How do I learn about investing
money in financial markets?
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tep 1. Open a brokerage account. I suggest an
account with a live broker, near where you live
or work, who you can talk to. Sit down, talk, get
acquainted, decide whether this is someone you
feel comfortable with and trust. Go through the
mechanics, depositing money in their money
market fund, transferring when you buy or sell,
etc. The brokerage will also provide the forms
you need for taxes. Later, when you’ve learned
all you can, you may want to save money by
moving to an on-line account.
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tep 2. Buy and read the latest edition of Mal-
kiel’s A Random Walk Down Wall Street. It’s
very complete and detailed and - I think - very
objective.
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tep 3. Decide what interests you (individual
stocks, bonds, funds, etc.) and ask your broker
for some recommendations. Take the recom-
mendations and research them yourself. You can
use Yahoo! Finance, Google Finance and Morn-
ingstar for on-line research. A recommendation
to buy Exxon Mobile or Johnson & Johnson may
lead you to research solar energy or other
health care companies
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tep 4. Make some predictions, like, “I
think ++Corp has a great new product and
will grow for years. I think --Corp has to go
bankrupt soon.” Make a plan for how you can
profit from your predictions, like, “Buy ++
and hold until they saturate their market or a
new competitor shows up. Short --.”
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tep 5. Go back to your broker and explain
what you want to do. Ask if your plan makes
sense. A good broker will have some inde-
pendent research tools and can provide feed-
back. Maybe your brokerage won’t let you do
short sales or buy puts/calls. (By now you’ll
know what puts and calls are.) Think about
the feedback. If you still want to, go ahead
with your plan.
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tep 6. Keep records. Start a loose leaf
notebook where you keep all the statements
from your brokerage account. Set up an on-
line account with your brokerage firm, so you
can check your account whenever your want.
Start a spreadsheet where you can enter what
you buy, what you sell, how much you pay
in fees and commissions. Enter the values
of your investments every couple of weeks.
Make graphs comparing your results to the
S&P 500 over the same periods. (Check the
^GSPC symbol at Yahoo!Finance. By now
this suggestion will make sense to you.) This
is the fun stuff. If you don’t like this part or
it’s so boring you fall asleep, maybe you’ve
found out that active investment isn’t for you.
By now you’ll know the alternatives to active
investing.
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tep 7. Watch your investments for 6
months. Test your predictions. Is the stuff you
buy performing like you expected? Is the stuff
you researched but didn’t buy behaving as you
predicted? What effects are world events or
internal company events having? Look espe-
cially for important stuff that you missed or
got wrong. Look for ways you can do bet-
ter. E.g., I was investing and reading a lot in
2007 and 2008 but missed the housing bubble.
Look for ways to spot the next bubble.
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epeat steps 3-7. Have fun and learn a lot.
View any money you lose as a fair price for
entertainment and education. Try not to view
any money you make as proof that you’re
always going to be right!
- Ed Caruthers
