Does anybody here invest?

[jmendez29]

So I've gotten to a point in my life that I need to start changing things. I have my 401k, two checking accounts, two savings accounts. The 401k is really the only thing used for long term anything, the checking and savings are set up for specific purposes, including my emergency fund.

But what I'm looking for is to really understand what's going on when I send my money to the 401k. And start using that information for my own personal investing. I've read a whole lot of books on personal finance, and there's really nothing new in any of them. It's all the same crap by different authors, really. What I'm most interested in is how to really understand what a P/E ratio is, how its calculated, and what it really means. Things of that nature. I ask around the guys who I work with, and it just seems that most of them look at a couple of graphs and make an educated guess at whether or not it will go up or down. I'm not so much into guessing about this kind of thing, but it seems like its working for most of them. Is that all there really is to this stuff?

If anyone here does any investing on their own, not just paying someone to buy mutual funds for them, could you point me to some kind of book or series of articles to help me teach myself how to choose stocks and bonds? Much appreciated.

J

 

[Fletch78]

Do you have a background in finance or business?

 

[marubozo]

I'm a financial planner, chartered retirement planning counselor, and finance writer. Obviously, I do all of my own investing as well as help others. You have raised some interesting questions.

It will be hard to go into great detail on this subject, but I'll touch on a few things. First, you're right about most of the finance books out there. Most of the books are pretty basic and geared to people who need to learn how to save, pay off debt, and at the most, they might briefly touch on asset allocation or something. So if you're looking for in-depth financial education you do have to go beyond most of the books you'll find on the finance section of the bookstore.

If you're really looking for the nitty gritty stuff like P/E ratios, how to read annual reports, how to spot chart patterns and all of that, a good free resource would be www.investopedia.com. There's a ton of information and it can sometimes be cumbersome to find, it does cover a lot of the detailed stuff you usually won't find in a book.

While this knowledge can be helpful if you're constructing your own portfolio with individual stocks, for most investors who are just utilizing their 401(k)s or maybe an IRA it's usually overkill. It's always a good idea to have a solid understanding of what you're dealing with, though.

That being said, there are a few key things to keep in mind when investing, regardless of what you're investing in, to help your chances at success.

1. Keep costs in mind. Whether it's annual fund expenses, management fees, or transaction costs, you need to know what you're paying for each of your investments and know when you're paying too much.

2. Be truly diversified. You can own a dozen mutual/index funds and still be hardly more diversified than if you just owned a single fund. People often think the more investments you have, the more diversified you are. It's not so much about that, but it's more about making sure you own a collection of asset classes and pay attention to correlation. Otherwise you just end up with a lot of overlap with higher expenses, that's harder to keep track of.

3. Don't get caught up in bubbles. It doesn't matter if it's bonds, technology stocks, real estate, or gold, the last thing you want to do is let your emotions take over. It's easy to go astray from your investment principles when you're bombarded 24/7 by the media about how good a certain type of investment is doing. It's human nature to want a piece of the action. The problem is that by the time the general public starts to get in on the action, the party is usually almost over. The people making real money got lucky and got in before the hysteria set in. That doesn't mean you shouldn't invest in positively trending investments, but do so with prudence, don't throw your entire nest egg at it, and don't be afraid you're going to miss out because if you're properly diversified and keep investing over time you'll be a part of all of them, at least somewhat. Otherwise you risk getting slaughtered.

4. Heed Warren Buffett's advice: "Be fearful when others are greedy, and be greedy when others are fearful."

 

[Fletch78]

#4 is great advice.

 

[Fletch78]

The problem with books is that trading can be complicated, but the books have to be written at a 5th grade level in order to be published. That's just the publishing business.

Follow Cramer's show on CNBC for a while, at least a year, 99% of it is horse ****, doesn't apply to you, etc, but you'll learn something in each episode. After a year of watching it, you'll know more than you need to know.

 

[Bumbler]

WOW! I can't believe someone hasn't responded. I know there are very intelligent people on this board.

First the disclaimer: Investing is risky and can result in a loss of assets. The following is for illustration purposes only and is not an endorsement of investing strategy.

There is no magic bullet only educated guesses.

I would recommend learning about the different styles of investing. Traditional: P/E ratios and such, and Technical Analysis: Using past market behavior to predict future behavior.

There are many books at larger book store to choose from. Start thumbing through them and the one thats right for you will grab your attention. I hesitate to recommend a particular book because I'm not a traditionalist. I use technical Analysis. It fits my style.

Both Google and Yahoo have very good investing sections with useful info.

Hope this helps.

 

[mattmuir]

I am also an FA with a national firm. I would suggest you pick the brain of a local FA and get an education. If they are not willing to spend all the time you need, find one that will. Keep a well diversified portfolio, if individual stocks you should have around 15 across all sectors. If funds are your choice, make sure the fund managers are long term and not noobs. An advisor will help keep the emotion out of you investments. And remember, when the market is down stuffs on sale .

 

[remilard]

1. Look at the historical performance of a universe of randomly selected funds (including those that have closed to avoid selection bias).
2. Compare these to the returns of various indices (DJIA, S&P 500, FTSE 100 etc).
3. Ask yourself if you want to actively invest in securities even if you could get advice for free.

Now, if you can invest in things other than securities where there may be an information asymmetry that benefits you (small businesses, property), then have you some fun.

 

[DeafSmith]

If you want to pick your own stocks, here's a good book on fundamental analysis:

http://www.amazon.com/Fire-Your-Stock-Analyst-Analyzing/dp/0137010230/ref=sr_1_1?s=books&ie=UTF8&qid=1285443769&sr=1-1

I have an older hardcover edition, but lots of good info in there.

Lots of good resources available from the American Association of Individual Investors:
http://www.aaii.com/

If you are willing to pay for a stock recommendation newsletter (about $150 per year for a 2-year subscription), I've done well by following this one:
https://www.investech.com/

 

[jmendez29]

Do you have a background in finance or business?

I do not. I'm more along the lines of engineering type stuff. But I firmly believe that I can be taught/trained in about 90% of anything out there. Some things I just won't ever understand, like art.

It will be hard to go into great detail on this subject, but I'll touch on a few things. First, you're right about most of the finance books out there. Most of the books are pretty basic and geared to people who need to learn how to save, pay off debt, and at the most, they might briefly touch on asset allocation or something. So if you're looking for in-depth financial education you do have to go beyond most of the books you'll find on the finance section of the bookstore.

If you're really looking for the nitty gritty stuff like P/E ratios, how to read annual reports, how to spot chart patterns and all of that, a good free resource would be www.investopedia.com. There's a ton of information and it can sometimes be cumbersome to find, it does cover a lot of the detailed stuff you usually won't find in a book.

While this knowledge can be helpful if you're constructing your own portfolio with individual stocks, for most investors who are just utilizing their 401(k)s or maybe an IRA it's usually overkill. It's always a good idea to have a solid understanding of what you're dealing with, though.

Thanks for the link. I'm working nights right now and will have a ton of free time. As for the books, that's what I was kinda worried about. But even if I don't end up investing everything on my own, I definitely want to know what I'm getting into. I'd like to understand what a FA is telling me so I know whether or not I'm getting snowed by the guy. I'm positive there are plenty of FAs who are legitimate, but I'm always paranoid that I've found the one guy who's not.

4. Heed Warren Buffett's advice: "Be fearful when others are greedy, and be greedy when others are fearful."

Love that guy. He makes it all sound so simple. And stuff like this is why I WON'T trust anything I see or hear on TV.

If you want to pick your own stocks, here's a good book on fundamental analysis:

http://www.amazon.com/Fire-Your-Stock-Analyst-Analyzing/dp/0137010230/ref=sr_1_1?s=books&ie=UTF8&qid=1285443769&sr=1-1

I have an older hardcover edition, but lots of good info in there.

Lots of good resources available from the American Association of Individual Investors:
http://www.aaii.com/

If you are willing to pay for a stock recommendation newsletter (about $150 per year for a 2-year subscription), I've done well by following this one:
https://www.investech.com/

Thanks. I'll look into them. Probably not going to get into any stock pickers yet. Maybe a couple years down the road.

 

[jmendez29]

Just another thought. Are there any classes that might be worthwhile to take to get into this stuff? I even wouldn't mind taking a few college classes at my expense to get a basic education, but I'm still confident I can teach myself. Maybe something that Schwab and the like might offer?

 

[marubozo]

Just another thought. Are there any classes that might be worthwhile to take to get into this stuff? I even wouldn't mind taking a few college classes at my expense to get a basic education, but I'm still confident I can teach myself. Maybe something that Schwab and the like might offer?

Actually, here's a collection of 20 free courses I put together on my website: http://genxfinance.com/2009/03/16/2...-money-classes-from-the-comfort-of-your-home/

Many of these are actual college courses that go into great detail regarding economics, markets, investing, etc. Obviously, they won't all be suitable for what you're looking for, but since you can go through the courses at your own speed and pick and choose what you want to learn, I'm sure you can find a wealth of information in some of those courses.

 

[Germelli1]

I do not. I'm more along the lines of engineering type stuff. But I firmly believe that I can be taught/trained in about 90% of anything out there. Some things I just won't ever understand, like art.

That line make me laugh so hard!

 

[kryolla]

look into fundamental analysis and or technical anaysis, short term or long term trading, series 7 cert. Your going to need a lot of money to start or look into trading ETF or mutual funds instead of individual stocks. Also look into the different sectors as some will be hot and others not. Know what companies are undervalued or overvalued. Dont let your emotions get in the way

 

[jmendez29]

... Dont let your emotions get in the way

This is why I want to learn the right way to pick stocks. Everyone I know seems to guess at it. And to me, that's just a gut feeling which is the same as emotion. It would be nice to become the next "Oracle of Omaha", although I don't think that would happen, even having a solid future for my kids and grandkids would be enough.

Thanks so far for everyone who's volunteered some info. I really do appreciate it.

 

[mattmuir]

jmendez, at this point I would stay away from indivual stocks and focus on some quality mutual funds. You can pick a fund with the sector that intetests you the most like growth or income based ar a combo of both. Then some nice short duration bond funds for the saftney net part of of your portfolio. If rates go up the short maturity bonds have less price swings than longer. As you learn more, start small with some stocks. Buy quality companies with a good record and stay away from the penny stocks with your serious money. There are many "serious investors" with stocks like PG, J&J Coke and Pepsi. Dont try and reinvent the wheel.

 

[jmendez29]

jmendez, at this point I would stay away from indivual stocks and focus on some quality mutual funds. You can pick a fund with the sector that intetests you the most like growth or income based ar a combo of both. Then some nice short duration bond funds for the saftney net part of of your portfolio. If rates go up the short maturity bonds have less price swings than longer. As you learn more, start small with some stocks. Buy quality companies with a good record and stay away from the penny stocks with your serious money. There are many "serious investors" with stocks like PG, J&J Coke and Pepsi. Dont try and reinvent the wheel.

I appreciate the concern, but I really don't have any intention of reinventing the wheel. I have my 401k with a substantial amount in it so I won't be putting my retirement at risk. Another byproduct of my future education would be to really see if I have a balanced portfolio in there. But I figure I have at least a few months before I put any money into stocks. So I have a little bit of time to start understanding. Even then, I will only start out with no more than $2000. I figure with that, I will minimize any significant losses during my learning curve. If I feel comfortable with it, I'll continue. If I lose my a$$, then I'll probably stick with mutual funds.

Ultimately, I have a few specific questions on how it all works. I've found a couple of programs online that let you "play" with a little bit of money and it keeps track of it for you. I intend on using that before I put any of my own money into the market so I don't get too frustrated when I lose. Who knows, maybe that will dissuade me enough as it is.

 

[mattmuir]

Good Luck ! It is fun to learn how the system works and what makes a balanced port.