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Ask HN: How do you invest?

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Re: Ask HN: How do you invest?

#21

Post by booop »

I was very interested in trading stocks for a while, and would read up a lot about the markets. I then met a stock broker and he told me that it wouldn't be very different from gambling if I were to invest based on the news without much understanding of how the markets work.

One thing he told me really struck a chord: I spend 8 hours a day at work, and read about the markets in the night or on weekends. But he lives/breathes/eats the stock markets all day and it's been his full time job for the past several years. So my money would be safer if he invested it for me instead of doing myself (unless I had : http://en.wikipedia.org/wiki/Dunning%E2%80%93Kruger_effect)

So now every month or so he calls me to recommend a stock and explains why I should invest in it. This let's me use my spare time to develop my skills (since I'm somewhat early in my career) and I've gotten good returns on my investments in exchange for a small commission.

Re: Ask HN: How do you invest?

#22

Post by ffumarola »

booop wrote: post #21

I was very interested in trading stocks for a while, and would read up a lot about the markets. I then met a stock broker and he told me that it wouldn't be very different from gambling if I were to invest based on the news without much understanding of how the markets work. One thing he told me really struck a chord: I spend 8 hours a day at work, and read about the markets in the night or on weekends. But he lives/…

Overall, this is pretty bad advice IMO. Investing in individual stocks, even at the recommendation of a "professional" is a fools game. You will be hard pressed to find a "professional" who can routinely and repeatedly beat an index fund.

Also, "professionals" charge high expense ratios when compared to funds through Vanguard, Fidelity, etc. A lot of financial advisors stress the importance of expense ratio as one of the most important facets of your portfolio.

For the record, I invest in index funds through Vanguard with expense ratios ranging from .05% to .22%.

Re: Ask HN: How do you invest?

#23

Post by ffumarola »

nicholas73 wrote: post #12

I actively traded stocks for a period. I can say that any gains you make represent work like any other, except you can lose all your money. If you do not want to focus on trading, do not trade. It can be a horrible way to live. Warren Buffett's #1 rule is: Do not lose money. #2: Never forget rule number one. What you really learn is that the amount of risk you should take on actually is a lot less than you think it i…

I would agree for the most part with the exception of "At some point there will be a market crash and it will be a no-brainer to buy."

Timing the market is incredibly difficult. I'd just suggest setting up an automatic dollar cost averaging scheme into a fund mix of your choice and ignoring it from that point on. As long as you have a decent enough time horizon, you'll wind up well ahead.

Re: Ask HN: How do you invest?

#24

Post by ffumarola »

wikwocket wrote: post #6

I believe in the 80% solution. Put your money to work rather than stuffing it in a mattress, but favor the 80%-of-optimal solution that's easy to set and forget, instead of the 100%-optimal solution that requires micromanagement, expertise, and luck. To that end, keep only a little in savings (emergency fund), and put the rest in a 401k or IRA, invested in index funds. Index funds are a great 80% approach, because: -…

Would also suggest putting some money into a taxable account with investments on top of the 401k/IRA since they can't be touched until you're ~60 (without penalty, at least).

Re: Ask HN: How do you invest?

#25

Post by ffumarola »

7402 wrote: post #14

1/3 in a domestic (U.S.) index fund, 1/3 in an international index fund, 1/3 in CDs, money market funds, savings bonds, or T-notes. Rebalance once a year. Spend no additional time thinking about any of this.

This advice should be adjusted given your age / risk tolerance. 1/3 in cash equivalents is a bit conservative for a 20 or 30 something, for example.

Re: Ask HN: How do you invest?

#26

Post by man_bear_pig »

booop wrote: post #21

I was very interested in trading stocks for a while, and would read up a lot about the markets. I then met a stock broker and he told me that it wouldn't be very different from gambling if I were to invest based on the news without much understanding of how the markets work. One thing he told me really struck a chord: I spend 8 hours a day at work, and read about the markets in the night or on weekends. But he lives/…

most stock brokers don't know wtf they're talking about. that's because most can't even beat the snp. most hedge fund managers (intellectually the smartest of the smartest bunch) also can't beat the snp.

you are correct in that you should stick to your core competency. as far as investing, on the side you can invest for shts and giggles but if you think that the market is somehow not that efficient when there's 100,000 ivy league grads who spend 18 hours a day researching in the same markets then, i'm not sure what else i can tell you. trust me, i know a ton of people from wall street. for example, most people who work in private wealth management (people with 10m+) get the stupid bunch out of the entire stack of investment bank. the smartest trade for the company and institutional money/ engage in billion dollar transactions.

now an interesting thing is to study about 1000 hours on the stock market and valuation principles and then invest in a sector you have domain expertise. then you may have an edge. even then you will realize that there's not much of an edge b/c in my old job, i would just expense $10,000 bucks and call you and your bosses and your competitors' bosses up and get the insight into the industry and info i needed to know to make my decision to pull the trigger. so combining commercial due diligence mixed with my investing acumen and access to 100 institutional stock brokers (not the plebeian wealth managers) would ensure that i have an edge.

hope this helps. don't want anyone to lose money.

Re: Ask HN: How do you invest?

#28

Post by nicholas73 »

ffumarola wrote: post #23
nicholas73 wrote: post #12

I actively traded stocks for a period. I can say that any gains you make represent work like any other, except you can lose all your money. If you do not want to focus on trading, do not trade. It can be a horrible way to live. Warren Buffett's #1 rule is: Do not lose money. #2: Never forget rule number one. What you really learn is that the amount of risk you should take on actually is a lot less than you think it i…

I would agree for the most part with the exception of "At some point there will be a market crash and it will be a no-brainer to buy." Timing the market is incredibly difficult. I'd just suggest setting up an automatic dollar cost averaging scheme into a fund mix of your choice and ignoring it from that point on. As long as you have a decent enough time horizon, you'll wind up well ahead.

I agree and disagree. I think legging into positions is a great way to ensure lower volatility and is a good for psychological discipline. However market timing works in the Buffett sense, when you make a purchase that immediately makes sense no matter (almost) what the asset price does after that. If you could hold forever, you'd simply make money off the dividends. Like buying a house - you can't lose due to price fluctuation (barring a ghost town event) if you planned to make money from rent. But if you bought hoping for capital appreciation, you could get really hurt.

Re: Ask HN: How do you invest?

#29

Post by jwheeler79 »

If you're interested in actively managing your own portfolio, for some reason this isn't mentioned much places, but you need to have a deep understanding of financial accounting. That will allow you to read and make sense of financial statements. There is no other way, if you're an active, vs. passive, investor. Then one easy strategy is to do what Charlie Munger calls, "sit on your ass investing". That's where you wait for bargains in strong companies to come along and you swing real big. Diversification is not as important if you know what you're doing. And you don't have to sit around if the market is fairly priced, just when it's high. During that time, when you're not doing much investing, you should be reading, studying, and aspire to get into more special situations (arbitrage) and look for Ben Graham style net nets with micro to small cap companies that aren't as popular. Even OTC market value investing with your own scuttlebutt. There aren't much of those so you have to see what ratios people substitute for those nowadays. For example, you're not going to find decent insurance companies selling at less than their working capital minus total debt. Those used to exist after the Great Depression. Now you have to find companies say, selling at some higher ratio than what would have made a decent margin of safety in those days. It can take a long time and a lot of watching the market, looking at different stats to know what you should be looking for.
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