A Newbie Guide to Investing

First of all, THANK YOU Musicwhiz, hkl, smallcaps, d.o.g. and sgd for all your kind inputs and advice! I wasn't expecting so much replies in such a short time!

Like what most of you have mentioned, I'm convinced that there are far more sources to educate myself in investing (for free) than paying thousands of dollars to attend courses which I have absolute no idea of the value of the courses.

With that said, I will start off my investment journey by investing my time to educate myself on credible books recommended by you guys.

Cheers!

Quote:At the beginning of the journey, yes. But, if you have been doing (1) to (3) with some success, esp. on (3), for at least 10 years, wouldn't it be possible to see some glimmer of hope of Investing being a substitute for your job? Isn't this what many in this forum is trying to achieve or had achieved?

Provided that you are not distracted from (1) because of (3).
You do not have to be very successful in (1) though but it is certainly a bad choice to focus so much on (3) when you are starting off from nothing.

i have been doing it for 25 years already. i still want to continue until i can't or hand over to my only son. If you can do it for your whole life at least you are better off than people who work and save only - If that the case (work & save only) how to stop your Rat Race earlier or at the current age of 62? or 65? Don't forget i started at the age of 40. So people who started off earlier should do so much better than me.

Many people dream of retiring early from their job to live off passive income which they will spend as they travel the world in first-class comfort. But this is not realistic. The earlier they retire, and the more lavish the lifestyle they desire, the larger the portfolio must be, in order to generate a large amount of passive income for an extended period of time.

If we exclude the trust-fund babies and the entrepreneurs, which people can create a large portfolio from nothing? There are only 2 categories of such people: the superearners and the superinvestors.

The superearners are what their names imply: the superstars in their respective professions - the top car salesman, the top insurance salesman, the top remisier, the top investment banker, the top surgeon, the top lawyer, the top soccer player etc. These are people who, even without investing, will accumulate a large amount of wealth, simply because of their earning power. All they have to do is avoid spending it all, and they will have a large nest egg, even if they merely leave it in the bank. These superearners are not common, but they are not actually that rare. Their problem is usually one of lifestye: they often spend a lot, especially celebrities who sometimes believe their own marketing and think the good times will last forever.

The superinvestors are people who can truly compound money at very high rates of return (15%+ p.a.) for extended periods of time (15+ years). Even from modest beginnings, these people can accumulate great wealth. These people are exceedingly rare - Warren Buffett only identified 20 or so in his article "The Superinvestors of Graham and Doddsville". Most of these people, quite sensibly, go into business to invest money for others (thereby also becoming superearners).

The majority of people are neither superearners nor superinvestors. That means they should scale down their expectations accordingly. The harsh truth is that most people should only aim to maintain their CURRENT standard of living when they enter retirement. To have a higher standard of living means they will need a correspondingly larger portfolio, and without large contributions (superearner) or high rates of return (superinvestor) it is just asking too much.

Furthermore, the popular notion of passive income is that you do nothing while the cheques roll in. This is nonsense. Properties need maintenance, and a stock portfolio has to be updated as companies grow or go bust. Even a mineral royalty will run out one day, so some of the cash cannot be spent and must be reinvested. Rich people with lots of passive income actually spend a meaningful amount of time and effort trying to maintain that level of income, whether by upgrading/switching properties, rebalancing a stock/bond portfolio, or looking for more investments into which to deploy their cash.

^^^ or catch one bubble. Stock, property or whatever.
Need to 'hiong' if not born rich.

Agrees with the comment on passive income. Only passive income is FD.

Below are some resources that I would recommend for a newbie to gain more knowledge on investing.

Books
The Intelligent Investor by Benjamin Graham
Margin of Safety by Seth Klarman

Websites
http://www.valueinvestingnews.com
www.valuewalk.com
www.seekingalpha.com

Articles
http://buffettmungerwisdom.files.wordpre...une_95.pdf
http://www.infobarrel.com/How_to_find_value_in_stocks
http://www.infobarrel.com/5_Best_Value_M...hould_Know
http://advisorperspectives.com/newslette...stment.php

Another good resource to gain more knowledge is to read investment blogs, be it blog on Singapore Stocks or US Stocks. Some blog does give good analysis and investment ideas
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Disclaimer: This is not a buy or sell stock tip. Please do your own research.
Value investing blog: http://valuestocksinvesting.blogspot.sg/

(08-04-2013, 07:28 PM)d.o.g. Wrote: The superinvestors are people who can truly compound money at very high rates of return (15%+ p.a.) for extended periods of time (15+ years). Even from modest beginnings, these people can accumulate great wealth. These people are exceedingly rare - Warren Buffett only identified 20 or so in his article "The Superinvestors of Graham and Doddsville". Most of these people, quite sensibly, go into business to invest money for others (thereby also becoming superearners).

It's precisely because they became fund managers and that's why they got noticed and identified by Warren Buffett as superinvestors. But, that doesn't mean that there are no others who are "not as sensible" and who decided not to invest money for others or to do it in a big way. I wonder if Benjamin Graham or Philip Fisher would have qualified as "superinvestors"?

Anway, I beg to differ... For those who may or may not be superearners, I do see many likely examples of investors who're likely achieving 15% CAGR over an extended period of time in this forum (since Wallstraits days). Yes, these individuals are quite rare, but, not to the extent of being restricted to a list of only 20 or so in the whole world.... Perhaps I'm naive...

For those who do believe, keep your dreams alive!

(08-04-2013, 07:28 PM)d.o.g. Wrote: The majority of people are neither superearners nor superinvestors. That means they should scale down their expectations accordingly. The harsh truth is that most people should only aim to maintain their CURRENT standard of living when they enter retirement. To have a higher standard of living means they will need a correspondingly larger portfolio, and without large contributions (superearner) or high rates of return (superinvestor) it is just asking too much.

Furthermore, the popular notion of passive income is that you do nothing while the cheques roll in. This is nonsense. Properties need maintenance, and a stock portfolio has to be updated as companies grow or go bust. Even a mineral royalty will run out one day, so some of the cash cannot be spent and must be reinvested. Rich people with lots of passive income actually spend a meaningful amount of time and effort trying to maintain that level of income, whether by upgrading/switching properties, rebalancing a stock/bond portfolio, or looking for more investments into which to deploy their cash.

It is quite true that most people can only aspire to be the truly great ones on Earth, as most of us are (sadly) destined to mediocrity. But I would argue mediocrity also has its perks - your expectations are lower and you avoid the limelight so there is less pressure to perform (so to speak).

I think even a normal salaried employee can get reasonable wealth if he keeps at this job, does it well, enjoys regular increments/bonuses, lives below his means and invests prudently (ETFs if he cannot do stock picking). With this I am talking about a reasonable standard of living, some luxuries and occasional travelling. The problem in Singapore is that there is envy, people hanker for more and always covet what their neighbours have. This creates resentment and unhappiness and everyone tries to live their perfect dream.

It is definitely true that you still have to "work" for passive income. As an active investor I continually read up on news, industries, macro-economic events and corporate news and regularly review the financials of my companies and speak to Management (if need be). There is still work involved and no investment is completely 100% "passive".

(08-04-2013, 10:06 PM)KopiKat Wrote: It's precisely because they became fund managers and that's why they got noticed and identified by Warren Buffett as superinvestors. But, that doesn't mean that there are no others who are "not as sensible" and who decided not to invest money for others or to do it in a big way. I wonder if Benjamin Graham or Philip Fisher would have qualified as "superinvestors"?

Anway, I beg to differ... For those who may or may not be superearners, I do see many likely examples of investors who're likely achieving 15% CAGR over an extended period of time in this forum (since Wallstraits days). Yes, these individuals are quite rare, but, not to the extent of being restricted to a list of only 20 or so in the whole world.... Perhaps I'm naive...

For those who do believe, keep your dreams alive!

I checked my copy of The Intelligent Investor again. Buffett actually identified only 9 superinvestors:

Walter Schloss
Tweedy Browne
Buffett Partnership
Sequoia Fund
Charles Munger
Pacific Partners
Perlmeter Investments
The Washington Post Company Master Trust
FMC Corporation Pension Fund

I don't doubt that superinvestors exist today. They may even abound in this forum. But how reflective is it of the population at large? The ugly truth is that people in general are lousy investors. Even with index funds they tend to buy and sell at the wrong time, so they underperform the index too.

The point I am trying to make is that people should be more humble about their investing skills, and not expect that with only modest contributions they will be able to retire early with an enormous portfolio. Most of the people with enormous investment portfolios took decades to build them up. By the time they could afford to travel first class, they were not young any more.

If you want to retire young, you probably have to lower your lifestyle expectations. If you want to retire well, you probably need to delay retirement (to add to the portfolio and to let it grow).

4 keys to wealth:

Earn it
Marry it
Inherit it
Steal it

Pick your poison.

As usual, YMMV.

allow me to give my version:

one can read as many successful stories and go for as many get rich courses, but still majority won't make it. Not that I am a wet blanket.

each story or each course given by a "supposedly" successful individual merely tells one how this person became rich or successful if u call it.

in other words, it is HIS particular path of riches and success, in that particular place and time.

of course, there are take home concepts which one can get. but whether one can apply them to HIS particular situation is still an uncertainty.

god make each and every person in this world is different in terms of biological makeup as well as environment influences, this will lead to each person being a distinct entity.

so, after being well read and well fed by various informative sources, one still needs to find the way of investment that is suitable and comfortable for him and his very important person-his wife!!!

usually he has to pay his dues and learn by trial and error.

after all it's his own hard earned money. Fear and greed will still be regular companions.

common questions:

diversification or focus method, when to enter, which stock to buy, how low is low, what if it falls lower, what if it goes bust, when do i sell, what happens if i sell and it rises, what happens if my girlfriend or wife ask me if i lost money, willl she kill me? no money to get married or buy HDB how?