Investing, a walkthrough guide for friends

I've always loved business and investing. I used to read the stock market numbers in the paper as a child, made my first investment at 11, and bought my first stocks at 16. Naturally, I gravitated towards studying economics and finance at university, where I had many papers on the ins and outs of all things investing.

Over the years, I've chatted with countless friends on investing, but usually it's a shallow conversation which doesn't last long enough. There are some fundamental concepts that are best seen with eyes, and played with to learn the dynamics. Trying to get across an abstract concept without a whiteboard in 5 minutes is hard work, especially considering it took me many lessons to learn.

So, I made this because I want to help as best I can. No it's not AI generated, it's AI assisted. Most words by my own typing. The charts and interactivity of course, that's assisted sure. My hope is that this is an easy, fun to read experience, and at the end you will have learnt enough to ask me really hard questions. The end of this page is not game over, there lies an invitation to continue the conversation with me, when I'm able to help you much better with a bit of background knowledge in ya.

A core idea I hold, and I want you to keep in mind is this:

The price of a stock reflects what everyone knows and expects. For a stock to move in price, reality has to turn out different from what was expected.

This begs the question; if the price is already fair, then how do we make money? The answer is the boring, yet powerful mathematical concepts of compounding (how money grows) and diversification (how to handle risk). You've heard them before, but here you can learn them with me.

Part 1 — Understand yourself first

The first thing almost everyone gets wrong with investing is the very first question. You ask "what should I buy?" before you've thought "what's right for me?" Those are very different questions, and the second must come first!

1. Not all investing is the same

There is no single "correct" portfolio floating out there waiting to be found. What's right depends on you. Do you like a cheeky sports bet? Are you 25 or 55? Are you willing to lose sometimes to win bigger or you'd rather keep the nest egg safe? Two smart people can make completely different, completely sensible choices on the same day, for the same stock. One buys, one sells. If anyone tells you "just buy X," it may or may not be right... for you!

2. Risk appetite — everyone has a different level

Risk tolerance is simply how much volatility you can handle. Sometimes lose, always win. Could you handle seeing your portfolio drop 20% over the next month? Some can, some can't and both feelings are right for the individual. The most important thing is to avoid panic-selling on a downswing day/week/month...even year. You can plan for this in advance, by knowing your risk tolerance level.

Run through this little quiz below to learn your risk tolerance. It'll scope out where you sit, and remember there are no right or wrong answers. You are you and you're beautiful the way you are!

3. Life stage

Investing at 35 and investing at 55 are very different, even for the same person. At 35 you have a long runway before retirement. If the market crashes, you have years, maybe decades, to recover, so you can afford to ride out the bumps. Closer to retirement, the game shifts from "grow it" to "don't lose what you've got," because you don't have as long to take on the risk. Same exact mind and soul in a different decade has a different investment mix.

4. The risk–return tradeoff

If you want a higher expected return, you have to accept more risk. There is no investment that reliably pays a lot and can't lose. Anytime something is pitched as "high-return and safe," one of those two words is a lie. In Part 2 I'll show you the single, famous exception, and it's the best easy win that finance has.

Part 2 — How money actually grows

In this section let's dive into the two foundations — compounding and diversification — plus how not to quietly screw them up.

5. Compound interest and growth rates

This is the most important idea behind investing. Growth stacks on growth. Your money earns a return; then that return also earns a return; then that earns a return. Over a year or two it's barely noticeable. Over decades it's massive. Small differences in the rate, or a few extra years, produce wildly different final numbers.

6. Time in the market vs. timing the market

Compounding works when you leave the money invested to do its stacking. The most common way people lose is trying to be clever — jumping out when you're nervous, waiting to jump back in "once things calm down," and trying to guess the top and the bottom. It feels smart but it's almost impossible to do consistently. Miss just a handful of the market's best days — which have an annoying habit of landing right after the scary ones — and your long-run return sadly slips down. Staying invested is boring and simple, but boring and simple works.

7. Diversification — finance's easy free win

Remember the tradeoff from Part 1 — more return means more risk, nothing comes for free? Here's the exception. When you spread your money across many different holdings, the risks that are specific to any one company — a bad CEO, a new disruptive tech, an accounting scandal — start to cancel each other out. One company blows up, another does well, and the damage from any single disaster shrinks away. Crucially, you can get that risk reduction without giving up your expected return. That's why others call it the only free lunch in finance.

8. Costs and the long horizon

Once you know how compounding works, you can see why high fees are a killer. A 1% yearly fee compounds against you just like growth compounds for you, and over decades it eats a big chunk of your final numbers. That's why low-cost index funds work so well, and why they've become so popular over the last 20 years. Stay in the game and stick to patience, diversification and low costs, and you stand a great chance of success.

Part 3 — It's already priced in

Remember that statement I mentioned to keep in mind? Here it is again below, and with the backing of the last two sections, let's dive in and learn how to think like me, with regards to stocks.

The price of a stock reflects what everyone knows and expects. For a stock to move in price, reality has to turn out different from what was expected.

9. The efficient market hypothesis

This is a core idea of finance. You can argue markets are efficient, meaning a stock's price already reflects the information that's out there, because thousands of smart, motivated people are constantly trading on anything they learn. So consistently beating the market is genuinely hard. Not because it's rigged, but because it's competitive. There are three levels of this theory, and it's up for debate which matches reality.

• Weak — past prices are already baked in, so chart patterns alone won't give you an edge.
• Semi-strong — all public information is already baked in: earnings, news, filings. This is what I believe.
• Strong — even private, insider information is baked in. This mostly doesn't hold in reality, which is part of why insider trading is illegal — that private edge is real, so the law removes it.

10. News gets priced in — instantly

A direct consequence of the semi-strong version: when real news drops, the price moves almost immediately — in seconds, not days. By the time you've read the headline, poured a coffee, and opened your brokerage app, the price has usually already adjusted. You're not early. You're reacting to something the market already digested. This is why "I'll buy the stock because the company just announced good news" so often disappoints.

11. Good news isn't enough — you need a surprise

Now here is something fascinating, and it might need you to read the following sentences a few times. A company can report great results — record profits, glowing numbers — and the stock falls. How? Because the market already expected great results and had priced them in. What actually moves a stock is reality landing above or below what was expected — the surprise, not the news. Good-versus-bad news is the wrong way of thinking. Reality-versus-expected news is the real one.

Here's that exact scenario. A company posts a record result — and you get to set what the market was expecting. Drag it, and watch the same great earnings send the stock up or down:

12. Growth vs. value, and the P/E ratio

A growth company, or a value company - a fundamental way for looking at a stock.

The price-to-earnings ratio is a king metric to look at: how many dollars you pay for each dollar the company earns (profits) in a year. A high P/E means the market expects lots of future growth — people are happily paying a lot today for earnings they think are coming tomorrow. That expectation is the number; a P/E is an expectation you can actually see with a metric. A low P/E means the market expects less, so you pay less for what's already there. Expectations my friends, they drive stock prices!

Flip that around and you get the easiest way I know to make P/E feel intuitive: payback. If earnings stay flat, how many years until the company has earned back what you paid? At a P/E of 10 it's 10 years. At 20 it's 20. With no growth, the P/E is simply the number of years to get your money back.

Here's that with real (value and growth) companies, each scaled to a single €100 share. Vodafone is as boring as it gets: phone contracts, slow growth, a P/E around 10. McDonald's is steady and trades in the mid-20s. Nvidia sits around 50. SpaceX has no P/E at all, all speculation on future profits (earnings) that aren't there yet.

Look at Nvidia with growth set to zero: 50 years to get your money back. Nobody buying at that price is planning to wait 50 years. They're betting earnings grow fast. To get down to a P/E of around 12 on the €100 you paid, Nvidia's earnings have to quadruple. Growth is the only thing that brings your P/E down, because the price you paid is fixed and only the earnings can move.

The catch is that the price doesn't bet on one great year. It bets on great years for a very long time. Compare Nvidia at +25% a year with plain old Vodafone: they pay you back in roughly the same time. If that growth arrives, the high P/E was a bargain in disguise. If it slows down, you've signed up for a very long payback.

Hopefully you've got an understanding now of the growth-versus-value idea: growth stocks are paying up for tomorrow; value stocks are paying less for what exists today. Plenty of modern companies have no P/E at all — they aren't profitable yet, so there are no earnings to divide by. People buy them purely on expected future earnings, which ties right back to a key point: the price is the market's fair bet on expected reality.

Part 4 — The mistakes that actually cost you

People almost never lose money because of a gap in their knowledge. They lose it because of their own behaviour. The market mostly hands you a decent return for sitting still; the trouble is that sitting still is emotionally very hard.

The usual suspects:

• Panic-selling at the bottom. The market drops, fear takes over, you sell to stop the pain — and you've just locked in the loss and guaranteed you miss the recovery. It's 2026, and it's almost a forgotten memory of 2008/9 when the everyday man was terrified of the stock market. It'll probably come again, are you mentally ready?
• Loss aversion. For most of us, losing €100 hurts about twice as much as gaining €100 feels good. That imbalance quietly pushes you into bad, fear-driven trades.
• Checking too often. The more you look, the more little dips you see, the more anxious you get, and the more tempted you are to "do something." More checking, more mistakes. I like to think of those trashy infomercials for kitchen gadgets I saw on TV as a child - "set it and forget it!"
• Chasing what just went up. Piling into whatever's hot means buying after the good news is already priced in — see all of Part 3.

The antidote of these mistakes is the whole page tying itself together: know your risk tolerance so a crash doesn't surprise you (Part 1), trust compounding and diversification to do their slow work (Part 2), and remember that the price already knows, so frantic reacting rarely helps (Part 3). Put together, it points one direction — chill out, buy with some diversification, and stay in.

Now my friend, let's chat!

You have a solid base now. Not a system, not a set of stocks, just some helpful ways to think about it all. From here, figure out what's specific to you: your timeline, your vibes, and what feels right for you.