Help Mao Become an Intelligent Investor

[Mao]

I've recently become aware of my financial mortality and lack of retirement funds. I've started dabbling into mutual funds and have quite a bit (for me, anyway) socked away there. I'm now looking into investing in equities. I started a screw-around account at Scottrade around the time AIG went to hell and put maybe $1500 in it total. I'm up about $500 on that, but through really no fault of my own (ie: I bought F at $1.40 and it's now $14... unfortunately I only bought 10 shares... goddamnit).

I've read Malkiel's Random Walk Down Wall Street and Lynch's One Up on Wall Street. I'm currently working through Graham's Intelligent Investor. Does anyone else have any recommendations for research?

My plan is to try to learn an industry well enough to be well-versed in wtf is going on in it and then apply some fundamental analysis to whatever I'm looking to invest into. Technical analysis seems like a lot of hand-waving to me (maybe that's just because I don't get it, meh), but fundamental analysis is something I can wrap my head around.

For those of you who have been doing this for a while -- How'd you learn? What do you look for? etc. For those who have no idea wtf I'm talking about, maybe we can learn together.

Usual disclaimers apply -- even I'm not dumb enough to depend on Apolyton to tell me what to do financially, I keep other counsel for that, but it seems like there's a fair selection of financially savvy people here (or at least there were... last time I was around...).

Yes yes, I could also try to look into real estate and buy foreclosures, but that seems like a much bigger pain in the ass to me than owning equities (and also opens you up a fun amount of liabilities if you actually own real property). I full expect a string of posts saying "gold!" "silver!" "antique computer games!" but really, let's try to get the +1s out sooner rather than later =P (can you believe I'm the one saying this???)

[loinburger]

When do you plan on taking the money out? If the answer is "when you retire" then put as much into your company's 401K as they'll match and put the rest in a couple of high-yield index funds (I use Vanguard), then ignore it for twenty to forty years (other than to put in more money once a month or once a year or whatever). If the answer is "in a couple of years" (e.g. if you're planning on buying a house) then switch to lower-but-more-consistent-yield funds. If the answer is "in less than a year" then use a dartboard.

[KrazyHorse]

Ditto loins advice. Plan to start drawing down into lower risk assets with about 10-15 years left. Fundamental analysis. (or any other type of active management) by retail investors is a sucker's game.

[Mao]

I mean, that's basically what I'm doing. I've set aside about 5% of my total portfolio for specific investments. I've come to mental terms with it -- it's like going to Vegas. I'm not putting more into that fund than I can afford to lose completely.

[MRT144]

Don't chase appreciation.

[Drake Tungsten]

I've read Malkiel's Random Walk Down Wall Street

And you're still dabbling in mutual funds and screwing around on Scottrade?

[Mao]

Malkiel was a big fan of the index funds from what I read... did I totally misread him? I mean, I only have the no load low cost Vanguard index funds in my portfolio.

He also makes some significant allowances for a "gambling instinct" and gives some tips for actually finding value in the market. He does/did it, and it's an acceptable thing to do as long as your expectations are in order. I'm not quite sure in Lynch is right in that individuals have an advantage over the big houses because they have personal experience since there's now a crapton of analysts running around everywhere, but I can't help but think that my friends who went into i-banking as analysts are... just pulling crap out of their asses (they admit as much).

[Drake Tungsten]

Malkiel was a big fan of the index funds from what I read...

Yes, which is why I was wondering why you'd be investing in mutual funds after reading his book.

I mean, I only have the no load low cost Vanguard index funds in my portfolio.

[Mao]

Ah, I always figured index funds were a subcategory of mutual funds *shrug*

[DanS]

I do what you're doing, Mao. Most of my portfolio is in index funds, but there are a few investments that I make on the side in order to satisfy my curiosity about what strategies work in investing in individual stocks. YMMV, of course, but mostly I've learned that I'm a championship saver, but an average investor.

The good news is that you can approximate an enterprising investor by going 100% with index funds. Even though it doesn't have a discussion of index funds, The Intelligent Investor gives a lot of good advice that is applicable to the general market and thereby index funds. Chapters 8 and 20 are still must reads no matter whether you invest in individual stocks or index funds, though the concept of a margin of safety is a little less insightful when you're talking about index funds.

Another good piece of news is that you can go a little more exotic on the index funds than you can on individual stocks. F.e., you are young and you want to take on more risk by investing in China? You can do so reasonably through index funds, but it would be foolish for a retail investor in the US to invest in individual Chinese stocks. Another example is that if you want to take on more risk than the S&P 500, you can invest in index funds that focus on smaller companies. It would be difficult to invest reasonably in individual small companies.

[KrazyHorse]

Index funds are technically mutual funds, but generally "mutual funds" are actively managed.

[Fake Boris]

Do you sincerely think you would find it enjoyable to manage your investments and spend serious time doing research? You'll probably end up checking the value of your stocks severel times a day. If yes that's fine, but you might consider doing business with an investment advisor who specializes in assessing mutual funds and then sells you those that best suit your needs. You don't end up paying so much more - the broker's getting a deal on scale.

[Mao]

Another good piece of news is that you can go a little more exotic on the index funds than you can on individual stocks. F.e., you are young and you want to take on more risk by investing in China? You can do so reasonably through index funds, but it would be foolish for a retail investor in the US to invest in individual Chinese stocks. Another example is that if you want to take on more risk than the S&P 500, you can invest in index funds that focus on smaller companies. It would be difficult to invest reasonably in individual small companies.

My plan/hope is to basically try to learn a mundane industry well enough to know what's what. I have some connections to waste water engineering, but outside of that, law and international relations aren't really "industries" I can invest in. Peter Lynch has (what I think to be) a good point about looking for stocks in mundane, easy-to-understand industries that the brokerage houses usually ignore for whatever reason. I'm not sure if that still happens, but it might be worth a shot to find some diamonds in the rough.

Also, funny story. You know that oil rig that blew up in the Gulf? Yeah... I bought Transocean (the owner of the rig) on Monday. Went up something like 4-5% on Monday. Then promptly gave it all back when the rig exploded. Life fail.

[Mao]

Do you sincerely think you would find it enjoyable to manage your investments and spend serious time doing research? You'll probably end up checking the value of your stocks severel times a day. If yes that's fine, but you might consider doing business with an investment advisor who specializes in assessing mutual funds and then sells you those that best suit your needs. You don't end up paying so much more - the broker's getting a deal on scale.

I actually do think I'd enjoy doing some of the nitty gritty of it, not least for at least a feeling of control heh. I actually have been pretty good about not checking the prices of stocks too often (after the first week or so of a purchase, I just kinda check the news every so often). I try not to be a day trader, but rather invest in companies with good prospects/numbers I plan to own 5 years from now.

[MRT144]

Checking stocks every day is fun. It makes work more interesting. Especially when you're checking your high-yield CEFs that don't more than 1% per day.