How should I go about investing this?

[DWarrior]

I'm currently 19 years old, freshman at a community college, trying to save money to afford a real school (parents refuse to help financially in any way). I started playing poker senior year in high school, and have recently been making decent money, enough to afford entertainment and some savings. I'm trying to save about 10% of every winning session to invest.

While I'm stashing money away from poker, how should I go about investing it? I know it doesn't make sense to buy securities with every $50 I win, since the comission cost per trade will kill all the profit I make, but perhaps going in blocks of $2,000 would make sense. Once I save $10,000 or so, I think I'll read and learn enough to start investing intelligently.

While I'm saving, would it be wise to buy Mutual Funds, Indicies, or a DRIP in a large company? I'm a little turned off by Mutual Funds, since it seems like everybody and their uncle is investing in them.

Basically, does it make sense to invest in these things while I'm saving up to start a real portfolio, or will the fees eat up any % I stand to gain?

Thanks.

[StoneRose]

I think there are several tracks you can take here if you are serious about wanting to invest. The most important thing is that you take the time to learn the basics of investing.

Start Here: http://www.fool.com/school/basics/basics.htm?source=InvAg

read the articles.

Then read Peter Lynch's book, "One up on Wall Street"

Compare brokers and look for the one with the most services you will need, but the cheapest price per trade.

Ameritrade is my favorite (actually I use Freetrade, but it's not a good site for beginners), but if you think you will be investing small amounts regularly, you may want to try www.sharebuilder.com (http://www.sharebuilder.com)

If you want the best results, try not to jump into buying stocks right away. Fund your account and buy an index fund that tracks the S&P 500 (not a mangaed mutual fund) and start researching some companies. Learn how to both qualitatively and quantitatively value companies. the Motley Fool www.fool.com (http://www.fool.com) is an excellent recourse for this.

Go slowly. Regularly save and put money into your brokerage account. Wait until you hit a predetermined amount ($1000-$1200 is a good amount if you are paying 10.99 commissions) and then buy a company that you have researched inside and out.

That's my preliminary advice.

[deathtoau]

If you are saving to pay for college or other short term goals, you might want to avoid equities. Over the long term, the best place to be is in the stock market but if you are going to need your money in under 2 years, I would recommend something far less risky. Open a money market account and start earning interest. After you have saved enough to be confortable paying for school and other critical expenses, have money withdrawn every month to start dollar cost averaging into a broad market index fund. If you use the same company for your money market account and your index fund, you should be able to limit fees and expenses. I like Vangard and T. Rowe Price for their selections, low fees and customer service.

Good luck.

[DWarrior]

My stepmother actually introduced me to investing when I was in 8th grade (1999?), and she made me read a crapload of fool.com articles until I had balance sheets flowing out of my ears. I probably know a little more than an average investor does, but by knowing that, I unfortunately understand that there is a lot I still don't know about (if that makes sense).

I've been reading Investopedia.com, and I'll most certainly catch up on my Fool.com as you suggested, since I'm sure everything changed over the past 5 years. Also, I've done pretty well in my HS investing clubs, although I realize that most of it was luck. So, while I'm not totally oblivious, I merely know the basics (financial statements, financial ratios).

I recently purchased some recommended books I found online:

* Use the News by Maria Bartiromo (I'm currently reading it)
* The Essays of Warren Buffet
* Security Analysis by Graham and Dodd
* Financial Shenanigans 2nd Ed by Howard Schilit
* Common Stocks and Uncommon Profits by Philip Fisher
* How to be a Billionaire by Martin Fridson
* One Up on Wall Street by Peter Lynch (what you suggested)
* The Millionaire Next Door by Thomas Stanley and William * Danko
* The 9 Steps to Financial Freedom by Suze Orman
* The Intelligent Investor by Graham
* The Interpretations of Financial Statements by Graham
* Bull! by Maggie Mahar

Being in a community college leaves a lot of time for me to read and study on my own, and I realize that I have to if I ever plan on competing with my friends (who can afford to party in Ivies and still learn a great deal). Since this is about what I read for poker, I don't think the reading is all that great, although "Security Analysis" dwarves both Super Systems combined /images/graemlins/smile.gif

Also, would it be wise to trade on margin, or is that just a plan for disaster? I happen to work part-time in an accounting firm, and I've noticed almost every one of our clients got burned by making dumb trades and compounding it by buying on margin (making 20 trades of $100 in one day, paying commission on each one, then losing money on the trade)

Thanks again for your help.

PS: I thought Freetrade required something like 2 years experience with discount brokers, and yeah, it probably wouldn't be a wise choice to use for a beginner.

[Paluka]

[ QUOTE ]

* The Millionaire Next Door by Thomas Stanley and William * Danko
*

[/ QUOTE ]

This book is basically about how to live a miserable life but manage to die with some money in the bank.

[TN_POKER_MAN]

what's wrong with mutual funds?

The reason everybody and their uncle is investing in them is because they are built to appeal to the individual investor who likes to systematically invest small amounts (like you).

This is not a slam on you, but you'd be making one of the couple critical errors if you didn't use mutual funds...diversification.

Pick mutual funds based on your time horizon. Long term, go with stock funds, short term investors should go with more conservative funds like money markets or short term bond funds.

I'd personally recommend you build up a sizeable cash reserve before doing much long term investing. At 19, your life can take way too many turns and i can think of a thousand things you might need cash for in the next 2/3 years.

[DesertCat]

[ QUOTE ]
[ QUOTE ]

* The Millionaire Next Door by Thomas Stanley and William * Danko
*

[/ QUOTE ]

This book is basically about how to live a miserable life but manage to die with some money in the bank.

[/ QUOTE ]

Not exactly. It just says the path to becoming wealthy is to spend less than you make, i.e. save. What proportions you do it in is a whole nother story.

I once worked for a really smart and talented guy. We had built a successful software co., and I was desperate to sell my piddling few shares. He was living on about $400k a year, and I told him if we sold out he could easily invest the proceeds and live the same lifestyle for the rest of his life. His response?

"But I hate the way I live!" He had a million dollar home in the hills with a view. A Ferrari Testarossa and brand new car each year, top of the line Range Rovers, Mercedes, Porsches. Traveled extensively and ate serveral times a week at all the top restaurants in town. Memberships in top clubs. Gambles so much in vegas that he's comped suites. He eventually sold the co. (after I left) and grossed over $5M.

But that was three years ago. Right now, it looks he might be close to filing bankruptcy. All that money (and then some) has been spent. He's miserable now and is going to be even more so from now on.

I'm guessing if he could have found a way to get by on say, $300k a year, he'd be a much happier man today. Anyone who lives on 20-25% less than they earn will be a much happier person than someone who spends 100%.

[StoneRose]

I think if you read the books you listed you will have a pretty balanced understanding of what investing is all about.

If I were to give some quick advice....

1) Look with an eye to the long term. Since you are really young, have a job, and keep your expenses low, you have a real shot at accumulating real WEALTH over the next 20 years.

Some stats:

Jump back in time to 1980.

A $250 investment in Home Depot would have been worth $32,500 by 1990.
A $250 investment in the Gap would have been worth $ 25000 by 1990.
A $250 investment in the Circuit City Stores would have been worth $15,000 by 1990
A $250 investment in Tyson Foods would have been worth $15,000 by 1990
A $250 investment in Hasbro would have been worth $11,000 by 1990
A $250 investment in the Limited would have been worth $11,000 by 1990
A $250 investment in Walmart would have been worth $11,000 by 1990
A $250 investment in Dilliards would have been worth $10,500 by 1990
A $250 investment in Cracker Barrel would have been worth $10,000 by 1990
A $250 investment in Ivax would have been worth $8000 by 1990
A $250 investment in Liz Claiborne would have been worth $8000 by 1990
A $250 investment in Mylan Labs would have been worth $8000 by 1990
A $250 investment in Dairy Queen International would have been worth $8000 by 1990
A $250 investment in Glaxo would have been worth $8000 by 1990
A $250 investment in Amgen would have been worth $7200 by 1990
A $250 investment in Stryker Corp would have been worth $7200 by 1990
A $250 investment in Microsoft would have been worth $5200 by 1990
A $250 investment in Tootsie Roll would have been worth $5700 by 1990
A $250 investment in Berkshire Hathaway would have been worth $3500 by 1990
A $250 investment in Wrigley Wm co would have been worth $3000 by 1990
A $250 investment in Gillette would have been worth $3000 by 1990
A $250 investment in Coke would have been worth $3200 by 1990
A $250 investment in Rubbermaid would have been worth $4000 by 1990

Find companies you believe in, with great products that you think are just starting to tap into their potential.

2) Save regularly. Figure out what you want to alot to savings and save regularly. If you think you will need the funds in a year -- keep the money in a svings account. Investments go up and down -- after the first year, if the economy declines, your investments and the whole market could be down by 20% or more.

3) Diversify. Try to keep no more than 5% of your funds in one stock. This is very important and will save you from obsessing over short term fluctuations of individual companies.

4) Avoid using Margin until you have at least 3-5 years of serious investing experience. Until you've seen with your own eyes that stocks sometimes drop 40% in a day for bad reasons, you shouldn't expose yourself to margin risk.

Good luck...

[lhp]

I'd suggest the book Get A Financial Life, it will give you good ideas for general money management and investing. It's geared for people a bit older than you (those out of college), but I think you'll get good information from it. I've felt that I learned quite a bit.

[echecboy]

DWar,

Me and you are in the same boat. This is my fourth year investing but only my first year in poker. I am 20 and I love both but my games are hardly enough to invest with. This is where my job helps but it may be the amount you're looking forward to handling. I started with $150.00 buys, gradually buying into the stock over and over. Now I own over 10 stocks all approaching $1000, and they're doing quite well! After I saw what I could save on commisions I combined a few summer paychecks and bought at a target price. Almost all the money I earned from my job is in stocks though. Hopefully I get to spend some poker winnings.

Research a few companies that you know and like to stay protected, but also find some value stocks that you know something about and wait for the return. Buy low sell high, of course, but play if for the long run. There are poker parallels.

Laters,

[DWarrior]

Awesome, I hope you got in at the lows of the market, I know it's been crappy for the past few years.

As for poker winnings, I've been re-investing heavily into poker books. I spend about $300 on poker books, and all my friends thought I'm crazy, but it definetly paid off.

I think the moral of your story is that I should have been saving money for the past years /images/graemlins/frown.gif Bummer...

[gvibes]

Don't invest in stocks if your investment horizon is two years.

[echecboy]

My winners outperform the few losers I have. But I did make some sells that I could have held onto to double or triple the return I did make. Kind of like folding a poker hand and then playing it out to the end to find out you could have wound up with the pot.

Think about your investment horizon. Think far ahead. Maybe 5 or 6 years; until you are 25. I'm looking forward to buying a house sometime with my investments and then turn that around and rent it out. I'm big on investing in things that will make money for me; like poker books! Hope it all goes well.

laters,

[echecboy]

I would stay away from margin for the time being. Most brokerages won't even allow you to trade on margin without having thousands of dollars to back it up. It seems like a great way to make money trading, especially when you know you need to get into a stock but just don't have the money, but your investments better do well or you risk paying the borrowed amount back and some high interest rates. Buying on margin means if you have $10,000.00 the brokerage house is willing to lend you an additional 10G's to invest. They need to make money at some point in this transaction, and charging you interest as you pay it back is how they do it. If your investment flops and you can barely scrape up the cash to pay off the loan, you set yourself up for a huge financial meltdown. Some lessons in this from the stock market crashes... Be careful. I'd stick with your own money for now. You may not even be old enough. For some reason I'm thinking you need to be over 21 to invest on margin, in addition to having a minimum account balance.

laters,