I want to learn how to invest money

June 6, 2010 11:09 AM

I want to become a small time (value) investor.

What are some decent quality forums, blogs for old fashioned, small time value investors? A lot of good content seems to be behind pay walls, and freely accessible forums are often high on noise and low on signal.

If you have any good resources for stock screeners (I know about Google, Yahoo etc, but they mostly don't have Euronext stocks), I would appreciate those too.

Any other tips to improve in valuating stocks, companies and financial instruments are much appreciated.

I bought books like "Security Analysis" and "The Intelligent Investor". Decent modern books would be appreciated too.

posted by NekulturnY to Work & Money (8 answers total)

- For the vast majority of people, investing in an index fund will provide better and more considtent returns than actively trying to play the market. Money managers who do this as a profession can consistently be beaten by chimps. This should tell you something.

- If you are going to invest in single companies, stick to what you know and find a business model you believe in.. Are you a CS person? Find an innovative tech company. Are you doctor? Look for a medical device maker who you think has the right stuff. The most important part is that you understand what they're doing well enough to judge for yourself whether they have the potential to succeed.
posted by chrisamiller at 12:44 PM on June 6, 2010

I know there is a pdf of "Margin of safety" somewhere on the net, a great book on value investing that also has a discussion on why indexing is flawed.

Anything written by Joel Greenblatt is gold. A lot of people also like to read the Berkshire annual letters that are available online.

I think most discussions are on blogs and in private forums. I would recommend greenbackd.com as my fav but there are a lot.

For the individual I think the best idea is to find a value fund that has reasonable fees and were you really trust the manager. You should still read the above though get an understanding on what you are looking for in a manager.
posted by ilike at 2:49 PM on June 6, 2010 [1 favorite]

Twenty year professional money manager here. I personally do everything I can to shield my eyes from every internet forum. A partial exception is the forums on the Financial Times, such as alphaville,

Read Joel Greenblatt's "little book that beats the market" before you read the Graham and Dodd books. If you dont really get it, read it again. If you dont really get it the second time, you are in trouble here.

Much more of your return (and volatility) will come from the bigger, neglected question of your broad asset allocation, how much in stock, bonds etc. Studies estimate 75-90%. I am unfortunately not aware of a good, readable, methodologically serious introduction to the broad asset allocation problem an individual investor faces. The closest thing I can think of is well thought of Yale Endowment manager Peter Swenson's Unconventional Success, but he skips over the math and jumps right to the conclusion.

Here is a marginal revolution answer to the same question.
posted by shothotbot at 3:54 PM on June 6, 2010 [2 favorites]

The SEC has a guide to reading financial statements. Joel Greenblatt's You Can Be a Stock Market Genius covers modern special situation investing, whereby an investor takes advantage of unique business transactions (like spinoffs). It also introduces what one should seek when sleuthing through financial news. Morningstar's The Five Rules for Successful Stock Investing covers how to read income statements, balance sheets, and cash flow statements, and has convenient overviews of various company sectors (telecom, banks, energy etc.).
posted by mnemonic at 4:09 PM on June 6, 2010

Twenty year professional money manager here. I personally do everything I can to shield my eyes from every internet forum.
There are a good many news articles I try to shield my eyes from too. Danger lurks in trusting FT/WSJ articles for anything other then news. Their analyses are all too often flawed or biased. At the end of the day you can trust financial statements, news, and prices. And I don't recommend trusting those too much either. Actually just don't trust anyone. Learn how to read a balance sheet/cash flow statement/income statement. But don't trust that either.
posted by An algorithmic dog at 10:52 PM on June 6, 2010 [1 favorite]

Look at the Boglehead's guide to investing and the Bogleheads forum.
posted by mathiu at 3:56 AM on June 7, 2010

Graham's Intelligent Investor and Security Analysis are viewed as value investors' founding texts. Seth Klarman's Margin of Safety is a more modern that's frequently mentioned.

As others above have mentioned, perhaps you should look into index funds or at the very least low-cost active mutual funds. Live your life instead of expending your energy on trying to beat the system. It's nearly impossible. Even David Swenson of the Yale Endowment in his book Unconventional Success recommends that you and I use index funds.

Check out the bogleheads.org site which is valuable. There're lots of very smart people there that are willing to help you out.
posted by pinside at 10:59 PM on June 7, 2010

Many others have recommended index funds, and I would tend to agree, but in regards to answering your particular question:

The thing you really need to be aware of as a small time investor is that transaction fees and the value of your time/the time of people whose advice you get, becomes a significant part of your return.

For example suppose you decide to buy $10,000 worth of a stock and the fee your broker charges is $10 per transaction. Every 10 weeks you decide to change some portion of your allocation, such as moving some of your money into a new stock. This is not a particularly high turnover, but once you add up all your fees each year (5 reallocation per year, 2 transactions per reallocation, $10 per transaction) you are paying $100 a year in fees, or 1% of your investment. This means you would need to get returns a full percentage point higher than if you bought and held a index fund (assuming you chose a low fee index fund).

Even worse if you read up on behavioral economics, you'll find that almost all of us have an innate tendencies to buy and sell at the wrong time. Read up about this so you can counteract the tendency.

I am not going to add in a cost of the time you spend on all of this, but unless it is your idea of fun (if so go into finance) you should remember that you have to give up some real chunks of time to have any chance against full time professional investors. Stick to a small number of companies in fields that you know and understand well. Devote at least a couple of hours a month to each stock you invest in, so that you are up to date on upcoming news, and you can read all of the SEC filings. (Available for free from sec.gov)

If you really want to invest on your own and try picking individual stocks (i.e. gamble), your best bet is to choose one industry that you know really well, read up on all of the companies, and pick one. Remember that you need to take into account how much the market cap of the company is compared to your estimate of the total value of the company. Invest some of your money in that stock and then the rest in a low fee index fund.

You are extremely unlikely to in the long run get better returns with your individual stock pick, and you are almost guaranteed to have more volatility in your assets, but as long as your are saving enough for retirement in a index fund, it might be a fun experience to lose some money by picking individual stocks.
posted by vegetableagony at 11:55 AM on June 9, 2010