 Good day, fellow investors. Financial retirement is probably the goal of most of those who invest in the stock market. And this is a subject that I really want to emphasize of this channel by starting a series focused on how to get financial independence faster or retire faster, safer with more certainty. And that's something you can do by investing in the stock market. You just have to do not what everybody else is doing and blindly invest in index funds. So in this video series, we are going to discuss the following topics. This case, stock market and retiring. Great tool, but use it smartly, how to use it. Then we're going to discuss in other videos the economy inflation and your financial independence, real estate, fixed versus a dynamic mindset, diversification, etc. In this video, I want to focus on how stocks can make you financially independent, but mind evaluations, value, business strengths and risks. The value investing truth by businesses with value, I'll explain the price earnings ratio and price to book value and how can you use them to your advantage for the long term. What is value investing, how it helps to certainly get where you want to get, which is the key when it comes to retirement and financial independence, you cannot risk that. Therefore, value investing, current value and strong earnings example of such an investment plus four stocks to watch and then how to find more stocks on top of the five stocks that I'll give you at the end of the video. So let me show you how you can reach financial independence, how historically it has worked in the past for a lot of people, but you have to see where we are now to see where it will work for you in the future. And then it all boils down to bottom up investing, finding 20 good businesses that you follow, investing those that have the best business yield and then you are set. So let me explain it all by first discussing the main mantra of the investment environment and that is investing in index funds and why that might not be the best vehicle for your retirement. If you look at the SAP 500 index from May 1982, what's that, 36 years, oh my god, I'm getting old, you see that it was a beautiful vehicle for retirement. Those that invested 100,000 in 1982 have now a dividend yield of 48,000 and their capital, their nest egg is 2.6 million. I would call that a wonderful retirement scenario and we excluded reinvested dividends. So it could be much, much more. The problem is that back then really few dared to invest in stocks. Nobody liked stocks, everybody was running away from stocks because in the past stocks did really, really bad. Even Ray Dalio, the great Ray Dalio didn't invest in stocks 1982. Actually stocks looked that bad that Dalio was betting against stocks and practically almost lost it all. It was a great lesson for him. He survived later and now he is the Dalio we know. Fast forward 35 years and practically everybody is saying invest in index funds. If you buy an SAP 500 index funds for the long term, you will do really, really well but what does that well mean? Is it 4% per year? Is it 8% per year? Will it get you where you want to get? Let's see. I'm arguing that 100,000 invested in 1982 is now what 2.6 million with 50,000 of dividends but I'm arguing that if you invest 100,000 in the SAP 500 now it won't be 2.6 million or in the same value if there is not hyperinflation in 30 years and the dividend yield might not be 50% on that which means that we have to find other vehicles for retirement or just a little bit smarter vehicles or you have to be careful not to invest with those vehicles that are too risky like the SAP 500 now. How to do that? Well, we have to focus on value investing and value investing focuses on investing in businesses and there is one simple investing truth. The value investing truth that Warren Buffett used in 1982 that Seth Klarman used when he founded his Baupost Group in 1982 to simply crazily buy stocks when others like Dalio were selling and that simple truth to quote Seth Klarman from his book Margin of Safety goes like this, in the long run however stock prices are also tattered albeit more loosely than bonds to the performance of underlying businesses so the returns you will get from investing are related to the performance of underlying businesses. If the prevailing stock price is not warranted by underlying value it will eventually fall and this is a big risk, something you cannot tolerate when it comes to retirement. Those who bought in at the price that itself reflected overly optimistic assumptions will incur losses. So when it comes to investing you have to find those investments that have a good earning yield, a good business yield and that at the same time offer value because that is the most likely vehicle to lead you from the current moment to your goal into the future and here value investing comes in greatly because it limits the risk, low risk equals high reward not what all other academics are saying or as Buffett would summarize it price is what you pay value is what you get and there are two simple tools that are not complete investing tools but can give you an indication and can really help you when it comes to retirement financial independence without really fully digging into the investing worlds etc and those are two simple concepts the price earnings ratio that looks at the price so what you pay versus the value what you get and especially if you use 10 year averages which is the cyclically adjusted price earnings ratio then you can see okay what kind of company am I investing what are the cycles in the business went to buy it low and then you can okay find also value if you look at the price to book value and then you can let's say have a safer more certain investment vehicle for your retirement let me show you the risk of the current market and then we'll go to the five stocks that you can watch and add it to your list of 2040 stocks that might be much better than an SAP 500 index so just look at the SAP 500 it has a price earnings ratio of 22 100 divided by 22 gives me an earnings yield a business yield of 4.5 percent 2 percent growth on those earnings per year means that over the long term the business yield and stock market returns are correlated to the business yield will be around 456 percent over the very very long term so that's it can we do better is the question and what is the risk of this current 4.5 percent yield the first risk is that the current 4.5 percent yield is really low historically if things return to the mean then the required returns from stock goes for from 4.5 to 6 8 percent the SAP 500 drops 50 percent if the required returns on stocks doubles and that's a big risk for those who want to retire because that's something you don't like when the assets you have dropped 50 percent and that has happened in the past especially when stocks were let's say valued at a high valuation 1929 it took 30 years for stocks to recover 26 years from 1965 15 years from 2000 so this is something that investors those who focus on financial independence should really be careful about because this is not something you wish when you want to retire and then people say okay but there are dividends yes the dividends were 3.3 percent in 1929 3 percent in 1966 in the 2000s those were 1.5 percent and now the dividend yield is just 1.8 percent so if stocks go nowhere for 26 years you cannot tell me that you would be happy with the dividend yield of 1.8 percent so for me personally investing in such index funds is a big big risk and I would like to avoid that risk if I want to retire 10 15 20 years down the road because it might be that stocks stocks would be down 40 percent and yes everybody saying stocks will always go up but what is that worth to people for example in the Netherlands where the Amsterdam exchange index was at almost 700 points in the 2000s and now is at 568 points so almost what 19 years the stock market hasn't recovered but okay it's up from the lows of 2002 and 2009 in Croatia stocks are still 75 percent below their 2007 peak so it's not really that stocks always go up it depends when you buy them and what's the price you pay and this leads us to thinking about price earnings ratios and price to book values and you will see what will be the likely outcome if you focus on those metrics I have found this amazing chart from star capital star capital that has done great research on various indices in the world historically and we see that when the cyclically adjusted price earnings ratio is around 30 so taking 10 year average earnings to adjust for the earnings cycles economy boom bus taxes etc then you see that the average long term return is for for a little bit lower than 5 percent in the long term so if you want higher returns you have to squeeze that k-pratio to lower margins so if the k-pratio is 10 you can expect much much higher returns but before discussing that and giving you examples let me discuss also the value as said clarman said we have to focus on the value so that we have a margin of safety when it comes to investing that protects us from the downside that where the downside is really open with the sap 500 so if I look at the sap 500 the price to book value so if you buy the sap 500 you pay 3.4 times more than what it costs to build the underlying assets of the sap 500 now you might wonder why would people pay more well it is about future earnings it's about the return on the assets on the other underlying assets that are historically high so people are willing to pay much more about book value but if you can have growth companies good return on assets and you can have it both with a low k-pratio with a low price earnings ratio with stable businesses why not focus on both and find 20 businesses that give you both a margin of safety and lower price earnings ratio and that's all you need for retirement you follow those businesses when they hit your buying price you buy them and over the next 20 40 years you'll do much better than the sap 500 which much with much less risk further going back to stair capital you see that the returns if you buy price to book value high 3.4 are again around 4.5 4.5 5 percent lower price to book values have much higher returns have shown much higher returns in history so smart investors would not just follow the herd into the sap 500 but let's look for both also Eugene Fama Nobel Prize winner the father of the efficient market hypothesis found that size and value have a positive impact on long-term market returns so it's even confirmed by the efficient market theory now let me give you five stocks that you can watch and add it to your 20 40 stocks great businesses to watch and simply buy them where the book value or the price earnings ratio is low enough for you to reach your target with certainty let me give you a stock that i have analyzed here in a video it's called archer daniels midland it's a food processing global food processing company and it has a price earnings ratio of 14.3 which means that the business yield is around 7 6 7 7.5 percent and the price to book value is 1.29 which gives you a better margin of safety than 3.4 it's a boring business typical value investment businesses the dividend yield is also 3.2 percent so i really believe that this business will give you a 7 8 percent investment return over the long term compared to the 4.5 percent of the sap 500 this business has been around for hundreds hundred years 89 years of increasing and paying dividends so you are buying something pretty certain and if you wish to hear more check my adm video analysis and i also give you four other companies you might want to watch and put on your watch list so apple depends on the earnings people will buy apple phones earnings will be higher lower but it is relatively certain and that's why also buffet is buying adm as i said berkshire is a great company well managed great assets that you can be certain of doing well if you buy it at the right price another example consolidated Edison just to put a c here the wall disney company on a d and if you follow their stock prices those are always volatile but if you look at their price earnings ratio long-term growth price to book value of value or tangible intangible depending how you measure it you can buy them at the right time and build a great portfolio over the long term if you have a list of 20 40 stocks like this and you simply watch okay i'm going to invest on a monthly basis oh disney is cheap like it was cheaper in december i'm going to put it into disney this month something else is cheap i'm going to buy that that that and then over the next 10 years you have a portfolio over with a margin of safety and with higher yields that the sap 500 and that's crucially important if you want to retire because it lowers your risk increases your returns and let me show you the difference this is the difference i also firmly believe that the portfolio of companies like adm will outperform the sap 500 in the long term due to their underlying business earnings and margin of safety the differences are staggering $1000 compounded at 4.5% annually sap 500 compounding would lead to an amount of 2400 in 20 years while 107.5 leads to 4200 so we have companies with less risk and offer higher yield that's a huge difference when it comes to retiring almost double the difference when it comes to retiring and financial independence i wouldn't risk it on the sap 500 when i can find something low risk and higher return price earnings ratio you can see even apple 2015 the price earnings was 11 14 so now it is a little bit higher with 17 but still let's say on the higher end of the average but still always below the sap 500 index and you can see how you can buy such companies even at earnings yields of 8 9 percent later the stock price appreciates and gets to the average but this is what i'm talking about if you have a patient financial independent mindset then you know you can find those stocks and buy them on the cheap if you wish to hear more about this mindset please subscribe as i'll continue with the financial independence series if you wish to hear more about such investments all around the world betting on asia and the 4.5 billion people that live there please subscribe to this channel thank you for watching looking forward to your comments and i'll see you in the next video