What books and courses would HN suggest? What is the essential bookshelf of any self-taught trader?
Please remember this is all new to me, so answer as if you are talking to a simpleminded 12-year-old. Thank you in advance.
For real returns it may not always be best to play it by all the metrics. It is important to note that the market itself fluctuates a lot on sentiment and sometimes a good valued holding can turn sour fast even with good metrics but bad timing.
Some companies will over invest in dividends which in turn means they are not investing in growth as much as they could be for instance.
Some companies will try to grow revenues but by focusing too much on the quick buck of short term and will not be as good for longer term with steep competition.
It is also important to note that the market reports of portfolio manager purchases like berkshire hathways tend to report just the stock name and not the amount they hold of that stock. As well as the fact that you do not see how long that portfolio manager generally holds the stock without constantly crawling that site daily. The portfolios holdings are only updated at the end of the day. So you can see recent purchases but you cannot see when they sell them until the day after.
If you are new in that business, you'll probably make a few mistakes. I guess you are not a millionaire, but anyway read this advice: http://www.nutmeg.com/nutmegonomics/2014/05/19/lessons-in-mo...
People often "fall in love" with certain stocks but that is usually not too good of a thing. When too many people hold a stock that stock can fall from too high expectations.
Apple for instance everyone loves it because they make earnings all the time and beat them. The company has great returns, but it is very bid up. The stocks future earnings as a result are very highly projected, which makes the goal of reaching them harder every quarter. (same goes for some other companies like Tesla)
I've made more in some etfs, but haven't cashed them out yet. I have mostly been actively monitoring them with many of them being relatively good single stock investments. I am currently waiting for the market to go down to finally start making mutual fund and maybe some etf purchases at the moment.
So I think I will help you get started a bit.
First a few quick questions you should ask yourself and reply as a comment here if you have time (My responses are in brackets just for some dialogue on it.):
1.How much do you think you should invest in a single stock as a %. What about a % for an etf? or % a mutual fund? (You should remember cash is king for being a personal investor, as you are not a mutual fund who has to meet certain wins you should play things somewhat safe for starting out)
2.How much time do you have to spend watching the market? (It is important to watch the market at least a few minutes a day whether it be by phone or by tv or just looking up at least what the market is at and some of your holdings)
3.What news items(twitter, finviz, morningstar etc) do you think are important for trading? (personally I like finviz, morningstar, and seeking alpha. Although it is important to note that most investing advice is just opinions and not all fact checked in every case. Twitter is a horrible idea for sentiment analysis because anyone can say anything out of context in only 140 characters, but seeking alpha is a decent amount of sentiment with some structured information about the well-being of the investor's mindset with some backed information in most cases.)
4.What market data should determine your trading? (What metrics do you think you should pay attention to? What level of risk seems worthwhile?)
5.Do you prefer an active concentrated approach to investing or a more diversified approach? (even warren buffet makes most of his money on 5-6 stocks but owns tons for diversification, but you are more likely to buy indexes or etfs for diversification as an individual)
6.Should you buy/sell on your own or are you better off using etfs and mutual funds some of which are index funds? (Most people do a bit of both but buying mutual funds or etfs are longer investments than daytrading stocks. You can save yourself a bit of trouble by using bogleheads passive investing portfolio to pick mutual funds: http://www.bogleheads.org/wiki/Lazy_portfolios )
7.What are some criteria or timing events you can think of that would be a good time to buy a stock? (This is important because it shows risk timing.)
8. Should you concentrate in one sector of stocks? (This can work if you really know a lot about that sector, but it is rare. I have been fairly successful with trading mostly tech and some biotech lately but tech is still very risky)
9. How long should you hold a stock for? Do you ride it to what % of loss? When do you know when to cutt loses and move money elsewhere or take winnings and cash out? (This greatly depends on the stock of course, but I think the answer is basically you should in most cases be ok with looking at trends of the stock's day range. If it breaks below it's normal day trading range it may be very bad news and you should consider selling it. If your stock goes up think about it as will it do better next quarter by beating earnings. And what about the general market as well?)
As for actual trading brokers in my opinion there are 3 good ones: fidelity(has the most safety/trust for your money), vanguard(has the best mutual funds with cheapable/do-able expenses with great returns), and schwab(very beginner invester friendly, and I plan to join them when I will pick up trading more).
1) I've no clue about the correct percentages but, for now, I'm going to prioritize the safest choices. I know about the ETFs, but I'm a little puzzled by all the acronyms and variants: is there any One Sacred Book for the bare basics and jargon?
2) I can watch it on a daily basis, for up to 1 hour distributed throughout the day.
3) I'm new to this world, so I have no favorite source. seeking alpha seems a good suggestion, the best I've found so far. I fully agree with you on twitter.
4) I know the meaning of the individual numbers, yet I feel overwhelmed when it comes to connect the dots and decide. What data or pattern do you look for when trading?
5) I would have very little to invest at first, the equivalent of 1000$. Given enough money, I would opt for a diversified portfolio. Is it foolish to start with such a small amount?
6) I guess I'll have to try both methods and find the right mix.
7) Basically any event that 1 sets my target apart from the competition and anything that screams 2 "I'm going to be here X0 years from now!". It could be an acquisition, changes in the Law, new production and/or distribution processes. To put in a cheesy way, it's like looking for the one butterfly that will cause the tornado.
8) Diversification. However, I don't know much outside of tech or what happens in YCombinator. I mainly follow TechCrunch et similia.
9) I've yet to think about it, but I'll keep in mind all the great advice you wrote.
Yesterday I discovered Investopedia. The tutorials and stock simulation make it an incredible website for beginners like me. I'm going to study and practice until I get enough confidence and save $1000~2000 to trade with.
2)good
3)good
4)Somewhat make it up as you go, but basically you need to make sure some metrics work. Some people are more hype oriented for trading on hype like they will buy stocks that are being talked about more like when the CEO is on the tv talking etc. But every investor should check metrics to see if they make sense. A company has to have some really good prospects for it to be sporting a large future earnings number. Understanding and researching a bit about the company and other companies in that market segment which you can usually garner at the morningstar site.
5. Then invest in top 1 or 2 companies that are in a specific sector on a down day on the market. Make trades that you know will have some returns but will not risk you too much. Tech and biotech are very much growing, but the have risks associated with them. Buy brand names that you know are good. Look at monthly activity and price floors. There are price floors where some stocks will stay at a single price like facebook stood at 75 for a lot of this year or like good stood at 430 for a while before shooting up to 540 on some good news/earnings reports or qualcom which stalled at 70 because of it's china deal being stuck in process.
6.If you buy mutual funds use vanguard. All other ones cannot compete with their low expense ratios. For starting out buying stocks n etfs use fidelity or schwab (i'd recommend either of the two for starting out as an investor, because mutual funds can also fail as well it is good to know how to do regular investing).
7. You should consider the easier route by looking at past few months and past year. There doesn't need to be a particular event for a stock to be a good time to buy. You can also buy a stock based on it's just a time where it got beat up on some random news but is still a good stock. Another thing you should know is growth numbers are fidgety animals. Growth numbers don't make sense for many tech businesses or other types of fast growing businesses. One reason is if you have say 10 enterprise customers paying like a million dollars per year and then you get another 10 customers you suddenly are growing at 50% rate.
8. Diversification is a good start, but since you are starting out i'd choose at most 5-6 stocks, then as you grow change your holdings number for how much you want to risk. You can definitely put more into etfs or mutual funds when you have more money to play with. Mutual funds often have a required minimum to put in.
9. When you are starting out it may be helpful to cut your losses when you are losing a good 30%+ on a stock, unless you think that it will make a real turnaround. This is because generally a good break from the price target can be disasterous and you can always reinvest whatever you have left into something else.
Investopedia is great. You should also look at www.finviz.com . They outline good metrics for stocks in green and bad ones in red so you can learn a bit more to look at. There are other things you can realize from finviz like insiders buying the stock or not. If insiders are buying a stock they think it will go up. If insiders sell the stock they may (or may not) think the stock will fall.
and the 14-day MACD
and then get yourself a system that gives you good swing trades based on sympathetic, symbiotic and parasitic hidden relationships between public companies.
Never buy pre-market on a Monday.
Before you take a long term position, check to make sure the stock has not spiked up in the last week or so.
Learn to hedge. Learn to short because everybody makes money in a good market, its the black swans that shorts are more capable of handling than longs.
Most people should hold about 5-6 stocks that they can keep track of, but those 5-6 stocks should be well thought out bought on good opportunity timing with good metrics.
Calls and shorts are just for quick bucks. They can make you a lot of money with the right timing, or you could lose it all. It's important to read up and know what your doing before you decide to play with options.
I could have made a lot of money off of amazon when it went from 300 to like 360 or so in a day from the last quarter's earnings based on a call if I made it, but some bad news could have equally made the stock not reach as high as it did.
Instead what I did do was buy and sell the stock like 3 times or so before the earnings report making money each time, because amazon was hitting relatively noticeable support levels at around 300. I was also under the impression that they might make the earnings report but it may be on bad management or something which can result in stocks being devalued.
Amazon is a stock that has good potential revenue in many developing sectors, but it has not made net income greater than it's growing debt in 20 years that it has been on the market. It is a growing anomaly in the world of modern day trading but is an amazingly futuristic company.
Hedging is also something you only really do if you are heavily invested. Like buying a put on the S&P 500 if you have a large portfolio(large as in good % of your money) but you are worried about a stock market crash.