Small time new investor... need some book/tip suggestions

[JS80]

bogleheads

 

[JS80]

It does actually. I might have missed the bit about not what you think you know, but what you know. It is to a degree about being honest with yourself.

I invested in AMD when they seemed to be going somewhere. The moment Intel's roadmap for the Yonah/Conroe/Woodcrest onwards was revealed I knew they were toast, so I pulled. That is knowledge as someone following hardware to buy.

Similarly I invested in Apple when iTunes for Windows was announced. It was pretty obvious it would be huge, and also because I would be buying it.

You just proved his point...

 

[coaster831]

I only had my IRA for 2 years when I withdrew mine for house purchase, penalty free. Of course, that doesn't mean it was legal and I might get a knock on my door down the road from Mr. IRS.

You can withdraw contributions from a Roth IRA at any time without penalty for any purpose. Different story for gains on the contributions.

 

[Blackjack200]

At the time you bought Apple stock, were you familiar with their cash flow, their income, how their corporate board was structured, how large their company was, who owned what amount of their stock, and how their licensing agreements were structured with the music industry? Just guessing correctly that iTunes would be big is not the same as knowing the industry.

The idea that you invest in what you know is that you invest in what you know very well, and more importantly know so much about that you know a lot more than the rest of the market. This almost always means a lot of work and study. A lot of people believe they know a lot about the company they work for, such as Enron employees. They also turn out to be wrong most of the time.

Unless you work at knowing a company inside and out, and work at it for long hours, you don't know a company well enough. Too many people view investment as some form of magic money machine that they toss a bunch of cash in and pull more cash out of later. If you buy an index fund, it only goes up if what it is indexing goes up, most index funds are tracking the biggest 500 companies, or trying to index the whole american stock market. In that way an index fund is a bet that the american economy will continue to grow. It is usually the safest bet available, but it is a bet.

To the OP, don't forget to read A Random Walk Down Wall Street. If you really want to work hard at investing, you can do it, but you need to really work, and even then success is hard. Most likely, you don't want to work, and then your best choice is to either find someone to do the work for you, an investment fund, or an index fund and just accept you will never beat the market. If you go with an investment fund, you still need to research them, and do some work to find a good one. If you don't want to do any work at all, index fund. And, honestly, even after all the work, you usually don't come out better than if you had chosen an index fund, so it is usually better to be lazy and go with the index fund route.

I work at a large brokerage firm, and some of my co-workers were almost completely invested in company stock (what they "knew") when the meltdown happened. They were wiped out.

It's really horrible advice, it sounds good at a sixth-grade level, but once you start to understand the complexity, lack of transparency, and unpredictable business environment that exists in the corporate world, you generally lose your illusions about really knowing much about anything.

 

[edro]

You can withdraw contributions from a Roth IRA at any time without penalty for any purpose. Different story for gains on the contributions.

Ahhh... now I remember. I had to pay a penalty and tax on my gains. My gains were like $200.

 

[IHateMyJob2004]

Realize one thing. The only intelegent investing is value investing. Not speculation like most here.

Understand what a stock is (ownership in a company) and buy at less than intrinisc value. And buy quality.

It is that simple.

 

[rcpratt]

Right now, I wouldn't do anything but contribute to your 401k until you pay off your car loan. Paying that off is a guaranteed 7.2% return on your money.

 

[Aharami]

Good thread..tagged. I don't know shit about stocks.

same here

 

[a123456]

I will echo the sentiment about paying off the car loan and investing in index funds or the ETFs that represent them using a Roth IRA. Use a brokerage that will have small or almost no fees. It's statistically very unlikely to beat the market unless you have some big advantage that most people don't have.

 

[Dryst999]

Hrmmm yeh I guess i'll try to knock out my loan this year before I invest any... I just wanted to get a head start with a little investing now for the compounded interest.

For Index funds is there a big difference in which ones you pick as long as they are broad? Should I diversify and invest in 2 or 3 broad Index funds are focus on one since they cover so much in the first place?

Is there anyway to edit post titles? I typed the original post while on hold at work and wasn't paying attention to what I was typing.... "invester" is pissing me off everytime I refresh this thread!

 

[Sho'Nuff]

I usually don't suggest reading investment books, because they are generally all crap. But one that I will suggest, and have read recently, is "Payback Time" by Phil Town.


http://search.barnesandnoble.com/boo...iq_id=13273719

I know I know, from the cover it looks like the SoS (same old shit). An investment book making bs claims about how to get rich quick. Except that Payback Time really isen't structured that way. Surprisingly, the book actually teaches a meaningful, reasonable, and somewhat valid way to {gasp} evaluate companies! I know, amazing!

In all seriousness though, Payback Time is a worthwhile read. I personally do not suscribe 100% to the "stockpiling" theory it professes, but I have incorporated that theory into my own investment strategy.

 

[rcpratt]

Your car loan is just as compounded... except it's guaranteed.

You should just be able to double click on the thread title (but not directly on the link) and it will become editable, but that locks after some period of time.

 

[daishi5]

I work at a large brokerage firm, and some of my co-workers were almost completely invested in company stock (what they "knew") when the meltdown happened. They were wiped out.

It's really horrible advice, it sounds good at a sixth-grade level, but once you start to understand the complexity, lack of transparency, and unpredictable business environment that exists in the corporate world, you generally lose your illusions about really knowing much about anything.

I am sorry, maybe I wasn't clear. You should not invest in the company you work at, you would invest in a company that you work very hard to know about. I mentioned Enron as an example of how bad investing in your own company is. And even if you think you know a company, you almost certainly do not know enough.

I really want to take back the comment about investing in something that you know, because almost no one is willing to really work at knowing a company. When I say you know a company like apple, I mean you spend hours a week reading about the company, every company in its supply chain, who they sell to, their competitors, the political activity in the areas they operate in, and a lot more. The amount of knowledge you have to have about a company to have a chance to beat the market is huge, and one person can't do it for more than a few companies, and it just is not realistic.

Therefore, the two realistic and smart long term choices are to pay someone else to do the work (fund manager) or buy an index fund and, as long as the economy continues to grow, you should do ok.

 

[Blackjack200]

I am sorry, maybe I wasn't clear. You should not invest in the company you work at, you would invest in a company that you work very hard to know about. I mentioned Enron as an example of how bad investing in your own company is. And even if you think you know a company, you almost certainly do not know enough.

I really want to take back the comment about investing in something that you know, because almost no one is willing to really work at knowing a company. When I say you know a company like apple, I mean you spend hours a week reading about the company, every company in its supply chain, who they sell to, their competitors, the political activity in the areas they operate in, and a lot more. The amount of knowledge you have to have about a company to have a chance to beat the market is huge, and one person can't do it for more than a few companies, and it just is not realistic.

Therefore, the two realistic and smart long term choices are to pay someone else to do the work (fund manager) or buy an index fund and, as long as the economy continues to grow, you should do ok.

No, you were clear, my post was was meant to agree.

Edit: and on investing on what you "know", I meant that it's terrible advice for most people because they only know the company at a superficial level. If a person has some depth of understanding, then I agree again, you can beat the market that way.

 

[daishi5]

No, you were clear, my post was was meant to agree.

Edit: and on investing on what you "know", I meant that it's terrible advice for most people because they only know the company at a superficial level. If a person has some depth of understanding, then I agree again, you can beat the market that way.

Yes, I need to learn to stop mentioning investing in what you "know," without explaining that I mean "know" in the "invest hundreds of hours to learn as much as possible" form of the word.

 

[vbuggy]

At the time you bought Apple stock, were you familiar with their cash flow, their income, how their corporate board was structured, how large their company was, who owned what amount of their stock, and how their licensing agreements were structured with the music industry? Just guessing correctly that iTunes would be big is not the same as knowing the industry.

The idea that you invest in what you know is that you invest in what you know very well, and more importantly know so much about that you know a lot more than the rest of the market. This almost always means a lot of work and study. A lot of people believe they know a lot about the company they work for, such as Enron employees. They also turn out to be wrong most of the time.

Unless you work at knowing a company inside and out, and work at it for long hours, you don't know a company well enough.

The details of the company you refer to are just due dilligence. Yes, you should check out the balance sheet (and almost every intro book has a beginner's guide to that), but that ultimately has very little influence on how successful it can be.

That rests with the end users of its services. And I've based my decisions - certainly in terms of consumer electronics companies - on the potential behaviour of the people who are it's most likely end users based on what I know about how people behave, and what I know about the companies involved in terms of their track record of products, which I've gained by buying and using them. And I haven't been wrong this decade.

Unfortunately circumstances beyond my control have severely impacted my business post-'08 when I lost funding and rather foolishly tried to keep cash-hungry divisions open - but you know what, if I hadn't made some killer investment decisions I would be far worse off than I'm now.

Maybe I'm not being clear here. By 'what you know' I don't mean what your 'I read books about Buffett and haven't actually understood how he ticks at all' prose refers to. You should have an overview of the company. But to know the company in the way you say you should know it is to become as clueless about its investment potential as... well, its employees.

See, it's people who get wrapped up in the details beyond the necessary who end up, for example, shorting Google (many have done it in its relatively formative years) when its future was damned clear just by talking to a bunch people who use it.

And that is where 'what you know' comes into play. The analysis stuff is fine (and in many cases, due to their diversification necessary) for professionals. As an amateur, you are best a) obviously betting what you can lose and b) invest in something you know. The absolute worst thing is to get into something that everyone else tells you you should invest in, especially with only a 'book' knowledge of how that market works. I hope the common sense aspect of this is getting through.