You might have already learnt what I'm trying to. What's your story? It would be really nice if you can also share the resources that proved really useful to you.
[0] http://www.investopedia.com/university/stocks/ [1] http://www.investopedia.com/university/ [2] http://www.investopedia.com/video/
Get real- you're a beginner reading investopedia. Active funds employ hundreds or thousands of people who work more than full-time to support an operation of systematically studying investment opportunities and exploiting inside information to beat the market, and even they don't beat the market.
Put your money in a diversified portfolio of index funds and leave it alone. Making targeted trades costs money and will do no better than index funds anyway.
I've done this several times and made good money. Two times I approximately doubled my money over the course of several months. Yeah, not day trading but buying and waiting for the market to figure out what I already knew. The thing about that is, it only happens when it happens. Most of the time my money is sitting in index funds quietly getting solid but undramatic returns, and I don't have to pay much attention at all.
The market still hasn't figured out that SharePoint sucks and enterprise lock-in from vendors like Oracle is predatory and bad for business. Amazing achievements like NeXT and the Amiga never made money. Gimmicks like the Amazon Echo and the Apple Watch ship millions of units. It's really hard to tell what the market will do.
Agree. Just buy ticker VOO and get on with your life. Even Warren Buffet has said to buy 90% VOO and 10% bonds. And you will never be as good at this as Warren Buffett.
That said, I take 10% of my net worth and put it in a 'casino fund' where I can buy whatever I want. Startups, peer to peer nonsense, individual stocks, and so on.
>> You will never, ever beat the market by making smart trades.
How do you define "smart" trades? There are people and firms which consistently beat the S&P 500 after fees and trade commissions on a timeline of 20+ years without using insider trading. What would this be called, other than "smart" trading?
>> Active funds employ hundreds or thousands of people who work more than full-time to support an operation of systematically studying investment opportunities and exploiting inside information to beat the market, and even they don't beat the market.
Most do not, but the fact that most peoples' companies don't IPO doesn't mean it's impossible. Firms like RenTec consistently beat the market, and they have less than 300 employees total.
>> Making targeted trades costs money and will do no better than index funds anyway.
I agree with advice advocating index funds for beginners, but it's not fair to an individual's potential aspirations to claim that active trading is simply ineffective. It's extremely difficult, but that's wildly different from being ineffective.
Mind naming a few? I'm unfamiliar with any firms that consistently can beat the S&P 500, much less for 20+ consecutive years. This could, of course, be called "luck". Given the number of investors, some will inevitably beat the index. The point is that it's impossible to predict, ahead of time, who that will be.
> I agree with advice advocating index funds for beginners, but it's not fair to an individual's potential aspirations to claim that active trading is simply ineffective. It's extremely difficult, but that's wildly different from being ineffective.
Again, even amongst professional investors, who have decades of experience, and spend 80+ hours per week doing this, very few are able to consistently beat the index.
1. Invest, don't trade.
That means buying companies in large quantities when they're at a bargain, and holding for a long time (think years or even decades). This will keep your costs and commissions down.
2. Look where others won't.
As Ben Graham and Seth Klarman have pointed out in their books, you want to look for companies that no one else is looking at for a variety of reasons:
* They've hit rock bottom in the last 1/3/5 years. If people are selling, you should look at buying.
* They're special situations. Is the stock going through the process of bankruptcy, merger/acquisition, spin-off? This is the basis for books like Margin of Safety and You Can Be a Stock Market Genius.
* They're complicated. Distressed debt, credit-default swaps, and other alternative investments to access by the public can be profitable if one is willing to put in the time (years) and dedication to analysis, but I generally wouldn't recommend it
* They don't fit the fund's portfolio / low institutional ownership. Active funds may employ thousands of people to work full-time on investments that suit their fund. This generally means large cap companies because the funds have to utilize so much capital that they can't waste it on institutional ownership of small and micro cap companies. Everyone and their mom has done research analysis on Google, few spend their time on Sanderson Farms, which only broke into mid-cap territory for the first time in over a year, and has since risen by over 10% after being massively undervalued.
If you are in a diversified basket of 15-30 value-oriented stocks with at least some focus on quality, you can stand to beat the market over the very long term.
If you aggregate a few active funds they will be a good proxy for the index, which after fees, will have less returns than buying the index.
There is dependence in active fund returns, a good fund will consistently be a good fund, and a bad fund will consistently be a bad. You also have selection bias, because the best funds do not tell the public they exist, while the worst prey on public money to exist.
From the public's point of view, of course active funds are all bad. From those in active fund management we gain nothing from correcting them.
Journalists don't care for the truth and we don't care for their falsehoods.
The problem is in the details. Identifying good companies is very very hard. Identifying good funds is much much harder. By the time there is a large amount of evidence that a fund is a good fund it is either A. closed to new funds
or
B. Drowning in so much cash that there is no hope of delivering it's historical returns.(its much easier to return 12% on 10 million than 10 billion)
The thing about investing is that it takes experience and you unfortunately only get that by investing.
One thing you don't want to do is trade. You want to act like an owner. That means find companies and get involved for the long term.
Also remember there is no free money out there. Investing takes a lot of work and often times doesn't pay off for years.
Assume
1. it takes an extra 500 hours a year to research and buy good investments.
2. you make $60 an hour
3. all your hard work delivers a respectable alpha of 3%(3% better returns than than the market)
You need to be investing approximately 1 million dollars to break even.
Between weekends and just general downtime in week (I spend time watching netflix and browsing the internet and I read books in my commute) I have at least 30 hours free a week. If you're into stocks as much as I'm into wasting time entertaining myself then why not.
Stock market investing reminds me of that insurance commercial with the fishing pole. "you gotta be quicker than that..."
If you want a better investment spend it on educating yourself... or something where you can have inside advantage like your own company.
// Decide asset allocation based on risk tolerance. E.g. 75% Stocks / 25% Fixed income
set_asset_allocation(risk_tolerance)
// Determine which index you want to track. E.g. 25% Canada (TSX)
// 25% US (S&P500), 25% Developed World (MCSI EAFE)
select_funds(list_of_funds)
// Set up automatic purchase plan so your account automatically purchases the funds bi-weekly or monthly.
enable_auto_purchase(name_of_financial_institution)
while (alive && working)
// Live and not worry about investments. Instead focus on coding, knitting, cow tipping, etc.
live(1 year)
// Buy/Sell more units of your funds to return to desired asset allocation
rebalance()
done
retire()
I work at a startup (https://www.sigfig.com) that does this, and lets you view in-depth information about how your portfolio is performing through rich charts and tables on our site and mobile apps. Our competitors (https://www.wealthfront.com/ and https://www.betterment.com/ among others) offer a similar service with slightly different value props.
There's really no excuse anymore for not signing up for something like this. It's insanely easy and ridiculously cheap. Like, maybe an hour to set up with zero paperwork to send in, and a tenth of the cost of an active fund.
People tend to trumpet their winnings and not their losses and a shocking number of people don't actually know their rate of return.
I recommend Four Pillars of Investing by William Bernstein (http://www.amazon.com/The-Four-Pillars-Investing-Portfolio/d...). It has a lot of overlap with Malkiel's book and I recommend both of them.
Until you have read at least one of them I recommend you not start investing. The Intelligent Investor is a little optimistic and in later editions even Benjamin Graham admits that maybe active investing is not the greatest idea for most people.
A naive response may be "well, then. I'll invest in the other 50%...".
It's important to note that no one, to date, has shown they're capable of predicting who which survive, which fail, and which beat the markets. And if such a person or persons exit that can do so they're sure as hell not sharing it with you.
http://www.npr.org/sections/money/2016/03/04/469247400/episo...
http://www.amazon.com/gp/product/0393352242
Edit: WSJ Review: “Talk to 10 money experts and you’re likely to hear 10 recommendations for Burton Malkiel’s classic investing book.”
If I had to recommend _one_, it would be Four Pillars. The first part is a bit more intellectually "challenging" than Random Walk, but ultimately does a better job (IMO) at backing up the author's ideas on personal investing with data.
Random Walk covers all the major bubbles in history, and does an excellent job at breaking down asset allocation per age range in the later sections of the book.
All About Asset Allocation was very useful to me in developing a long term investment plan, and deciding what asset classes to include in my portfolio.
I refer to each book at least once a year.
Malkiel believes in investing over gambling/speculating. That means trying to obtain market returns rather than trying to beat it, using very-low-cost funds like those offered by Vanguard. A great place to read more about this philosophy, when you finish Random Walk, is the Boglehead's forum.
And it really does depend on how deep down the rabbit hole you want to go. I do equity research now... feel free to contact me.
I have read both and you can safely skip most chapters. I can summarize for you, that based on your description in this post, you are what Ben Graham calls a Defensive Investor, as you want to preserve capital without being able to make significant time or resources towards exploring companies in-depth.
The modern way to be a Defensive Investor is to invest 50-50 in a stock and bond ETF/index fund, such as VTI and BND. It provides broad, safe exposure that mimics how you would have done it in Graham's day. If in the future you find wanting to put the time into your investments, that is when I would consider becoming an Enterprising Investor, at which point you should read that chapter in II, and read Margin of Safety.
I also read Buffetts share letter and he frequently touts how well passive investing would do, even with respect to Berkshire Hathaway
Im purely passive now based mostly on bogleheads
I really recommend this book even if you're not interested in Finance as a general guide for thinking about stochastic processes in a practical manner. Nearly all "basic" business/web metrics can be understood best if you understand how to correctly model financial instruments. Personally, I think the basics of quantitative finance are just as relevant to Data Science as machine learning is.
> Personally, I think the basics of quantitative finance are just as relevant to Data Science as machine learning is.
100% agree. As a hobbyist on the data science side, I still refer back to the book whenever I get a "this looks familiar" thought.
https://www.amazon.co.uk/The-Naked-Trader-Anyone-Trading/dp/...
I never got as far as actually playing the market though...
Do not enter the market, right after you finish a few courses, you will just be chewed up and spit out, and find a book called "A Complete guide to Day Trading" by "Markus Heitkoetter" it is plain and simple with lots of examples, and put "the Intelligent Investor" away for six months at least, that is a good book but is not for now.
I Started three years back when i was in engineering final year, and went on to get the certification as a derivatives and equity trader from the regulatory body.
Good Luck
For information to input into that way of thinking, I got in the habit of reading primary sources (Fed PDFs, company announcements, etc.) as much as possible. At the time I had a subscription to a service that aggregated primary sources in the sectors that interested you. That service has pivoted a few times since then and is now useless for gaining a real information advantage.
Edit: yes, commuted is what I meant. :) Leaving for posterity.
I have read many books since then, but none have had the uniqueness or simplicity as his method has.
I did purchase his book, and I ended up lending it out to a family member who lost it :(
Ignoring anything technical, there are two extremely strong things going against the markets:
1. The fact that the boomers will be drawing down on their investments as they retire and begin to spend them.
2. The sentiment that is growing against our corporatist structure that has propped earnings up (ie the jobless recovery). Whether it's Bernie or Trump you support, it doesn't matter -- well over half the country is voting against policies that have made the stock market so successful at the expense of the American middle class
My point being, market knowledge is always important to have, but I'd advise against putting all of your time into it. It's going to be stagnant for a generation. IMHO you are better off building a real business with your time. Get ahead of the game and see where the future is headed -- the trend is your friend.
One is economics. This is a social science, like psychology, and deals with human beings, and why they act the way they do: why prices go up and down, the effect of regulation and policy, supply and demand, etc. Economics is the bedrock underlying any market because ultimately, markets are made up of people. It's sort of like how math underlies all of programming -- you don't often use it directly, but it's the intellectual foundation of all market behavior.
To learn economics, get a basic micro textbook or listen to Russ Roberts' EconTalk. It's an outstanding scholarly podcast once/week with a huge range of topics including environmental regulation, financial market behavior, food and cuisine, and the effect of law on public welfare.
The second major discipline is finance. In a nutshell, finance is all about trading flows of money, and how that's priced: if you promise to pay me tomorrow, how much should I pay you today? What is a 10% interest in a company worth? Part of finance is "corporate finance", which is "I have a company, how should I fund it" and the other part is "financial economics", which deals with markets for stocks/derivatives/options etc. and how they're priced and traded. Finance is built on economics, because the whole reason financial markets exist is to facilitate the reorganization of money/capital to better align with peoples' preferences: saving vs. spending, borrowing vs. investing, etc.
The third major discipline is business management/analysis. You'll learn this if you work anywhere for a while: how companies operate, why people are hired/fired, etc.
Mostly, just take it in a little at a time, be curious, and pay attention to the markets. Read the news. For instance, there's a lot of discussion about what the Fed will do, raise vs. lower rates. Why does this matter? How will it affect output (how much is produced), securities prices, and firms decision to invest (build stuff) vs hold cash? What will the effect on the housing market be? Will mortgage rates go up or down? Try to fit this into a conceptual model of how the world works, and refine it over time.
EDIT: Accounting, especially tax, is also important. Accounting is the basic language of business. If you want to understand the words people on TV/news are using, like "non-GAAP" or "gross margin" or "restatement", learn a bit of accounting.
If you're interested in learning about the stock market, it's also helpful to get a good primer on financial accounting. You don't have to be good enough to actually do a public company's financial statements, but it's helpful to have enough of an understanding that you can look at a company's quarterly report, compare it to past periods and get a good sense of how things are going.
I can't think of an accounting primer that is good for this, but I studied accounting in University so I may be biased. So, if I were you, I'd:
- pick five or six public companies you are interested in.
- read their annual reports.
- Google terms you don't understand.
The #1 takeaway from the book is "Before you buy the stock, give an elevator speech with facts(data-driven) and reasons as to why this stock is going to be a good buy."
Turns out a lot of my investments don't stand this test!
So if someone makes an elevator pitch for some stock, what I would be asking is why these pros are going to outweigh these cons.
And that's where we're back to square one where everything is just opinion and ituition, albeit better informed, which has to count for something.
I'd like to add some sort of quantitative discipline into the mix. And I mean something that has some statistical credibility.
This will give you an idea and maybe whet your appetite about how markets and trading actually work, and all the reasons people use markets. From there you can work towards learning more about actually developing trading strategies more complex than buy and hold.
Motley Fool Investment Guide is where I started. I've subscribe to their Stock Advisor newsletter for nearly a decade and have picked from their recommendations in that newsletter. Basically i've invested money in one of their picks once per month with the expectation to hold that investment for 10+ years. That portfolio has gained an average of 25% PER year and I've never researched a stock.
http://www.marketwatch.com/story/how-hedge-fund-geniuses-got...
Since the fastest way in the market to make a million dollars has historically been to start with two million, in todays markets one would need to start with 10 million.
Today 99% of profitable market trades are automated. You will neither have the hardware infrastructure, technical accumen, or market/insider knowledge to EVER compete. You may eventually acquire a sufficient technical understanding. Individually you will never gain the other two.
If you want to "gamble" then I would suggest you figure out how much money you are willing to lose. If it is less than five digits, you will have neither enough for learning nor enough to survive setbacks. Initial minor choice: take this cash to Vegas rather than Wall St.
Once you have your trading account setup and funded, leave it alone for the next month. Watch market news. Read analysis. Join trading forums. Once you are reasonably fluent in the lingo and action, go back to your trading account. Second decision point: IF you are still interested in losing all that cash sitting in the account (think of what you could have used it for this past month, or how much it will accrue in your IRA/401k/saving account), then start tracking sectors which appeal to you.
Develop analysis to track stocks/sectors/etc in such a way that you feel you have insights to offer into the above discussion venues.
Now, the hard part. If you have spent sufficient time to gain understanding, and still have an interest in spending even greater time, then you are ready to start gambling for real.
You will have developed specific sectors/equities which you are interested in trading and so will have a reasonable idea about what to bet on. Do so with 1/4 or 1/3 of your cash. Decide entry, exit and bail out prices. Ignore these at the certainty of loss. Make a buy order, keeping your perviously intuited prices in mind. Wait for either a profit sale or a stop-loss sale. After sale, assess every step of you process. What was accurate? Wrong? Unclear? Resolve all these questions.
Repeat this process until you have no more trading cash available in your account.
Final decision: Either: scrimp, scrounge, beg, borrow and steal another stake; deposit into account and enter a lifelong addictive passion of passing your own money into the coffers of "others." OR: acknowledge you have neither the time, interest, expertise, insider knowledge, infrastructure access or capital to continue this gambling and walk away.
Option 1 will cost you money, health and familial ties. Option 2 will earn you great wealth and free time.
Good luck. Have fun storming the markets and don't say you weren't warned.
Do you mean that 99% of all profits end up with HFT firms?
Back when I first started to ask questions about investing my 401k money and diversifying the stock I was getting as an employee at Sun I took a Forbes Stock Market study at home course, big 3 ring binder, a dozen cassette tapes. It was all about reading balance sheets, understanding metrics like price/earnings ratios versus price/income, margins vs profit vs growth. I've spent a fair amount of time "fake" investing, basically doing the research, pretending I had $5,000 to invest, and then investing it in the companies I imagined would be good investments, and tracking that over the course of a year to see how that $5,000 did relative to savings accounts or alternate strategies.
Briefly I looked at trading when "everyone was doing it" back in the dot-com days (that was quite a bull market). And I was struck by how much it felt exactly like playing craps in a casino. For me, I found that for a lot more work I wasn't getting any better returns than simply investing long on quality stocks and spending the time doing other things.
I will tell you that like most complex systems, the more you learn the more you realize what you don't know. And it doesn't help that things change, sometimes in major ways, in response to various events. It isn't something you can learn and then be done with sadly.
Peter Lynch ran Fidelity's Magellan fund from 1977 to 1990. He avergaed a return of 29.2%, increasing the value of the fund from $18M in 1977 to $14B in 1990.
His philosophy is to invest in what you know, and that the market misses things that everyday people can notice just from going about their life. I think his advice worked a little better before the age of the internet, but it's still a very solid and easy to read book.
[1] http://www.amazon.com/One-Up-On-Wall-Street/dp/0743200403
[0]http://www.mrmoneymustache.com/2011/05/18/how-to-make-money-...
Don't read The Intelligent Investor, it will just put you to sleep. Realistically, you shouldn't be picking stocks on your own. You should just be putting money into ETFs that track the market and can help you diversify your holdings cheaply.
Look up a few of the key terms in investopedia like stock, bond, etf, etc. Then, either create your own ETF portfolio via an online brokerage account, or go with a robo advisor like Betterment.
Good luck!
Playing the stock market is, at its core, gambling, and any good gambling book will devote a large portion of itself to explaining the basic principle of money management: Of knowing when to cut your losses and how to prevent yourself from going on a huge tilt.
If you learn more about how confidence scams work you can better avoid pump and dump schemes, smooth talking investment "advice" people, and will be more wise about opportunities too good to be true.
Most of all you need to know how these securities are packaged, what the motivation of the players behind the scenes are, and how the market works internally. Be aware of the sharks in the water and what sorts of investments are being manipulated by things like high-frequency trading.
They say the final lesson is to be prepared to set fire to $10,000 in cash because no matter how good you are as an investor there will come a day where that much or more goes up in smoke based on market movements. If you can handle that, psychologically, you'll be fine. If that thought really freaks you out, better hold on to something more conservative.
Another similar book is How To Read the Financial Pages[1]. Again, probably a little dated, but I don't think much of the terminology has changed.
I would still recommend index funds for the best returns, but if you want to follow the financial news it helps to understand the lingo.
[0]http://www.amazon.com/Street-Journal-Guide-Understanding-Inv...
[1] http://www.amazon.com/Read-Financial-Pages-Peter-Passell/dp/...
To me I think about "investing" as trying to guarantee a return over the long haul. All the smart evidence points to taking a strategy that links you to index funds. This is what I ended up doing in terms of carving up my investments https://www.bogleheads.org/wiki/Three-fund_portfolio
When I started this though what I actually, of course, wanted to know more about was the sexier, potentially much higher return end of "picking stocks". This is still sexy to me, and I still get inclinations to pick stocks every now and again, particularly in the tech sector where I feel like I have an edge. But as I've done dummy investments in the past, the market has bitten me in lots of unexpected ways. General market downturns, edgy sentiment around quarterly earnings, bad product releases etc. etc. So now I call this what it is: high stakes gambling. I do play, but with money I'm ok losing. The kids college fund goes uses the three fund strategy described above making heavy use of index linked funds.
Since my dad wasn't the richest investor in the world, he wasn't the best so I started googling and quickly came across Warren Buffett. Not only is he the best (personal opinion), he also had a strategy that resonated with me. I had read basic books on technical traders, position traders, day traders and none of that made sense to me since they often neglects the underlying business. (I also didn't find traders close to the top of forbes' list.)
Once I found something that made sense, I pretty much watched every video online or tried to read every book he recommended. Luckily Warren Buffett loves teaching so there is plenty online you can find. The intelligent investor is definitely a must read. So is "security analysis", "common stocks uncommon profits" and a bunch of others. Here [1] you can find a list of "Buffett approved" books in case you run out.
[1] http://www.bookwormomaha.com/store/c-2-berkshire-hathaway-20...
I've recently been trying to learn more about investing and this book has been right on the money.
Basically, the advice is don't buy individual stocks, you can't pick them and outperform the market consistently. Instead, get an index fund or ETF that tracks the whole market, like https://personal.vanguard.com/us/funds/snapshot?FundId=0085&.... Vanguard is the best for index funds as they have the cheapest expense ratios.
If you want to learn more about the basics of economics, which are important as well, I've enjoyed this lighthearted youtube series - https://www.youtube.com/playlist?list=PL8dPuuaLjXtPNZwz5_o_5...
Stock picking advice and understanding the economy:
I really recommend reading all of Warren Buffett's letters to shareholders which can be found on the Berkshire Hathaway website. They are written in a down-to-earth style and offer a panoramic view of investing, from accounting issues to competitive advantages to macroeconomics. You can also see Warren's investing style evolve and him deal with various issues throughout history, from high inflation to the dot-com boom. Warren boils down many issues into easily remembered sayings ("Be greedy when others are fearful and fearful when others are greedy", though the sayings themselves are probably as old as the stock market itself).
Find investments that have moats is one of Warren's guiding rules, i.e. business advantages that are hard to replicate.
Learn about accounting. You don't have to learn everything, but you should know about the things that will affect your valuation of an investment. Pension contributions, stock-option accounting, etc. Come up with your own metrics to compare companies in a sector to find out who is the most efficient etc.
You will have to find an edge, something that most other people don't know, otherwise you'll just follow the crowd. Things that aren't in fashion are great places to find bargains.
Understand how a discounted cash flow (DCF) calculation works. The important part in a DCF from the point of an investor is to look at how sensitive the results are with regard to changes in the input variables (because the risk-free interest rate and size/timing of future cash flows isn't known in advance).
Understand the effect of interest rates on asset prices (see DCF calculation).
Understand the debt cycle. We are at an interesting point in time, coming ever closer to our debt-carrying capacity.
Here is a nice video by Ray Dalio on this topic:
https://www.youtube.com/watch?v=PHe0bXAIuk0
Some economists probably disagree with some things said there, but i think the gist of it is spot on.
Reminiscences of a Stock Operator by Edwin Lefèvre
Where are the Customers Yachts by Fred Schwed
Nothing has really changed psychologically since those books. The same people are doing the same things for the same reasons, just with different numbers and tools. This will provide some background in those areas. Very much like music or sex (edited to add, or programming), young people like to think their generation invented the topic, but not as much has changed as you'd think.
Note that just because its hilarious reading what Livermore did a long time ago, doesn't mean you won't get thrown in jail if you tried it today. So these are like anthropological case studies, not preachy instruction manuals. Make sure you get that.
Aside from that I'd propose the usual critical thinking skills. Whenever you hear or read something: Follow the money. From his perspective, why is he telling me this? Where is this on the lifecycle of ideas from new (perhaps only to you) to conventional wisdom (may already be obsolete) to obsolete, and is this a linear time or circular time situation?
Finally bad people or bad motivations don't necessarily torpedo an idea. Take for example haircuts. Ask your barber how often you should get a haircut, that will be every paycheck please, because he's paid transactionally. Likewise, you ask your financial advisor or broker how often you should dollar cost average, because he's paid transactionally guess what his advice will be. However, corrupt as that may appear on the surface, it might none the less be correct advice, for reasons having nothing to do with your broker's revenue stream!
If your interest is more the short-term movements, and less investing based on price and intrinsic value, then I'd suggest branching into economics and psychology. The Little Book of Behavioral Investing (James Montier) is excellent.
I think the best way to translate what you're reading to a practical application is a paper portfolio. I wouldn't recommend single-stock selection for your $ portfolio, but researching and following stocks that you pick will make you more aware of the market. As with learning anything, document your decisions (what, when, why) and use that as a feedback loop to improve.
While I agree that you won't ever beat the market by making smart trades, this book will teach you the discipline needed to keep from losing money or being lured into stocks and index funds by Wall Street bullshit.
[0]: http://www.amazon.com/How-Make-Money-Stocks-Winning-ebook/dp...
I don't think accounting basics will help you much in terms of beating the markt. But they may help you not to be the one who funds other people's outperformance by making stupid mistakes.
Learn to read a balance sheet, an income statement and a cash flow statement. You'll easily find good enough sources for that by googling these terms.
I went to watch stock ticker channels on PBS at homes and subscribe to Investor's Business Daily.
From there, I spoke with my parent's financial advisor and was able to make some small purchases to invest some of my family's real money.
What's your end goal here? Do you just want to be able to make some good personal investment choices, or are you trying to be a day trader or algorithmic investor? The materials will be different depending on your intended path.
In any case, I definitely wouldn't pay for a class. There are more than enough free materials out there like this MOOC from Stanford GSB: http://online.stanford.edu/Stocks_and_Bonds_Fall_2014
So...I think it's important to consider fundamental value. A diversified low cost US fund makes sense. I've also learned about bonds, I think medium grade US corporate is a good trade off, when it comes to bond funds you want fixed maturity date 'bullets'. Municipal bonds are good as well. Yada yada, AAPL.
Things to note: This is going to be hard work. It will take time (years for most). Take notes on everything you think and do (keep a trading journal).
You will loose money at first (consider it your "tuition").
Don't put too much weight on the publication date of a resource. Certainly, some specifics of market implementation have changed over the years, but as a whole, human nature (fear and greed) is the same now as it was when the first humans decided to build financial markets.
I know you didn't mention books as a preferred learning source, but, IMO they contain the most condensed stores of knowledge by the most reputable people (read: retired and/or independent) on this subject. Here's my list of recommendations:
High Probability Trading by Marcel Link
How Technical Analysis Works by Bruce Kamich
How to Buy by Justin and Robert Mamis (out of print; worth every penny)
When to Sell by Justin and Robert Mamis
Trading in the Zone by Mark Douglas (don't underestimate the importance of getting your psyche under control!)
Japanese Candlestick Charting Techniques by Steve Nison Market Wizards by Jack Schwager (these are well worth reading)
And of course, the timeless classic, Reminiscences of a Stock Operator by Edwin Lefevre
Good luck!
https://www.khanacademy.org/economics-finance-domain/core-fi...
This book is too advanced for beginner level. As a beginner, you most probably will not like this book and reading it might turn you off investing and stock market (too complex).
The type of books you want are the ones that cover basics and are easy to read. Instead of considering books recommended by others, I will suggest going to a physical book store (library is another option), pick up any investing book on the shelf, read for 15-20 minutes. If you like what you are reading or book fascinates you and you want to continue reading the book, buy (check out) the book and take it home.
If you are a visual learner, I heard Khan Academy videos are good. Also, consider reading biographies of famous investors and financiers and other story-telling type of investing related books. As I am not visual learner, I can't make any specific recommendations.
If you prefer numbers, I will suggest reading "Millionaire Next Door", "A Random Walk Down Wall Street", and "What Works on Wall Street". The first one is not per se investing book but more of an "encouragement" book that will help you continue learning about saving and investing.
> What's your story?
I learnt stock market as "substitute" for gambling. When I first started out working professionally, some newbies (like me) at work will go out to casinos or have booze and gambling Thursday nights (alternate Friday off from work). A few of these people were hardcore gamblers: studying and learning tips and tricks of blackjack, poker etc. Monday lunch at work cafeteria used to be "whining" session, how we lost so much money and odds are against us, etc.
During one such whining session, an older member at work mentioned that on his Friday off, he goes to library to read Wall Street Journal, Value Line to research stocks and check value of his stocks like checking lottery numbers in newspaper (pre-Internet days). He got his "gambling" adrenaline through stock market and how odds of winning are much better than going to casino. This was the start of my interest in stock market and learning more about trading and investing and saving. I went to library on my Friday off to read and check out any investing and trading book on the shelf. I most probably read 30+ different books in a few months period at the start. Investing and trading is the only hobby that has kept me interested over the years.
For past one year, I have been very actively listening to financial podcasts, reading investopedia, taking classes on Coursera (I avoided Udemy so as not to pay for courses). After gleaning through various resources, I settled on the following:
Podcasts: [1] Money Tree Investing: http://moneytreepodcast.com/ [2] We Study Billionaires - The Investors Podcast: https://www.theinvestorspodcast.com/
I listened to other podcasts and finally settled on these two. I particularly like [2] for the in depth analysis on markets from each guests perspective/expertise.
Classes: [1] Understanding Financial Markets: https://www.coursera.org/learn/understanding-financial-marke... [2] Introduction to Finance: https://www.coursera.org/specializations/valuation-investmen...
I took only one course in [2], couple of years back and it was very helpful.
Sites: [1] Investopedia.
Keeping in mind that you are a beginner.
I do not invest money in stocks. As @brianpgordon mentioned below, it is very hard to beat the market, especially for a beginner. I only put money in ETF's and low cost index funds. But listening and or reading above resources keeps me educated about this field.
Personal Opinion: "The Intelligent Investor" is very dense and is not for casual investor. Read it only if you are serious about this subject.
EDIT: Edited too many general statements.
I get asked this question a lot and usually recommend http://www.realvisiontv.com these days, particularly if you like videos.
Some variable quality, but some really excellent, unique viewpoints from value investors and macro managers there.
I would also recommend the Market Wizards series by Schwager and Inside the House of Money/the Invisible Hands by the Drobnys.
“It all comes down to who is going to buy and who is going to sell and for what reasons,” -- Ray Dalio
Determine whether an investment opportunity is a Yes, No, or Too Hard: If you do not understand it after brief study…it’s Too Hard. If you do not love it shortly after that, it is a No. -- Warren Buffet, paraphrased
"The market is like a large movie theatre with a small door” - N. N. Taleb
http://www.amazon.com/The-New-Market-Wizards-Conversations/d... http://www.amazon.com/Market-Wizards-Interviews-Weinstein-Hi...
The best actionable advice I heard from somebody making a living from it, paraphrasing:
"Imagine you are a mouse. Investing is to learn how to steal the cheese without being caught."
I've mainly done asset allocation. That means, looking between markets and moving assets accordingly. More an interest in themes than individual companies (though themes between companies often appear).
An excellent blog for this style, generally called 'macro', is http://macro-man.blogspot.com though the financial market slang can be a bit much at first. It is funny and fresh.
The Bogleheads' Guide to Investing
A Random Walk Down Wall Street
You will know 99.9% of what you need to know.
Howard Marks letters at Oaktree
Jeremy Granthams Letters at GMO
Seth Klarman's Margin of Safety
Investor letters of good hedge fund managers (einhorn, dalio, singer, etc)
Generating alpha is very, very hard; If you want to maximize your financial wealth it might be better to focus on earning more money (for example by acquiring in-demand skills), living frugally and be content with market-returns (which have been fantastic over the last 200 years).
What is true for most skills is true for investing: instead of reading about it, start doing it right from the start: Pick a company (maybe smallish <$250m market capitalization, so the complexity is less overwhelming) and learn as much about that firm, its competitors and the market it operates in as you possibly can. This process can take weeks of full-time work for a single firm.
At the end of the investment process you have one task and one task only: have an opinion on whether the company is selling for less than it is worth.
You don't actually have to commit capital, just start a watchlist (a couple of dry-runs will be a good learning experience!)
Be aware of the fact that investing requires a lot of discipline: thorough analysis is tough and time-consuming. Also, investing is contrarian by default: you don't outperform the market by doing what the market does (D'oh!), you have to think and act independently.
Investing can be an emotional roller-coaster (e.g. it is tough to admit that your judgement was wrong and cut your losses).
Investing is more art than science, uncertainty about the future and facts you cannot know are lurking everywhere, you'll have to develop your own principles (and refine them over the years) to become successful. I recommend creating a checklist that reflect your principles and sticking to that list religiously.
Fundamental analysis crucially relies on understanding the three parts of financial reporting: the profit & loss-statement, the cash-flow statement and the balance sheet. Studying those from one of the numerous free online resources should serve you well.
In conclusion: investing is a intellectually rewarding endeavor (and I wouldn't want to miss it) but, and that is true by definition, almost no one can reliably generate alpha. So spend your time, effort and (!) money wisely.
I would recommend building a business / start up or teaching yourself programming. Over the long term you will make more money.
One thing I have learned is that most of the other people talking about the market are full of shit. There is so much misinformation and red herrings that it feels like seasoned investors WANT newbs getting lost in the spiderwebs.
>What's my story.
My father was a chemical engineer. He got an MBA and switched to investment banking and then to financial stock analysis. Back in the 80s, he had something similar to ValueLine and would go through them looking for P/E and EPS filters. We had racks of these financial metric newsletters and a couple of interns running this from home. Occasionally I would help out. This was my first introduction to stocks.
My dad then switched to private investment banking. He would come home and tell us stories about startups, how he invested and so on. Then he started writing financial articles for newspapers. Mainly on Technical analysis. Some days, he would be too busy to do it and I would write the articles. I was his tech support for the graphical charting packages. The technical charting packages were also my "fruit fly"/muse for learning new languages. Every time I wanted to learn a language, I would re-implement my charting package. Dad fancies himself an astrologer so for a while there were articles on stocks and astrology. "You must be a Virgo - cause your wallet is so thick ;)"
At one point, he was the owner/editor of a newspaper publication himself and we had the union workers protesting outside our residence for a day on some matter. The newspaper died fairly quickly when we couldn't find advertising to support it.
One event from this period that sticks out. Like twelve years old are wont to do, I'd asked for a bicycle. My dad usually responds to these with - "If I invest in the bike, what will we get back?" I have better answers now. Anyway, he bought me a really unappealing cheap, robust bike that I was ashamed to drive with my friends. It never got much use.
So by the time I graduated college, I knew roughly what stocks were. I had written technical charting analysis packages, understood EPS and P/E and knew that you only put money into something if you get more money back.
For my master's thesis I worked on Genetic programming and growing technical analysis indicators to trade stocks.
This is a formidable head start but my investing record is quite pitiful. I understand a lot of the terms but not how to apply them successfully. I've found quite a few ways to fail and am now comfortable sticking with invest funds.
But I continue to invest and read up on investing. I believe it is the easiest way for me to reach my "magic number". And I enjoy the process. But most of my money is in index funds.
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Advise: On reflection, I can recommend the following.
1. Get a broad 30,000 foot view of the different investing philosophies (Technical analysis, Fundamental analysis, value investing, special situations, Dividend investing, etc.). Evaluate these schools against each other and against yourself. For example - I started out as a technical investor, but it made no logical sense to me. So I switched to momentum investing and sucked at that. Now I'm trying value investing on for size. Some of these methodologies will fit your personality and others will not. The book recommendations made in this thread help. Random walk down wall street says markets are efficient so don't try to beat them. Fisher's book will have you picking stocks. Some of these arguments will resonate with you and others won't. Try on these philosophies. "Strong opinions weakly held" comes to mind.
2. For value investing - forget the technical jargon and Investopedia. Approach the stock from a HN/startup/VC point of view. Imagine you are buying a business. If this company asked for your money, would you give it? What questions would you ask as a VC?
- What is the market size?
- Are the users growing?
- What is the infrastructure cost?
- What is the exit strategy?
- Who are the competitors?
- What are the risks?
Shark tank does a good job making this sort of mental modelling accessible in video form.
You only need the finance terms to answer these questions. But the first task is to ask the right questions.
The problem you'll find is that most public traded companies do lots of things and it gets confusing. Find the 1-3 most important things to focus on or look for smaller companies.
3. As others have recommended, take a stock and make a recommendation. Write out an analysis of whether you would buy or sell. Then look at the analyst reports for that stock. Look at seekingalpha.com articles. What did you miss? What insight did you have that nobody else did? This is the hard work of having an opinion that cannot be done from videos. Investing is a contact sport for ideas and you need to understand the feel of the soccer ball on your feet.
4. Be realistic. What kind of returns are you expecting? Anything more than 10-15% is unrealistic in the early days. Even if the return exists, would you be willing to risk enough in that one opportunity to make an overall difference in your net-worth? This is where portfolio management comes in. The more you diversify, the less risk and return you have. The less you diversify, the more certain you have to be in your abilities. For those of us who are unsure, getting to that point of certainty is long road.
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Good luck - you have a wonderfully interesting road in front of you that will keep you excited for years.
- 'The Big Short' & 'Liar's Poker' by Michael Lewis
- AntiFragile by N N Taleb (There are other's by Taleb, which I haven't read)
- Seeking Wisdom by Peter Bevelin (on lessons learnt from Warren Buffet & Charlie Munger -- Yes, few of the most richest guys, who gained perhaps)[1]
I have also made some mistakes in investing. One so obvious mistake in hindsight, one was around 2007, when I moved a large portion of my networth from a single stock, to a diverse portfolio. Which was a good thing in itself, as I was moving it from all-eggs-in-a-basket to more distributed. But When the crash happened (world wide) I might have gone down 30%! The single stock, was comparatively down by much less. The good thing I did was not to do a panic sell in 2009. Though Discarded some stocks which were proven worthless (some down by 95%), just to avoid the pain of seeing them in my portfolio. But I kept the Mutual funds, which again started to come back to the original levels around 2011 and later on.
In restrospect, I should have reduced the risk fast. That is moved it all to cash. Then gone about investing slowly. By which I would have escaped huge downside (2008/2009). The problem is I knew the mantra already. But it got firmly registered after that experience. Another such golden rule is 'Buy when cheap, Sell when high'. Sounds very simple, but hard to grok it fully, unless you have felt some pain.
Having learnt that lesson. Now I keep most of my investment outside the stock market (exited during the rise of 2014). And keep only lesser amount around 10-15% in stock market. And that too only in index funds.
So IMHO, there is clearly no one size fits all. Investing and gaining from it is very much possible. Wonder if there is any vested interest in the mantra which gurus give i.e. invest only in mutual funds/index funds. Do they want others to not compete with them? :-)
But it does take a lot of time and years and pain to become good at it. And time is the biggest resource constraint, which perhaps we (the non-pros) all have. So at present I like to read everything I find on the topic. But decide to play it safe (i.e. fixed deposits, index funds, and similar). As once you are in the game i.e. investing in stocks/instruments which have huge upsides/downsides and hence riskier. You need to be more involved. And my personal experience its very difficult to do that, with things like programming and trying to grow your own business.
Hope this misc bit of reading pointers and micro experience share, is of tiny bit use. I am ever interested to read as much on this topic - views, articles, particularly the insights people learn from experience.
[1] Had got this reco via Derek sivers https://sivers.org/book/SeekingWisdom
Edit: typo