The ultimate Q&A to Learning how to Invest 101

-
Investing tips 02: This post is about learning how to invest. It is part of a series of investing advice that has been collated from my Quora responses. It has now been updated to include summaries on how to start, choosing the learning options, when to start learning, and resources for newbies.  Revision date: 28 Oct 2021

Ultimate Q&A to Learn how to invest 101
“The most important investment you can make is in yourself.”  Warren Buffett


Every newbie faces the same challenge when it comes to learning how to invest.
  • You just don’t know where to start. There’s so much information out there that you can be overwhelmed.
  • Do you learn from Investing books, Investing courses, Stock simulators, Investing forums, or Investing apps?

I am a self-taught value investor, learning on a part-time basis using free online resources. Self-learning on a part-time basis may not be the best way for you but I would suggest that you try this route before exploring other learning approaches. 

I also suggest that you read the whole post as a comprehensive picture of what is required in learning how to invest cannot be covered in one answer to a particular question. Rather different aspects of the topic are covered in a particular question. 

This post is part of a series meant for newbies.  I focussed on answering the questions from the view of a bottom-up, stock-picking, long-term value investor.  

I am coming from the perspective that you are interested to learn how to invest based on fundamentals.  This requires you eventually to analyze and value companies. 

If you don't want to do this, but still want to invest based on fundamentals, there are many third-party advisers who can do this for you. A good example is  Seeking Alpha.* Click the link for some free stock advice. If you subscribe to their services, you can tap into their business analysis and valuation.

This blog is reader-supported. When you buy through links in the post, the blog will earn a small commission. The payment comes from the retailer and not from you. Learn more.



Contents

1. How to start

2. Choosing the learning options

3. When to start learning

4. Resources for newbies

How to start

1. How to start

There are many types of investments eg stocks, properties, bonds, commodities, etc. 

At the same time, there are several investment styles eg fundamentals, technical, indexing, etc.

For a retail investor, it is not practical to learn all of them. In fact, you do not need to learn all of them. Most successful investors focus on one or two options and are experts in the chosen areas. You should do likewise.

As a newbie, how do you choose? The first step is to get an overview of the various options. There are many free online resources where you can get such information. I started by looking at Morningstar and The Motley Fool.

The idea is to get an overview of each of the various types of investments and investing styles. You then choose one combination based on your interests, risk tolerance, and other demographics. "Combination" here refers to one investment type and one investment style.

Then you get in-depth knowledge about the chosen style. Thereafter you master it through case studies and paper transactions. When you are able to consistently make paper profits, you are ready to invest with real money.

But do not be surprised if you do not succeed in making money with your first choice.  Investing is more than just having the knowledge. There are also behavioral requirements. The chosen option may not be the appropriate one from a behavioral angle.

Be prepared to start all over again with different investment and/or investing styles.

I have tried investing in stocks based on a few styles before I settled on value investing. I have spent at least a year each on technical and factor investing. I probably spent more time on value investing. Think of investing as a long-term commitment and you would not be discouraged by having to take time to find something that is appropriate.


1.1 How do I learn to invest in the stock market?

There are 2 parts about the stock market:
  • Structural. This is about the players making up the industry, how you physically invest and how it functions.
  • Investing. This is about how you determine what to invest in. To learn to invest you first need to develop 2 basic skills - how to analyze companies and how to value them. Concurrently you also need to learn about how to mitigate against risk.

I suspect your question is about the latter. There are several investing styles eg technical, fundamental, quant, etc. All successful investors focus on one particular style so you should do likewise.

From a learning perspective, unless you narrow it down, you are likely to be confused. It is like going to university - you don’t learn all that is taught in the university. You pick a particular discipline and even within the discipline there is specialization. Investing is no different.

My advice to beginners is always to get an overview of the investing universe first. Try Morningstar of Yahoo Finance websites. Get some basic knowledge of what is investing, why invest, what is available and how to choose what to invest.

Or go to Investopedia and get an overview of the various styles and then select one based on your interest, risk tolerance, and other demographics. Thereafter get an in-depth knowledge of the chosen path and master it through case studies and paper transactions.

You will be knowledgeable by the time you reach this stage and you can start to invest with real money.

Investing is like driving a car- there are only a few concepts and it comes down to practice. But there is a trick to this. You should actually learn and practice in incremental steps ie learn a bit, do so paper investment, review your mistakes, and then go and learn a bit more.

After all, you have to develop investing skills and these don't come from reading books alone. It is about practice as well.

1.2 What is the necessary research that a beginner should do (stock market)?

As a beginner, you can forget about researching companies for the time being. Focus on getting an understanding of the various dimensions of investing eg fundamental vs technical, stock-picking vs index funds, self-invest vs mutual funds.

Not all of them require you to research the company.  If you are investing based on technicals, the focus is on price action. Nowadays historical prices complete with technical indicators and charts are readily available from my investment sites.

You really need to do company research only if you follow the fundamental school. 

But the most important point is that even if you are learning to invest based on fundamentals, the focus at the learning stage is getting the concepts and practicing them. You are developing the necessary skills. Only after this are you ready to invest. Then you can start to research companies.

1.3 Which one is the best degree to study to make good financial decisions, and why is that?

Investing is such a wide field that you should first understand the whole investing universe - what is available and the different investing schools/styles. After that, you can be more specific when you talk about investing ie is it commodities? are you a trader? etc.

The things that you need to know and do are different depending on your chosen path. I am not sure whether there is any correlation between any academic degree and good financial decisions.

Financial decision is not only about knowing the in and out of the assets but also about your behavior. Academic study is unlikely to improve your behavior.

Choosing the learning options

2. Choosing the learning options

There are 2 main options when it comes to learning how to invest.
  • Self-study vs classroom setting.
  • Follow a “system” or learn about value investing in general.

I am a self-taught value investor. I learned on my own through books, podcasts, and videos. The challenge with self-study is that you need to set aside time to study and to do all the exercises and case studies.

This is different from learning in a classroom setting where the pace of learning is regulated by the teacher. Here you will have faculty to teach you and clear all your doubts on the spot. You can interact with other students. 

A “system” in this context is a method that the person selling it claimed has worked for him. There are many websites and blogs offering their own investing system. If you have difficulty learning by yourself, learning a system of investing is a good option.

If you want to follow a system, use it as the first step.  I am sure that as you become more experienced you want to develop your own niche.  This requires you to have more in-depth knowledge.

I am in favor of a comprehensive approach when learning investing. I would like to think that there are many different nuances when it comes to investing.  As such, there is a benefit of learning investing comprehensively rather than just some ‘system”.

You can get more insights from the following articles
There are 2 categories of online resources
  • Those selling you courses
  • Free online material - blog posts, articles, podcasts, and videos.

If you are patient and disciplined you can learn to invest on your own. It is a cumulative and interactive process of learning theory and experience.

A stock market is a place where people buy and sell pieces of paper representing part ownership of businesses. So, there are 2 main ways to engage with the stock market
  • Buy and sell pieces of paper. This is a market sentiments-driven approach where you buy hoping to find someone else who is prepared to buy from you at a higher price for no better reason than expecting the price to continue to go higher. Many use price and transaction volume data to help gauge market sentiments. This is investing using technical.
  • Buy and sell part ownership of businesses. Here you buy if the price is lower than the value of the business as determined by its prospects. You believe that the price will eventually reflect the business fundamentals.

There are many variants that developed from these 2 approaches eg factor investing, indexing etc. All successful investors focus on one particular style so you should do likewise. When you have chosen your investing path and are ready for in-depth study, you can look for the relevant courses.

But there are lots of free online resources for many of the investing styles. So, if you are disciplined you could learn by yourself.

In reality, there are not that many concepts. It is like learning how to drive. The key is practice. I would suggest that you look at case studies and paper transactions as ways to master the investment approach.

2.2 Where can I get a free crash course on stock market investing?

I don’t think you should think along the lines of a crash course. It is a long journey. But you can start with a simple intro and then build on it.

Investing is a skill.  You do not develop skills from knowledge alone. Skills development comes from a combination of having the knowledge and practicing it. As you know, practice takes time. Don't think in terms of a crash course. 

The second point is that there are several investing styles eg technicals, fundamentals. It will probably be too much to learn all the styles at once.  The best advice is to choose one style to learn first.  When you have mastered it, you can then go onto another style.

I first started to learn value investing. It was only several years as a practicing value investor before I started to learn about technical analysis.  In hindsight, this was a good thing as the mindset for being a good technical analyst is very different from being a value investor.

When to start investing

3. When to start learning

I started to learn value investing when I was in my early 50s. Before then, while I have invested in the stock market, I would say in hindsight that it was more like investing blindly.

Once I learned how to make money with value investing, I regretted not starting when I was in my 20s. This is because of the power of compounding.

To grow wealth through the power of compounding, you need a long investment horizon and consistent annual returns. You of course need to reinvest your annual gains.

The key message is that there are benefits from starting to invest when young. The disadvantage, if you are a fundamental stock investor, is that you need the business experience to analyze companies. You will not have this experience if you start to invest as you get your first job.

Having said that, I still favor starting to learn to invest as young as possible. If you consider that the first attempt may not be the appropriate one, you will appreciate the idea of starting as young as possible. 

Many people worry that if they start too young, they may not have enough money to invest. This may be true decades ago. Nowadays there are investment apps that allow you to start investing with small sums. Money should not be a consideration when it comes to deciding when to start investing. 

The other issue with learning how to invest is that you are not learning to play a video game. Investing is an experience-based activity. Your success depends on you becoming an expert.

You cannot gain expertise overnight. Even when learning the concept, think of it as learning a subject in school. It takes time to understand the concept. Often to understand the concept well, you need to do worked examples. You may need to go through the material more than once.

I am a self-taught value investor learning from free online resources on a part-time basis. I spent about an hour a day on the subject matter and it took me more than a year to reach a stage where I was able to make paper money.

If you think of investing as a long-term activity then the one or two years spent on learning is a short time. 


3.1 How long did it take you to learn?

There are a few levels of investing. The simplest is to invest in an index fund and you can learn this within a week.

The most challenging and longest is to learn to pick stocks yourself. I hope you are not talking about this as you are unlikely to get a good answer.

Investing requires patience so learn to accumulate your savings while learning. But if you are inpatient, invest in an index fund while learning. 

I taught myself value investing using free online resources. But it is not something that you learn in a month. I took a year on a part-time basis before I felt confident enough to put money into the market.

I am a long-term investor, but I was lucky as I entered the market when it was taking off so the results came within a year

3.2 I am 27 years old and just started learning investing principles. I want to be a professional investor. Am I too late to the game?

Learning to invest will take some time. I would guess a one to two years period if you are doing it part-time. Unless you are at death bed, you are never too late to learn to invest. 

I am not sure what you meant by “professional investor”. I would interpret a professional investor as someone working in the investing industry. But you can be a good investor without working in the investing industry.

The other point is that you are not just learning principles when it comes to learning how to invest. You are developing the necessary skillsets and this comes from a combination of knowledge and experience. And experience comes from practice.

I have seen senior citizens asking the same question. And I give the same advice.  In fact, senior citizens have an advantage compared to the young ones.  This is especially if you are learning to invest based on fundamentals as your working experience can provide better insights than someone who is just starting out.

Similarly, if you invest based on technicals, the most important skill is to be able to read crowd behavior. I think that working experience will be an advantage here as well.

3.3 Can I start investing in stocks with only $1500?

The key issue is not the amount. The more important point is do you know how to invest? If you don't know, no amount of money is going to be enough. Talk about putting money only after you have more than basic knowledge.

You don't have to throw money just to find out that you don't know anything. You will find out that even if you follow what I suggested above, you will also lose money sometimes.

So, don't be misled by the money issue. You can learn even without spending any money. Don’t let your income confuse you about your investment strategies. Your investment strategies are dependent on 2 key factors

a) what types of investments are available. There are more than a dozen different types from properties, bonds, equities, etc

b) your personal traits eg demographics, interests, risk appetite. Income is just one of them

Your strategy is at the “junction” of (a) and (b). Before you talk about investing, you should learn about (a) and (b). Go online and start. If you just listen to someone online telling you a particular strategy, it will not work.

Resources for newbies

4. Resources for newbies

Many young newbies confuse investing knowledge with the “tool” of investing. This is the result of the proliferation of mobile investing apps. 

Think of the following analogy.

To be good at maths, do you spend time choosing the best calculator or do you spend time understanding the concepts and doing worked examples? Would having the best calculator in the world help you to translate a problem into a mathematical equation? 

I am sure you would differentiate between having a good calculator and having mathematical skills.  Yet when it comes to investing, many newbies confuse getting an app with getting the investing skills.

There are many online resources about investing. It is too much for anyone. That is why it is important to choose an investment option. Even then, there will still be a lot of materials available.

There are 3 types of materials - books or text, podcasts, and videos. Each of you will have a preferred way to learn so choose the appropriate one.

As a newbie classify the materials into 2:
  • Those covering “what is”.
  • Those covering “how to”.

My experience is that there are more ‘what is” materials than “how-to” materials

You only need to go through one “what is” material.  You actually want to look at several “how-to” resources as each will give you a different perspective.  

If you are learning to be a value investor, I have a list of URLs to free online resources on value investing. Refer to

4.1. Which are the Best apps for beginner stock investors?

There are 2 aspects of investing - what to buy and how to execute the transactions.

To determine what to buy you need to answer the following questions like which stock, how much to buy, when to buy and how to mitigate risks.

It has nothing to do with apps…forget about the mechanics and procedures first. These are the least important. No app is able to help you answer these questions properly. To do so, you need to learn how to invest.

Once you have learned how to invest, then comes the execution part. This is when you look for the appropriate app.

4.2 What is the best book you've read to learn about stock market investing for beginners?

I am a self-taught value investor and when I first started, I visited such sites as The Motley Fool and Morningstar. They have free online Investing 101 type of materials and I would suggest that you read all the free materials on both sites for a start.

Investing is such a wide subject that I am not sure whether there is one book that covers it all. For example, investing covers fundamental analysis, technical analysis. It can also mean day trading or index funds.

There is no one best book that covers all the various options in-depth. If you want to learn how to invest you have to pick one particular style. All successful investors focus on one style so you should do likewise.

4.3 Is "The Intelligent Investor" a good book for a beginner?

It is probably too dry to read as a beginner especially if you are just wondering what to invest in.

Remember there is a whole universe of investment alternatives out there from stocks, property, commodities, forex. The Intelligent Investor focus on stocks and maybe bonds.

There are also several investing styles eg technical vs fundamental, indexing vs stock-picking, active vs passive, etc. The Intelligent Investor is about stock-picking value investing.

The Intelligent Investor is for stock-picking value investors. As a beginner, your first step is deciding which investing style to follow. The book doesn't help you decide

Even if you choose to be a stock-picking value investor, it is not the book to read first cos it does not teach you the 3 skills you need
  • How to analyze companies.
  • How to value them.
  • How to mitigate risk

You need separate resources for each of the above and there are more modern books that provide better materials than the Intelligent Investor. 

I read the book after several years into value investing and found it dull and laborious. I am sure that if I had started with the Intelligent Investor, I would have given up value investing.

4.4 Is there any software where I can practice technical analysis?

I taught myself technical analysis and I practiced by doing daily paper transactions, recording the details of what I have bought, and monitoring it daily.  Yes, it was a laborious process but it is something doable. 

I also used a few simulations, but I found that these are not as effective as "real-time" paper transactions.  Simulations are useful to learn the basics but once you have got the basic knowledge, you need to "live" practice. 

Technical analysis is a well-established method that there are many sites that provide technical indicators as standard analytical tools. Yahoo Finance is a good example. So you don't have to worry about the computations or even drawing the charts.  You can then do "live" practice with paper transactions. You can focus on trying to understand where and why you got it wrong. 

The real challenge is that if you are not in the more established markets, you may not be able to get the stocks you are looking for. But if you just want to do paper transactions for learning purposes then any market will do.



END





 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 

How to be an Authoritative Source, Share This Post



Do you really want to master value investing?

If the above article was useful, you can find more insights on how to make money in my e-book. The e-book is now available from Amazon, Kobo and Google Play.


PS: If you are in Malaysia or Singapore, the e-book can only be download from Kobo and Google Play. 





Disclaimer & Disclosure
I am not an investment adviser, security analyst, or stockbroker.  The contents are meant for educational purposes and should not be taken as any recommendation to purchase or dispose of shares in the featured companies.   Investments or strategies mentioned on this website may not be suitable for you and you should have your own independent decision regarding them. 

The opinions expressed here are based on information I consider reliable but I do not warrant its completeness or accuracy and should not be relied on as such. 

I may have equity interests in some of the companies featured.

This blog is reader-supported. When you buy through links in the post, the blog will earn a small commission. The payment comes from the retailer and not from you.


Your link text

Comments

Post a Comment

Popular posts from this blog