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Ask HN: How to start learning about investments?

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Re: Ask HN: How to start learning about investments?

#61
post #47

The first thing to understand is that in your first 5-10 years of investing, you will do worse, probably much worse, than simply investing in a broad index. Investing, seen as a skill, is pretty unique in being in that you need to become better than most of the others for it to even make sense. You don't need to be better than the median plumber to make good money as a plumber for example. So if you just want to "lea…

Thanks!

I do not want to avoid MOOC, it's just that I haven't seen there the kind of stuff I am after.

I also consider buying an index as investing, maybe it is a good stating point.

I do believe I will make mistakes and I want to avoid the huge ones. Doing some learning will at least help avoid going only on the gut instinct and what I read in the press.

I don't plan to make a job from it but I want to get at a better level of understanding the markets and their mechanism than I am now which is zero.

Re: Ask HN: How to start learning about investments?

#62
There are a lot of junk resources that just want to sell you things and are a waste of time. It takes a certain level of expertise just to find competent teachers. But I'll try to briefly summarize what I wish I had known when I started.

~80% of this game is showing up. (Pareto Principle.) Wealthfront, Betterment, or a target-date mutual fund is way better for growth than a bank account. Start there if you don't have a better idea.

If you want to be more aggressive, averaging 15-30% growth per year is not unrealistic. E.g. PSLDX alone has averaged 17.39% since inception in 2007, but it also had a 50% drawdown in that time. Some years are better, some worse. But that's one fund. You can do even better than this if you know what you are doing (e.g. https://www.portfoliovisualizer.com/backtest-portfolio?s=y&t...). See also, Nassim Taleb’s Barbell.

To play this game well, you need an edge. See Expected Returns (https://www.goodreads.com/book/show/10982323-expected-return...), a classic. The easy edge is "risk premium", but there are others. Edges are not that secret. Search https://ssrn.com for more ideas. When analyzing, beware that any monkey can optimize a backtest. The idea is to find a persistent edge, not overfit to past noise.

You also need risk management so you don't lose money too fast. You have to tolerate some volatility, but control risks. You can lose money by

1. oversizing bets (see "Kelly Criterion", also borrowing costs),

2. trading too frequently (bid-ask spread, commissions, fees, especially for mutual funds),

3. being on the wrong side of an actual edge, usually by buying too much insurance / fighting the risk premium,

4. and paying taxes and penalties (retirement accounts, beware insider trading, etc.).

If you can limit these, the remaining market noise is as likely to work for you as against you. It washes out. See my LessWrong series for more detail, starting with https://www.lesswrong.com/posts/rPe6b7MCxaK8ZzYdC/you-need-m... Also, stop-loss orders suck; puts are better.

At 15-30%, you can double your money every four years or so. Paying the 10% penalty for early withdrawal from a traditional IRA is worth it for tax-free growth if you can compound for even a few years, so put as much in as you possibly can as soon as you possibly can. You can and should contribute some directly, but most will come from rolling a 401(k). The annual limit there is currently $58k if under age 50 and your plan allows after-tax contributions. If retiring early, don't contribute to Roth (you don't get to keep as much up front), but do convert to them after you stop earning and are in a lower bracket. I can't know your exact financial situation, please talk to a professional about this stuff.

Re: Ask HN: How to start learning about investments?

#63
post #19

Learning about it isn't hard. Assuming you are good with numbers and logics. Especially value investing. Read a few good books. A few will do. The Intelligent Investor or books from Peter Lynch and Warren Buffet if you want to keep it short. You can ignore all the others. Have a understanding of how business in different industries works. They all have some specialities, but from a high level overview they aren't all…

Very sound advices. The financial press seems good to analize a fact after it's done and do post mortems. But observing investors and businesses seems more valuable.

Re: Ask HN: How to start learning about investments?

#64

Through your journey, try to find meaning in these quotes. When I first heard them, they sounded reasonable, but I didn’t know if they were just folksy wisdom or hard truths. I tried to resolve which is what. They are all hard truths. 1. You can’t stand to see your neighbor getting rich. You know you’re smarter than he is and he’s doing these things and he’s getting rich 2. The stock market can remain irrational long…

So good poker players have more success than analytical guys?

Re: Ask HN: How to start learning about investments?

#65

Earlier quoted context omitted.

People absolutely beat the market over time. The investment world when they say no one beats the market, are referring to investment managers moving billions of dollars. As a regular guy, you can. It’s sad to see this terrible advice repeated ad nauseam

People who beat the market are lucky.

I know more than one person who has been "lucky" in that way remarkably consistently for decades. At some point you start to ask if they are making their own luck.

These are all people who have no-nonsense investing strategies. They don't do anything weird or controversial. They typically look for value and fundamentals and they make their biggest gains simply by buying or selling at a good time by recognising something important before the market.

An example I always remember one of them giving me was a company that made building materials. During an exceptionally wet summer a lot of building work stopped because sites were washed out. Stocks in the big homebuilders had fallen heavily and this smaller supplier had tracked them down. However it fell so far that its price-to-book ratio was less than 1. (Roughly speaking that means the cost to buy a share is less than what that share would be worth if you could distribute the current value of the tangible business assets to the shareholders.) My friend invested and after the bad weather passed, trade returned to normal levels, the stock price corrected, and they had made a very good return over a few months.

Re: Ask HN: How to start learning about investments?

#66

> I want to start investing some money and before doing it I want to learn how to do it. Start with reading two books: * https://en.wikipedia.org/wiki/The_Index_Card (more US specific) * Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School (Second Edition) by Andrew Hallam (author is a Canadian ex-pat, but the advice is general/international) For reasons why you should (probably) not invest…

Thanks! Even if I don't live in US I want to invest in US market because it is better studied and seems more solid.

By "US specific" he talks about things like 401(k)s and (Roth) IRAs, which are tax-sheltered retirement accounts. As a Canadian, I would translate that to an RRSP. Not sure what you would use.

Note that while investing in the US (and internationally) isn't a bad thing, have some portion of your portfolio in your home country/currency generally helps to reduce volatility:

> In each market we examined, our analysis indicated that volatility was reduced most with an allocation to international equities of between 35% and 55%. While this observation may help investors determine the appropriate mix of domestic and international equities, volatility reduction is not the only factor to consider.

* https://personal.vanguard.com/pdf/ISGGEB_042021_Online.pdf

* https://www.morningstar.ca/ca/news/206577/home-country-bias-...

* https://en.wikipedia.org/wiki/Equity_home_bias_puzzle

* https://www.investopedia.com/terms/h/home-country-bias.asp

Re: Ask HN: How to start learning about investments?

#67

Keep this in mind as you are learning: - people trying to sell you stuff will say things like “if you believe X has the potential to become the next dominant investment trend…”, because they make money on selling you speculative advice that is essentially worthless - when people say “the market”, they generally mean broadly diversified indexes like the S&P 500 - no one can beat the market over time with any continued…

Thank you! I don't plan to beat the market. At first my plans are to not lose too much. After that to win more often than I lose.

I am not a great poker player, but since I got better than the average I am winning more often than I lose while playing poker and that is enough for me.

So if I will correctly evaluate my chances in more than 50% of cases, at least I won't be losing.

Maybe investing in a passive index fund is better as a long term strategy and I might buy some with 90% of my money while still trying my chance at buying stocks with the other 10%.

Re: Ask HN: How to start learning about investments?

#68

Keep this in mind as you are learning: - people trying to sell you stuff will say things like “if you believe X has the potential to become the next dominant investment trend…”, because they make money on selling you speculative advice that is essentially worthless - when people say “the market”, they generally mean broadly diversified indexes like the S&P 500 - no one can beat the market over time with any continued…

Technically, beating the market should be like being in the top 50 percentile of your class. The reason most big funds fail to do this is because they need to overcome the fees they charge, to match the market. If you are investing yourself, you won't have the fees to overcome. You do need to be a bit careful around trading costs and taxes. Luck can play a huge factor too. If you have domain expertise in a specific s…

>being in the top 50 percentile of your class

But will you do better long term than a passive index fund?

Re: Ask HN: How to start learning about investments?

#69

Earlier quoted context omitted.

No, the fact is: there is too little objective data to know about either side in the retail sense. And the objective data that is there says that 1% of day traders out perform the market in the shanghai stock exchange (I could misremember). The point is we have too little data to know almost anything. I am on my phone no time for source finding.

> And the objective data that is there says that 1% of day traders out perform the market in the shanghai stock exchange (I could misremember). What are the odds that you are of those 1%? (Hint: you're probably not in that group.) Given that I have >20 years until retirement, what are the odds that I will be in that 1% for all of that time? Further most stocks suck: > We study long-run shareholder outcomes for over 6…

>What are the odds that you manage to pick those few stocks that produce those returns?

Aren't most of those stocks the best performers of each industry? Can you fail by buying FAANG?

Re: Ask HN: How to start learning about investments?

#70
post #46

Earlier quoted context omitted.

No. Stop it with this mentality. When managing a small portfolio, < 5 million dollars, you can be very agile in how you invest. Small hedge funds in NYC with less than 10 million under management regularly make 50-100% a year. It’s not a controversial opinion. It’s just that the financial industry has pushed this narrative as a way to sell index fund products. Completely diversifying your investments is a terrible wa…

I'm intrigued. 1. How is a regular guy going to achieve the same results as a hedge fund with a 10 million dollar portfolio? 2. Regarding Buffett's quote, do you mean "diversification is protection against ignorance?" I think his point is that if you have special knowledge you can take a concentrated position in a stock, but that for the regular guy, diversification is a hedge. Since most stocks underperform and most…

>How is a regular guy going to achieve the same results as a hedge fund with a 10 million dollar portfolio?

Maybe by finding a well managed small fund and buying into it?

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