wall Street still used ticker tape machines
to read quotes. The name kinda stuck).

The S&P 500 has 500 of the most successful companies in a variety of different sectors (sectors are
groups of different businesses such as biotechnology or biotech, financial services or financials like
banks, energy like oil companies and natural gas providers, retail like Walmart and Target, etc). There
are 11 sectors.
But you hear a lot about "diversification" in investing. By owning shares in an index fund that mimics the
S&P 500, you're already diversifying and that's great!

Do you know what Warren Buffett wants done with his fortune (that he hasn't given away) after he
dies? In one of his famous letters to shareholders of Berkshire Hathaway (a must read for serious
investors for the advice)/ he SPECIFICALLY said that he wants that money put in a trust for his wife and
90% of it invested in a low cost index fund and the other 10% in municipal bonds because they would
perform better than actively managed mutual funds.

You know when the world's most successful investor and stock picker recommends index funds, you've
got something.

See most people don't have the time, the patience, the desire, or the inclination to study the stock
market intensely (and that's what it takes to invest in individual stocks. It can be done, but it's not easy).

There are only 2 ways to get rich in the stock market:

- collecting dividends (some companies will pay you "interest" for owning stock in their company

- capital appreciation (basically the price of the stock goes higher than when you bought it)

Now keep in mind, there are tax implications for both of those, I'll get into that in a bit.

Neither one is necessarily "faster", it's just what you prefer. And you'll have to get rid of the "get rich
quick" mentality if you want to win with stocks because it just doesn't happen that way.

So this is the plan. This is how you become a millionaire through owning stocks:

1) set up a tax favored investment account such as an IRA, Roth IRA or a 401(k) through your work. The
IRS delays taking out taxes on these accounts.

2) save up at least $1,000 ($10,000 would be better) and start investing in a good index fund (Vanguard
has good ones)

*keep in mind you can only contribute $5,500/year in an IRA (a little more if you're married and file
taxes jointly)

3) start buying shares of that index fund

4) sign up for a dividend reinvestment program. So instead of getting dividend checks, you're actually
buying more shares of that index fund stock and your capital appreciation goes up because the price of
the stock goes up and you own more of it. You're also making 7% a year after inflation)
5) practice dollar-cost averaging. You keep investing the same amount every time (every month, every
two weeks, whatever) so that when the price of the stock goes down, you can buy more shares, and
when it goes up, you buy less shares). Remember that all stocks are volatile in the short term so make
that work for you.

5) DON'T GET EMOTIONAL ABOUT STOCK WHATSOEVER. That's how people fuck up and lose their
money. They sell too soon or they hold on too long to a company with bad fundamentals and lose all
their money. You want to be the opposite

6) let compounding do it's work. Warren Buffett said that the 8th wonder of the world is compound
interest. When you don't touch something and keep letting it build up, it eventually gets so big that you
couldn't imagine it at first. It's like a snowball rolling down a hill. Starts out small and it becomes huge.

So now I wanna talk about how to pick individual stocks, diversification, and asset allocation:

Warren Buffett's Rules of Investing:

Rule 1: Don't lose money

Rule 2: Never forget Rule #1

A lot of people out there are attracted to being able to pick individual stocks and being able to become
rich with them. It's what attracts people to the stock market in the first place.

But being able to pick individual stocks is not only VERY difficult to do, but it is as much ART as it is
SCIENCE. I still wholeheartedly believe that you should have AT LEAST $10,000 invested in the S&P 500
before you even consider investing in individual stocks. But here are some thoughts on how you can get
started on stock picking.

There are many schools of thought when it comes to stock picking:

1) Fundamental analysis: when you hear people on TV talk about a company's "fundamentals", this is
what they're talking about. Fundamental analysis helps you know the financial strength of a company.

2) Technical analysis: this style of investing is mainly used by professional traders to spot trends in the
stocks of companies.

3) Value investing: this style of investing was made famous by the most famous investor (and 3rd richest
man) of all time, Warren Buffett. Buffett learned value investing from his mentor Benjamin Graham
(who he studied under at Columbia and worked for after graduation), the author of the seminal book
"The Intelligent Investor" (a must read for value investors. This approach is about finding cheap stocks in
strong companies that have potential in the future. Warren Buffett calls it "finding cigar butts". This is
where "buy low, sell high" comes from.

4) Growth investing: growth investors are worried about the future, buying companies that may be
traded higher than their worth but show the potential to grow and one day exceed their current
valuations (the famous Peter Lynch practices this approach; more on Peter Lynch later)

5) Income investing: this approach is about creating a steady stream of income by owning dividend
paying stocks. The richest man ever, John D. Rockefeller (founder of Standard Oil; you know it now as
ExxonMobil) build his fortune by collecting dividends from Standard Oil after he retired from the day to
day operations

6) Dogs of the Dow: this strategy is about finding 10 of the 30 stocks on the Dow Jones Industrial
Average (an older benchmark index created by Charles Dow that lists 30 of the biggest companies in the
US. When people say what the Dow closed at, this what they're talking about. Even though the Dow is
still used, using the S&P 500 is more representative of the economy in the United States, hence what
professionals use and track their performance by). You look for the 10 companies on the Dow with the
highest dividend yields, buy them at the first of the year, hold them until the end of the year, then sell
the losers and replace them with more stocks with high dividend yield. This approach has outperformed
the S&P 500 for the past several years.

7) International investing: this approach was made famous by the famous investor Sir John Templeton. A
guy who came from nothing in Tennessee. He saw a huge opportunity during WWII when a lot of stocks
were dropping, especially internationally. So he bought up a bunch of cheap international company and
rode out the war. After WWII, those companies went back up, and he made a fortune.

There are a few others but these are the main ones.

There's no "best" way to pick stocks. Either way can make you money, you just have to find a style that
works for you.

Peter Lynch (the famous investor and fund manager from the legendary Fidelity Magellan fund) has
been a huge influence on retail investors for years. When he became the fund manager of the Magellan
Fund in 1977 until he retired in 1990, the fund CONSISTENTLY beat the S&P 500 and became among one
of the highest ranking stock funds in history.

Lynch's approach is very simple, tailor made for retail investors and is what he used to beat the S&P 500
for 2 decades. To put it simply, he says to "buy what you know".

Think about the products that you use every day or the stores you go to every day. You go to Walmart
whenever you need to buy toilet paper, or Kroger when you need to buy groceries. You drink Pepsi or
Coca Cola. You eat at McDonald's and Bob Evans.
Normal people know a lot about the companies that they use every day because of that reason. They're
"on the ground" and they have first hand experience. Peter Lynch believes that because of this, regular
retail investors have a HUGE advantage over the pros on Wall Street who only rely on charts and
analysts who aren't there using the product themselves.

So the more you know about these companies you use every day, the better off you'll be is what he
believes.

To learn more about his approach, read either of his seminal books "Beating the Street" and "One Up on
Wall Street".

Warren Buffett is known as the absolute best stock picker in modern history. As I said before, he studied
under the great Ben Graham. Ben Graham wrote the book “Security Analysis” and the seminal book
“The Intelligent Investor”. Buffett believes in “buying and holding” good companies that generate
profits consistently but are able to reinvest those profits in the business. He says: “Only buy something
that you’d be perfectly happy to hold if the market shut down for 10 years.” He also said in a speech at
his alma mater, Columbia Business School: “The common intellectual theme of the investors from
Graham and Doddsville is this: they search for discrepancies between the VALUE of a business and the
PRICES of small pieces of that business in that market.” Buffett doesn’t think about buying a stock; he
thinks about buying a business. Read Berkshire Hathaway’s Letter to Shareholders from 1996. He offers
some real gems on what it takes to construct your own portfolio (he has never written a book on
investing, but the Berkshire Hathaway Letters to Shareholders are the closest thing to him writing a
book. They are a gold mine of investment wisdom). Warren Buffett says that The Intelligent Investor is
the best book ever written on investing. Buffett has been put on record saying: “If you understand
Chapters 8 & 20 of The Intelligent Investor (by Benjamin Graham, 1949) and Chapter 12 of The General
Theory (by John Maynard Keyes, 1936), you don’t need to read anything else and you can turn off your
TV.

Jim Cramer is the host of the famous CNBC show “Mad Money”. A Philly guy who after graduated from
Harvard Law, went to work for Goldman Sachs in the 80s then in 1987 created his own hedge fund. He
became a consistently successful stock picker. He believes in “buy and homework” instead of buy and
hold. He believes in doing your homework when studying different stocks, buying “best of breed”
companies in different sectors, buying no more than 8-10 companies in different sectors to diversify
your holdings in your portfolio, and dumping bad stocks that are underperforming. Here are his 25 Rules
of Investing:

1) Bulls make money, bears make money, but pigs get slaughtered.
2) It’s okay to pay the taxes
3) Don’t buy all at once
4) Buy damaged stocks, not damaged companies
5) Diversify to control risk
6) Do your stock homework; buy and homework, not buy and hold
7) No one ever made a dime by panicking
8) Buy best of breed companies
9) Defend some stocks, not all
10) Bad buys won’t become takeovers
11) Don’t own too many names
 12) Cash is for winners
13) No woulda shoulda, coulda
14) Expect, don’t fear corrections
15) Don’t forget bonds
16) Never subsidize losers with winners
17) Check hope at the door
18) Be flexible
19) When chiefs retreat, so should you
20) Giving up on value is a sin
21) Be a TV critic
22) Wait thirty days after preannouncements
23) Beware of Wall Street hype
24) Explain your picks
25) There’s always a bull market

Now onto diversification. Previously, I talked about sectors. Sectors are classes of different industries.
The S&P 500 is comprised of 11 sectors. In order of weight from largest to smaller:

- technology
- financial services
- healthcare
- consumer discretionary
- industrials
- energy
- utilities
- real estate
- materials
- telecommunications

Now the whole idea behind diversification in the stock market is this: you don’t wanna hold too many
shares in only one company or too many stocks in one sector. If that company starts doing bad, goes out
of business, or if entire sector crashes, you stand to lose everything you’ve invested. This is why you
have to spread your money out amongst different companies and different sectors. This way, you
minimize your risk (minimizing risk is extremely important when it comes to winning not only in the
stock market, but in other asset classes such as real estate, starting businesses, and commodities).

THAT'S how the rich made their money in the stock market. Follow this advice and you'll be set for life.