Investing

[Captain Murphy]

In about two weeks, I'll finally have enough free time to delve into something I've been meaning to do for the last year: investing in stocks. I wanted to open this thread for the purpose of discussing investing from a practical perspective. Hopefully there will be some interest. Due to my complete lack of experience, having never even opened an online brokerage account, I expect that the coming summer months will be spent familiarizing myself with understanding how to research and analyze the fundamentals before actually purchasing stocks or options (and even then, I will likely make 'virtual' purchases first to test my understanding without putting cash at risk).

Getting started is rather daunting due to widespread general interest in the topic. Unlike more arcane technical subjects, there is a deluge of web sites out there claiming to offer investment advice and stock trading tips, and it's difficult to initially determine which are bogus, which are scams, and which are actually worthwhile and insightful. I guess figuring that out will be my first task.

Does anyone have any textbooks they could recommend?

Presently, I envision my learning path to proceed as follows:

1. Learn how to read and understand financial statements as a starting point for researching and screening for potential stocks.

I suppose this is mostly finance/accounting stuff. So perhaps a textbook on that subject would make the most sense? I feel that I should probably be able to understand how to estimate the value of a firm (I think there are various models that are used for this, such as DCF, but I don't really know anything about them). I expect this step to take quite a bit of time.

I suppose Google and Yahoo's finance pages will be my primary source of data here (stock quotes and such) unless there is something better and more accessible?

2. Learn how to determine what sorts of events and factors impact stock value in the short and long term.

Being a bit mystified at what precisely stock values respond to in the short and long runs, I think it would be good to get a sense of how this works. I figure this will entail learning how to assess a company's market, determining what economic indicators it would be sensitive to, figuring out who its suppliers and customers are, etc.

3. Allocation and risk management.

This I know a little bit about already. I took a course on portfolio theory a while back. It covered looking at the history of returns to assess risk (using a few different metrics, volatility and CVaR/ETL being the most useful) and constructing "optimal" risk vs. reward portfolios. I'll need to familiarize myself with R again and code most of this stuff from scratch, probably.

At this stage, provided I have some stocks I would like to invest in, I can at least hope to make a reasonable allocation that hedges against some of the risk.

4. Options

I know a little bit about the basics and I hear there are a lot of interesting things one can do with these. Because I'm still lacking a working understanding of the actual mechanics of trading, I'm going to have to figure this out when I get there.


So I guess the overall plan is to first build a long-only portfolio and then start playing around with options. If anyone has any comments or suggestions concerning my course of action, or helpful suggestions for informational resources, post them here. I'll do likewise.

[AzariLoveIran]

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Captain Murphy , 3 times I started posting, but did not, thinking non of my business

My advice to you is, don't

Making money in stock market has not much to do with what you posting above

In fact, most people misunderstand stock market and lose their money

Stock market is not investment, it is a venture gamble on future of a company/their product

If you do not have that skill to make intelligent/knowledgeable judgements of future of a product (meaning company), you probably going to lose your money

My advice 2U, don't

But, in case, you decide to go ahead .. I will lead you in


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[Captain Murphy]

Azari: making money would be nice but this is more out of curiosity. I think it would be a fun way to reinforce my research skills and put all the time I spend reading online to use, and also to better understand the workings of the market and broader economy. I don't think I'll be putting real cash into this for quite some time. Nor do I wish to get involved in "day trading". I'd like to understand how trading works but am more interested in developing a methodical approach and taking long positions.

[AzariLoveIran]