Welcome to the Stock Market!

The Greatest Introduction to the Stock Market Ever to be Conceived
Written by Mr. Moneybags Copyright © 2009 by The Gutman Group Ltd. All rights reserved. Illustration: Copyright © 2009 The Gutman Group Ltd. All rights reserved Published 2009 by The Gutman Group Ltd.

www.BigFatMoneybags.com
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Right of Distribution
This eBook is provided by www.BigFatMoneybags.com. Feel free, actually, feel obligated to pass copies of this eBook along to your friends, employees, students, associates and/or random people on the street as a gift, incentive, bonus or cruel joke. You can (and must) even distribute this eBook on your blog, website or forum to all your visitors. All we ask, and enforce, is that this book not be modified in any way (unless receiving permission first) and give credit when it’s due... or else... Otherwise – the sky’s the limit (or the stratosphere, if you can think of a way to reach it).
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This book is dedicated to my bags of money, Thank you for keeping me warm at night.

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Contents
Preface
A Very Long Introduction

Page 6 Page 17 Page 41 Page 65

Part One
The Beauty of Investing

Part Two
Welcome to the Stock Market!

Part Three
Getting Started

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A Very Long Introduction
Meet Mr. Moneybags
For some reason, authors tend to place their profiles at the end of their books. Personally, I’d want to know the author of the book I’m reading, especially if it is about a subject as important as the stock market. Maybe it’s because they didn’t want to seem too egotistical, maybe it’s because they didn’t want their readers’ to be put off by their ugly picture or maybe their credentials were lacking; who knows - I’m an investor, not a psychoanalyst (although you’d be surprised how important latter is for the former). If you haven’t already figured out, my name is Mr. Moneybags (common aliases: Monsieur Moneybags, Senior Moneybags and the Mighty Mr. Moneybags). Is that my real name? Perhaps. Do I have a first name? That is none of your concern. All you have 6|Page

to know is that I am the richest being in the universe to ever have existed and ever to exist. The day that I came out of the womb was the same day that I filed my first tax return. Also, I accidentally invented the stock market in 12th century France while searching for a way to smuggle pilgrims across the country. My credibility speaks for itself when it comes to the matter of money and finances.

Introducing: The Stock Market and YOU
For some reason, many people rank investing on the same plane as Nazism and kitten strangling. They think that investing in stocks is worse than gambling and that you will surely lose all your money. They will tell you about their cousin’s neighbor’s dog’s owner’s aunt who lost all her money in the stock market and now lives in a cardboard box on the street. Almost all will tell you that you must be a professional to make money in the markets. Some will say that the system is rigged in favor of

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insiders and even more will go as far as telling you that the stock market is for crooks. There is a technical term for these types of people: Imbeciles. The only reason that people bash the concept of investing harder than a piñata is because they don’t understand it. People are scared of and thus dislike things that they do not understand. This book should explain to you exactly how and why these people deserve to be locked up in a dungeon in maximum solitary confinement for all eternity. This book will clear up any idiotic misconceptions that people have been feeding you throughout your life and will instead teach you how to feed off of others’ stupidity and become rich as a result. No longer do I want to hear babies cry when they hear the word “invest”.

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Never again do I want to see a child screaming for help after being told about the stock market. No more do I want to see people throw themselves off of buildings when I tell them that any idiot can make money from stocks. And above all, I want to spread the love and to clear the bad rep that investing has gotten over the years. Hence, this book is free. Remember, this book is meant only to be an introduction to the world of investing and to show you how it all works. If you are thirsty for more information or feel you are ready for the more hardcore (and higher income-producing) things when it comes to investing, business and managing your finances, then www.BigFatMoneybags.com is your new best friend.

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A little bit about my background
A Problem
During my rather long existence (dating back to 1700 BCE) I have come to realize that virtually every single person that has ever existed shares one common characteristic: they all like money and/or would like more of it. Since my accidental creation of the stock market, I have noticed that it is the most efficient (and dare I say, one of the most fun) place(s) to make money; and throughout the last century or so, I have also noticed that many people (especially students) have a rather strong desire to make money and as they learn more and more about the virtues of the stock market, the more interested they become. There’s just one problem, two actually: The first problem is that either these people who are at least somewhat interested in dabbling in the markets have absolutely no idea how to get 10 | P a g e

started or they are just too lazy to find things out for themselves. The second, and most common problem, is that the current educational tools available are so boring that rather than utilizing them, people would rather drive a pitchfork through their skulls and run into incoming traffic (true story).

A Solution
That is exactly why www.BigFatMoneybags.com was established. We have set out to prove to you and to the world that the subject of the stock market, investing, business and personal finance should not make you want to douse yourself in gasoline and run into a forest fire. We want to show you the massive opportunities that await you in the stock market and that anyone, literally anyone, can make money in the markets (despite what you may have heard from others) and have fun while doing it.

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We want to show you that it is possible to afford your very own driver…driving you around in your Rolls Royce…forged out of solid platinum…with diamond-encrusted rims…parked inside your private jet…sitting on the tarmac of your private island. Yes, really.

Gutman
You will find that one of the things we constantly refer to throughout the (rather informative) articles at www.BigFatMoneybags.com, as well as this book, is the notion of becoming a “Gutman” and is the reason we called our company The Gutman Group. A Gutman is someone who has learned to crush his or her emotions, developed the keenest of gut instincts and is able to follow these instincts without hesitation – a very necessary trait in order to be able to do well in the stock market and in the business world. 12 | P a g e

The Gutman Fund
Before I forget to mention, I also manage The Gutman Fund – the greatest compilation of stocks under the sun. As of October 27th, 2009 the fund has been beating the markets (average of the Dow, S&P500 and NASDAQ) by 98% - an annual rate of return of 132%. In comparison, a typical mutual fund is lucky to make 10% a year. You can find out more about The Gutman Fund on our website. Unfortunately (for you) we have all the investors we are willing to serve, so the only thing you can do is either sign up for our waiting list or learn from our example by studying our portfolio of stocks which we have made available to the public along with detailed explanations as to why we bought shares in those stocks. The beauty of having my exclusive selection of stocks available for everyone to see is that it gives me the right to act however I 13 | P a g e

please, since you will always be able to take a look at that page and see just how much better I am than you. It’s sort of like a free pass to do whatever you want – because if I’m making returns that are beating 99% of my competitors that means I’m doing something right. Plus, I believe in complete transparency. It is one thing to tell people of your accomplishments and an entirely different thing to actually show them how you achieved those accomplishments. Not many people/websites/financial institutions are willing (or able) to do that. I am.

The Mission
The purpose of this book is to start you off on the journey to become a Gutman – and I am determined to make it a meaningful and exciting one, whether you like it or not. I will show you a world that you dared not imagine existed before, a world with limitless potential, a world where you can take an 14 | P a g e

initial investment large enough to buy you a nice pair of pants and turn it into enough to buy an Equestrian racing horse. I will introduce you to the stock market.

The Catch
Thing is, I’m not going to take your hand and lead you to a cave full of hundreds of succulent virgins and mountains of glistening gold coins eagerly awaiting the passionate touch of your grubby little hands. Only you can do that – although, I can certainly give you the tools necessary in order to reach that stage. But of course, there is always a backup plan! If the idea of working to make yourself rich is a crushing disappointment, I have a very successful business selling length of rope for very attractive prices! (Despair + Rope, you do the math)

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A Warning
Being the evil, capitalistic pig that I am (my name is Mr. Moneybags after all); I will shamelessly promote my website throughout this book (www.BigFatMoneybags.com). Don’t like it? Well, this book is free so I can do whatever I want. You can always go out and buy a similar book for fifteen bucks or so which isn’t nearly as inquisitive nor as fun to read. Now let’s get started!

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Part One
The Beauty of Investing and Your Money Working for You

Your Money Working For You
a.k.a. The theory behind the beauty
With the advent of the 21st century, and especially the internet, more and more people are flooding towards the way of the entrepreneur and away from the tried-and-true (and incredibly boring) method of [formal] education first, money later. Even though odds are that only 4% of those people will succeed with their businesses while the rest will end up cleaning the survivors’ floors, these people don’t really seem to care. The big push towards starting your own business is the fact that people are tired of working for their money – they want to sit back and relax while they have a pack of minions fulfilling all of their demands, and I must admit: it’s awesome.

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Although this book will not teach you how to start your own business or how to be a good entrepreneur, it will teach you about the fundamental reason people start their own businesses: to have their money work for them. If you are interested in going the way of the entrepreneur more-so than the way of the investor, head over to www.BigFatMoneybags.com and get reading (we release articles about starting/running a business every Monday). If there’s one thing that investing allows you to do above everything else, it is having your money work for you. There’s just something about swinging away in your hammock and sipping away at a Piña Colada while your money is busy multiplying itself – something working for your money will never allow you to do. For instance: at your job, you are paid for every hour you are there and hard at work; whereas with your money working for you (case-in-point: investing) you are being paid every second of the day, even while you are sleeping or doing whatever disgusting things that you do in your spare time. 18 | P a g e

You’ve probably had your parents drill this phrase into your brain while growing up, or maybe even you are the one that is telling your kids the following (rather devastating) phrase: “Study hard and get good grades and you will find a high-paying job with great benefits.” Whenever I hear someone say that I feel like carving my brain out of my ear with a toothpick while falling to my demise out of a plane while on fire. [If you are wondering what this has to do with the stock market and investing, keep reading] They tell you to go to school and work hard and become a doctor or a lawyer, “Work hard and one day you will land a nice and stable job. “ Thing is, I despise the notion of “stability”. I’m also not too fond of the term “wealthy”, unless if by “wealthy” people are referring to being so rich that that they can change into a new $14,000 suit every hour of the day and still have enough left

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over to buy a pack of wolves for their own protection - then that is a notion that I support. Don’t get me wrong, I very much respect professionals such as doctors, lawyers, accountants, engineers and other such highly specialized careers. These people are vital to the functioning of our society and without these types of people we would all be doomed. So, what do I have against these seemingly wonderful professions? All these people work for their money (with a tiny smidge of exceptions). If you work for your money, you give the power to your employer. When your money works for you, you have all the power. It’s that simple. The thought of someone having complete control over me is a thought that makes me want to rip my intestines out of my body and strangle myself with them. In my entire existence, I 20 | P a g e

have never worked a single day for money and if I ever do I think that will be the day that I fly my private jet into a mountain. There is a reason that 1% of the world’s population controls 96% of the money in the entire world. I can assure you that not a single one of these people is a doctor or a lawyer or an engineer and not even an accountant. The type of people that have their money work for them do not have to work for their money. These types of people can afford to take a day or twenty off to lounge about on top of their stuffed elephants while sipping from a $35,000 glass of champagne in their beach house in Malibu and still make more money than you possibly can by slaving away for an hourly wage (despite how high that wage may be). That’s because while they are partaking in these ridiculously expensive and awe-inducing activities, their money is busy multiplying itself over and over again. 21 | P a g e

That is the magic of compounded interest at work and is the concept behind your money working for you (more on this later). The classic example of your money working for you is running your own business. If you’re really good, you can build a respectable business and with enough work you can turn it into a self-sustainable machine that provides you with a constant influx of cash. Bill Gates did it (Microsoft), Ray Kroc did it (McDonalds), Howard Schultz did it (Starbucks), Warren Buffett did it (Berkshire Hathaway) and just about any of the massive corporations you see today which you have grown to know and love (or hate) have done it. The problem lies in the fact that building a business like that is a lot of work and considering the laziness of the average person, it’s a miracle that we have the number of successful businesses 22 | P a g e

that we have today. To build a successful business, you typically need enough cash to last you a lifetime in tips at the Playboy Mansion, and some (a few truckloads to be exact) of industry knowledge wouldn’t hurt either. A heavy list of contacts is a nice asset to have as well. There’s a reason 96% of new businesses fail – yes, you read that right. That’s why I love investing. It’s the same thing as owning a business without having to show up at work – all the while the company is growing and thriving, you just sit there and count your cash. Plus, when you invest in a great company with a great business concept you are ultimately purchasing a cashgenerating machine. Year after year, your portfolio of stocks will keep generating money for you and will multiply itself many times over (if you know what you’re doing of course! But don’t worry, I’ll help you with that! Can’t wait that long? Head over to www.BigFatMoneybags.com).

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The beauty of investing is that you don’t have to worry about all the headaches that come from starting your own business, you can already invest into one (or several) that has proven itself time and time again. You don’t need to rob the Federal Reserve (and a couple 7-11’s just to be safe) in order to start making money. You don’t need a considerable amount of industry knowledge and you certainly do not need a phonebook-size list of contacts. All you need is your head, a little bit of knowledge, some guts and an internet connection – typical Gutman traits, minus the internet connection; please contact your local Internet Service Provider for that. There are two types of people in this world who have their money work for them. There are the ones that build money generating machines (such as the entrepreneurs mentioned earlier) and there are the ones who take advantage of them

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(investors). We recommend you do both. That’s what a true Gutman does.

Compounded Interest
a.k.a. The fact behind the beauty
If you’re one of those people who aren’t interested in the theory behind things and would rather get a hold of the concrete, super tangible facts while ripping apart a rhinoceros with your bare hands then you are in luck! Now that we have covered the benefits of investing in theory, I can show you the hard-core facts, but first: Did you ever sit there and just wonder how the hell did the richest people in the world get so rich? We have Bill Gates (Microsoft) with $50 billion, Warren Buffett (Berkshire Hathaway) with $40 billion, Lawrence Ellison (Oracle) with $27 billion, the Walton family with $21.5 billion and not to mention the mighty Mr. Moneybags (that would be me) whose net 25 | P a g e

worth is so large that any calculator in the world would simply explode just by trying to fit all those numbers onto one screen. Let me tell you a little secret: Bill Gates didn’t make that $50 billion from selling bits of string (or computer software for that matter) nor did the Walton family make all their cash from selling mountains of discounted Tupperware (or whatever it is that Wal-Mart sells). I can also guarantee you that there weren’t any (or at least, not that many) shady business deals going on in dark allies next to any dumpsters. All these people made their massive riches through the little gift from the deepest, darkest depths of Rich Man’s Heaven known as compounded interest. What is compounded interest you ask? Well, Albert Einstein describes compounded interest as the most powerful force in the universe. Yes, you read that correctly. Not radioactive congenial congruently concentrated vernacular waves, not subatomic 26 | P a g e

dilating hydrogen splitting atomic protons and not even the deadly hydro-synthesizing corrugating sub-congenial metamorphosing radian. He said compounded interest. So, how could the man that was fundamental to the development of the second deadliest weapon (after my fists) the world has ever seen (a.k.a. the atomic bomb) call something that can never harm a fly be the most powerful force in the universe? You’re going to have to understand what compounded interest is in the first place. Compounded interest is making profits on top of profits on top of other profits and so on. As simply as it can be described, it is generating earnings from previous earnings. Before your head explodes, let me formulate it into something a little more tangible:

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The story of compounded interest
Let’s say your dear old Uncle Bert takes one too many trips to his local buffet and his intestines implode rendering him six feet under a short while after. In a weird twist of fate/luck/insurance fraud you find yourself inheriting a million bucks. You have the following options: a) Buy a (large) house b) Buy twenty Corvettes c) Buy four million sticks of gum d) Do something useful Let’s assume you chose option “d”, do something useful – you start your own business. You take the money and you build a stable and start breeding Equestrian racing horses (don’t ask me why, you’re the one that decided to do this, not me). At the end 28 | P a g e

of the year you find that you have made a tidy $300,000 net profit (a 30% rate of return). Instead of spending the proceeds on hookers and booze you decide to reinvest the money back into your business like a good entrepreneur – so now you have $1,300,000 invested in your business. A year later you find that your rate of return is 30% again –only this time you make $390,000, not $300,000. You made $300,000 from the $1,000,000 and another $90,000 from the $300,000. Let’s say you decide to reinvest these new proceeds back into the business like last year – now you have $1,690,000 invested in the business. Next year you make another 30% off of your investment – an extra $507,000. You reinvest it and your business is now worth $2,197,000. I can go on, but I think (or at least, hope) you get the point. This is what it means to make profits off of your profits. 29 | P a g e

Oh, and how much do you think that initial investment of $1 million will be worth ten years later growing at the constant rate of 30% a year? $10.6 million. In 27 years it will be just under $1 billion dollars. And that, my friends is how the richest people in the world got so rich. By the way, investing in the stock market works the exact same way – that’s how my uncle’s mother’s cousin’s grandfather’s niece’s husband’s nephew, Warren Buffett got so rich (currently the second richest person in the world) and is the predominant source of my income (investing and compounded interest, not Warren Buffett). As I mentioned earlier, the beauty of investing is that your rate of return doesn’t depend on your business skills, but instead on others’ business skills. The only problem is finding companies

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run by people with these awesome business skills; thankfully www.BigFatMoneybags.com is there to help you with that.

A Few Numbers
Let’s just take a look at what an investment of $10,000 will look like after a few years growing annually at The Gutman Fund’s current rate of return (132%):
Year 1 2 3 4 5 6 7 8 9 10 $ $ $ $ $ $ $ $ $ $ Investment Value 10,000.00 23,200.00 53,824.00 124,871.68 289,702.30 672,109.33 1,559,293.65 3,617,561.26 8,392,742.12 19,471,161.73

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11 12 13 14 15 16 17 18 19 20 21 22 23

$ $ $ $ $ $ $ $ $ $ $ $ $

45,173,095.21 104,801,580.88 243,139,667.63 564,084,028.91 1,308,674,947.07 3,036,125,877.20 7,043,812,035.11 16,341,643,921.46 37,912,613,897.78 87,957,264,242.84 204,060,853,043.39 473,421,179,060.66 1,098,337,135,420.74

And you people wondered how I got so rich! I know, it almost seems impossible, but then again, these calculations require very simple math, in fact, if you can’t make these calculations yourself then you either live in an assistedcare facility and/or are being fed by tubes. 32 | P a g e

If you don’t believe me: take your calculator, input your initial investment, then take your estimated rate of return and divide it by one hundred and then add it to 1. Then, simply keep multiplying your initial investment by that number - every time you press the equals sign represents one year passing by. Of course simple mortals will never be able to achieve the same returns that I can and there will always be tough years where making such high returns is next-to impossible (despite that the bulk of these gains were made amidst the “worst economic crisis since The Great Depression”. Let’s be a tad more realistic and set the average annual rate of return at 30%. This is a number that even the most dimwitted of investors should be able to achieve year after year if they follow the principles outlined at www.BigFatMoneybags.com. Let’s have a look-see:

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Year 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $

Investment Value 10,000.00 13,000.00 16,900.00 21,970.00 28,561.00 37,129.30 48,268.09 62,748.52 81,573.07 106,044.99 137,858.49 179,216.04 232,980.85 302,875.11 393,737.64 511,858.93 665,416.61 865,041.59 1,124,554.07

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20 21 22 23

$ $ $ $

1,461,920.29 1,900,496.38 2,470,645.29 3,211,838.88

Although your $10,000 “only” grows into three million or so at the end of twenty-three years (as opposed to the slightly higher value of over $1 trillion), I still think that’s a pretty decent slice of cash…all done without leaving your chair. That figure is especially orgasmic when you compare what your $10,000 could have grown into in the same time period if it was just sitting at the bank (currently a typical savings account will yield you about a 1% return, but let’s be generous and say 3%):
Year 1 2 3 4 $ $ $ $ Investment Value 10,000.00 10,300.00 10,609.00 10,927.27

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5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

$ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $

11,255.09 11,592.74 11,940.52 12,298.74 12,667.70 13,047.73 13,439.16 13,842.34 14,257.61 14,685.34 15,125.90 15,579.67 16,047.06 16,528.48 17,024.33 17,535.06 18,061.11 18,602.95 19,161.03 19,735.87

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Now do you see the value of investing in the stock market?

What if you don’t have a lot of money to invest?
If you don’t have millions of dollars to invest (or even a few thousand) all hope is not lost. Although it is true that it’s better to invest a large chunk of money at once (mainly due to commissions {more on that later} as well as due to market timing), investing small amounts of money periodically is better than nothing. Here are some numbers that will help you sleep at night: If you invest one dollar a day ($365 a year) starting today, growing at a rate of return of 30% a year, you end up with: a bit over $20,000 in ten years, a tad under $300,000 in twenty years and over $4 million in thirty years – or you can buy a chocolate bar a day for the next thirty years, be $11,000 poorer and be 730 pounds heavier. 37 | P a g e

If you invest $100 a month ($1200 a year) growing at 20% annually, you will have $37,850 in ten years, a bit under $270,000 in twenty years and just over $1.7 million in thirty years. If you invest $300 a month ($3600 a year) growing at 25% annually, you will have $150,000 in ten years, a bit over $1.5 million in twenty years and $14.5 million in thirty years. If you’re not sure where you’re going to find even those small sums to invest every month - head over to the “Your Money” section in www.BigFatMoneybags.com and we’ll show you how you can stop overpaying for things in your regular day-to-day life and easily save amounts equal to the monthly contributions mentioned above. Of course, as I mentioned earlier, the rates of return mentioned above are averages and there will always be down years where you aren’t able to make nearly as high of a return – then again 38 | P a g e

there will also be years you will make returns many times more than that. I will talk more about the risks of investing in Part Two of this book.

Closing Thoughts
The most important thing to remember about the stock market is that the longer your money is invested, the more it grows thanks to compounded interest. That’s why it’s so important to start investing your money as early as possible, especially when you see by how much your money grows in the later years. It’s also important to remember, investing doesn’t have to be a full time job. You can still keep your lucrative job as a potato peeler and do what you love; your money will still be working for you. Of course, it takes some time to research the stocks you are going to buy and then a few hours out of your week to keep up with the latest news. Then again, it’s better than mowing lawns or sweeping floors. As usual, my offer of rope at cheap 39 | P a g e

prices still stands if you feel that neither option will solve your dilemma of coping with life.

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Part Two
Welcome to the Stock Market!
Whenever someone tells me they don’t know anything about the stock market I feel like bludgeoning them to death with my sledgehammer forged out of melted diamonds – thankfully laws exist to prevent me from doing that. Believe it or not, every time you buy something, say an iPod, you are making money for a corporation, such as Apple. Whenever you buy a box of Kleenex to wipe off whatever filth comes out of your body, you are making the Kimberly-Clark Corporation just a tad richer. Whenever you steal the transmission out of a Corolla, you are making money for Toyota (since the owner has to get the engine replaced, courtesy of Toyota). I can go on, but is there a point? Now, let me ask you: if you like a company’s product, why not buy some shares of that company? If you are making the 41 | P a g e

corporation richer by buying their products, why not be a part of that company? Is it possibly because you have never thought about it that way before or you simply didn’t know these options were available to you? Or maybe you just don’t understand the concept of shares and ownership of stock; maybe you don’t even know what a stock is? Well, it’s okay and it’s nothing to be embarrassed about. It’s my job (and that of www.BigFatMoneybags.com) to open this world up to you and show you the opportunities that exist in the stock market. If after reading this book you still don’t understand what’s going on, then you should be ashamed – length of rope anyone?

INTRODUCING THE STOCK MARKET!
The stock market is quite possibly the most magical place in the world to make money, second only to my rope selling business 42 | P a g e

during suicide season. If there exists a place on this earth where you can take an initial investment large enough to buy a set of pots (or pans, whichever floats your boat) and turn it into enough to buy a duplex and a windmill to boot – it is the stock market. Problem is, people either don’t understand what the stock market is or they don’t see the potential in it or they simply think it’s all a hoax. The technical term for these types of people is: imbecile (I might have mentioned this term earlier in the book). Now, if you’re not an imbecile and you see the value in the stock market but don’t know how to make returns that will allow you to afford more than a pack of ping-pong balls (see: our competition) then I highly suggest you scoot over to to our website. On the other hand, if you have no idea what the stock market is or how it works or just want to expand your

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knowledge then keep on reading and thus end your sad regime of being deemed an imbecile. It seems that people don’t understand how you can take an initial investment of $5,000 and turn it into $10,000 (if you have somewhat decent stock-picking skills) or turn it into $1,000 (if you don’t) a year later. To understand how that is done you have to understand how the stock market works - which is what I will proceed to do right about…now.

The Stock Market Explained
You’ve probably heard some stupidly ecstatic dipstick on TV screaming “Sell the children! The Dow has fallen 20 points!” or “Praise Jesus! The NASDAQ is up 112 points! Hallelujah!” Those words probably didn’t mean much to you in the past, but after reading and absorbing the miracle known as this book your life will be forever changed – you won’t be an imbecile and you will be smarter than 99% of Wall Street. Congratulations! 44 | P a g e

Before I go into explaining what the Dow or NASDAQ is, it will probably help to understand what a stock is in the first place (unless you are one of those people like me who were already flying before they could crawl): A stock represents ownership of a company’s assets and profits and conversely in its liabilities and losses. A share represents how much ownership you hold of that company. Yes, it’s that simple. You can purchase virtually any (major) company’s stock. Common examples are Apple (AAPL), Google (GOOG), Best Buy (BBY) and Nike (NKE) as well as any of the stocks found in The Gutman Fund. Those strange little abbreviations that look suspiciously like an alien language is actually how the stock is classified and is referred to as a “ticker” or a “stock symbol”.

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If you’re so confused right now that you feel like hanging yourself with that rope you purchased from me, put it away; I will ease your spinning head with a little example:

The story of RICH
Let’s conjure up an interesting little company called Mr. Moneybag’s Rope Selling Emporium (Symbol: RICH). Currently, this company is a private corporation (meaning shares of this company cannot be bought and sold in the open markets) but to raise some extra dough Mr. Moneybag decides to “go public” meaning his company’s shares can be bought and sold in a stock exchange – this is what is referred to as an Initial Public Offering (IPO). Mr. Moneybags drives on over to his investment banker and after many hours of screaming and obscene hand gestures they determine that the company is worth $20 billion. It turns out that Mr. Moneybags is a greedy little chimp and decides he 46 | P a g e

wants to sell off the entire $20 billion and take home the cash all to himself – problem is that not many people can afford to go out and spend $20 billion everyday (unless of course you are a Gutman). That’s why they have to take that number and cut it into smaller, more affordable pieces – known as shares. Mr. Moneybags decides he wants everyone and their pet horse to be able to afford shares in his company, so he sets the price per share to be $100. Since the company itself is worth $20 billion, that means there are 200 million shares at $100 a pop ($100 x 200 million = $20 billion). In real life, the investment banks and whoever else took part in the IPO would take a percentage of these funds, but for simplicity’s sake let’s pretend all these organizations were feeling Christmassy. Problem is, finding a buyer for every tiny little share can take longer than it takes a hundred-and-seven year-old lady to back 47 | P a g e

out of her driveway. That’s why stock exchanges exist – so, instead of going out and asking Aunt Erma to buy some stock in your rope-selling business, you can refer to a stock exchange which will electronically connect buyers and sellers without any hassle on your part. [Some of the stock exchanges you commonly hear on the news everyday: New York Stock Exchange (NYSE), NASDAQ and the Toronto Stock Exchange (TSX)] Buying and selling shares on a stock exchange used to be done by stock brokers but nowadays with the advent of that contraption commonly referred to as the internet, online brokerages are all the rage now. The process of buying and selling shares of a stock is done within seconds. (More on this and choosing online brokerages later) And thus, Mr. Moneybag’s company was sold off bit by bit in a pretty short amount of time (honestly, how can someone not want a piece of a company like that?). 48 | P a g e

It’s important to remember that when a company sells its soul in an Initial Public Offering, a Board of Directors is elected by the owners in order to manage the day-to-day operations of the company. It’s also good to know that ANYONE, literally ANYONE can trade stock – all you need is some money, a bank account and to be a human being. And that is the story of how Mr. Moneybags made $20 billion in one day.

How the price of a stock is determined
So now you know what a stock is and how shares of stock are bought and sold. What I still didn’t explain is how you can take an initial investment of a few thousand dollars and turn it into many thousands of dollars or lose almost all of it. But first, a public service announcement: Some leeches interested in joining The Gutman Fund and having me invest 49 | P a g e

their money for them always come up to me and ask much I can turn their a)$1,000 b)$2000 c)$5,000 or d)$10,000,000.32 into. I say this to them every time and I will tell you: YOUR RETURN ON INVESTMENT DOES NOT DEPEND ON HOW MUCH MONEY YOU INVESTED. As of today, The Gutman Fund’s rate of return is 132%. That means that if you take $10,000 and grow it at a rate of return of 132% it will become 132% more – $23,200. If you take a million dollars and grow it at a rate of return of 132%, it too will become 132% more – $2.32 million. Now that I got that out of the way, I can safely continue. The only way you can make money in the markets and take your initial investment and turn it many times more is by buying low and selling high. If you know anything – literally anything – about stocks, you know that their share price always fluctuates. An example of buying low and selling high? You buy one hundred shares of a company at $10 a share, meaning your 50 | P a g e

initial investment is a grand total of $1000 ($10 x 100 shares). A year later each share is worth $15, meaning you can sell your one hundred shares for $1500 ($15 x 100 shares) – a tidy profit of 50%. Question is, why does the price of each stock change and how can you use that to your advantage? The reason that stock prices jump around as much as a rabid kangaroo infected with rabies is due to the wonderful market forces known as supply and demand. As simply as it gets: When the demand for a certain stock is higher than the supply available, the price per share of the stock will rise. Since everyone wants a piece of the pie and there’s not enough of that delicious pie to go around, people are willing to pay a little bit more for every piece, thus the price per share rises. When the supply of shares for a certain stock is higher than the demand (meaning there is low demand), the price per share of the stock falls. Say, Aunt Erma accidentally used insecticide 51 | P a g e

instead of sugar and the only way people can sell their slices is by cutting the price, hence the price per share falls. That having been said, there is also the case of what actually determines the demand of a stock. We know that the supply is determined by the amount of shares available to be purchased, but what factors lie behind demand? The main reason investors are willing to pay more or less for a stock is because of what they think the stock is worth. If they believe the stock is worth more than its current price, they will pay a higher value for it. On the other hand, if the investor believes the stock is worth less, they will sell the stock if they own it or they will wait for the price of the stock to drop so they can buy at a price they deem suitable. NEVER associate a company’s stock price with its value (how much it is actually worth - also known as a stock’s intrinsic value). 52 | P a g e

As I said earlier, you want to buy low and sell high – the only way you are going to do this effectively is by buying a stock that is worth one dollar for fifty, thirty or even ten cents and then sell it when it reaches its intrinsic value. Remember, just because a stock is trading at gargantuan levels, doesn’t mean it’s actually worth that much. The problem is, determining how much a stock is actually worth is where everything gets tricky and unfortunately it doesn’t fit in with the scope of this book. You can always head over to www.BigFatMoneybags.com where you can read up on articles about choosing stocks or check out The Gutman Fund to see how I choose my stocks or simply wait for my next book to come out about the subject. But do not worry, valuating stocks is not nearly as complicated as you may think, nor do you have to be a “professional” – it just requires some research and a smidge of outside-the-box thinking.

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So you don’t feel cheated (might I mention, this book is FREE!), I will mention some of the tools investors use to determine the value of a stock: price to earnings ratio, price to book ratio, book value, return on equity, discounted cash flow and salvage value are among a mountain of other complicated-sounding gizmos. Thankfully, it’s not nearly as complicated as it sounds – but I won’t explain it here, this book is meant to merely introduce you to the world of stocks, not conquer it (head over to www.BigFatMoneybags.com for that).

Factors Affecting the Perceived Value of a Stock
The most common factor affecting how investors’ perceive the value of a company is by its earnings. If you don’t know what earnings are (really?): they are the profits a company makes (commonly referred to as “the bottom line”). So, if a company doesn’t make any money, it’s doubtful it will stay in business – thus the perceived value of the company falls. 54 | P a g e

Investors, and the inbred mules on Wall Street, watch earnings reports like hawks. If a company reports better than expected earnings, they will pile into the company, thus demand rises. If the results are worse than expected, expect the price to plummet. And since companies are required to report their earnings four times a year (every three months - referred to as a “quarter”), you can bet that there will be many occasions for stocks to swing back and forth like a wild monkey on a swing. Other reasons the price of a stock will rise revolve around good news such as analyst upgrades, management restructuring or due to speculation, such as rumours of a larger company buying your company out. Over a longer period of time, the price per share of a company will rise as the company grows and becomes more and more profitable (remember, if you own shares of a company you own a share of the profits).

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Common reasons a stock will fall in price? The exact opposite of the last paragraphs: bad news regarding the company as well as analyst downgrades are some examples of why stocks fluctuate in price. If learning about all this seems daunting to you or you are thinking that this information is only available to insiders (employees of companies), there is a good chance you are poor. The beauty of the stock market is that it is built to be fair for everyone (or at least is supposed to be), meaning that you have access to the same information as any insider. Before you launch a javelin at my chest while screaming “LIAR!” let me remind you that it is illegal for people to trade using “insider information” – therefore, yes, we all have access to the same information. I will speak more about where to access this information later in the book.

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The Tale of Risk
Of course, when you invest in the stock market there is always some element of risk involved. Then again, whenever you engage in any activity there is some element of risk involved, for instance when you are riding your bike to class there is a chance of you hitting a bump and, long story short, end up with bits of your head all over the road. There is even risk when you are reading a book: those sharp corners plus your eyes can equal an unpleasant trip to the hospital. That’s why you should wear a helmet when you go biking or wrap your books in foam when you are reading in order to mitigate your risk as much as possible. Of course there are many people who choose not to be prepared with a helmet handy for when they have their lives flashing before their eyes as they are falling off their bike headfirst into the concrete in slow motion. 57 | P a g e

Granted, a very small portion of people end up with pieces of their heads missing when they go biking so it would make sense for them not to want to wear those clunky helmets. Then there are the bikers who bike down the middle of the road while keying cars and running over koala bears. For these types of reckless people, a helmet would be a good idea, yet many still don’t wear one. This analogy of bikers and risk applies directly to investing. As there are different types of bikers there are different types of investors. Some choose to be safe and take necessary precautions in order to avoid having to sell their organs in order to pay off the bills (equivalent to wearing a helmet while biking) while others are too busy recklessly investing without doing a smidge of research and thus end up not noticing the wall they are about to collide into…head-first…with no helmet…while riding their bicycles and losing all their money. Karma is sweet.

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I can go on talking about bicycles, pieces of head all over the ground and throw in a random reference to investing every now and then but I think you get the idea. There are many investment strategies that will reduce the risk that comes with any investment such as dollar cost averaging, diversification, asset allocation or even investing in mutual funds. Unfortunately for you, I do not want to get too technical in this book so if you are interested in all of the investment strategies available to you then head over to www.BigFatMoneybags.com. All you really have to remember about stocks and risk is that the fastest growing stocks tend to be the ones that are the safest. Many people will launch boulders and packs of man-eating Rottweilers at me for saying what I just said, but then again doesn’t it make sense that the more people are buying of something, the better the quality?

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There’s a reason Apple sells iPods by the pound while its stock price went from $2 to $200 and why Amazon is considered to be the next of kin to Jesus – and I dare anyone to tell me these stocks were “risky”. There are thousands of other such examples, but I’m too lazy to list them all. And as for the people who say that investing in the stock market is the same thing as gambling? I’m not even going to dignify that with a response.

Some More Things to Consider
Stock Indexes
If you watch the news you will constantly hear newscasters screaming hysterically about some strange contraption known as the “Dow”. When they refer to the “Dow” they are referring to the Dow Jones Industrial Average, a stock market index. The point of this 60 | P a g e

index is to represent the state of the stock market as a whole; whether it does so effectively or not is a topic for a completely different eBook (coming soon!) The Dow Jones Industrial Average is simply the average of thirty “blue-chip” stocks such as IBM, General Motors, McDonald’s and Microsoft. These companies are big, bulky, well-established and are considered to be rather dandy representatives of their sectors. If the Dow rises in value, it is considered that the economy is doing well; if its value falls, it’s considered that the economy is not doing so well. Other stock market indexes are the S&P500 and the Russell 2000, although the Dow is the index that is most closely followed.

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Dividends
Dividends are one of the ways a company distributes its earnings to shareholders. They take the form of cash, stock or even property. The amount of the dividend is determined by the board of directors; the more shares you own, the more dividends you get. Also, high-growth companies (the kind of companies I like) tend to reinvest their earnings in order to sustain their super growth instead of giving their money away to shareholders, this results in the price per share rising. Another reason I don’t like dividends is due to tax reasons. Sadly, the subject of taxes doesn’t really fit the scope of this book either. Just remember: you have to pay tax on dividends and paying tax means you make less money.

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Different Types of Stock
There are also different types of stocks. The ones that I constantly refer to are “common stock” and is the type that most people refer to when they are discussing stocks. There is also “Preferred Stock” as well as different classes of stock, such as “Class A” and “Class B”. I’d tell you more about these types of stocks…but there’s no point. Stick to common stock, that’s where the money is.

Different Types of Markets
When everything is fine and dandy and stock prices are rising in price while everyone is making money - it is referred to as a “Bull Market”. When people are stockpiling food reserves, selling their kidneys to black market organ dealers, haggling their kids away for 63 | P a g e

pocket change and when stock prices are falling - it is considered a “Bear Market”. So now when you hear people using these terms, you won’t feel all that helpless anymore…maybe even on their level…or better yet, more powerful…powerful enough to crush their skulls into dust…and to conquer the world…with a flick of your finger. Yes, the stock market can do that for you.

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Part Three
Getting Started
So, you now see the opportunities that await you in the stock market, you see the potential and you finally understand how it all works. Now you think you are ready to invest. Do I recommend you start now? If the only knowledge you have of the stock market is from this book, then no, I do not recommend you start now. At least head over to our site, www.BigFatMoneybags.com and learn a bit more. If you feel that you are absolutely ready to begin or simply don’t want to heed my advice, then by all means – in fact, I will even help you get started.

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Choosing an Online Brokerage
The first thing you are going to want to do is choose a brokerage, since there is no other (convenient) way to trade stocks. Others will give you the option of regular brokers or whatever else exists, but let’s face it, we are in the age of the internet where everything is cheap, fast and convenient – so I’m not going to recommend you take up telephone trading among other things, unless you are ninety-seven and have chronic hemorrhoids. That’s why I recommend an online brokerage where you can buy and sell stock at the click of a button (literally). To set up a brokerage account all you need is (typically) your name, contact information, Social Insurance Number (SIN) and bank account details – and then you can start rolling in the dough! I also recommend an online brokerage since their commissions tend to be significantly lower than other means of trading stock (if you don’t know what commissions are, keep reading). 66 | P a g e

If you’re living in the United States, I recommend TD Ameritrade hands-down. Scotia iTrade for Canadians (only because TD Ameritrade is not available in Canada…even though it’s originally a Canadian company…traitors). Why these two brokerages? Their commissions are the lowest, they are ridiculously simple to use and they have some very friendly technical support. The way most online brokerages work is the more trades you make per quarter (for example, buying stock is one trade, selling it is another trade), the less money you have to pay for each transaction. TD Ameritrade currently charges $10 per trade, flat. Scotia iTrade charges $20 per trade, but if you make over 150 trades a quarter you are charged only $6.99. Then again…I don’t know how much speed you have to mix with your cocaine in order to make that many trades in three months.

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Commissions
For those of you who aren’t familiar with how buying stock works or if you had a large chunk of your brain blown out in Vietnam; whenever you make a transaction in order to buy or sell equity, such as a stock or bond, you are charged a commission fee. So say you open up an account with Scotia iTrade, skip over to The Gutman Fund page of our website, see how wonderfully out stocks are doing and decided to invest into PriceSmart (PSMT): you will be charged $20 for purchasing shares and then when you feel that you are ready to sell, you have to pay another $20 for the transaction to sell. That’s forty bucks ripped out of your deadly kung-fu grip and there’s nothing you can do about it. So, say you invested $1000 for the above process. That means your $1000 investment has to grow by 4% just to break even and make those $40 back. On the other hand, if you invest

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$10,000 you will only have to grow your investment by 0.4% in order to break even. That 4% of $1000 may not seem like much, but you have to remember that many professionals can barely make 4% returns in one year. Also, the higher your return, the more your money compounds and the richer you get (remember what I taught you about compounded interest?) – and hence the reason I live in a castle on the moon. For those who are weary about managing your own investment account, especially making buy/sell orders online, I’ll say this as plainly and simply as possible: If you are mentally fit to handle a pomegranate, then you can handle an online brokerage account. Your brokerage’s website should have some dandy, easy-tofollow guides to help you through the process of opening your account, making trades and closing your account after you lose 69 | P a g e

all your money because you haven’t been paying close-enough attention to my sacred advice (see: www.BigFatMoneybags.com).

Choosing Your Stocks
Again, this is something that doesn’t fit with the scope of this book, although I will briefly tell you about the criteria I use to choose my stocks (which has been working wonders for me, check out The Gutman Fund’s returns on our website). I can’t send you out into the real world all alone and defenseless after all. My system of picking stocks involves what I call qualitative (nonmeasurable) and quantitative (measurable) criteria. For instance, when you are choosing a girlfriend you would base your decision on qualitative criteria (such as her personality) and quantitative criteria (such as her bra size). Stocks work the exact same way, just in a slightly larger scope. 70 | P a g e

Here is my criteria for choosing stocks:

Qualitative Criteria
- (Consumer) Monopoly - An extremely strong brand - High competitive advantage - Industry leader - Innovative and extremely popular or necessary products - Smart, determined, visionary management

Quantitative Criteria
- Small Market Capitalization (under four billion dollars) - High growth - Little to no debt (Debt-to-equity ratio at a maximum of 0.2) - High return on equity (minimum of 15% and industry leading) - A huge reserve of cash (enough to pay off liabilities twice over) - Industry leading operating and profit margins - High insider ownership (around 20-30%) 71 | P a g e

Again, all this information may seem daunting but it’s frighteningly easy to learn and, once you get the hang of it, it all becomes ridiculously easy. Thankfully, my website can help you out with that (didn’t see that one coming, eh?) All of the information mentioned earlier can be found in companies’ annual reports, company profiles and even in your day-to-day life. Remember, it is extremely important to research, research and research some more! The main reason people lose money in the markets is because they don’t research their investments carefully enough. If you are not prepared to invest time into researching your investments then you might as well hit up the casinos…then sell your watch and belt buckle and goldfish to a pawn shop in order to be able to feed your family. I’d explain all of the above information in further detail, but this book is long enough as it is and I’m sure you all want to get back to playing Scrabble or whatever else exciting things you people 72 | P a g e

enjoy doing. If you are itching for more knowledge, as I said many times earlier and I will say once again, head over to www.BigFatMoneybags.com for more information.

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IN CLOSING
With the knowledge I have provided to you in these last few pages, you have basically learned absolutely everything there is to know about the stock market in order to be able to go out and make some sweet cash. If you feel a hunger for even more information when it comes to the stock market, investing, running a business and personal finance, then don’t hesitate to head over to www.BigFatMoneybags.com and your hunger should be somewhat quenched. Look forward to more books in the future; my next one will be about conquering the markets and how to choose stocks that will allow you to take an initial investment large enough to buy a club soda and turn it into enough to buy a soda factory (It’s been done before). 74 | P a g e

And most of all, I hope you enjoyed reading this book…because I know I didn’t enjoy writing it. So, you should all be extremely grateful to me, especially for making this damn thing free for you all. If you enjoyed the book (is it possible not to?) and feel that you’ve learned something useful, send it to all your friends, family, colleagues, enemies and rabid squirrels. They will thank you for it and you will have made me (and yourselves for that matter) just a tad richer. Sincerely,

Mr. Moneybags
The richest being in the universe to ever have existed and ever to exist

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