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I want you to imagine for just a moment with me imagine a lifestyle where you pull out your tablet you pull out your smartphone you pull up a financial statement on that device and because it says certain numbers you go in you buy a stock and when you buy that stock you make lots and lots of money because you bought something based upon a financial statement well
Guess what that life just doesn’t exist i want to go ahead and debunk one of the biggest myths i see out there in the stock market all the time whether it be from stock market beginners or just people are in the stock market in general that think if you just look at the financial statement of a company like that is good enough that is a good enough decision okay i’m
Gonna go ahead and debunked this myth now this myth i was was on a video i saw it yesterday a comment left by somebody says as an investor i’m all about the number and not the narrative numbers matter they can save the narrative to the fanboys i want the numbers warren buffett does not care about this because he can call up the cfo and ask the numbers but you can’t
Do that jeremy and i can’t do that that is why we need transparency you should think before you make a video you show a lack of understanding of finance talking about a narrative numbers jeremy that’s what finance is about numbers is for marketing and youtube stars get real oh my goodness gracious this person knows it all okay so this is very very interesting all
Right let’s go ahead and debunk this this is get straight into this guy’s so there are three types of investors you have in the stock market there are really only three types of investors out there now there are a lot of different traders is a big difference between a trader and an investor traders just try and do short-term things maybe trade a stock within seconds
Or minutes or maybe a couple months a swing trader or something like that but as far as actual investors people that are buying companies planning on holding them for at least a few years or maybe for life or something like that you have three types of those people out there okay you have the first ones which are is this group okay the financials only they look at
The financials they look at the income statement balance sheet and cash flow and they look at the p ratio and some other you know asset test ratio and things like that they calculate some things and they they invest based upon what those financials tell them that’s that’s how they invest okay that’s a first group of investors the second group of investors is all
About the narrative narrative another word for narrative is the story okay whatever story that company tells out there they just buy it based upon that that’s how you can see stocks trading at ridiculous pease or maybe they lose money but yet they still have this ridiculous valuation on it it’s because that’s that company tells a really good story and it makes
Investors buy into it and they believe in that company and that it’s going to change the world and this and that they tell a really good story they have a really good narrative around that and people buy stocks based upon that that’s why neither see stocks that lose money all the time but yet still have a massive amount of investors and like how does that happen
Because that company is really good at selling the investors that this company is going to be great in the future and if you buy in now you’re getting these shares for a great deal okay and the third one which i would consider myself as and i think this is the best one it’s someone that views the narrative and looks at the financials because here’s the thing if
You’re just looking at the financials you can get stuck in a stock that that goes nowhere for a long time or you lose a lot of money on okay a perfect example of the the golden child of looking at financials only as a company named mike brown okay ticker symbol mu i have a very close friend who’s invested unbelievably heavy in in mu he’s got most of his wealth in
This stock he’s down substantially on the position unfortunately but he bought this stock just because he looked at the financials okay and he tried to get me to buy the stock at 55 $60 a share and i was like dude i’m not doing it okay right now i think it’s like $40 a share i hope it goes to a hundred i hope it goes to two hundred b makes so much money on it it’s
Ridiculous okay but when i looked at this company i could not buy this stock okay it was at like a four ford pe when i looked into i think right now it’s now at a three ford p which is unbelievably cheap okay the market on average trades at a ford p somewhere i think around 16 15 16 on a 4 p basis this company trades at a 3 ok well one of the like the cheapest sock
In the s&p 500 by a mile they make more profit in a quarter right now then amazon does okay it was on trades at nearly a trillion dollar market cap and yet this company that trades have a 50 billion dollar market cap makes more profit in 1/4 that amazon does okay so if you’re looking at just the financial this company it’s like this is like a screaming by like
Why would you not buy this and if you’re looking at financials only you would have already bought these shares okay but what you’ve got to dig down deep is you’ve got to start looking at the narrative of this company when it looked at this company i was like this is a company that has a horrible narrative and i don’t really see this changing so the narrative around
That company from a lot of investors a way they look at is they look at this company mu and they say it’s just a commodity memory company it’s just a commodity memory company that you know just makes commodity chips anybody can do this and you know that’s the view out there whether that’s true or not what you probably isn’t true that is the narrative and all as
Soon as pricing goes down this stock is done that is a whole narrative around this company from bearish investors and from a lot of people when they look into it okay so the financial this company’s amazing we get the narratives horrible so as these companies continues to report these unbelievable numbers the stock has continued to fall from $63 it was back in the
Summertime early summertime 10 now it’s like you know 39 $40 a share of something like that the narrative on that company has to change my friend you know he’s all about they’re gonna you know buy some shares back i’m like mu does not need to buy back shares right now and you what they need to do is go out and acquire another company that can change the narrative
Of the company something like a skywards solutions would make great sense in my opinion another semiconductor company so when investors look into mu it’s not just oh they’re a commodity memory producer and anybody can do that and they’re totally their businesses is relying on where pricing goes 200 they and they had their memory business over there that’s their
Cash cow but they also have this growth vector over here oh they also have 5 geo they also have all this other stuff until the company can change a narrative it’s gonna be always stuck at a very very low valuation that’s just the way it is guys so as the ceo is all about sales sales sales okay it’s it’s for a ceos job is so much about sales do they actually go
Out there on the front lines i’ve ceo of a big company and actually try to sell products and services know they’re selling to huge things all the time they’re selling other executives to come work with our team okay that’s a one of the jobs of a ceo that you don’t see much i see or trying to recruit some of the best executives to kind of surround themselves and
Build out a great team around them so they can hopefully prosper in the in the future but ceos know the huge responsibility as i talked about in the video yesterday know huge responsibilities that that stock price goes up over time it’s not just by getting profits up it’s by getting more and more investors to believe in your company ok if we went if we went down in
We went to times square right now i think i paid $20 for this golden guy right here okay i think i paid $20 at a store for this golden guy right here right if we went to times square right now you put somebody that’s horrible at sales you put somebody that’s decent at sales and you put somebody that is great at sales i can guarantee you the guy that is greatest
Sales will have this sold for a hundred plus dollars to somebody within an hour okay the person that as bad as sales will never even get this sold in a day we could probably give them a week and they probably never get a sold and if they do get it sold though sell it for a dollar or two okay somebody that’s great at sales can sell anybody on the dream okay and the
Fact is if you have a ceo if you have an executive team if you have a business model that has a that only focuses on the financials and not the story and explaining that story well you have a a company that is set up to never become anything okay and what ends up happening is though eventually over time the stock price doesn’t you know perform well then the board
Of directors votes out that ceo starts voting out there that executive team are basically just fires and they don’t even have to vote the board directors they just they just start firing them bringing some new people and sometimes you can those new people can end up screwing up the financials so also now you don’t have a narrative or financials okay so this is a
Story you don’t want to make any mistake as an investor of just buying based upon the financials not warren buffett okay warren buffett let’s talk about him he was mentioned in that comment right warren buffett the great thing about warren buffett right is not only that he has a lot of money and all this stuff and he can build big stakes and companies but is that
Warren buffett can literally change the narrative of a company warren buffett single-handedly changed the narrative of apple stock okay prior to warren buffett investing in apple stock apple stock was he was floundering around $90 $100 a share this was literally about two two and a half years ago okay it was a $90 100 stocke okay and the narrative around apple
Was so focused on just iphone unit numbers they can’t grow that anymore osen warren buffett starts buying the shares very heavy and apple okay and also and it comes out that a warren buffett has been buying apple sheriff and nelson you have warmed buffett go out there and literally go on cnbc and bloomberg and change the entire narrative of apple from it being a
Story of it’s just i phone you knows to know a lot of it in now the shares of 200 plus dollars okay even after today’s drop its literally doubled from where buffett bought it like two two and a half years ago okay you can look at the stock chart literally doubled since he started buying in and he has changed the narrative from just being about iphone you know
To getting a lot more investors interests in apple by saying hey they have an ecosystem around their products hey they have all this other business they’re doing hey they had their services category he a single-handedly helped change the narrative of a company so warren buffett yeah he can buy a lot on financials but even the great warren buffett also buys on
Narrative okay one of warren buffett’s things he always says he’ll never buy business regardless of financials if he doesn’t understand the business model well and he can’t see the future well for that company okay it’s why he wouldn’t have bought in napoli many many years ago because he couldn’t see the future for now he could and you know starting a few years
Ago and he starts buying in okay so even the great warren buffett buys on narrative but the great thing for buffett because he has so much credibility because he has so much fame in the investment community he can literally change the entire narrative of a stock because he has that much power when he buy shares the world watches the investment world watches and i
Say what did you just hear warren buffett just bought a whole bunch of shares of this everybody out there is talking about it okay so that’s a beautiful thing with buffett but he even looks at the narrative and don’t let him fool you for a second okay he preaches about looking at the business overall and not just the financial statements okay so one of the biggest
Mistakes you can make as an investor in the stock market in a beginner investor an advanced investor of someone that’s just been in it for a year or two is that you only look at the financials only it’s a very it’s a very naive view and i will you know i wish it was that way i wish it was so simple where you just look at the financial statements you just look at
The income statement balance sheet and cash flow i wish that simple i wish it was that simple guys but it is not it is not a game that is that simple if it was then if it was just about the numbers the computer systems could do a million times better you know valuing of companies then we as humans could do if it was just about the numbers but at the end of the day
It’s more than just in numbers it’s the numbers plus and narrative and that’s how you get a stock price to go up and up over time to get a stock price to go up up over time you need a lot more buying pressure than you have selling pressure and you’ll get that stock to go up and by telling your story this is why ceos or companies & executives always do these
Investor conferences why does a ceo or cfo or a port an executive go around the country doing investor presentations what do they do that couldn’t their time be much more well spent back at their offices helping out their teams expand the business no because here’s the thing those are those executives understand that they can get a big investor to buy in at one of
Those investor conferences they just made a huge day great decision for the company in terms of the stock prices which is one of the things they’re you know judged on as a public company like i said profits and stock price you don’t have what you don’t have one of those you’re probably going to be out of ceo eventually over time okay so executives of teams they
Go to all these investor presentations and do these type of things right because they want to explain the company better they want to sell the company to investors okay and that’s just the name of the game guys so don’t make the big mistake of just investing on financials hope you enjoy this hope you guys got a lot of value out of this stake hit a thumbs up if you
Did thank you for watching have a great day
Transcribed from video
1 MASSIVE STOCK MARKET MISTAKE INVESTORS MAKE By Financial Education