Here’s how this works…
Each week, we will introduce you to one new investing term that you’ll need to know if you want to start investing.
Then we’ll provide a summary of the past week’s financial news and explain why it’s relevant to you as a beginner investor and, more importantly, how you can use this knowledge to your advantage.
So, let’s get cracking!
TERM TO LEARN
INDEX FUNDS ARE PASSIVELY MANAGED AND AIM TO MATCH THE PERFORMANCE OF A SPECIFIC MARKET INDEX, WHILE MOST MUTUAL FUNDS ARE ACTIVELY MANAGED AND TRY TO OUTPERFORM THE MARKET.
Management style:
Index funds use passive management, simply mirroring a market index.
Mutual funds typically use active management, with fund managers selecting investments.
Investment objective:
Index funds seek to match the returns of their benchmark index.
Mutual funds aim to beat the market or their benchmark.
Costs:
Index funds generally have lower fees due to their passive nature.
Actively managed mutual funds often have higher expense ratios.
Performance:
Over long periods, many index funds have outperformed actively managed mutual funds. Especially after accounting for fees.
INVESTMENT NEWS FOR BEGINNERS
What investors learned from tech earnings, in charts.
Recent earnings reports from top tech companies—like Apple, Microsoft, Alphabet (Google), Amazon, Meta (Facebook), Tesla, and Nvidia—show a mix of good and not-so-good financial results. These companies are spending heavily on artificial intelligence (AI), which is starting to impact their cash flow; some reported profits are down because of these investments.
Why this matters to you…
Tech company results have a direct impact on stock prices. When earnings are strong, the whole market can go up, and weak results can drag it down.
Because the biggest tech firms are so large, their financial health affects many stock indexes and funds that beginner investors might own, such as S&P 500 ETFs or tech sector funds.
The focus on artificial intelligence spending means these companies are betting big on future growth, but it also creates short-term risks, like lower profits or higher costs.
What you need to do…
Be aware of market trends. Major tech earnings can drive overall market optimism or fear, so pay attention to how these reports are received.
Don’t chase hype blindly. Heavy spending on AI shows companies are looking ahead, but big investments sometimes mean short-term drops in profit. Think long term and avoid reacting to quick price moves.
Use earnings news to learn. Watch how company results impact stock prices and investor reactions. It's a good way to understand how markets process new information and how sentiment can shift quickly.
Green shoots and shifting sentiments - why UK equities deserve a closer look.
The mood around UK stocks (called "UK equities") is starting to turn more positive after a period when investors mostly ignored them. Investors are beginning to notice possible improvements in the UK economy, political stability, and some good performance from UK companies. Although many investors have been pessimistic about UK stocks since Brexit and other economic troubles, now more people are choosing to buy or hold UK shares rather than avoid them.
Why this matters to you…
If professional investors think UK shares are undervalued (cheaper than they should be), there could be a chance to buy before prices rise.
Changes in sentiment can lead to more buyers in the market, making it less risky for new investors to enter.
What you need to do…
UK stocks may be "on sale" compared to markets like the US – if you’re looking for long-term value, this could be a good entry point.
Keep an eye on the news for major government or economic changes, as these can lead to opportunities or risks for UK stocks.
Diversifying your investments (spreading money across different markets, including the UK) can help manage risk as markets shift.
Michael Burry of ‘Big Short’ fame discloses bets against Palantir and Nvidia.
Michael Burry, an investor famous for predicting the 2008 financial crisis (featured in the movie "The Big Short"), has recently taken bets against two major technology companies: Palantir and Nvidia. He is essentially betting that the stock prices of these companies will fall. This is called "shorting" or making a "short bet." Burry is known for predicting bubbles—when prices get too high—and then betting against them. His recent moves suggest he believes these tech stocks might be overvalued or could face challenges ahead.
Why this matters to you…
When a famous investor like Burry shorts big names like Palantir and Nvidia, it can create attention and may influence other investors’ decisions.
Burry’s approach shows that even well-known companies can be overvalued, so diversification and caution are important.
Short bets predict decreases in stock prices, which can signal that market corrections or shifts might be coming.
What you need to do…
Just because an expert bets against a stock doesn’t mean you should sell your holdings immediately. Do your research.
Follow credible news and expert opinions, but always cross-check and align them with your personal investment goals and risk tolerance.
Short-term market moves are unpredictable; beginners often benefit from a long-term investing mindset rather than trying to time the market.
ONE LAST THING...
Time in the market beats timing the market.
What does market timing mean in investing: trying to buy stocks or other assets at the lowest prices and sell them at the highest prices by predicting when the market will go up or down. While this sounds like a smart plan, it is very hard to do well because markets are unpredictable and can change quickly. Many investors who try to time the market end up missing the best days of the market, which can hurt their long-term returns. Trying to predict market moves often backfires, and the best strategy for most people is to invest regularly and stay invested for the long run instead of trying to "time" the market perfectly.
If this strategy can work for Warren Buffett (that’s him, in the picture), then it can work for you!
Thanks for reading this ninth edition.
If you haven’t heard of Warren Buffett, then I recommend you Google him.
He’s the grandaddy of investing. Literally, he’s 95. And he knows what he’s talking about.
Until next week, happy investing!