A Newbie Guide to Investing

[Ferns]

Hi, could anyone help in clarifying the following? I don't understand why additions to surplus appear as credit. I thought if I have additions to surplus means my assets increase, and therefore it should be debit. And Expense means i spent money, which means my assets decrease, so it should be credit. What is wrong with my thinking?

Income and expenses are transferred into the Profit & Loss (P&L account), reflecting the operative results, dividends etc.

Income entries equals additions to Surplus and therefore they appear as credit or liability
Expense entries are actually deductions from Surplus, appearing as debit or asset accounts.

[Art or Science]

u r referring to double entry?

For bookkeeping, for every entry, an account requires a corresponding and opposite entry to a different account. For instance, to record earnings of say, $10 would require making two entries: a debit entry of $10 to an account called "Cash" and a credit entry to an account called "Income."

[Ferns]

u r referring to double entry?

For bookkeeping, for every entry, an account requires a corresponding and opposite entry to a different account. For instance, to record earnings of say, $10 would require making two entries: a debit entry of $10 to an account called "Cash" and a credit entry to an account called "Income."

Yup, I just started reading up on double entry and trying to understand it.

Actually does this appear in financial statements or only in the accounts book, which upon being transferred into the balance sheet, you won't see it anymore?

[Art or Science]

u r referring to double entry?

For bookkeeping, for every entry, an account requires a corresponding and opposite entry to a different account. For instance, to record earnings of say, $10 would require making two entries: a debit entry of $10 to an account called "Cash" and a credit entry to an account called "Income."

Yup, I just started reading up on double entry and trying to understand it.

Actually does this appear in financial statements or only in the accounts book, which upon being transferred into the balance sheet, you won't see it anymore?

Yup, only in bookkeeping. You may want to read up on general ledger. Its been a few years since my uni days. you might want to check again hope this helps.

The general ledger is where all the 'postings' occurs. Posting is the process of recording amounts as 'credits' or 'debits', in the pages of the general ledger.

The general ledger is the backbone of any accounting system which holds financial and non-financial data for an organization. A general ledger contains all the accounts for recording transactions relating to a company's assets, liabilities, owners' equity, revenue, and expenses. The general ledger works as a central repository for accounting data transferred from all other 'sub-ledgers' like accounts payable (AP), accounts receivable (AR), etc.

Balance sheet the income statement are all derived (transferred) from the general ledger.

[Temperament]

u r referring to double entry?

For bookkeeping, for every entry, an account requires a corresponding and opposite entry to a different account. For instance, to record earnings of say, $10 would require making two entries: a debit entry of $10 to an account called "Cash" and a credit entry to an account called "Income."

Yup, I just started reading up on double entry and trying to understand it.

Actually does this appear in financial statements or only in the accounts book, which upon being transferred into the balance sheet, you won't see it anymore?

Yup, only in bookkeeping. You may want to read up on general ledger. Its been a few years since my uni days. you might want to check again hope this helps.

The general ledger is where all the 'postings' occurs. Posting is the process of recording amounts as 'credits' or 'debits', in the pages of the general ledger.

The general ledger is the backbone of any accounting system which holds financial and non-financial data for an organization. A general ledger contains all the accounts for recording transactions relating to a company's assets, liabilities, owners' equity, revenue, and expenses. The general ledger works as a central repository for accounting data transferred from all other 'sub-ledgers' like accounts payable (AP), accounts receivable (AR), etc.

Balance sheet the income statement are all derived (transferred) from the general ledger.

Wow! General ledger! Remind me of ledger clerk or where insiders can access. Can we access too?

[Bubbachuck]

Hi Experts,

I need a little advise about diversification. As I'm very new to investing and don't have a big capital to start with. In fact I only started about few months ago this year. Let's say for example a $10K capital. Any recommendation on how many stocks should I have in my portfolio and the percentage of allocation. I feel like if I over diversify, I can only gain a little. Perhaps at least $2K capital per stock? Thanks in advance.

[Temperament]

Ready to Take Some Risks? Here's How to do it WELL
1. Don't risk everything. You should only risk something that, in the event it doesn't go your way, won't ruin you financially, emotionally or physically.
2. Ask for what you want. More often than not, you will get it.
3. Avoid unhealthy risks. The risks you take should be positive. They should not put you, or others, at risk of physical or emotional harm.
4. Learn from failures. Inevitably, some of your risks won't pan out. Turn these failures into a positive by figuring out where you went wrong, then applying what you learned to your next risk.
5. Start right away. The more risks you take, the easier it will become. Remember, it doesn't need to be a huge risk to make a meaningful impact on your life. Some small risks to get you started include trying a new type of food, wearing a different style of clothing, changing your hairstyle or taking a weekend trip to someplace you've never been before.
6. Don't worry about what others think. Remember, this is your life, your desire, your risk. Keep moving ahead with what you want, even if those around you have different views.
7. If there's nothing to lose, take the risk. Oftentimes a risk may seem scary, but when you really examine it you'll find you have nothing to lose. If this is the case, always take the risk.
Risk-Taking Faux Pas
According to Shari Peace, president of Peace Talks, a professional speaking firm, and author of "Crank It Out! How to Get More Done At Work & In Your Life," there are six signs that tell you when a risk is NOT a good idea. If any of the following apply, you should skip the risk.
1. There's a good chance you could lose everything.
2. You have to put a lot on the line to get only a little.
3. There are too many factors you can't control.
4. You feel the odds are against you.
5. There is no way to fix the outcome if it doesn't turn out how you want.
6. You have to take the risk before having a chance to prepare and/or evaluate it.
Finally, if you are still wary of taking that first risk, remember that in order to get what you want, there is always some measure of risk involved.
Says Leboff, "Every day, ask yourself what you've done today that is daring or that is a bit of a stretch. If at the end of each day you can find just one thing, then you are moving, but if not, then you are getting more and more limited and your horizons are getting smaller and smaller."
Recommended Reading

And
We all have universal emotional reactions to things. Our reactions to stock markets are no different. When stocks go up a lot, we become confident and feel euphoric. When they are down a lot, we become panicky and worried. We can’t much control that. The real gift of consciousness is that we have the ability to observe those things in ourselves and decide whether to act on them. That’s why it’s “free won’t.” You have a choice. Choice is something other animals don’t have—they generally act automatically relative to condition or stimulus. That’s the great advantage of being human. In my view, the majority of great investors through history have mastered this ability to at least recognize when emotion seizes them and manage some control.
/////
5) Temperament:
a) When we perceive danger in the markets we feel an involuntary need to make a move—relieve short - term discomfort. Countless studies have shown what a bad idea that is for investors. Yet most just can’t help them.
b) My advice: Seek the opinions and counsel of folks who readily admit when they got something wrong, acknowledge it, and proceed to tell you what they learned from it. Those are great people to get advice from.
c) We crave approval and to fit in—we generally feel awkward and upset when we are alone or the group disagrees. Social validation is a big deal. The natural proclivity to fit in counters your best interests—you must feel comfortable alone, or you are cooked from the start.

[CityFarmer]

Hi Experts,

I need a little advise about diversification. As I'm very new to investing and don't have a big capital to start with. In fact I only started about few months ago this year. Let's say for example a $10K capital. Any recommendation on how many stocks should I have in my portfolio and the percentage of allocation. I feel like if I over diversify, I can only gain a little. Perhaps at least $2K capital per stock? Thanks in advance.

Theoretically, you should achieve reasonable diversification with 5-10 stocks. Lower capital might take the lower end, in order not to over-dilute the effort, IMO.

[Bubbachuck]

Hi Experts,

I need a little advise about diversification. As I'm very new to investing and don't have a big capital to start with. In fact I only started about few months ago this year. Let's say for example a $10K capital. Any recommendation on how many stocks should I have in my portfolio and the percentage of allocation. I feel like if I over diversify, I can only gain a little. Perhaps at least $2K capital per stock? Thanks in advance.

Theoretically, you should achieve reasonable diversification with 5-10 stocks. Lower capital might take the lower end, in order not to over-dilute the effort, IMO.

Thanks Mod. Even for only 10K capital is it advisable to have more than 5 stocks?

[CityFarmer]

Hi Experts,

I need a little advise about diversification. As I'm very new to investing and don't have a big capital to start with. In fact I only started about few months ago this year. Let's say for example a $10K capital. Any recommendation on how many stocks should I have in my portfolio and the percentage of allocation. I feel like if I over diversify, I can only gain a little. Perhaps at least $2K capital per stock? Thanks in advance.

Theoretically, you should achieve reasonable diversification with 5-10 stocks. Lower capital might take the lower end, in order not to over-dilute the effort, IMO.

Thanks Mod. Even for only 10K capital is it advisable to have more than 5 stocks?

It depends on the risk profile and objective

If the objective is to adopt a sustainable good habit of risk-adverse and long term, we should start from very beginning. All-in, or most-in might works in short-term, but we will never know the "unknown unknowns", let alone the "unknown knowns" due to skill level

Diversification in 5 stocks, means average 20% per stock, but it should be able to increase to 30% on one individual stock, depend on confidence level.

I am skeptical on all-in or most-in strategy, with more than 50% in one stock.