51–60 of 161 posts
If your goal is to "make money" by personal selection of equities/futures/options/ETFs you will in the long run lose more money than having kept the money in a savings account. You will lose both the capital and interest. 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 mark…
If your goal is to "make money" by personal selection of equities/futures/options/ETFs you will in the long run lose more money than having kept the money in a savings account. You will lose both the capital and interest. 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 mark…
Do you mean that 99% of all profits end up with HFT firms?
Keep putting your money(about 10% or more if you can swing it) in a good index fund and ignore it for 40 years. There's a good chance you'll do about as good as 50% of the stock market investors(or more counting fees lost) and you can do something more productive with your time. Stock market investing reminds me of that insurance commercial with the fishing pole. "you gotta be quicker than that..." If you want a bett…
// 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()
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.
>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.
You've received some excellent answers here. I won't reinvent the wheel, but I will add one small detail. 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, c…
Keep putting your money(about 10% or more if you can swing it) in a good index fund and ignore it for 40 years. There's a good chance you'll do about as good as 50% of the stock market investors(or more counting fees lost) and you can do something more productive with your time. Stock market investing reminds me of that insurance commercial with the fishing pole. "you gotta be quicker than that..." If you want a bett…
The stock market exists at the intersection of a few academic subjects. 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 a…
Keep putting your money(about 10% or more if you can swing it) in a good index fund and ignore it for 40 years. There's a good chance you'll do about as good as 50% of the stock market investors(or more counting fees lost) and you can do something more productive with your time. Stock market investing reminds me of that insurance commercial with the fishing pole. "you gotta be quicker than that..." If you want a bett…
Where's a good place to buy index funds, and how can I set it up on an automatic deposit?