2008-06-12

Teach Yourself To Invest In Stocks?

MarketWatch recently ran a “daily money tip” titled, “Teach yourself how to invest,” stating that now is a good time to do this:

If you don't know much about stocks, now is a great time to educate yourself. Valuations are more attractive than they've been in a long time, and investing now will likely pay off down the line, when markets head back up.

The article gave three specific suggestions on how to go about teaching yourself to invest in individual stocks:

Read a book. There are hundreds of investing books out there… One such book is “The Intelligent Investor” by Ben Graham…
Pick a few companies… Pick two or three companies that you know and like, and begin checking their stock price daily. Follow company news…
Keep up with business news [generally].

I bear no resemblance to an expert, but it’s not exactly rocket science to think of some additional ideas on how to try to self-educate here:

  • Read personal-finance magazines. Magazines like Money, SmartMoney, and Kiplinger’s frequently include features on individual stocks, some short and some a bit longer. Some of the mags include regular lists of recommended stocks (typically blue chips), and they often have year-end or beginning-of-year special editions that talk about best stocks for the coming year.
  • Tune into stock-investment radio or television programs. I personally find that these tend to be more oriented toward “sound bites” and entertainment—they have more pressure to be audibly and visually interesting than magazines.
  • Read stock-investment blogs. Most of these aren’t from pros or folks more squarely in the industry—but seeing how amateurs size up a stock (or discuss them in comments on posts) can still be instructive. (Not unlike other personal-finance blogs!) For leads on stock-focused blogs, check out a weekly carnival like the Festival of Stocks.
  • Join an investment club. A club can be a pleasant and social environment in which to learn more about picking individual stocks. In some cases, having the club set up its account with a broker could lead to that broker attending meetings or offering other guidance or advice as part of the club.
  • Play a stock-market simulation game. Try it out with play money for a bit: just a quick Google search immediately turned up multiple options: Wall Street Survivor, How the Market Works: Virtual Stock Exchange, The Stock Market Game, Virtual Stock Exchange from MarketWatch, Investopedia Stock Simulator, and on and on. A possible disadvantage is that this type of setting could drive you toward more of a short-term focus.

Now all this begs the question of whether investing in individual stocks is right for you in the first place. According to a review of data and studies by Ric Edelman in his book, The Lies About Money, “by investing in a stock instead of a mutual fund, you were ten times more likely to lose money” and “you made 21% less money” (on average). According to statistics cited by Robert Allen in Multiple Streams of Income, 75% of professional money managers do not consistently beat the market. (Also consider checking out: Mutual Funds Versus Individual Stock Picking: Which Is Right For You? (at the Simple Dollar).)

I’ll leave tackling that question at greater length for another day. But I’ll close with this.

The process of teaching yourself about investing in individual stocks should not delay your investment into the stock market, for example, through broad-based low-cost index funds or ETFs. Starting early because of the power of compounding is too important. (Check out: The Power of Compound Interest (at Free Money Finance) or The Power of Compounding (at I Will Teach You To Be Rich).)


Related Posts:

Should You Reinvest Stock Dividends?

The First Commandment of Stock Investing, According to Marcial — And How To Apply It

What To Do With Wildly Inconsistent Stock Advice, Using China as an Example

Market Plummeting! Recession! Plague!

Festival of Stocks #85—Man on the Moon

Whoa Nelly—The Festival of Stocks #81 at Gettysburg!

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