Tell me about investing as a hobby!

February 5, 2013 5:02 PM

I've always had an interest in the stock market and investing but have only given it a small amount of attention. I was recently trying to come up with ideas for a hobby and realized that (a) investing is something I have had a long standing interest in and (b) it's something that people can do as a hobby! What are some resources/guides/books for learning as much as possible about this?

Some background details: I am 26 and I live in the Midwest. I work a 9-5 job that pays $40,000 a year and I have lots of free time and enjoy reading and research. I have a small emergency fund and some student debt that I'm steadily paying off.My goal is at some point to be financially independent. I'm vaguely aware of the concepts of value investing vs. technical analysis and value investing seems to make the most sense to me. I'm not particularly interested in day trading or changing my career to finance (my background is in the humanities and I work as an illustrator.)

I'm not so much looking for personal finance or budgeting advice, more on the art/science of investing. Any tips, advice, and resources would be much appreciated!

posted by averageamateur to sports, hobbies, & recreation (24 answers total)

Take a look at Mutant's profile page.
posted by Durin's Bane at 5:24 PM on February 5 [2 favorites]

A good starting point is "a random walk down wall street"
posted by steinwald at 5:29 PM on February 5 [4 favorites]

The Little Book of Common Sense Investing is perhaps one of the most tremendous and valuable books you will ever read. This book lays down a compelling argument for how to build wealth through investment. It may very well change the way you think about investment entirely. It did for me.

Within this book is the secret to how to ensure you routinely sell high and buy low. Really!
posted by MoonOrb at 5:39 PM on February 5 [5 favorites]

Play The Motley Fool's CAPS, a.k.a. the stock-market game, and read the accompanying articles, to get a sense of the types of companies you might want to invest in.
posted by limeonaire at 5:39 PM on February 5 [1 favorite]

You might be interested in the website UpDown.com, which lets you have a pretend profile with any amount and any stocks/bonds/commodities combinations that you want. It's a great tool to learn with and could be a fun hobby.

And, if you are willing to invest (ha!) the same amount of money on investing that you would a regular hobby, say, 50-100 bucks a month, you can start investing for real! (After a bit of research, of course.)

I really like The Motley Fool for medium-risk stock research. I didn't realize they had a CAPS stock market game, so I'll check that out, too. Morningstar is a good basic, more mainstream stock research center.

If you like reading magazines for fun, you might like Kiplinger's. I really liked Smart Money, but they recently went under.

I love using my library as a resource for investing books, but it is comical and sad to see the 15-year-old books claiming how You Can't Lose With Real Estate!!!.

(Sometimes I go to Barnes and Noble and browse the investing section to see what's most current and write down the titles in a little notebook and then look them up at the library, or request that they order ones I'm interesting in. They usually are accomodating to ordering my suggestions.)
posted by shortyJBot at 6:24 PM on February 5 [1 favorite]

Look, if it's truly a hobby, with discretionary funds, funds that you can afford to loose, find stocks that are interesting and fun. Disney stock has some fun perks like a owners day at the park. Or make day trades.

If it's for your retirement, diversify and be appropriately conservative.
posted by sammyo at 7:02 PM on February 5

Before you decide to start actually investing, do yourself a quick favor. Pick a monthly amount you can comfortably set aside. Actually set that real money aside, but don't otherwise touch it.

Take the exact same amount and add it to a fake balance on one of the portfolio sites like UpDown, or Yahoo finance and invest it as best you can.

Do this for a year, note which account has more money. Don't forget to subtract transaction fees from your fake balance! Take yourself out to a nice dinner or something with the real money you saved.
posted by odinsdream at 7:06 PM on February 5 [2 favorites]

Investing as a hobby can be a little tricky unless you have a lot of funds at your disposal. If you seriously mean "investing", as in buying something you think will have good value and return over a long run, it's probably going to be a somewhat boring hobby. You research, you invest, then you wait and wait and wait (while you watch).

If you're more interested in the activity, I would suggest buying one, or a few shares, of a stock each period (week, month, ??) depending on your available hobby funds. That's not really likely to result in significant gains, although it could. Day trading in very small amounts can be fun. With the very reasonable commission rates for on-line brokers it's even possible to come out ahead. If it's a hobby consider your funds as being spent on enjoyment and don't focus on the returns except in the same way a golf hobbyist keeps score.

Good luck and, mainly, have fun!
posted by uncaken at 7:08 PM on February 5

Unless your student loan debt is at an extremely low interest rate (like 2 or 3 percent), pay that off first, if they allow accelerated payments, before you use any of your money for a hobby. Why? Several reasons, including because it's possible you could lose all the money you invest, and that's going to mean you've engaged in an expensive form of entertainment at the expense of paying off your student debt sooner. Investing as a hobby should only be for people who are fairly well off and financially very stable.
posted by Dansaman at 7:19 PM on February 5 [1 favorite]

I did this. I became vaguely interested in investing as a concept and started with Joel Greenblatt's The Little Book That Still Beats the Market . Then after a couple of years of religiously following the methodology in his book and making a bit of money in pretty choppy markets, I read his other book You Can Be a Stock Market Genius which believe or not is also used by several hedge fund managers and such. It's the opposite of day trading completely. I also have a certain percent go directly from my paycheck to my broker which reduces temptation to spend it. Ignore the hoaky titles.
posted by Lucubrator at 7:45 PM on February 5

Thank you all for the great info so far. I'll be picking up those books. Mutant's profile page is incredible. I asked for no personal finance/budgeting advice because I didn't want answers like "don't invest because..." or "spend your money on x before investing." Thanks!
posted by averageamateur at 7:52 PM on February 5

Any tips, advice, and resources would be much appreciated!

I think the best advice anyone can give you if you're investing for value is to not pick stocks and just buy an index fund. It's not very fun as a hobby, though.
posted by empath at 8:29 PM on February 5 [2 favorites]

Book advice is good for teaching you the basics of investing. When it comes to specific advice though, one good guideline is to always ask yourself is "Are these people independently wealthy through investing in the stock market? Or are they wealthy through marketing their advice to suckers?" This is an excellent rule to live by, because every piece of bad advice that you follow will have a cost associated with it.

Websites like Metafilter are good places to get generic investment advice about how portfolios work, but never take specific investment advice from sites like this unless you know the advice-giver personally and have an awareness of how successful they have been. When it comes to investments, EVERYBODY suffers from the Dunning-Kruger effect.
posted by wolfdreams01 at 8:53 PM on February 5

Also, one generic piece of advice is to watch a blue-chip stock and study the statistical variance it typically has. Put a auto-sell order at a price two standard deviations above the average price and an auto-buy order two standard deviations below it. This lets you take advantage of standard price fluctuations. Just make sure to only do this with "safe" stocks which are unlikely to suddenly drop due to disturbing news.
posted by wolfdreams01 at 9:03 PM on February 5 [1 favorite]

Maybe just buy and sell shares in ETFs? You get all the fun of choosing stocks, without the (very high) risk of trading in individual companies.
posted by miyabo at 9:07 PM on February 5

Fat wallet finance forums? Especially if you'd consider, for example, maximizing various credit card incentive programs as a form of investment (there will not be much info about picking stocks).
posted by deadweightloss at 9:31 PM on February 5

So the tricky thing is that unless you're very, very good, the smart thing financially to do is to buy some low-expense-ratio index funds (probably through an ETF) and hold on to them for a long time. Whether or not you consider this fun, it certainly doesn't take much time and is hard to call a hobby.

Now more active investment can very much be a great hobby -- lots of researching interesting companies, discussing ideas with other investors, that great feeling you get when your investment thesis turns out to be right ... all good stuff. The problem is that all this process is likely to actually cost you money, both in the actual investment performance and transaction fees. There's nothing wrong with this -- it's a bit like going to a casino to play some blackjack -- but keep in mind that as far as expected returns over indexing, it's a lot like blackjack. You may win, you may lose, but unless you are an extraordinary investor, your expectation is probably somewhat negative. So keep your positions small and treat this as fun, not profit -- at least until you gain more experience.

For learning, Benjamin Graham's 'The Intelligent Investor' is a very standard recommendation of a book about value investing. Abnormal Returns is an interesting blog that links to many other interesting investment and trading related articles. Definitely take all that you see there with a huge grain of salt, but for reading about ideas that you wouldn't have thought of, it's not a bad place.
posted by bsdfish at 12:54 AM on February 6 [1 favorite]

I'm not so much looking for personal finance or budgeting advice, more on the art/science of investing.

At the hobby level it's not an art or a science. It's a game. Play it by creating a pretend portfolio on Google Finance or whatever.

If you're actually interested in making money then consider sports betting, an annual trip to Las Vegas, or buy an index tracker and move on with your life.
posted by caek at 2:08 AM on February 6

It's OK if you want to invest as a hobby. Most of us have hobbies, and many of us spend on those hobbies - I spend $100 a month on my Kindle, my friend drops $300 a month on yarn, my neighbours spend $700 a month on their country club membership, learning to fly can run 10K a year. Whatever; I don't have to think your hobbies are a good use of funds and you don't have to think mine are.

The point is really that you need to treat the hobby of investing like gambling. When we go to Vegas, we set a daily max for playing, which we assume will be "losing." Any winnings go back in the pot and can be expended above the daily limit. It's a money-losing hobby but it's controlled by a budget and not by impulse.

Get an online trading account and set a maximum monthly budget including trade costs you're able to afford to pay into that hobby at a loss. If you win: congrats. If you lose: have fun!
posted by DarlingBri at 5:25 AM on February 6

I'm not entirely sure this was a good idea -- this is emphatically not advice of any kind! -- but when I first explored investing in individual stocks (in the heady dot com boom days), I did my trading in an IRA account. That way, I didn't have to deal with the tax complications of selling the stocks. It also limited how much money I could lose -- since there's an annual limit for IRA contributions, and I was young, I hadn't had the opportunity to contribute a lot of money to the account, so I didn't have much at risk. (Of course, if you're not in that situation, you can always do what DarlingBri suggests regarding setting a max budget; it just takes more discipline.)
posted by odin53 at 8:00 AM on February 6

Another idea is to see if there is an investment club near you. I have no idea how to find one, or if they would have minimum financial commitments for joining, but I've seen some in fictional works where the members each research a company, then get together every month to discuss the choices and then invest a communal pool of money in the best choice(s). If they have those clubs in real life, it could give you a social aspect to your hobby.
posted by CathyG at 9:15 AM on February 6 [1 favorite]

I know someone who runs a stock picking group as a hobby, like CathyG just mentioned. A group of people he knows through work chip in a certain amount every month, and they decide what stocks to buy and sell together. So if there isn't an investment club nearby, you could start your own with friends.

This might end up being more work than you want to bite off, especially before you see how you like stock picking in general. People start and stop at different times, and they don't all have the same monthly contribution, so the spreadsheet to figure out what each person currently holds is complex. You also need a way for people to cash out periodically if they want to leave, and of course there's a whole extra social dynamic.

But on the plus side, you're more diversified, you save on transaction fees, and there's just more money to play with. And hobbies with friends can be fun. And even if you end up losing a little money, you'll be doing a good deed -- chances are most of your friends will be better off than if you hadn't given them a fun way to save money, since most people's financial plans are not exactly comprehensive.
posted by jhc at 9:52 AM on February 6

(By the way, just running a quick Google search, there's plenty out there for "how to start an investment club." That could get you into the world of hobby investing in general.)
posted by jhc at 9:57 AM on February 6

Upthread in my endorsement of John Bogle's book "The Little Book of Common Sense Investing," I boldly stated that within you'd find the secret to learning how to routinely sell high and buy low. The secret, of course, is having an appropriate asset allocation in your portfolio and then consistently rebalancing: if you go through a tremendous bull market in stocks like we've experienced in the last few years, then your portfolio's equity section will swell, and in order to stick to your desired asset allocation, you would sell stocks and buy, say, bonds. Since your portfolio is designed to have asset classes that aren't correlated, it will often be the case that when one section is going gangbusters, the other might be down a bit. This serves to reduce the overall volatility of your portfolio and will over time give you a return that is nearly identical to what you might get if you just stayed in one asset class, but it will prevent the rug getting swept out from under you if the market takes a big drop. The other thing it will do is ensure that you routinely sell high and buy low--when the bond market is doing well and the equity market not as well, you will wind up with a greater proportion of bonds and a less proportion of equities. So, you sell some of your bonds (sell high) and buy more stocks (buy low) to get back to your desired asset allocation proportions. Over the years, if you rebalance regularly, you'll find that you're consistently selling high and buying low.

The reason I mention this is because while Bogle's book is tremendous and everyone should read it, it doesn't touch on asset allocation and rebalancing much. I know this because I was inspired to re-read the book after I made my earlier comment. Since asset allocation and rebalancing are so critical to investment success, I would like to suggest The Investment Answer by Gordon Murray and Dan Goldie, and Rescue Your Money by Ric Edelman. Both discuss asset allocation, diversification, and rebalancing more extensively than Bogle's book, and both are easy reads that can be read in one sitting.
posted by MoonOrb at 8:41 AM on February 7