Trader or Investor? Choose wisely, padawan

Reading time: 10-15 minutes

Main topic: Introspection, self-reflection

Sub topic: 10 Investment/trading types – which one are you (really)

Bonus: Ex ante hindsight analysis, before smashing into the fan

Trader padawan dark side ambitious and rushed trader or thoughtful investor

Trader or thoughtful Investor?


Altruist’s dilemma

Have you heard of the reverse prisoner’s dilemma?

Every second day, I walk to and from the gym on a narrow cobblestone path. It only fits one person at a time, or possibly a couple walking very closely together, in effect holding on to each other.

Right next to the path, on both sides, are irregular stones with gaps between, that are both difficult and dangerous to walk on – and hurts the feet even with shoes on.

Whenever two people meet on the path, both parties typically step to the side and walk past each other on the dangerous, stony side surfaces.

Both cooperate and both are worse off

Very rarely, a young kid or an old and decrepit person stays his course on the smooth cobblestone.

I know I could easily hold my ground on the path, but never do.

This is not a story about altruism; it’s about being aware of the world, analyzing it, discerning more or less useful patterns and making conscious decisions as a consequence.

It’s about knowing who you are and what context you act in. So…

 

What kind of an investor are you?

You may be a veteran and knowing both the market and yourself inside out. Or, you might be more or less new to the stock market game, making your strategy up as you go along.

No matter if you have decades of experience or just getting started, I would recommend systematically going over your investment style to see if it fits with your personality traits and natural talents.

Investing and trading is a lot like computer programming, weight lifting or consciousness. There are many levels of complexity not apparent to the untrained eye. Nested coding, self referential pattern repetition in gym periodization, and interest rates entering an investor’s equations from all sides.

These concepts and more (including Bach’s fugues, Escher’s impossible pictures and Gödel’s incompleteness theorems) are explored in depth in the wonderful, Pulitzer prize winning tome “Gödel Escher Bach” by Douglas Hofstadter. Keep that idea of increasing complexity and intertwinedness in mind as you browse the following (non-exhaustive) list of market strategies and the quality requirements of their agents:

10 investor types

  • HFT (High Frequency trading)
    • Financial power (in order to buy the fastest equipment there is)
    • Statistical genius for creating unique or fastest trading rules
    • Political clout (to avoid transaction costs, market abuse allegations etc)
  • Algo (HFT, MFT or LFT)
    • Unique insight into market dynamics; have to outsmart thousands of other algo traders
    • Strategy for changing market characteristics
    • E.g., the Kavastu Algo: “Have 100 different shares in the uptrend on the radar. Select the 40 sharpest for the moment and let them do the job. Then do the other things that are important in life during the day.”
  • Day trader
    • Experience (market “feeling”)
    • Discipline (stop losses are essential)
    • Always on (hard to combine with a day job)
    • Long/short unbiased (to survive bear markets)
  • Swing trader
    • High overnight risk tolerance
    • If you don’t have time to be a day trader
    • If you lack short term market feeling
    • If you lack the patience or analytical skills of an investor
    • If you’re feeling lucky
    • This strategy sounds a lot like a loser strategy for all those that didn’t have what it takes for the other strategies. And yet, this would be my strategy of choice, if I wasn’t a long term, independent/contrarian fundamental investor
      • N.B., I’m not bad mouthing anyone or any strategy. If it works, it works. But does it, really?
  • Situations
    • Connected (to hear about and understand situations like mergers, acquisitions, product launches etc)
    • Up to date (on “everything” – no situation happens in a vacuum)
    • High loss tolerance (when a situation back fires)
    • Smart sizing strategy (to keep dry powder even after a few misses in a row)
  • Earnings
    • Analytical (to outsmart hundreds or thousands of analysts trying to work out the next quarterly earnings and understand what other analysts and investors think and how they are positioned ahead of the next report)
    • Statistical/Mathematical (for finding new leading variables and combinations of variables in order to predict sales, earnings and others’ predictions)
    • Second level thinker (new product launches or rising earnings aren’t enough, the question is what others are expecting)
    • Very high overnight risk tolerance
  • Buy and hold
    • Extreme loss tolerance (draw downs in bear markets are gruesome)
    • Extremely detached (must be able to withstand pressure to sell when all the muppets are screaming at the bottom of a market cycle)
    • Extremely patient (If I’m right and a new bear market is just getting started, in 2016 or 2017 stock markets will be back at levels they first reached 20 years earlier)
    • Can’t stand seeing the neighbors become richer (if the worst thing conceivable is watching your neighbor buy cars, boats and jewellery for a few years during market peaks, you must Buy And Hold to guarantee you ride the market all the way up (and down again)
    • This is not really a strategy, but it kind of works anyway, for extremely dispassionate and pathologically long-term people
    • E.g., the Dividend Aristocrat: “Buy stocks with solid dividends and keep forever”
  • Asset diversification
    • The so called Quattro strategy
    • Curiosity (there are many other asset classes than stocks, many other markets than your home market, and you have to be interested enough to find them, compare them, and put together your own pizza pie of investments)
    • Willingness to do some digging for annual portfolio re-alignment
    • Moderate personality; not impatient or greedy
    • This is the ultimate winner strategy – it doesn’t take super human or inhuman qualities or financial muscles. If you are a moderately curious and patient person with average finances, the quattro will keep making you a little better off every year, and probably keep pulling ahead of the energizer bunnies burning out on exertion and risk in most other strategies.
  •  Fundamental long term investor
    • Patient (Markets swing wildly between extreme overvaluation and extreme undervaluation. If you keep buying once stocks get a little cheap and keep selling once they get overvalued, you’ll always feel over weight in troughs and under weight at peaks, but over time you’ll avoid the BAH-investors maddening highs and lows, while producing at least the same average returns
    • Analytical (You have to do all the work yourself to know when a stock or a market has strongly positive or negative return potential)
    • Mathematical (you do the math!)
    • Independent (contrarian) – sometimes you should run with the herd, sometimes against it. That takes a very unusual personality – rarely possessed by people with many childhood friends.
    • Couldn’t care less about peers or neighbors (“The Joneses bought a convertible, so what?”)
  • Dice thrower
    • Loss tolerant. Period.
    • Happy-go-lucky
    • Devil-may-care
    • Doing it for fun
    • No analysis or research whatsoever
    • Sometimes trades on tips, sometimes on news, trends or whatever
    • Wastes money on commission but do about as well as any ape would – not too bad, but spends unnecessary amounts of time on performing a little worse than an index

swing trader

Taking stock

Can you honestly say you possess the required qualities? Or could the harsh reality be that you are a fair weather trader that had a bit of luck during the last 6 years’ bull market?

What if you are impatient, loss-averse and not very analytical; a simple Buy The Dip trader with no real strategy or competitive edge? What if the moderate quattro is what really suits you best, but you are stuck in day or swing trading (due to beginner’s luck, and no desire to put in real work), or erroneously assume you’ll be psychologically and financially strong enough to hold on throughout a bear market trough?

 

My five cents on identifying your inherent investor traits

Go through your profits and losses. How did they come about. How did it feel? What if that near miss had been an actual miss?

Does your strategy or stock portfolio entail a single point of failure? Could something happen that would derail your lifestyle? Do you remember when drug lord Escobar had the luck of all the evidence against him burning up, since it was kept in one single, “safe” place? That was a single point of failure (SPOF) on behalf of the District Attorney.

Try this thought experiment: You have lost a lot of money. Assuming that has already happened, analyze how it happened and what to do to prevent it. Be creative.

Do you think low interest rates warrant higher asset prices? Day after day?

Then you are cooperating with central bankers who try to push up prices in order to kick start the market, and they are cooperating with you by keeping rates lower for longer, since all buying power is going into assets instead of consumer prices. Consumers postpone wage increases thanks to the wealth effect from houses and stocks.

The dance continues until it reaches a breaking point with collapsing asset prices and a sudden rush to cash, demand for higher wages to compensate for losses and rush to consumption when cash and wages eventually spark inflation.

Just like on my cobblestone path, all parties more or less unknowingly cooperate with each other, but everybody becomes worse off in the end. Faith in central banks will plunge, asset owners will lose money (albeit fake and inflated), consumers will suffer through a stagflation.

 

No harm no foul

As long as you know who you are, what kind of an investor you are, what your life is about, all the above is inconsequential for you. As long as you have matched your personality, your talents, your strengths and weaknesses to the actual threats and opportunities – and adequate targets – you’ll be okay.

Assuming you only participate in games where you have an edge (analytical, financial, psychological etc.), or games with only winners (quattro) and have set your targets in a self-aware manner, I’m sure you’ll come out on top.

 

Be careful what you wish for

As I advised a friend this summer, point targets are for losers and incremental strategies are for winners.

Aiming for retirement, financial independence or any such thing that depends on the final outcome is moot. Unless you enjoy the incremental progress, the journey in itself you’re highly unlikely to enjoy the end game even if you get there (and truly hate yourself and your life if you don’t).

 

Summary – be you, not a Jones

Are you a trader, an investor, analytical, patient, truly interested and capable, or do you just want to make some easy money?

Think carefully about what actually drives you, and match your traits to your portfolio (and life) strategy.

Avoid creating a single point of failure (in your life, as well as in your portfolio)

The end result of life (became rich, made it to old age) should only matter marginally for your total happiness compared to your appreciation of the process of getting there.

Investing is really complex and difficult. Take that to heart and think about what your competitive advantages are – or if you should choose a semi-passive Quattro strategy instead

Don’t silently “cooperate” by default; be independent and honest – at least to yourself. Remember that no Jones likes being beaten by another Jones. Just as it is street smart to let oneself be convinced by the other party in an argument, complementing on their wits, you’ll be more liked if you don’t keep up (ahead of) your neighbors than if you do.

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Top Ten Reasons You Are A Stock Market Newbie

Summary: Just avoid everything in this 2-minute article and you’ll be okay

New here? Check out this starting page, and remember to sign up for my weekly-ish newsletter and free eBook

 

10 signs you should not be allowed anywhere near your own money

IMG_20141110_142335

 

 

10: You celebrate high prices, despite not being fully invested or at all close to net selling for retirement/consumption, and detest low prices (investment opportunities) under the same circumstances

stock market moron

 

9: You welcome every acquisition your holdings make, while ignoring historical facts about value destructive take-overs, re-alignment costs, incompatibility etc.

If acquisitions are as good as printing money why don’t you do one yourself?

market moron

 

8: You listen to company management and brokers. You base your positive feelings for a stock on broker comments and descriptive company comments, as if they had any reason whatsover to be anything but über bullish.

“We had a great quarter”

“The company says it had a good quarter and we agree. You should buy some more”

investor imbecil

 

7: You always take positive qualitative statements at (at least) face value, but exclude negative reported and audited facts and numbers as one-offs or plain irrelevant.

“But, the company said 7 orders was a good number”

20120419-1345 Omar

 

6: You fail to imagine the range of probable outcomes and focus only on the average (or blue-sky scenario)

range anxiety

 

5: You talk about single year key ratios (as if next year’s P/E ratio meant something, and as if you understood their implications and demands on the future 25-50 years)

key ratio killers

 

4: You scream of joy when one investor buys shares from another in “your” company (in a bull market everybody buys, you should focus on why the incumbent/informed seller sells in a bull market)

Why does the most informed owner sell in a bull market?

dog moustache

 

3: You use the present tense (implying you know the next move) when describing price changes: “prices are moving up/down”, rather than past tense “prices have moved up/down”

market newbie late to the game

 

2: You think “a positive story” is all a stock needs to claim a higher price, irrespective of its starting price.

“But, but, but, solar energy is the future”,

“But, but, but 3D printing… everything will be made through additive processes”,

“But, but, but biometrics is the future”

The but(t) of the joke is you

butt of the joke

 

AND THE NUMBER ONE PROOF YOU ARE A STOCK MARKET IMBECIL…

1. You think you are a long-term fundamental investor (when in fact you only follow trends and tips), and downturn dynamics don’t apply to you

nr one reason market newbie

 

BONUS FOR ABSOLUTE INVESTOR MORONS:

You use leverage, despite being a certified stock market crash test dummy

failure is an option money isnt everything

You apply quantum mechanics principles; you think a stock will appreciate because you are looking at it, because you are reading its news

dancing in the dark

You’ve never experienced a market crash, despite a third one in just 15 years is in the making as we speak

60544_10152212301851471_9115413423239625875_n

Closing words: Yes, I think we have the stock market peak behind us. Yes, I am personally basically 100% short the Swedish stock market. Yes, I plan to accumulate long positions in select stocks all the way down as soon as they become reasonably priced (some already are, but probably will go even lower anyway). Yes, I own a fair bit of gold too. No, I don’t have any oil currently, but I’m looking to buy on dips.

Don’t try this (copying me) at home. Disclaimer.

Required reading for the budding investor

Tip: this post is really just a long [50-ish items] book list for the aspiring investor

SpreZZaturian’s guide to becoming an investor

You want to work in finance, become a finance mogul?! You want to know the truth? You think you’re entitled to? 

required reading for the budding investor

You can’t handle the truth!

You will not get rich working in finance

Unless you went to the right school, hardly any firm will look twice at your application (more on how to write one here)

Job opportunities in finance are shrinking, and it will get much worse. If hired at all, prepare to be fired soon.

Before being fired, expect long and meaningless hours as a general “resource” (at best collecting data and preparing power point presentations, at worst working as a caterer).

The skill set for getting in has hardly anything to do with the skill set needed to invest. Consequently, if hired at all, you will waste a lot of time collecting and serving instead of learning, understanding and practicing.

You won’t learn much useful on the sell-side (analyst) either. And it will take forever before you make any money on the buy-side (founding partners and seniors will take it all, and you, my friend, are replaceable). Joining a new fund won’t make much difference, since any outfit that would consider you will be sub-scale, potentially forever.

 

DIY investing is a better way

But if you really want to be an investor anyway, do it yourself.

Apart from HFT/algo and bonds, you won’t need any fancy math, high up-front investments in infrastructure or complicated strategies. Investing in stocks (and some other asset classes) is mostly about psychology (not least patience).

You don’t need to get coffee for bosses to learn about investing. You don’t need to prepare giant spreadsheets or power points during the weekends to understand the basics. You need to read good books, and take risk with your own money.

If you are good enough and can prove your results, who knows, maybe after a little while, some hotshot will hire you or buy your operation. If you still want to by then.

You’ll get all the fun of investing, of being your own man, and at least the potential of making serious money sooner or later.

If you are not good enough, how did you ever expect to make money in the finance industry?

Do you want some reading tips for becoming a better investor? Can you handle the required reading list? Here goes…

 

Required reading

To become an investor you need a little bit of money, some basic accounting skills (being able to read an annual report), patience and a bit of luck. And most important of all, you need the right frame of mind, stability and being aware that investing is mostly about psychology, not math and accounting.

Not least you need a frame of reference and perspective.

The following are my best book recommendations for reading up on (mainly the psychology of) investing. And some for historical references and perspective in case you just started investing (less than 15 years ago) and don’t have good sources of long term financial records.

Plus some books to avoid.

First, the ten truly required reads:

 

Margin Of Safety – Seth Klarman (great summary for free here)

It’s really all you need to become aware of the most important pitfalls and opportunities in investing. This one is truly required reading; many times over.

Reminiscences of a stock operator – Edwin Lefevre

This book covers one of the greatest traders/investors ever, from his humble beginnings as a quotation boy to becoming one of the richest people in the world and a stand off against the U.S. government. His mistakes, luck and success imprint the reader with the foundations of investing psychology, technical analysis, macro/micro and sound, productive, investment.

Remember that “technical analysis” isn’t all about drawing arbitrary patterns in a stock chart, it’s about trying to infer the psychology that drives human herd behavior and stock prices.

Technical analysis has been a dirty word since my first finance classes in college, but prices still do hold some information.

Exactly what and how to use it is another story. I don’t think it’s black or white but a lot of shades of grey between macro, micro and technicals.

The Most Important Thing – Howard Marks

Everything you need to know about risk. Marks is a master of breaking down “risk” in components of risk, which clarifies the concept, and educates the reader on how to manage risk. You might think risk is just (historical) price volatility, or earnings volatility, VaR or something similar.

Nope. Marks will teach you about dozens of different risks that will make you see investing in a whole different light. 

Hedgehogging – Barton Biggs

Biggs’ story of how he started a hedge fund, managed setbacks in funding as well as investing (not least in oil). It’s entertaining and very useful. I learned more reading that book, than in my previous 10+ years in the market (I said something similar in an Amazon review way back).

You will literally feel Barton’s angst as he struggles with whether to cut his losses, or hold on to sinking assets that might be about to bounce or turn around. Better him than you.

Fooling some of the people all of the time – Einhorn

The perils of shorting, of being right but early and alone – and drawing fire from the authorities. If you are at all enticed by the dark side of shorting, you need to read this.

The Black Swan – Taleb

More about hidden risks and how to take them into account. Taleb’s epic book about the unknown unknowns that risk undoing everything unless you manage the fat tails of (im)probable outcomes.

BULL! – Maggie Mahar

The breathtaking story of the worst stock market mania ever in the late 1990s. Read and compare the IT bubble 1995-2000 with the central bank bubble of 2010-2015.

The great crash – Galbraith

The only objective recount of the markets and the economy in the early 1930’s. Did investors actually commit suicide? Didn’t anybody warn before. What responsibility did the Federal reserve have? Back then, the world’s greatest economist right before the crash claimed stock prices had reached a permanently high plateau. Should celebrity pundits like that be trusted?

How an economy grows and why it crashes – Peter Schiff

It’s about macro, I know, but it’s also about the foundations of entrepreneurship, investment, productivity and wealth creation. It’s the best book on economics ever written. It’s required reading on every book list. Here, it might just keep you a little more level headed when feeling the urge to buy into the Snapchat or Uber IPOs.

The death of money – James Rickards

What might happen to fiat money when the current money printing era draws to an end. Also, why you might want to buy gold instead of most stocks. Perhaps a bit dystopian and scary for a young investor, but nevertheless a good reminder that stocks are not all about stocks…

The Retarded Hedge Fund manager – Karl-Mikael Syding

My own honest tale about taking risk, and the importance of realizing the difference between luck and skill and avoiding hubris.

 

Very useful and readable, but perhaps not required per se

Thinking Fast And Slow – Kahneman (About the limitations of the human mind. Economic psychology and behavioral finance 101. You’ve already read it all if you have a masters degree in finance, but it’s a good summary nevertheless)

The user illusion – Norretranders (insightful and important regarding the interplay between the conscious and the subconscious; the real self and the narrating I). Learn to trust your intuition (which is the 1m times faster subconscious way of trying to communicate important things to your slow I) and be fascinated to learn that your “I” actually live half a second in the past, which is how long it takes the self to filter and sort and communicate the info (as well as make a fake time stamp -0.5s).

The Logic of Life – Tim Harford (a new slant on homo economicus, how superficially illogical decisions actually are super rational. It can help explain why some unlikely companies prosper and some ‘sure things’ fail)

Abundance – Diamandis & Kotler (about the wonderful future of technology and mankind [not sci fi; very concrete actual technologies]. Great for insulating yourself against doomsayers and perhaps understanding which new new things are more likely than others, and what kind of competition they will soon face)

Tomorrow’s gold – Marc Faber (Macro. Power centers and currencies you thought would last forever didn’t. None. The dollar and the U.S. won’t either, and definitely not the euro. Please note though that the time scale is in the hundreds or thousands of years, not next Monday)

Lords of finance – Ahamed (important lessons from central banking’s early days, not least the quick-step dance between currencies, real estate, stocks and bonds required to protect your savings during the Weimar hyperinflation)

Manias, panics and crashes – Kindleberger (everything you ever needed to know about the history and dynamics of manias and panics. The book is unfortunately a bit of a slow read, but the information is important and useful to gain perspective on what a bubble is, how it forms, the psychology behind its build-up and its bursting, what parts are fundamental and what parts are irrational feed back loops, how long to ride a bubble and how to trust a strong advance actually isn’t a bubble at all)

Endgame – Mauldin (not as good as I had hoped, but interesting macro take on the future for various [all] geographies. China, Japan, Russia… here is a prescient look into the future of geopolitical risk)

Irrational exuberance – Shiller (bubble theory from the man behind the Shiller cyclically adjusted price earnings ratio: CAPE)

Holy grail of macroeconomics – Koo (what really happened in Japan, and what was done about it, albeit not updated for the last few years’ insanity)

Animal Spirits – Akerlof/Shiller (the micro behind the macro of recoveries and bubbles)

The return of depression economics – Krugman (believe it or not, it was actually quite good – I read it in 2001 but he’s released an update including both crashes since then)

The great reflation – Boeckh (perhaps it’s over now, but here Boeckh shows the opportunities created by reflating the world after a trough. For next time, perhaps.)

 

Esoteric

Gödel Escher Bach – Hofstadter (A heavy and dificult tome about recursivity, reflexivity, self reference and feed back loops. No market talk at all, but a very important book about the limitations of math, where consciousness comes from, and related to the circular issue of central banks basing their decisions on variables that are affected by earlier CB decisions).

 

 

More fun than important, but still offer some psychological insights into markets and its participants

Cityboy – the ugly truth about financial analysts (you’ll never trust a recommendation again)

Wall Street Meat – A great book for understanding the immoral machinations that underpinned the IT mania (good IPOs go to insiders, bad go to you)

Liar’s Poker – Early days of the stock market’s comeback from the dead in the 1980’s. My guess is we could very well end up in a “death of markets” situation again in a few years; the early 2020’s?

The new new thing – Lewis’ story about the IT mania in the end of the 1990’s

Trading with the enemy – Jim Cramer’s colleague recounts Cramer’s borderline illegal antics at his hedge fund’s office and in the stock market

 

These you can do without:

The Intelligent Investor – Graham (Boring, dated, methods still works though but it’s way too long for saying keep stocks and bonds in your portfolio, buy more of whatever falls in proportion to the other)

Market Wizards – Schwager (Wtf?! Utter junk. Some fun stories, but nothing actionable – just hundreds of recounts of gut feeling and luck)

Wealth, War and Wisdom – Barton Biggs (I learned a few things about WWII, but the market stuff is borderline ridiculous – almost religious)

 

I haven’t read the following myself but they are probably worthwhile:

Antifragile (what is actually new here vs. The Black Swan?)

The little book of sideways markets (expect sideways markets for decades, with huge swings… this book might come in handy) 

Flash boys (Lewis is always entertaining and educational, here in a scary tale about HFT front running and rigging. Do you really want to invest in that environment?)

When genius failed (interesting tale about the Nobel prize winners that almost broke the financial system, by miscalculating the thickness of financial tails)

The big short (Lewis’ narrative of the house price boom and bust, its main characters and companies)

 

School text books I’ve kept but you easily can do without

Statistics – Newbold (way too much formulas for most, albeit some important lessons on which statistics to trust and which not to) 

Basic Econometrics – Gujarati (some regression analysis techniques can be useful, but mechanistic investing on this level is useless anyway)

Futures and Options – Hull (skip this one and take market prices for granted. You won’t be doing any option arbitrages anytime soon, or ever)

Principles of Corporate Finance – Brealey & Myers (here’s what you’ll learn: companies take on debt, and issue equity. Some proportions are expensive and/or risky. Sometimes companies acquire each other. Sometimes too dearly)

Valuation – Copeland (not completely useless, but do you seriously think you’ll forecast cash flows 20-50 years out and discount them with some arbitrary factor? And then invest your own money based on what comes out of the model? I don’t think so)

Macroeconomics -Dornbusch and Fischer (among all the laughable [EMH] charts and graphs there are some insights into economics, but you’ll learn so much more in Schiff’s book)

 

Online resources

Memos from Howard Marks (quarterly write-ups from the master of risk)

Ray Dalio’s principles (a very long list of guiding principles in life as well as on the markets)

Hussman weekly (weekly updates on market risk tolerance/aversion and valuation)

Contrarian edge (Vitaliy Katsenelson’s somewhat philosophical musings on the market, companies and products)

Wall Street Week (interviews with financial moguls)

Financial Orbit (Chris Bailey’s market updates)

HORAN (useful market charts -and thoughts)

Zerohedge (fast, frequent, news comments – unfortunately with a paranoid and bearish bias that seldom has any bearing on current events, even if it might hold true in the long run)

GMO (Legendary investor Jeremy Grantham has researched bubbles, all bubbles, defined them and followed their conclusion (all crash). Register for free and read his quarterly letters, including his past ones). Please note that he doesn’t quite think that we’re in a stock market bubble (yet).

Gloom Boom Doom by Marc Faber (“there is always an opportunity somewhere, perhaps in Vietnam”)

The high tech strategist monthly newsletter by Fred Hickey (originally a letter about high tech companies, sales and earnings developments and investment opportunities, but lately more and more about central bank shenanigans and opportunities in gold)

 

Other

You probably should read up on marketing and accounting too, even if I think it’s a bit overkill. I suck at marketing, always have, and it didn’t hurt my investing.

I’m not particularly good at accounting either, but you won’t learn the necessary skills in school anyway – just some shallow mechanics.

Actually, accounting is one of few areas where sell side analysts are good to have around. They know a lot about accounting tricks and valuable key ratios.

Anyway, you’ll get pretty far by following, albeit somewhat blindly, my 50-step formula presented in an earlier post (called The magical 2-step formula).

And here is more on how to screen for stocks to invest in.

In a future post, I’ll add a beginner’s guide to stock screening (i.e., how to go from thousands of available stocks to just a few dozen relevant to choose from).

 

Summary

Start investing. If you can’t get a boss (a job) in finance, do it yourself. 

Read, read a lot, re-read. Start with Margin Of Safety, at least two times. Then the other 9 required reads.

Sign up for newsletters and updates from Grantham (GMO), Howard Marks, Contrarian Edge (Katsenelson) and check in on Hussman Weekly every Monday. Read their historical production as well. Just keep reading backwards in time.

Trade/invest with real money. Start with a little. Increase your stakes slowly.

Make a check list of what to consider before pouncing, and what you need to cut a holding. Follow that plan. When in doubt get out. Then restart. That goes for the upside as well; don’t be afraid to take a profit and a pause.

Keep a log of exactly what you do and why – in particular your feelings. You’ll want to get back to those notes when in trouble.

Read more; read Hedgehogging by Biggs… and my book The Retarded Hedge Fund Manager (subscribe to get it for free)

Most important of all: There is no rush whatsoever to invest. Markets will be there tomorrow too. Do not make an investment or hold on to it unless you know what you are doing. Keep a margin of safety.

Study, Wait, Pounce.

Margin of Safety