New to investing and looking for some direction

[Hielko]

I don't Security Analysis and The Intelligent Investor are really difficult to understand nor read, and that's coming from someone who isn't a native English speaker. Especially The Intelligent Investor should be a quick read, and with your accounting background I think Security Analysis should be pretty easy as well.

 

And I do think it's a smart move to start learning about investing. Sure, you aren't going to make a lot of money with your current capital base, but you are putting yourself in a way better spot as soon as you start making a significant amount of money. Compounding is a powerful force, and if you have to figure everything out after you have to money you probably lose a couple of years of compounding (or worse).

[GregS]

One thing that is key is if you want to learn to invest in individual companies, use real money.  Nothing focuses the mind like the risk of losing money even if it is a small amount, as long as the amount is significant for you.  I initially tried investing on Investopedia's simulator and I never really cared enough to do the work and my results showed.  When I started investing real money I started getting much better results and learning much more. 

 

For $1000, yeah, you are probably limited to 3-4 stocks.  Get the cheapest online broker you can find.  Try to keep transaction fees to 2% or less per transaction, preferably 1% or less.  But don't sweat it too much initially.  Want more money to put to work?  Earn wages from your day job and save.  Also, remember that for stocks with reasonable liquidity you can go ahead and buy 10 shares or even 1 share.  I've heard advisors and journalists tell people to buy Apple options because the price is too high for the stock.  BS.  Buy one share, buy two, whatever.  Try it, it works.

 

Reading investing books is a fantastic way to learn investing philosophy and methods and the ones mentioned above are all great, but nothing replaces actually doing.  Nate Tobik has a great recent post on Oddball Stocks about this.  It not only allows you to practice what you've learned, get better and find weak points, but it will help you develop your style.  This is very important.  The key to style is to fit your personality.  If you don't invest in a style that suits your personality, you will bail when it gets hard, which it inevitably will.  You have to have confidence in what you are doing and the only way to develop that is by actually doing it.

 

Regarding books, my favorites for the beginner are:

 

Intelligent Investor - yes, it's dry and somewhat complicated, but you either get the philosophy of Margin of Safety, Mr. Market, etc., or you don't.  Good read to discover if you are truly a value investor. 

 

Lowenstein's Buffett bio - great for learning about Buffett from the big picture perspective, especially for the beginner.  I would recommend people read this before Buffett's letters to give you more context for Buffett's writings.

 

One Up on Wall Street - Lynch comes closest to anyone of writing a how-to manual for the amateur.  Just watch out for the PEG ratio - it's a screening tool, not the basis for investments.

 

Other books mentioned by people here are all great.  Also spend time reading about industries and successful and unsuccessful companies.  Books, articles, journals, annual reports, anything you can get your hands on.  Ratios are great, but the real key is learning about business models and real competitive advantages.

[gary17]

Maybe I could share some of my thoughts......

 

1- Investing is so your currently purchasing power will be more in the future, adjusted for inflation.

 

2- There are a many approaches out there - value being one of them, and that has been what makes sense for me and worked (so far) for me. 

 

3- Value investing is like buying something that has very limited downside risk.... with some upside -- it's like gambling in a casino with free chips -  the decision is about putting the chip on the right table that'll give you the best outcome, after adjusting for inflation and opportunity costs....

 

4- So then it comes down to buying something that's predictable in the future and with a margin of safety (just in case you were wrong)

 

5- Margin of safety is like paying for something a lot less than what you think it is worth ---  I once bought a leather jacket at a garage sale for $25 and sold it on Craigslist for $150  a few weeks later....    I mean the leather jacket wasn't going to be worthless, and I can wear it if nobody wants it.... so that's my "margin of safety"     

 

6- There are thousands of companies out there - since you can't possibly analyze them all, just go for the ones you understand.  (I only do poker or blackjack - so i stick with those two when i'm in a casino; that's what I understand)

 

7- Finally, a lot about investing is your emotion ... you vs. yourself  - I'd say if you've done the work and picked a good business that's trading at fair value, chances are it'll advance as the business advances... but along the way things fluctuate and that could have a lot of psychological effect on you....

 

good luck!!

 

 

[jouni1]

congrats on starting in value! when i first got into this game i had all the wrong ideas. spent about 4 years losing money and some of the best opportunities i will see in my entire life.

 

i would just find out an owner/operator type company that you love. the business itself interests you and you like the management and reading their annual letters etc.

 

then put the thousand bucks in that and read everything and go to annual meetings if possible. it's not that big a portion of your future portfolio that you should stress about it too much. buying a great business with great leadership is always better than buying a car for example. so you might not make the biggest profits but the stuff you learn from doing it cant be valued in dollars.

 

this way when you start getting a salary and have more to invest, you have some understanding in business and investment through your own experience. just get your toes wet and when you're ready swim you'll already have an idea of what it's going to feel like.

 

the point i'm trying to make, the best way to learn is probably not making as many investments as possible, but probably just making one and trying to get as comfortable as possible with that. once you've gotten to that point with a company, it's practically impossible to invest in companies you don't know enough about. your head just won't let you.

 

eventually you'll start seeing companies you like, at prices you think are way too high. once every 1-2 years something seems to be priced reasonably and you possibly do something.

 

i'm relatively new to this and still young, but this is the point i'm at in my learning curve. every value investing book told me to sit on my hands but i knew better. glad i've come to my senses. hope youll find your style (whatever it might be) quicker than i did :)