Introduction to investing within Belgium

Aim of this web log article

You want to save money but you are (like many) afraid of a big angry monster: inflation, how do you hide from inflation and make sure that it not only grabs your leg from under the bed but also your house and your car? I propose as a remedy: investing. But what is investing, what is a share/stock, a bond or an ETF? I want to make that clear here.

What is inflation

You may think you can skip this part of the article, but I will force you to keep your eyes glued to your screen. As you probably know, inflation is when the government creates money to pay for extra costs with this non-real money and nobody can do anything about it (the gold standard where a note of money equals a piece of gold is long gone, money only has value because other people think so,... I guess that partly applies to gold as well) the government believes (just like many people who had economics in college and call themselves an 'economist', whatever that may be) that this creates value and that people spend more because their money will be worth less next year, although I think the average Billy from around the corner doesn't care about this and this is therefore not entirely true, I do care if I want to buy a big Lambo later on. The big question is: how much does my investment have to increase in value annually to counter inflation? I would say around 4% (preferably 10% for cases like 2022), if your savings account or your investment produces less than 4% profit every year you are losing money because the government believes in printing money. What can we do about it? There are 3 options here:

• Real estate: buy a house/apartment/warehouse/garage and hope the market keeps going up, problem: real estate is expensive and costs a lot to maintain (if you find a well located warehouse, email me). There is a nice loophole here that I want to briefly touch on: if you have the means, buy a decent property and take out a loan with an interest rate lower than 3%, you will create money for yourself as this is lower than the inflation rate (this loan becomes 1% cheaper per year).
• Goud: If everyone continues to believe that gold is worth something (it is used on microchips so there is something to it) then your money is safe, problem: difficult to trade, also called illiquid.
• Shares: The subject of this article.

What are stocks, bonds and ETFs)

Shares can be seen as small parts of a company, if a company does not have enough money to buy something it really wants it can "publicly trade" a part by selling vouchers worth a percentage of the company which people can buy up and thus become proud owners of that percentage of the company. This raised money can then be spent by the company. You do indeed become a part owner of the company, this means that if the other owners want to pay money to themselves, you are also entitled to that (provided there are no complications of the type of shares but we will not go into that here). Also, as an owner of the company, you may have voting rights, if a new CEO needs to be appointed you can vote for or against and attend all meetings. Since it was decided by the initial purchase of this share that it has value, the share can also rise and fall in value, usually roughly in accordance to the actual value of the company or at least the perceived value via the media. This makes shares interesting as they are usually inflation-proof as they have a loose "value", not directly dependent on a currency; an simple example to make this easier to comprehend is a timber company that has 4 tons of wood in stock valued at a certain value in euros, if the euro becomes less valuable that wood will simply cost more euros as the wood has not changed. Bonds are a way for the company to take a loan, from you. Like you are the bank for a company, the company needs money and borrows money from you, to make up for it they give you interest on your loan (often too little to cover inflation but usually safer than shares). Recently we also have ETFs (Exchange Traded Funds) which are a collection of shares constructed by some fund company that you may buy to instantly have a diversified portfolio without any of the research, these are the simplest option as you won't really have to do any due diligence on choosing the kind of company.

How to actually buy stocks

There are several possibilities for this in Belgium, the most common (which I personally am against) is to let your bank arrange it, they have people (might or might not be educated people) who draw up stock portfolios. You just have to deposit the money regularly and they (after taking a cut) invest for you, this can be a good option if you really don't feel like learning to invest in any way shape or form and don't trust yourself with money, note that you will miss out on a lot of profit this way. Another option is through a so-called "broker". There are several options for this, but I personally use Bolero from KBC Bank. They have interesting textbooks, quizzes to test your knowledge and a fairly large range of shares, bonds, ETFs, etc., which makes them my personal recommendation. However, I have no experience with other brokers and they can be just as good or even better. After creating an account with a broker, you will have an account where you can deposit money via the IBAN with the stated structured message (if you already had an account with that bank, e.g. at KBC, this can be done directly via the app). After depositing some cash (note: cash is everything that is not invested, this no longer means physical money) you can buy shares, but now the question is

How do you choose stocks?

There are several strategies in existance, most of them never revealed to the public as they probably are money making machines, note that most "investors" who are of little knowledge and just "follow the hype" severely underperform the market (with "the market" the S&P500 is meant which is an index corresponding to the value of the 500 biggest companies, you can directly invest "in the market" by buying an S&P500 tracker). Because of this I have done a lot of research and came to my strategy, which you may or may not copy: Deep value investing. Below will only be a summary, I will make a more thorough plan at some point but you can in the meantime watch videos by roaringkitty (the guy behind the GME squeeze, u/deepfuckingvalue): The question is how do you find a company with higher value than price.

Insiders might sell their shares for any number of reasons, but they buy them for only one: they think the price will rise -Peter Lynch

That is the answer: you don't, you ask the insiders. Who has more insight into a company than you? The CEO, CFO, Director,... Literally anyone working there of high position. If you're an insider who wants to buy shares of your company, then you have to let the SEC and thus the public know, on openinsider you will find all trades done by company owners in their own shares, seeing group purchases here of +200k is a good indication that that company will increase in value. I like to pick companies from there and then go to the next step: See if that company is useful. You do this with some intelligent insight, you look at their website to know what they do and think about whether this company will continue to be useful or as Warren says "durable competitive advantage". Last step is the nerd numbers: For quick overview you look at PE (Price Earnings ratio, is the price of the stock over the earnings of the company, a company may be "overvalued" if the PE is higher than 12 and "undervalued" if it is lower than 12), last step you look at competitors of that company and compare EV/EBITDA, the one with the lowest wins. You can go deep into due diligence by looking at their full financials, how they lost money and now are getting it back... But that's beyond the scope of one blog article. For all the aforementioned ratios like EV/EBITDA, just like Warren Buffett I use the only thing that yahoo still does well: financials on yahoo finance, If you navigate to a share like apple (tickr, or letter symbol with which the share can be uniquely identified, is AAPL) then you see the price over different periods, you should not look at this and certainly not try to see trends in it (this kind of astrology is called "technical analysis" among economists and although it can be very slightly predictive, it's mostly bullshit). What we, as "intelligent investor 🤓" are interested in, are only the nerd values such as PE & EV/EBITDA.