...to learn how to beat the stockmarket. Any must read literature?

[arabie]

Is there any twoplustwo quality material for the stock market? I was currency trading for a while and read the FXCM course and a few other sources. This is most of my experience with trading on a public market. Anyways, i want to start investing my poker winnings in stocks rather than currencies and wanted to know the correct winning path. What do i read and how do i learn to prosper? This material may very well not exist, but i guess i'm about to find out.. any help?

[lu_hawk]

twoplustwo equivalents:

Security Analysis by Benjamin Graham = Theory of Poker, this one gives you the nitty gritty stuff

Intelligent Investor by Benjamin Graham = HPFAP, this will help you learn how to apply it.

You Can Be a Stock Market Genius by Joel Greenblatt = SSHE, this is the one that should put you over the top and is the best book on investing out there but most people don't know about it.

[FatOtt]

[ QUOTE ]
Security Analysis by Benjamin Graham = Theory of Poker, this one gives you the nitty gritty stuff

Intelligent Investor by Benjamin Graham = HPFAP, this will help you learn how to apply it.

[/ QUOTE ]

Graham's stuff is good, but I think you got it backwards. Intelligent Investor gives you kind of a general, "Hey, this is how you should think about the market" viewpoint (e.g., weighing machine vs. voting machine; the concept of Mr. Market). Security Analysis is a dense book, much of it outdated (in terms of specifics - a lot more emphasis on bonds and railroad-type companies than the original poster is looking for).

[ QUOTE ]
You Can Be a Stock Market Genius by Joel Greenblatt = SSHE, this is the one that should put you over the top and is the best book on investing out there but most people don't know about it.

[/ QUOTE ]

This book is awesome, but is definitely not an introductory book. It deals in the land of "special situations" where the effort required is going to be a lot greater than more standard investing. Of course, the potential reward should be as well.

Warren Buffett's letters to shareholders are very good, and they're free at www.berkshirehathaway.com. (http://www.berkshirehathaway.com.)

If you are going to invest in individual stocks, rather than index funds or mutual funds, you should really have:
1. A good grasp of accounting and finance. If not, pick up a used undergrad book of each one to make sure you understand financial statements and concepts like present value, discounted cash flow.
2. An understanding of how difficult it is to beat the market. Given the ability to invest in low-cost index funds that track the overall market, the international market, TIPS, or whatever with no effort on your part, you should seriously consider whether you want to make the investment and commitment to investing in individual stocks.
3. An understanding of the volatility inherent in security ownership. Much like poker, your results will be driven by some combination of luck and skill.

Good luck.

[adios]

..........

[zerosum]

FatOtt's post is a wonderful pointer in the right direction. It highlights good literature mentioned previously and it also poses some thoughful threshold issues that should be kept in mind while reading the mentioned literature.

I think it's also important to remain aware of just how much the stock market has changed since the days of Graham and even since the early days of Buffet's investing history.

What has changed? Many, many more institutional investors reviewing companies in a manner similar to that practiced by Graham and Buffet. The result has been far fewer opportunities to find the extreme bargains that Graham and Buffet found in relative abundance years ago.

It remains important all the same to have a good grasp of fundamental analysis. The Graham book provides an introduction and some of Robert Hagstrom's books regarding comtemporary application of Buffet's practices are worth a read as well.

Aside from books, I have several hundred articles in pdf from both academic and professional journals. Many might be of interest to you and others who frequent this forum. However, I don't have a means of posting them, either individually or as a collection. If any one who reads this has a solution to offer, PM me.

On a personal investing note, I have great respect for the fundamental analysis instructed be Graham and applied by Buffet, but I've never trusted my analysis regarding the industry and sector analysis required for the proper determination of whether a company that appears to be a bargain truly is one.

The solution that has served me well has been the application of statistical analysis of fundamental information in relation to demand for company shares. In other words, I crunch numbers regarding growth and valuation statistics and then cross reference those results with market activity for stocks of interest. I then hold an equal weighted ($) portfolio of the top 20 stocks until they fall out of the larger group of top 40 stocks, as reviewed on a monthly basis. The analytic foundation for the process is supported by a data going back to 1985 and is free of survivorship and look-ahead bias. The process has been live for several years now, and the results have been good. As a recent example, portfolio is up 23 percent for 2004 through last Friday, 11/19.

Note that I mentioned my personal investment process as a way to highlight that there is more than one means of applying fundamental analysis to the problem of stock selection.

[siriusradio]

All you have to do is invest in GOOD companies. I like to buy high and sell higher. I never look for a stock that's down and out thinkin it will make a comeback, there's a reason it's down and it's because the company sucks. I've had succes just investin in companys I know and use their products.

Toro (ttc) I own a lawn biz and use all toro equipment and there commercial products are THE BEST.

Ebay (ebay) got into this one from IPO was a seller over ebay and knew id be huge.

Sirius Sat. Radio (siri) This one's takin off right now. I listen to Howard Stern a lot and he said he's goign to sirius. I bought the stock that day, then bought a radio a few days later. The radio is awesome, will be using it for life. Been buying more and more of the stock.. just bought more today at 6.41 even though many say it's too high. TOO HIGH??????? Only way a stock goes from 2 to 100 is buy lookin too high.. this is a keeper for a good 10 years.

[laserboy]

Investing is a much broader and more complicated topic than poker, and as such there are countless investment methods and areas of expertise involved. As has been mentioned here, you could certainly do worse than emulating a guy like Warren Buffett. FWIW Buffett listed as his two favorite books "The Intelligent Investor" by his mentor Benjamin Graham and "Common Stocks for Uncommon Profits" by Phillip Fischer. There are also books like "The Warren Buffett Way" and "Buffettology" that give insight into his investment history and philosophy. And as has been mentioned, his letters to shareholders on the Berkshire Hathaway site are awesome.

I also think reading less methodological books like Peter Lynch's "Beat the Street" and "One up on Wall Street" are beneficial to investors in much the same way books like "The Biggest Game in Town" and "Big Deal" are to professional poker players. They help inspire new investment ideas and really get you pumped up to get out there and make money.

Bottom line: read as many good books as possible. The effort to read a few dozen investment books could literally mean millions of dollars over the course of your lifetime.

[AceHigh]

anything by William O'Neal is good. Pick up the Monday editions of IBD.

[theantelope]

Are you competing for the "Most acronyms in a twoplustwo post subject" medal?

[goodedesign]

[Scuba Chuck]

ANOTHER IDEA INSTEAD OF READING BOOKS...

Considering the amount of time and energy I've put into my profession.
Investments major at UW Madison.
8 years of experience.
1 semester into my Masters.
Manage over $50 million dollars.

Knowing what I know, this is a smarter move. Become good at what you do, SO THAT YOU ARE PAID WELL. Save 20% of your income for your whole life. 25% if you are 45-50. And find someone who is competent. (Notice I did not say trust. TRUST does not equal COMPETENCE) If you're just starting out, then dollar cost average into a strategy that you can have confidence for many years until you have a $100,000 account. That's about the minimum size to talk to a decent FA.

If you want to read, I would begin collecting articles on how to hire a good FA. And don't get fooled into titles. The first advisor in my office with the CFP title is also the shadiest FA. Be wary of Johnathan Clements (WSJ). He gives good advice only 50% of the time. Good luck

I invest to help me keep my money. To gamble, I play poker.

[AceHigh]

The problem is mutual fund managers aren't paid to make investors money, they are paid to make there companies money.

So where are we to put our money until we have enough to hire a FA?

Best bet is to learn to do it ourselves, then when we have enough money for FA's we don't need the FA's.

Isn't that how business works, you only can afford something when you no longer need it?

[zerosum]

[ QUOTE ]
The problem is mutual fund managers aren't paid to make investors money, they are paid to make there companies money.

[/ QUOTE ]

The spirit of your observation is correct. It's important to remember that fund managers who don't make money for their shareholders also fail to make money for their employers, at least eventually.

The real problem, which your observation tips into, is that a manager who becomes recognized as very good gets flooded with new money. This makes the manager's firm very happy, as it collects more fees. But the flood of money often frustrates the fund manager's investment process. With the new money the manager is typically forced to expand the number of holdings in the portfolio -- usually to include larger capitalization stocks for liquidity purposes -- and hold more cash. Most, if not all, of the stocks added because of a growing asset base are inferior selections, ones that would not have been added otherwise.

There's additional irony here. Once you can afford a financial advisor, you'll likely have your money invested in the funds of the successful managers who have been swamped with new money and are facing the problems detailed above.

[AceHigh]

[ QUOTE ]
Most, if not all, of the stocks added because of a growing asset base are inferior selections, ones that would not have been added otherwise.


[/ QUOTE ]

Until he starts to perform at, or below the average level for mutual fund managers. So given time, all mutual funds return to this inferior level of performance. So the only way to make money in mutual funds (out perform the S&P 500) you need to constantly change funds.

Therefore if you have to constantly change funds, it's not much different than picking stocks. Except funds are more complicated because they include a wide variety of stocks. So you have to study lots of stocks to compare the funds.

So it is easier to pick stocks than to pick funds.

And it doesn't make much sense to invest in actively managed funds, unless you are going to actively manage your portfolio, and if you are going to actively manage your portfolio, you are probably better off investing in stocks.

[DesertCat]

I have to admit I've never been so impressed as I have by the responses here to your question. I don't agree with every one, but they are much higher quality than you will likely get if you asked this question on, for instance, a yahoo investment board.

Despite being beat to the punch by the first few posters, I would like to reiterate their recommendations. Ben Graham is tough to read, but his concepts are timeless. I'd recommend reading Warren Buffett's shareholder letters from his website, and Hagstrom's books on Buffett for easier introductions to the value investing philosophy. Joel Greenblatt's book is awesome in offering specific strategies to find great value investment opportunities.

My personal background is that the internet meltdown left me with a small portfolio, but diligant application of Graham's and Buffett's principles enabled me to book substantial gains every year the last four years. I actually now support myself full-time solely through investing. But note, I do have to work at it, spending hours every day looking for new ideas and opportunities, and sometimes go months without finding anything.

Value investing is a great discipline to evaluate investments with, so I always recommend learning it even if you don't intend to pursue investing full time. It's like knowing how to estimate pot odds in poker, it can be applied relatively quickly and easily in any situation. It's a very rational philosophy that can be summed up simply as "every investment has a true (or intrinsic) value equal to the amount of cash you can expect to recieve from it over time". Investing is then as simple as buying stocks when they are selling at substantially less then their true value and selling them when they are near their true value. It's the same as the poker precept to always get your money in with the best of it. This simple precept is pursued by virtually all of the world's greatest long term investors (Buffett, Bill Miller, Ruane, Tweedy Browne Partners, Schloss, The Clipper Fund) who have crushed the S&P over decades.

Beware of people offering "trading strategies". Short term investing patterns are easy to find, but difficult to invest in successfully, i.e. once they are found traders tend to wipe them out by piling into them. 95% of daytraders go broke with in a year. Those rare few who succeed might just be like Stu Unger, with some supernatural ability that can't be learned, so trying to mimic them is pointless. But even the most famous traders tend to be flashes in the pan who flame out when their style no longer fits the market (Stanley Kroll). The good news is that most of the great investors never use trading strategies because value investing doesn't need any.

[goodedesign]

[Scuba Chuck]

I feel for you guys. You're asking a lot of questions that I generally hear from two fronts of people. First is beginning savers, and the next are from wealthy individuals who have been badly burned.

AceHigh, unless your intent is to make an income from your investments now, before retirement, you're heading down a potentially dangerous thought behavior, one that borders a lot on conspiracy theories. Also, I think you misunderstand the benefits of wealth. Once you have "the money" you are in a position to enjoy it (and thus do not care to deal with the issues surrounding managing assets). I tell clients that I worry about their money for them.

Mutual Funds are not in the business of making their companies money, any more than cell phone companies, book companies or any other service organization. If they don't provide a quality product or service, they will not survive.

As usual, investors usually ask the wrong questions.
For example, do you ask yourself...
What personal investment philosophies does an investment manager have that I would be attracted to? How can I find out about it? How can I get credible information that that manager follows his philosophies? If you like Warren Buffett, do you know Charles Brandes? Many don't know that Charles Brandes came from the same school of thought as Buffett. Tutoring under Benjamin Graham. Mr Graham's stockbroker was Charles Brandes, on a "walk-in."

Or, do you ever ask the following question, what matters more to me: Maximizing returns or downside protection? Are you the type of saver who will do the right things, and all you really need to do is "avoid the big mistake(s)"?

Finally, I would begin to think about your questions and thoughts in terms of time horizons. Do you ask a question with an intended time horizon, like "this money is for retirement", and then make investment decisions on a far shorter time horizon, like "I know this money is for 15 years from now, but it's not growing over the past year, we should change." Point being is that you should be investing in trends, like rising inflation. Trends last for many years, and minimally one business cycle (5-7 years). So, what kind of annual expectations do you have? Are they realistic? Could you have a negative return year within a trend? Or two years of nothingness? How dominant is this trend versus other trends? Would you be willing to "wait" for an investable trend to begin showing profits if you were too early? And on that note, how "late" should you begin investing into a trend? Perhaps being too early isn't all that bad, at least if you understand compounding.

On Warren Buffett. I think all of you would be suprised to know how much of Berkshire is actually in publicly traded companies. If you want to know go to his website and look it up. This is not an ideal environment to be buying US stocks - at least not large cap, and potentially other caps as well. If you're trying to be a Value investor, there aren't a whole lot of values in US stocks or US Real Estate. So start being creative, where are their values?

I invest to help me keep my money. To gamble, I play poker.

[DesertCat]

< i will then proceed to do exactly what warren buffet does called Sweeping the Change. By selling out of the money options with the goal of never being called out of the stock, i want to make $0.25, yes 25 cents per share each month doing this technique.... >

Where do you get 25 cents? For instance, if I own Coke (trading at $41), I can sell next month $45 calls at 13 cents (a net gain of only about 3% per year, not even counting transaction costs). $50 calls sell at 5 cents. To get more than that you need to sell close to the money calls ($42.50 calls are at 45 cents).

The problem with that is if you think KO's intrinsic value is $60, you are highly likely to be optioned out of your position sometime in the next month with an option that close to the money. What's the sense in being forced to sell your stock at much less than what it's worth?

Buffett does use an approach that has some surface similarities to this, but there is a huge difference. He does this to get in, or out, of a position, and doesn't like the current price. For example, if he thought KO's intrinsic value was $42.50, he'd happily sell calls there. Or if he wanted to buy more at $40, he'd sell puts for 60 cents. It's a way of getting in or out when the stock price is very close to what you want, but not quite there. It's occasionally a useful tool, but not a way to get rich.

Problems with these approaches are, you give up control of your positions. In the call example, if KO shoots up to $50, you just got optioned out of a big gain. Secondly, you can't sell your KO while you have options out without taking a risk of getting forced to buy them back at a loss.

In the case of selling puts, once again you will only get those shares put to you when the stock price is even lower, so you missed a buying opportunity in that case. Secondly, you need to keep liquid to be able to pay for having shares put to you while the option is outstanding, so part of your portfolio is stuck in cash while you are waiting, and you can't take advantage of any other opportunities with that cash.

These tools only make sense in very limited circumstances, which is why Buffett only uses them rarely and why they have little to do with his success. Selling out of the money options won't make you much money unless you take big risks and comes with big opportunity costs. Lastly, if you think you can predict when stocks are cheap by what month it is, you are fooling yourself.

[goodedesign]

[DesertCat]

[ QUOTE ]
if .13 is all it'll give, then .13 is all you get

[/ QUOTE ]

You don't get .13, you get .13 minus commissions and opportunity costs in tying up your money, which is alot more than 13 cents.

[ QUOTE ]
4- you only do this on stocks you own and don't plan on selling ever

[/ QUOTE ]

You can't make any money doing this unless your options are close to the money, and then you are gambling on whether your shares optioned away from you. KO may not move $10 in a month, but it's moved over $5 in two of the last six months.

[ QUOTE ]
1- warren does this method EVERY MONTH

[/ QUOTE ]

Where is your source for this? I've followed Buffett for a long time and never heard him say he ever did anything like this on a monthly basis.

[AceHigh]

[ QUOTE ]
AceHigh, unless your intent is to make an income from your investments now, before retirement

[/ QUOTE ]

I don't get this, who isn't looking to make money on there investments now?

[ QUOTE ]
buying US stocks - at least not large cap,

[/ QUOTE ]

large caps, yuk. I'm looking for growth and value. Large caps are unlikely to provide either.

[ QUOTE ]
So start being creative, where are their values?


[/ QUOTE ]

Your a fininacial analyst and you can't find any US stocks you like? I bet you don't tell your clients that /images/graemlins/shocked.gif

There are a lot of good US stocks out there.

[ QUOTE ]
I invest to help me keep my money

[/ QUOTE ]

Sounds like you are spouting a lot of nonsense that FA's come up with to explain to a client why there stock picks can't out perform the S&P 500. Look at the big picture..., look long term, not short term..., my philosophy is low risk...yada, yada, yada.

I'm not trying to come down hard on you. But if I wanted to play it safe I would be investing in US Treasuries. There is some risk, but it's a game, a game with the odds in the investors favor, that's what makes it different than gambling. Not that you can win, that you probably will.