Beginner's guide to stocks

0:00Sophie Hallwright: Do you seek adventure and want to serve your country? The Central Intelligence Agency's Directorate of Operations is hiring. We are looking for individuals with a can-do attitude and a collaborative mindset. If you are looking for a challenge, apply online at cia.gov slash careers. Hi, I'm Sophie. I'm one of the founders of The Curve and I went from being in 50k of debt, not understanding investing, knowing how to budget, save. I was a total financial disaster. Now I have two investment properties over 100k in the stock market and I'm in no debt. But I did not always used to be this good with money and investing.

0:36Sophie Hallwright: And it all started from the very beginning of this podcast. We're currently on a podcast break. So we're having two weeks off new episodes and we wanted to do some throwbacks to the vintage OG episodes that were released originally five years ago when I knew nothing about investing. If you don't need to go back to these throwback episodes, enjoy two weeks without us in your ears. But if you know anyone who's felt left out of the conversation when it comes to money, investing, or just really don't know where to start, please send them this podcast. We will be back for regular programming at the start of October.

1:13Sophie Hallwright: So in today's episode, this is our sixth and final throwback. But what I would just say before we get into it is if you've enjoyed listening to these, scroll back to the beginning of this podcast and listen to all of those beginning episodes because that is really the fundamentals that I learned that meant that I now know how to invest and really understand and I'm actually quite interested in what's happening in the stock market. So we've loved this little throwback. We'd love to hear how you found it if you're new to the podcast. So in today's episode, we're going to be talking about the stock market, how it works.

1:44Sophie Hallwright: We're going to explain with numbers and examples. And just a reminder, this was recorded in 2021. So some of the numbers aren't current figures, but they're still really good as like illustrations or examples. We will be back to regular programming as of next week. So we're going to have new Curve Weeklys. We've got Raising the Curves. There's so much good content coming. But thank you so much to everyone who has listened to these throwback episodes. Hopefully it's been a great refresher. And if you're new to the podcast, welcome.

2:16Sophie Hallwright: Well, this is very exciting, episode six. Woo-hoo! And I feel like today's going to be a bit Wolf of Wall Street-y, isn't it? We're talking about stock market? Yeah, we're not going to be throwing any dwarves against targets or anything. Cocaine off people's bums? No. That's all I think about when I think of Wolf of Wall Street is the, what was that film? Wolf of Wall Street? Was that, oh my goodness.

2:40Sophie Hallwright: Oh my goodness, wow. That is crazy. Generally when the stock market comes up in conversations, Vic, eyes just like light up. Yeah, it's like, how long do we have? Yeah, it's one of those topics that I think really, especially when it comes to people who are new to investing, the stock market, shares, share price, all that stuff is kind of overwhelming. And what does a share price mean? This is my first question. What does a share price mean?

3:04Victoria Harris: Please tell me. So I guess coming back to fundamentals, what are you buying when you're buying a share in a business? You're buying exactly that. You're buying a share in a company. So you're a part owner. Exactly. You're becoming a part owner. And that's why we always are harping on about picking a good company to invest in, a company that you know well. Because you're effectively sharing in the company's profits and the growth of that company. So if you're looking at a company to invest in and you don't think it has a good outlook or you don't think it's going to be able to grow, why do you want to be a part of that?

3:43Victoria Harris: You don't.

3:44Sophie Hallwright: You also probably want to at least vaguely understand the business too, right? Exactly. Otherwise, there's no kind of personal investment there. And by the sounds of it, you are personally invested, right?

3:54Victoria Harris: Yeah. And there's a lot of technology companies out there that do really obscure technology or a healthcare company which invests in a really intricate type of medicine. And I'm never going to understand those businesses. And I'm not going to use my resource and my time to learn those businesses when there's so many other businesses I use and I understand. And therefore, I feel more comfortable owning.

4:18Sophie Hallwright: Well, I guess because share markets, the stock market, whatever it's called, it can be so overwhelming. There's so much to learn to then put on top of that learning an entire industry or business or what kind of company is going to be successful in the tap industry. Like I know nothing about taps and I'm not that interested in taps either. So you're right. It makes sense to go for me to like, I don't know, health and well-being, for example.

4:41Victoria Harris: And if you're interested in health and well-being and you're interested in that business, you're going to find it a lot more exciting and not as much of a chore to research or a chore to understand. You know, you're going to be interested and want to know more and want to know about the competitors and the industry dynamics. And it's just a bit more interesting.

5:02Sophie Hallwright: I guess also wanting to see a company succeed too. Because say you're interested in, I don't know, vitamins and you decide to invest into Be Pure, for example, that New Zealand brand, and you've researched it and you really believe in the ethos and everything that they're doing, you want them to succeed. So putting money towards them growing is in your personal interest as well.

5:23Victoria Harris: When you're using the product or using the service, you're researching without knowing it. Does that make sense? Yeah. If you're purchasing these vitamins because you like them and because you think they make you feel good, you're already doing the research without having to sit down and read something, which is kind of what people think research is about. You're going out there and you're using the product, seeing if you like it, and the fact that you like it and then you buy shares in the company, that's research.

5:50Sophie Hallwright: Okay, so basically what you're saying is rather than getting too overwhelmed with the idea of the stock market and Wolf of Wall Street and every company in the world's listed and all of that stuff, start with the basics, look around you. What are you using? What are you interested in? And then maybe start with those companies to maybe invest in? Exactly. Yeah.

6:10Victoria Harris: Coming back to the vitamin example again, if you see a new vitamin that's on the market and you start to use that instead, you're also doing research and it's having the thinking of, why did I change? Does that mean everyone else will change? And therefore the outlook and the growth trajectory of that business, it might not look as good as I first thought. and it's kind of always having that investment hat on. And this is what I really struggle is to turn it off. When I go about my day and I use all these products and these services or I see a product that has flown off the shelves, not toilet paper, I'm not talking about that.

6:51Victoria Harris: But for example... I feel like, just by the way, that would have been a really good investment come COVID, wouldn't it? Yeah, very short term, but yes. you know it's looking at those trends looking at the products that everyone's using the services that everyone's using and thinking you know is that investable but coming back to your your initial question about what actually is a share price I just want to break it down a bit further because we kind of felt like we're on a bit of a tangent about what to invest in which we'll get back to in a bit but it's more about you become a shareholder and when you buy a share in a business you become a part owner of that business you become a shareholder because you're buying a share and if you buy multiple shares then you're still a shareholder but you're buying more than one share so say a business was publicly listed and you could buy shares for a dollar you bought ten thousand dollars worth of shares in that business you would own ten thousand shares and it might have a hundred thousand shares that are publicly issued so anyone could buy them and so you would own 10 ,000 out of that 100 ,000.

7:55Victoria Harris: You become a shareholder.

7:57Sophie Hallwright: So then how is the price determined? Like if Sophie Hallwright wants to buy a share in a company and she's bought it in 2014, for example, I don't know why I'm speaking in third person, but say I wanted to buy something and then in three years time someone else wants to buy a share from that same business, how does the price of that differ and what changes it?

8:15Victoria Harris: It all comes down to the valuation of the business, which we won't get into in this episode because we can go into a lot of detail with how to value businesses. but to keep it very high level it's it's all about the outlook for the earnings and and what you expect those earnings to be in the long term so when I look at businesses and I am making a decision on whether to buy a business or not and make that investment I tend to think in my head can I see this business doubling in five years and if the answer is yes and like look we're never going to get it right. Don't beat yourself up if it doesn't double or if it takes 10 years to double.

8:54Victoria Harris: But it's a small rule of thumb that I try to follow. So will this business double in five years? If so, that's a 15 % return per year on average. And I'm very happy with that. Let's look at Microsoft, for example. That company in the last five years, it delivered a 36 % return per year.

9:15Sophie Hallwright: Whoa.

9:15Victoria Harris: I know. That's crazy. I need to invest in Microsoft. I mean, some people would have guessed that, some others wouldn't, but that's pretty phenomenal for a business of that size. So there are those businesses out there and I get asked a lot, oh, isn't it best to invest in small companies because they're more likely to have a better growth trajectory? Because it's

9:35Sophie Hallwright: finding the diamond in the rough, right?

9:36Victoria Harris: Totally. It's finding a small business that hasn't got big yet. And I'm like, yes, there are those businesses, but there's also large businesses like Microsoft, like Amazon that have done fantastically well. And we were sitting here to do well. Exactly. We were sitting here five years ago. We could have been having the conversation saying, oh, no, they won't double again. And, you know, it's all about what do you think the growth trajectory of that business will look like? That's what predicts really the prices and the valuations of those businesses. But I guess to summarize, it's the price that you pay to become I'm an owner of that business is what a share price is.

10:09Sophie Hallwright: You know how you're using the Microsoft example and saying that maybe five years ago we could have said, oh, Microsoft isn't going to double again. It's just not going to happen. But if you don't know the plans of the business or what they're going to be doing that year, I mean, surely there's only so much that you can figure out before you even invest.

10:28Victoria Harris: Exactly. And that's kind of coming back to the point that we said before. Or it's investing in a company that you understand that you can see the growth outlook or you understand the growth outlook. You can see people using the product or the service or they might have a really strong brand like Nike, for example, or Lululemon. All those companies have strong brands. And I think personally having a strong brand is pretty key to the success of a business. It's not the only success, but it does help in creating that competitive advantage.

11:02Sophie Hallwright: The cool new thing always is going to take over, isn't it?

11:04Victoria Harris: And if you use the product or using the service, you can also see when you stop using that service or you see another product that's better. There's all those elements that come into what you think the growth outlook for the business will be.

11:17Sophie Hallwright: And so then going back to the share price and what makes it go up and down, what other factors is it important to think about? like when to buy a share versus when to sell a share? Well, the share market, it's exactly that.

11:30Victoria Harris: It is a market. It's a marketplace. So just like when we go to the French markets or the... We love the French market. It's a marketplace where you buy and sell shares. So you can kind of think about it as, imagine everyone goes to the French market, but instead of selling bread and croissants and coffee, I'm hungry just thinking about it. Yum. They're selling, they're going there to buy and sell shares. They've bought their shares in Microsoft. They don't want to own them anymore. So they're running around trying to find someone else to buy those shares. It's a bit of a strange analogy, but that's effectively what the share market is, but in a digital form.

12:05Victoria Harris: So it's a marketplace. It's all about supply and demand. It's basic economics. The more buyers you have and the less sellers, the more the price is going to go up.

12:14Sophie Hallwright: Okay.

12:15Victoria Harris: The more sellers you have and the less buyers, the price is going to go down.

12:18Sophie Hallwright: Which is scary because you never want to buy something. It's like you go past a cafe and there's no one in there. You're not really wanting to go into that cafe. It's the same with buying a share. It's like no one's buying it. It's probably for a reason. The difference between that and researching to then take an educated punt is kind of where I think I lose confidence.

12:37Victoria Harris: Yeah, and there's a bit of following the crowd, what we call momentum trading, which is kind of when you're talking about the cafe with nobody in it versus the cafe that everyone's at. Sometimes it's good not to follow the crowd because you don't want to be the last one that buys that stock. You don't want to be the last one that's buying those Amazon shares before they start falling. If you're not coming back to the research argument and you're not coming back to your fundamentals of why you're buying that company, if you're just following the pack and have no reasoning for your investment decision, when that share price starts to fall, you've got nothing to fall back on.

13:14Victoria Harris: Whereas if the share price starts to fall and you're like, hang on a sec, nothing's changed. I still really like that product or that service. I still think it's a very well-run business. I think it's still got plenty of opportunity to grow. I'm going to buy some more. It's getting away from following the crowd because that can be quite a dangerous game when investing. Do you think it's a good way to start? Not at all.

13:39Sophie Hallwright: No. Okay, cool. It just feels quite scary. I don't even know how I would look at a share price of a company when everyone's selling and think, oh, I know more than all these other people. What do I know?

13:54Victoria Harris: It depends why the share price is falling. So what are other reasons? I guess just the market fluctuations. So there's a good quote which a colleague told me, and he said, there's three certain things in life. Death, taxes, and market fluctuations.

14:10Sophie Hallwright: This is so depressing.

14:12Victoria Harris: And it's so true. Markets are always going to go up and down. There's always going to be opportunities to buy and sell shares. Say during COVID, I keep coming back to COVID because it's kind of the most relevant, massive market correction that we've had in our lives. The global financial crisis happened before I was in the investing world, so I didn't really experience it. Whereas COVID for me was really an eye-opening and bloody scary time.

14:38Sophie Hallwright: Was it quite scary in terms of your personal and work investment?

14:42Victoria Harris: Oh, totally. It was the market's in kind of full meltdown. The economies are shutting down. Nobody knows what the world's going to look like. Nobody knows how long we're going to be in this predicament. And we're also trying to work from home and we're away from our colleagues and we don't have that dialogue and that discussion. And it was a really eye-opening time in trying to remove that emotion of getting caught up and going, oh my gosh, the market's down 30%. I've never experienced this in my life. To going, hang on a sec. Like, okay, let's look at this market as it is right now. What do I think are some good opportunities to buy?

15:16Victoria Harris: Who cares what's happened yesterday? Who cares what's happened the day before? Right now, these companies are 30 % cheaper because the market's fallen. So it was also a great opportunity as much as it was terrifying. And there's nothing that's changed. Well, admittedly, some companies, say Flight Centre, for example, their outlook had completely changed. We didn't know when people were going to travel again. We didn't know how long the lockdowns were going to go on for. And admittedly, 12 months later, we're still in lockdown. RIP travel. So it was assessing, okay, which company is going to be stronger?

15:48Victoria Harris: The likes of Amazon, the likes of PayPal and Visa and Mastercard. Everyone doesn't want to hold cash. Any thing online, right? Yeah. So it was looking at who's going to be the beneficiaries and who's going to take longer to come out of this. And I think there was a lot of companies in there that it would have been great buying opportunities if you had just removed the emotion and gone, okay, nothing's changed. I'm going to buy. Gosh, even some of the best fund managers struggle to do that, to remove that emotion and get involved. So I don't expect anyone listening on this podcast to have been able to pick the bottom and, you know, invested all their money.

16:23Victoria Harris: And if you did, well, well done.

16:26Sophie Hallwright: Please get in touch by this moment what you did.

16:29Victoria Harris: The market will always move up and down. And it's all about just finding good companies, quality companies that you want to invest in that you know well.

16:38Sophie Hallwright: I was going to say, it's hard to think, okay, you're going for companies and investing in shares in companies that you feel connected to. But then don't fall in love with the stock, you know? It's like you're personally invested or you know a lot about that industry or that company and you use the product or service. But then also, keep it at arm's length. It's definitely contradictory, yes. Find a company that you love and that you...

16:59Victoria Harris: You want to support. Yeah, and then it's like, oh, but don't fall in love. It's like dating. Oh, God, it is like dating. It's like playing hard to get, but no. it's just more about having an open mind and looking at that company as what it is it's a company it doesn't know or care that you own its stock or it's that you're a shareholder don't get too involved and yeah like you said don't fall in love with it because outlooks change with businesses new competitors come to market new management teams that run that business will come in and maybe run it worse than the previous management there's lots of changes that go on And so if you're falling in love with this company, you're going to be, you know, love is blind.

17:41Victoria Harris: You're going to be blinded by that and you may continue to hold it when you shouldn't.

17:47Sophie Hallwright: So what you're basically saying is the share prices, the stock market goes up and down. But the most important thing and the most defensive way that you can protect your finances and your growth is to be objective and look at what's happening constantly. And if it's feeling as though even though you love that company and you want to stay invested in it, you know, the new manager, for example, sucks, then you might need to take action and decide, OK, I don't want to be there anymore. I don't want to hold this company anymore. Yeah. Yeah.

18:16Victoria Harris: And it's what you're doing is you're giving your money to that company to grow. You want to be a part of that action. So you want to invest your savings into that company. So you've got to be a bit selfish. You want your money to grow. So don't let it sit there with a company that's not growing it for you. It's about giving fuel to the fire. You want to support these businesses. You want to give them your money or your capital and to help them grow. But equally, you want to benefit from it too. You want to benefit from it. And in reverse, if they're not doing what they say they're going to do or you don't think that the earnings outlook looks as good as it previously did, then take that money out and put it somewhere else because that's your hard-earned money.

18:58Victoria Harris: Don't just let it sit there and watch it slowly fall or sharply fall. For Pete's sake.

19:05Sophie Hallwright: For Pete's sake. We're like 85. Who's Pete? Yeah, I wonder. Whoever was married to Pete was obviously having a real rough time.

19:15Victoria Harris: It's also just be a bit selfish. It's your money. You need to make sure that it is in a company that you admire and that you want to help grow.

19:24Sophie Hallwright: And I guess the reality as well is that, as you're saying, you can lose everything if you're not on your ball. On your ball.

19:31Victoria Harris: We really got some great quotes coming out today.

19:34Sophie Hallwright: If you're not on the ball, I must admit, I'm on this third day of my juice cleanse, so my brain's not as sharp as it normally is.

19:41Victoria Harris: And she'll probably go to the bathroom about five times straight since then.

19:44Sophie Hallwright: Honestly, the amount of liquid you have to drink is so terrifying. So basically you're saying that if you invest in shares, yes, you need to be going into it with your eyes open, continuously taking note of what's happening within the industry, within that company, et cetera. But you also need to be realistic about the fact that you could lose all your money.

20:03Victoria Harris: Yes. With any investment, and particularly in shares, there's so many factors that come into play in terms of it's not just the business, it's the share market, it's other people are buying something. Whenever you buy a share, someone's selling that to you. So they've got a different view to you about the outlook of that company.

20:20Sophie Hallwright: Wait, but aren't sometimes the shares just from the company and not from a person selling it?

20:24Victoria Harris: That's an IPO, which we'll get into in a few episodes. That's when a company first lists or first comes to market, first offers its shares publicly. And that's when it's raising a lump sum of money and it's going, here you go, guys, can you buy these shares so that we can have some money to grow? But once it's listed, you're buying and selling, you're transacting, just like coming back to the marketplace, you're transacting with someone else so I could be sitting across from you which I am hey Vic and I could say to you Soph I don't want these Microsoft Microsoft sounds so old and boring to me

21:01Sophie Hallwright: it feels so boring I mean the fact that it's still doing well I honestly thought it was dead in the water when Apple came along obviously not it's all about the cloud what's a better example then Visa or Muscat? what about Converse shoes?

21:15Victoria Harris: oh my god I'm bad at investing I'm like I just don't think they're listening so it's like we're sitting opposite each other and I don't want to hold my Lululemon shares anymore and I go to you so if hey so if would you buy these shares off me because I don't want to hold them anymore and there could be a ton of reasons

21:31Sophie Hallwright: why I don't want to own the shares anymore true it could be nothing to do with the company's success

21:36Victoria Harris: it could be I want to go buy a new boat dreams are free there's just so many reasons for selling and there's really only a few reasons for buying and that's that you think the business is going to do well. So it's not getting hung up on the fact that there's another person transacting or selling you those shares. It's just something to be aware of. You could lose everything. Not getting overwhelmed when the market's down 20 % or the same when the market's up 20%. You've got to keep coming back, take a step back, take a deep breath and ask yourself, what are you actually buying here? Keep coming back to that.

22:11Victoria Harris: you're buying a part share of a business so you need to think like a business owner. Just the same if you're going to buy say a part share in your friend's fashion business or your friend's hairdressing business. You need to do your research on what you think the growth of that business is going to look like and it's very easy when you're dealing with publicly traded or listed companies to get caught up in the day-to-day market fluctuations or the market movements. So that's why we try to not look at our investments all the time, because you forget the reason that you bought that business and you get caught up with the day-to-day market fluctuations.

22:45Victoria Harris: It's super distracting and you make irrational decisions.

22:48Sophie Hallwright: And I guess it's also that instantaneous nature that is 2021. We want things now. We want success now. We want someone to reply to our text now. There's never that patience to sit back and think from a long-term perspective. than that, if I remember anything, Victoria, is that long term is what we're going for.

23:07Victoria Harris: It's patience. And yes, we all want that quick win and that stock that's going to double overnight. But when it comes to investing and sustainable investing and wealth creation, it's all about patience. Patience, patience, patience. I'm going to write it on my mirror.

23:24Sophie Hallwright: Vic, I must say, we're definitely getting to the end of this episode and I definitely need to use the bathroom. But is there any other key points that people need to write down remember take away when they're thinking about shares stock market is there any other kind of key information to go over

23:39Victoria Harris: we say that you're a part owner of this business that you're investing in so you've got to think like a business owner the only downfall or the only thing to remember when you are investing in these businesses is that you don't have any rights which might sound harsh but it's quite Right, huh? It's true though, isn't it? You're a tiny owner and you don't have any rights to stand up and change the board of directors. So they're the people that kind of govern the business. Or you don't have the right to stand up and say, we want to change the management team.

24:09Sophie Hallwright: Well, the colour branding sucks. Or like anything that you don't like about the business, really.

24:13Victoria Harris: Yes. So even though you're a part owner, don't think that you can go in there and change the whole, if you're a part owner.

24:18Sophie Hallwright: I've spent$300 on your company.

24:21Victoria Harris: Just remember, if you want to change the branding or change the management team or anything, really, you don't really have those rights. You're at the whim of the management team that's running that business. So make sure that you're investing in a company with a good management team that's historically delivered on what they say they're going to deliver on. And we'll touch on more in a few episodes about what makes a winning investment and what to look for.

24:43Sophie Hallwright: How to find a stock that you think is going to be a good investment. Because that's a whole other ballgame. Yeah, exactly. I'd love to know as well where you even find the businesses. When you find them, what do you look for? You know, that's all way over my head. Yeah. But we can do that next episode. I think that's a whole episode in itself, yeah. Well, tune in for our episode seven when we talk about it. We actually should talk about that next though, shouldn't we? Yes. Okay, great. Cool. I do feel like I learned a lot though. Thanks, Vic.

25:09Victoria Harris: No worries. Thank you so much for listening to Raising the Curb. These conversations are designed to teach you everything you need to know to be better with your money, from saving to investing to talking with your friends about your salaries, all of that stuff.

25:20Sophie Hallwright: And if you like what you heard, we would love if you could please hit subscribe wherever you're listening and leave a comment. Let us know what you thought about the episode. And it only takes one second and it would really make our week, our month, our year. Yeah.

25:32Victoria Harris: Yeah. So please do it. Okay. Love you. Bye.

25:37Sophie Hallwright: Okay, quickly, the Curve was created to empower and educate you about investing, but we are not financial advisors.

25:43Victoria Harris: Our platform exists for educational purposes only and it doesn't provide personalized investing advice for your individual needs and should not be relied upon to make an investment or financial decision.

25:53Sophie Hallwright: And always remember to do your own research before making any investment or financial decision. We're here for any knowledge and support you need, but the final call is always yours. And thanks for being here. You got this. Yeah, we know you got this.

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