6 ms·

Ask HN: playin' the stocks game

38 points by kyro 18y ago

I'm a 21yr. old, soon to be college graduate, possibly on his way to grad school, and I want to have a hand at the stock market. I'm planning to start with a measly two grand or so in hopes of gaining some capital. I just finished reading 'Real Money,' by Jim Cramer, where he outlines some of the basics of stock investing - Multiples, P/E ratio, dividends, yields, etc. I'm not sure if I've attained sufficient knowledge to jump into stocks, or whether I should do a bit more reading on the field. Being a complete beginner, what resources would you recommend to help lay the basic foundation? And after I've obtained enough information, what are the initial steps do you suggest I take? What tools do you use? Suggestions of brokers? How's the market treated you? What kind of 'investor' are you - a trader or more long term? I think it'd be interesting to hear the hacker's guide to investing, although often times the market is wildly irrational - a trait most of you hackers lack from what I've read here. So, everything from suggested investment methods to tools you use to keep track of what's happening. Thanks all.

frisco 18y ago
Avoid individual stocks. Without insider knowledge, an individual is basically gambling when they invest in individual companies. Try finding a fund that provides good returns, and let a professional who has hundreds of millions of dollars in leverage and much better insider knowledge make the specific decisions. The other key is to look abroad, especially in emerging markets right now. That, and Chinese infrastructure (i.e., airports).
- Nwallins 18y ago
  > Without insider knowledge > Try finding a fund that provides good returns Based on what, exactly?
jwilliams 18y ago
This is advice that people rarely take, and I'd probably ignore... but I'd recommend investing with a fake portfolio to start (there are "fantasy" investment sites that make this easy). Making money is important - but I'd also recommend that you invest in things you believe in.
- frisco 18y ago
  "Past returns are not an indicator of future performance." It would be very easy to be caught in an upswing in some market you're investing in--be it US technology in 2000 / 2006, or Czech railroads in 2009, or whatever--and be stunned when they dive when you start playing for real money. Investing in things one believes in is dangerous advice. Believing is important in many things in hacker culture; investing in public companies can't be one of them. You need more solid evidence, not just faith.
  - jwilliams 18y ago
    and be stunned when they dive when you start playing for real money So you're saying practice makes you less prepared to invest for real? Don't follow this logic at all. What it is good for is understanding the mechanics of the market. There is a lot more to it than buy/sell - even for simple investors are reporting periods, dividends, options, funds, exchange rates, interest rates, etc. Practice lets you get a feel for those events and how they drive the market and your investing. You need more solid evidence, not just faith. When I say believe in, I mean something that fits your world view... Not that you (simply) believe will make money. If you want to invest purely to make money, that's fine too - I find I'm more successful when I invest in areas that are closer to my own interests/world-view/whatever you want to call it.
    - frisco 18y ago
      I'm saying that "practice" doesn't affect your preparedness for something that's either intrinsically random (and I mean true-random), or affected by knowledge you don't have but others with tons of capital will. You can fool yourself into thinking you're better prepared, but you're not. "Getting good" in fantasy stocks is the equivalent of flipping a coin a hundred times, and getting some heads streaks towards the end.
      - jwilliams 18y ago
        "Getting good" in fantasy stocks is the equivalent of flipping a coin a hundred times, and getting some heads streaks towards the end. So using real money instead mitigates this random process in some way? That doesn't follow. I'm not going to get into your characterisation of the market. If you believe it random, then I'll let that influence your own investing... However, investing is still has a lot of technical aspects, and practice does improve your understanding of this.
jwb119 18y ago
I would absolutely recommend reading "A Random Walk Down Wall Street" by Burton Malkiel. Its a great introduction to the theory of efficient markets.
- Prrometheus 18y ago
  Also, "Fooled by Randomness"
  - jaydub 18y ago
    Also by Taleb "The Black Swan"
    - oakmac 18y ago
      The most important book I ever read.
      - yan 18y ago
        I can't recommend Taleb enough
- bokonist 18y ago
  How can you believe the efficient market theory after the events of October 2008? The stock market may be unpredictable, but it is far from rational. IMHO, the analysis "A Random Walk Down Wall St" does not really understand the nature of the modern stock market (although reading it is better than listening to Jim Cramer).
  - jwb119 18y ago
    Just for the sake of clarity, my post didn't go so far as to endorse the efficient market hypothesis as 100% valid. I do however think it is fundamental to have an understanding of the basic precepts before diving in the market.
  - steveplace 18y ago
seregine 18y ago
For me, Warren Buffett and Charlie Munger's investment advice resonates the most. You could start here: http://ycombinator.com/munger.html http://ycombinator.com/munger.html Also, before buying mutual funds, read this: http://www.sanfranmag.com/story/best-investment-advice-youll-never-get#story_top http://www.sanfranmag.com/story/best-investment-advice-youll...
tialys 18y ago
http://news.ycombinator.com/item?id=248469 http://news.ycombinator.com/item?id=248469 Some good stuff here.
mixmax 18y ago
The market isn't irrational - people are. Learn about psychology, sociology ad behavioral economics and you'll have an edge. Here's a nobel prize lecture on behavioral economics to get you started: http://nobelprize.org/nobel_prizes/economics/laureates/2002/ http://nobelprize.org/nobel_prizes/economics/laureates/2002/ And another really important tip: Make sure you can afford to lose all the money you put in.
ctkrohn 18y ago
Expect to lose your $2000. I'm not trying to dissuade you -- investing is a skill, and if it only costs $2000 to learn it, you've done great. If you're not afraid to lose your capital, you'll be much better positioned to take calculated risks. Be aware of commissions. If you have only $2000, you will have to engage in fewer, more profitable trades -- otherwise commissions will completely erode your profits. Let's say it costs $10 to make a round-trip buy/sell trade. That's already 0.5% of your capital right there. If you do 10 trades a year, you're starting off with an annual return of -5%. Traditional stock picking really isn't my thing. It's nearly impossible to have an informational advantage. The professionals can barely beat their benchmark on a regular basis. It just doesn't make sense to play the stock picking game unless you have a credible reason to believe that you have an edge over the competition. A great place to hang out is www.nuclearphynance.com. It's the best message board for quant finance. Lurk there for a while and learn about the computational and quantitative side of finance. Traditional stock picking isn't really related to hacking, but there are sides of finance that are.
- kyro 18y ago
  Well, as far as informational advantage, all company related information seems to be public - balance sheets, conference calls, etc. Are you referring to information that deals with the second to second fluctuations of stock prices due to sell-offs and fund activity? Are there any services that help to narrow the informational gap between common investors and professional managers?
  - aswanson 18y ago
    If there are, everyone has access to the information, neutralizing it's utility to you. A few things you might want to read: http://www.wallstreetselfdefensemanual.com/the_wall_street_selfdefen/2007/02/7_meet_your_com.html http://www.wallstreetselfdefensemanual.com/the_wall_street_s... http://www.sanfranmag.com/story/best-investment-advice-youll-never-get http://www.sanfranmag.com/story/best-investment-advice-youll...
  - Retric 18y ago
    The only real advantage open to you is a better understanding of the industry than most investors. EX: Buying dell in 1995, the market is booming and they have a good reputation so you do the math and think they are undervalued.
arebop 18y ago
Benjamin Graham's The Intelligent Investor is a classic you should probably read. Burton Malkiel's Random Walk Down Wall Street was also interesting. I hear that Hull's Options Futures and Other Derivatives is a good intro to the more mathematically sophisticated instruments, but I haven't read it myself.
ojbyrne 18y ago
http://www.amazon.com/Wall-Street-Self-defense-Manual-Intelligent/dp/0977743322 http://www.amazon.com/Wall-Street-Self-defense-Manual-Intell... Summary - buy index funds, keep your costs low, invest for the long term.
fizx 18y ago
The best advice I've heard about trading is poker advice. "There's a sucker at every table. If you can't spot him, it's you." Cycles like the one we're going through really illustrate this. Look at all the suckers who bought 2nd homes in Stockton as an "investment." If you realized this, you bet against that trend, and made money.
- thorax 18y ago
  The sad truth is that there's often a lot of suckers at the table. Spotting the sucker doesn't mean you're not one.
  - fizx 18y ago
    True, but identifying the other sucker means that you know why the other guy is a sucker. If you can constrain your betting to betting against suckers, into their weak spot, its hard not to win. The hard part is being patient enough to avoid competing with the unknowns at the table.
- captainobvious 18y ago
  But if your bet was placed as a CDS with Lehman, you actually may not have made money.
teuobk 18y ago
Index funds. As a broad generalization, index funds are superior to managed funds due to higher long-term returns and far lower fees. As another broad generalization, you can have higher returns than index funds (aka the market) only at the cost of increased risk.
- Devilboy 18y ago
  I recall reading somewhere that most pro traders can't even beat the common index funds.
  - pj 18y ago
    Well, I think about 75% of mutual funds underperform market index funds that charge fractions of the fees. And those are managed by pros with years and years of training and experience. It's a tough world for the individual. Yes, the risk is higher, but the reward is also higher. One of the first things to learn is your own risk tolerance. That's key.
- zackola 18y ago
  +1 I'd recommend reading The Boglehead's Guide to Investing. And checking out the forums over here: http://www.bogleheads.org/ http://www.bogleheads.org/ Amazingly intelligent discussion going on.
Rod 18y ago
As someone who once worked for a hedge fund, please allow me to give you some words of advice: - what advantage do you think you will have over others? Unless you have friends in high places and plan to do insider trading (which is very illegal), you will be one more amateur playing against the professionals in the banks and hedge funds. The pros work at least 12 hours a day and have years of experience. They are also better connected than you. So... what advantage do you think you have? If you can't answer this simple question, I advise you to choose a game where you have an advantage. - if you think I am being too pessimistic and defeatist, do read Prof. Larry Harris' paper The Winners and Losers of the Zero-Sum Game: The Origins of Trading Profits, Price Efficiency and Market Liquidity at http://www-rcf.usc.edu/~lharris/ABSTRACT/Zerosum.htm http://www-rcf.usc.edu/~lharris/ABSTRACT/Zerosum.htm - be ready to lose your $2000 (like someone else mentioned before) and accept it as a "price" to pay to learn something about investing. - brokers are crooks. All of them. They will "rape" you whenever they have a chance. - don't invest in stocks, invest in yourself. If you are on HN, I assume you like to write code. Investing $2000 in an idea you might have will likely yield better dividends in the long term. I am not trying to be pedantic or anything. I am only trying to put things in perspective. Everybody would like to make money in the stock market, but few manage to do it... and the ones who do manage to make money consistently over the years (and within the law) most likely have years and years of experience and hard work under their belts.
- Retric 18y ago
  I agree with what you say, but at some point it's a good idea to buy stocks. 1) If you buy a range of dividend stocks you have vary good odds of making money over the long term. Just not a lot of money. 2) Always trade at least 1k or the transaction costs are going to kill you. 3) Time is on your side. 2,000 * 1.05 ^ (65 - 21) = 17,000, but paying taxes on this every year is going to bite you. 4) Mutual funds have a worse return than just buying stocks, but the transaction costs are less harsh so if your just in the market for a few years go with an index fund.
  - steveplace 18y ago
    If you buy a range of dividend stocks you have vary good odds of making money over the long term. Just not a lot of money. That's nice until they cut their dividend. Which should be happening in the next 6 months in weak sectors.
Prrometheus 18y ago
Save your money and spend it on something useful instead. Or buy a newspaper stock section blown up to wall-size, a monkey, and some darts. But seriously, Google "survivorship bias". The ones selling advice are doing so because they were the ones lucky enough to survive and smart enough to realize that selling advice is more predictably profitable than playing the market.
- steveplace 18y ago
  The ones selling advice are doing so because they were the ones lucky enough to survive and smart enough to realize that selling advice is more predictably profitable than playing the market. Don't be so quick to judge. There are plenty of guys out there that trade their own money as well as have services on the side. The investment service field is lucrative to proven traders because it is much less volatile and risky than their current proffestion. Brian Shannon is one example (alphatrends.net). He sells books and seminars but he also sticks his neck out there and actually admits when he's wrong.
vlad 18y ago
Do not "play the stocks game" if you think it's a game. The point of investing is to make money. Don't invest in any company unless you have valid reasons to believe the company will go up in value in whatever time frame you're looking for results. And this should be true every week, or you should sell when you don't feel comfortable with the stock any longer. Because the way you feel, so will other investors, and if for whatever reason they don't feel comfortable, they will pull their money, so you might as well react on that feeling first. If the stock continues its devaluation, then it was a good call by you, if the stock actually gets more valuable, then you still might feel good about leaving it since it might now be even more likely to drop now at its higher price. Don't invest in stock simply because you don't know what else to do with the money. And don't invest money you might need in the next six months; the point is to keep money but make logical bets from time to time on companies when you feel you have a much larger informational advantage than most everybody else, using money you won't need in the near future. The point is not to lose money, though if you do lose a bit, it won't be tomorrow's mortgage payment. The most important thing to realize is that the best thing you could with the money is to put it in a savings account and try to release lots of software or web apps for feedback and practice in running a business. Your salary and job opportunities will increase, as well as give you a chance to make money on the side, as well, pay for retirement, and a small runway for you to go full time if you want to take your ideas further. Because with stocks, you're buying companies, not pieces of paper, and finding a company that returns 2x or 3x the investment will be hard to do at the scale of companies listed on NASDAQ, and a micro-cap company where you have enough knowledge or control would be hard to find either. But if you invest your time towards creating things, you'll raise the worth of your skills (or at least, remain competitive and diversified), get "free" business lessons from your experience, and may be able to make thousands of dollars on the side per year or month, on top of that, as a bonus. This is almost a guaranteed investment. And if you could use some of the money you saved up to start a company and figure out the accounting behind it, so the only thing you have to worry about is creating stuff, then you'll be basically set for life. Why? Because as someone trying to run a business, as well as someone who follows the latest in technology, you'll be in a better position than almost any other investor regarding knowing when to invest in tech companies. On top of that, I can imagine that at some point you could even be a seed investor in companies that are not even on the stock exchange. You will also be the go-to guy at your company. Finally, your company might even become profitable enough for you to go full-time or worth enough to somebody that they'll pay you five, six, or maybe even seven figures for it. Investing is not gambling. And you're paying $7-14 a trade, so it's probably better to stick with 5 companies or so, which helps to diversify, and if you have to sell your whole position to buy a better one, you can sell all of it for just that fee, instead of trying to sell a bunch of different ones for $7-14 each. Don't invest in companies you wouldn't buy from. Invest in companies that seem well run and on the upward trend, that at the same time, you feel that other people, once they find out how good it is in the next few months, will invest in as well, and therefore you would make your money back and then some, based on lots of new people learning about the company and buying their product and increasing their earnings, as well as the influx of buyers of their stock, sending the price of it up by way of more means than one. Finally, the trends of the last 40 years are irrelevant to what will happen in the next 40. This is 100% true. Investing is not a tax, and you should not treat it as such (i.e. it leaves your bank account, and if it comes back to help you in any way, then that's great! No, it's not how this works.)
bokonist 18y ago
My favorite posts and sites: Mark Cuban's post on stocks: http://blogmaverick.com/2008/09/08/talking-stocks-and-money/ http://blogmaverick.com/2008/09/08/talking-stocks-and-money/ A blog of a hedge fund trader in Japan: http://nihoncassandra.blogspot.com http://nihoncassandra.blogspot.com A blog of a hedge fund trader in London: http://macro-man.blogspot.com/ http://macro-man.blogspot.com/ Reminices of a stock operator - written in the 1920's, everything he says still applies today. If you really want to understand both the economy and stocks, try doing this search in google: site:blogs.cfr.org/setser/ mencius moldbug and read every comment by Mencius. Finally, I recommend a short comment I made about stocks and investing here: http://www.newmogul.com/item?id=2587 http://www.newmogul.com/item?id=2587 I was a huge fan of the book "A Random Walk Down Wall St" when I first read it. But now I believe that it is seriously misguided. The stock market is a far different beast than it was in 1970.
apinstein 18y ago
Today there are so many ways you can "practice" trading I'd recommend using a stock market game before jumping in. You will make many mistakes in trading; might as well make them on a simulator. http://vse.marketwatch.com/Game/Homepage.aspx http://vse.marketwatch.com/Game/Homepage.aspx The people saying "be prepared to lose it all" are crazy. You only need to be prepared to loose it all if you're undertaking a really risky strategy. Of course this depends on your goals. If you're just picking individual stocks based on thin information with little industry knowledge and hopes to make a quick buck, then, yeah be prepared to lose it all. If you are trying to enter the market for the first time with a long-term portfolio strategy, you're doing it wrong if you must also prepare to lose it all.
- apinstein 18y ago
  One more thing... +1 for the people suggesting to read stuff by Warren Buffet and doing index funds. Long-term, buy-and-hold, diversified investing is the best way to go.
pj 18y ago
First of all, ignore Jim Cramer!! Stay as far away from him as possible. The little bits of truth he speaks are not worth wading through the coin tosses, just stay away. Next, when you're trying to figure out which stocks to buy, forget about the stocks. Don't look to PE's, and all the other ratios to figure out where the market is going. Look at the world around you. Look at where the /world/ is going. Which things are going to be hot 20 years from now? Those are the things that are going to be your biggest wins. You only need one or two or three really big winners to set you for life and you have many years to find them. Don't look at the latest headlines to decide where to put your money. You may make money trading stocks, buying at $22 and selling at $26, it is possible and that is very likely to happen. But that is not the goal. Four dollars is not the goal. Four million dollars is the goal and that takes years and years. So, take your time. Don't invest any real dollars for a year. Take the dollars you would invest and put them into books and education and paper trading. I know it sounds lame and where's the fun in that, but if fun is what you are looking for, go to vegas. Poker is more exciting and easier to figure out how to win and you can make a lot of money with a $2,000 bank roll if you play your cards right. If you are just absolutely itching to put that money into the market, look in to index funds. Index funds are easily managed funds that don't cost a lot of money to keep running but are still diversified. Put your money into one of those, like buy the QQQQ or something -- IT MAY CRASH right after you buy it, the point isn't to make money, the point is to pay attention. Pay attention to the short term swings in the market, but don't buy or sell based on them. Look at the fundamentals of the entire market to decide when to make big moves. Make little moves on little time frames, big moves on big time frames. For example, you could have looked at the markets a couple years back and known that the future didn't look so hot. You probably didn't know when everything was going to collapse, but you knew the fundamentals weren't looking very good. Okay, so then you might want to tend toward market underweight. Anyway, lots of useless advice summed up in a couple words: Don't get trigger happy. Use your head. Practice makes perfect. Stocks are not a get rich quick scheme.
brk 18y ago
$2000 really isn't enough to "play the market". As the other comments have suggested there is too much stacked against you. If you really want to try your hand, I'd pick 1 moderately risky stock with a shot at long-term (5-7 years) surprise growth. There is a high probably your $2000 will become $200, but that probability exists almost universally. Personally, if I was going to bet a $2000 chunk, I would throw it at Ford stock today (F). This is based on the fact that I used to work there (FSIC), still know several people in the company, and have a belief that they have a solid long-term strategy. There is a high probability that they'll run out of money before they can fully enact that strategy, but if they do, that $2.50 stock will easily be $25 in 7 years. Or $0. That's the fun of trying to make money on individual stock trades :) In 5 years, you'll either have a decent chunk of money, or nothing. Neither outcome is life-changing anyway.
apsurd 18y ago
I've never invested a penny in stocks, but my friend has and has his ups and downs..but is currently down..about $13,000 (he is your age). I highly recommend you do as others have mentioned and INVEST IN YOURSELF, not someone elses business. But if you insist.. I recommend you NOT be like every other "average investor" and have a read at what tim sykes has to say about it all ... http://timothysykes.com/ http://timothysykes.com/
xenophanes 18y ago
Buy AAPL long.
jhp 18y ago
Here are some things to keep in mind: - I think that it is best to invest directly in securities (only resorting to index funds if you really must outsource your thinking). You'll learn the most if you make the big decisions. - Learn how to analyze the public information available. Cash flows. Balance sheets. Income statements. Get an accounting book! Learn about the types of securities and alternatives to equity investing (especially the various kinds of bonds). - Market prices are based on combination of innumerable emotional and rational reactions to the real value of the companies behind the shares. Only over the long term will the price reflect the real value of these businesses. At any point, the price can be completely outside of reason, so beware of and be ready to take advantage of the stupidity of crowds. - Invest in types of businesses that you can understand, or plan on spending lots of time researching "in the field". Really focus on a few. When I was buying shares of Nabisco, I was spending late nights in the cookie aisle at Vons. When I started buying Apple, I spent serious time at their first toe-hold at CompUSA and later at their stores. I recently spent time at the Crocs stand at the mall to evaluate this company. - Learn the different investment mental models and build one for yourself. Graham. Buffett. Munger. Lynch. Fisher. - Learn about related fields. Psychology. Macroeconomics. Patent law. Whatever is important to industries that you are going to focus on. - Keep investing. When you are 40 or 50 years old you might be half-good at it.
steveplace 18y ago
I run a stock options website (investingwithoptions.com) and am known as one of the better options guys out there. 2k won't get you far in terms of trading. You should probably look into passive investing. You will get much larger returns investing in yourself than trying to speculate on the market. If you do want to speculate, you might want to look into index verticals. They limit your risk (50-150 loss max ) and have less comission vs trading stock ($3 vs $10). You'll at least lose money more slowly. And your delta risk initially isn't a lot so you can unwind a position with much less loss early than if you were to get into futures/stock. Me personally I trade options using technical and sentimental analysis, which is heresy around these "effecient market" places. Oh, and don't listen to Cramer or CNBC. They're asshats. I've got a pretty decent blogroll built up on my site with bloggers that risk their own money for a living, so that's a good place to start.
nas 18y ago
Read "The Intelligent Investor". It was written many years ago and is still relevant today (it's actually scary how history seems to repeat itself). Regarding fees, note that commissions are not the only costs to transactions. Remember the bid/ask spread and that as a small investor you will be taken advantage of. Long term is the way to go, IMHO. It is nearly impossible to predict short term price movements. Also, forget the efficient market hypotheses; if the SP500 can go up 5% one day and down 5% the next it's obviously bogus. You can count on the average stock owner to be either overly optimistic or overly pessimistic (and not just a little bit). Do you homework first and keep your head. Find companies with business models you can understand: how are they making revenue, what are their costs, what are their risks? Use discounted cash flows (i.e. NPV) to find a fair market price (P/E is good rough estimate). Be very conservative when doing this, especially with regards to expected EPS and growth. Double digit growth cannot be maintained and generally high growth companies are overvalued. Most libraries have S&P reports that you can study for free (good for EPS data although take it with a grain of salt). Some discount brokers also offer stock reports. Note that analysis recommendations are usually bogus but it doesn't hurt to take note. Index funds are a good way to diversity but watch out for fees (I like Vanguard, especially their ETFs) and too much portfolio turnover (some are just badly designed). However, it's my opinion that you can do better than the indexes with a little common sense (see above) and if you can stomach the extra risk. Stick to large cap stocks because they are more liquid and less susceptible to insider information. It doesn't hurt to look at insider activity (although note the effects of stock options). $2000 is not much money, probably not enough to start messing with individual stocks. I would stick it low fee, value ETF and forget about it. $10,000 is probably a more reasonable starting amount, say 25% in high-grade bonds, 25% in a index fund, and 50% in individual stocks of your choosing (say 2 or 3).
tocomment 18y ago
I'm reading so many negative comments. If he's smart and interested in stocks, perhaps he can make money. What if Warren Buffet had posted an ask-HN before starting his career?
- Shamiq 18y ago
  Counter factuals are experiments we all wish we could run.
- eru 18y ago
  There was advice to read the "Intelligent Investor" written by Ben Graham, Buffet's mentor.
axiom 18y ago
To all the naysayers: remember that holding cash is holding a depreciating asset. That 2k is not going to be worth 2k in a year's time. So really by not investing you're taking a guaranteed loss of 3%-15% a year (depending on how pessimistic you are about future inflation) instead of some other possible loss that depends on how risky your make your portfolio. For what it's worth my suggestion is to put your money in gold (GLD or DGP) or oil (USO, DXO or their variants.) Edit: oh and of course go with an online discount broker instead of a major bank. You'd have to be insane to do otherwise. I'm in Canada so I use Questrade, and they are phenomenal.
- eru 18y ago
  As if gold was an investment with a rate of return.. And he isn't going to hide that 2k$ under his pillow.
  - axiom 18y ago
    DGP = 2x gold earnings
deleted 18y ago
[deleted]
comatose_kid 18y ago
Lots of good advice in this thread. In addition, understand risk management. You don't have enough cash to diversify across stocks (and time, buying in stages) to really be effective. An index fund is probably your best bet. That said, if you want to take a lot of risk, look into options trading. Deep in the money calls are a relatively low risk way to succeed. But the learning curve for options is steep.
tom_rath 18y ago
With $2,000, the best investment you can make is purchasing quality, non-perishable dry goods in bulk as you spot them on sale. That's not sarcasm. You'll be eating and wearing out your stuff one way or another and buying a year's worth of rice, grass seed, socks, underwear, cat litter, detergent, toothpaste, etc. when you spot it on sale could shave 20%+ off your living expenses. So, a greater than 20% return. No risk, no taxes, and no commission paid. You really can't do better than that to put an extra $500 in your pocket two years from now.
- eru 18y ago
  Risk of theft, fire and cost of storage. (Might still be a good idea.)
  - tom_rath 18y ago
    You get a gold star for pedantry but if those risks aren't already covered by your home/apartment insurance, that should be the first thing you purchase. If you don't have enough space to store extra rice and underwear, you're unlikely to have sufficient assets to invest in the first place.
    - eru 18y ago
      Ok, the most important risk I see in practise is that you will move and it's cumbersome to carry around stuff.
- marvin 18y ago
  This is an interesting idea..but keep in mind that you're locking yourself into a particular brand of each of the products. If you suddenly find that you hate the rice, toothpaste and underwear, you're out of luck.
diN0bot 18y ago
why all the pessimistic comments? invest that $2000 in a 401 or roth low-risk fund and you will likely get good returns in 50 years.
oakmac 18y ago
step 1) please forget anything you read from Jim Cramer step 2) read The Black Swan by Taleb step 3) make an account at caps.fool.com step 4) get your score above 80 step 5) never invest more than 2% of your capital in any investment step 6) figure out how to profit from your capital given rule #5 step 7) if you've figured out rule #6 you're set for life
drawkbox 18y ago
It will be a great education for you into how markets work. I know it opened my eyes widely when I started playing around the same age. It will completely change you. Couple of quick things. Don't listen to a word Cramer has to say. It is all in volume, earnings per share, FUTURE earnings per share, and ratio. Also, markets can be irrational. And no matter how smart you are there is enough FUD to cloud your decision. Expect to lose a good portion of that to start but it will be one of the best classes you ever paid for. With such low money and bad margins the odds are stacked against you but it is worth it for the awareness that you will gain with market insights. See this: http://www.youtube.com/watch?v=6jwEwlZnSFY http://www.youtube.com/watch?v=6jwEwlZnSFY In the end if you want a good chunk to be completely low fee and almost guaranteed just invest in index funds, now is a perfect time. Wait 5 years and they will be up quite a bit with usually a less than 1% fee.
raamdev 18y ago
You might want to try using the free Stock Market Game UpDown for a few weeks/months to practice investing: http://www.updown.com/?_refer=36311 http://www.updown.com/?_refer=36311 They give you $1 million in play money to invest, but you actually make real money based on your performance (no minimum transfer amount -- I've made a whooping $0.82 so far, but I can withdraw it if I want).
charlesju 18y ago
The only way to win in stocks is to invest in value and hold long. I would suggest just going in on a leveraged index ETF and just forget about for 5 years. I bet you'll get around a 20% return.
dc2k08 18y ago
Seems to be a lot of people here who have a sound and rational knowledge of this game as the OP imagined there would be. I have a question and would be very grateful if someone could answer. I have a good reason to believe that a relatively small Chinese company will be bought over by a massive US company this year. being a total newb, would it be feasible for me to buy shares in this company easily so that I can profit from them when it is bought? someone suggested sharebuilder.com. Anyone ever use them?
tlrobinson 18y ago
I just started reading Andrew Tobias's book, "The Only Investment Guide You'll Ever Need", and so far it looks like it will be good. End of the first chapter: "There are, in fact, very few ways to get rich quick. Fewer sill that are legal. Here's one: Take $5000 (borrow it if you have to), place it on 22 at the nearest roulette table, and win $175,000. Don't laugh. Many complicated schemes, if they were stripped of their trappings and somehow reduced to their underlying odds, would not be much less risky. It's the trappings - the story, the pitch - that obscure the odds and persuade people to ante up the $5000 they'd never dream of betting at roulette." He talks about how the book is about seeing the forest through the trees. You can learn all you want about a certain type of investment, but what you really need to know is whether you should be involved in that investment in the first place. "For example: It is a fact that 90% or more of the people who play the commodities game get burned. I submit that you have now read all you need ever read about commodities."
lallysingh 18y ago
Here, save yourself some money, use it as others have mentioned to invest in yourself. If you're doing it to learn, there's no reason to do it under fire. I'll +1 to the other advice here: go fantasy to learn. They're real numbers, so the educational value is the same. You can think rationally without getting as emotionally attached to the money, so you'll learn better. (Hopefully you won't go with real money until you've learned to keep a clear head) Most importantly, you'll know when you're actually good enough to do well in the market -- when you're doing better than your competition over a long period of time. That will tell you when it's skill instead of luck.
sethg 18y ago
The nickel version of A Random Walk Down Wall Street (which many folks here have recommended) is on Philip Greenspun's site: http://philip.greenspun.com/materialism/money http://philip.greenspun.com/materialism/money I'd like to call out one small part of that essay: "In every office there is at least one sorry loser checking the market every ten minutes, going home at night to read financial reports, running charts, and buying software to manage his complex portfolio. If he were a managing a $10 billion mutual fund, perhaps this effort would be worth it. But to try to beat the index by 2% with a portfolio of $50,000? That's $1,000 extra/year. Even assuming that he can get that extra 2%, he would have earned far more per hour working the night shift at the local 7-Eleven. Your time is valuable. If you must be greedy, then be greedy and smart and take a consulting job. Or enjoy the extra time with your friends and family. Don't waste it trying to beat the market."
snorkel 18y ago
Play on paper first. Pick a stock, pretend you bought N shares at X dollars today. Then see what happens. When you "sell" be sure to subtract transaction fees and short term capital gains tax from the profit. So play on paper for a month or two and see if you really are a market clairvoyant. Anyone can profit in a rising market and claim they have a "system" for doing it. If 500 people go over Niagra Falls in barrells, about 200 survive. Then those 200 go over again, and 80 survive. Then those 80 go over again, then the last 30 survivors write books about how to survive going over Niagra Falls in a barrell. Take their advice with a grain of salt.
cturner 18y ago
Being a complete beginner, what resources would you recommend to help lay the basic foundation? I tried this about four years ago. I started by playing the ASX simulated game to get a feel for it and confirmed that I was rubbish at picking day by day. Then I picked some long-term patterns I was confident with, mentally wrote off my starting money, and started playing with that. Sometimes I feel pulled towards stress by developments but then remind myself that I acknowledged it was gambling to start with and wrote off the money. Despite the downwards trend of the markets, I've only done somewhat badly and if I liquidated now would have still three quarters of the amount I started with. Experience aside, I would have been far better off keeping the money in cash and investing the time in my career. (On the other hand, the significant part of my position is anticipation of the world seeing significant uncertainty in paper currency and this has acted as a hedge against a career with a finance focus.) The major thing I've learnt is the value of cash in terms of its flexibility. I now think about cash as being analogous to having a flexible option, whereas if you're locked into a self-imposed rule where you only sell on certain sorts of gain (e.g. purchase price plus 20%) then you lose flexibility that is valuable. Definitely on the bright side - at the time my family and accountant were advising me to buy a house and a get a huge mortgage. I'm in a far strong position than I would have been if I'd done that. I think that it is a poor decision for young, unattached people to buy houses to live in on mortgage because it limits their options to follow career opportunities and locks them into significant debt.
czcar 18y ago
Unless you want to do this full time, put it in a index fund.
MaysonL 18y ago
Read this: http://ycombinator.com/munger.html http://ycombinator.com/munger.html as well as the rest of the yc library (click on the library link at the bottom right of the front page).

38 points by kyro 18y ago

frisco 18y ago

Avoid individual stocks. Without insider knowledge, an individual is basically gambling when they invest in individual companies. Try finding a fund that provides good returns, and let a professional who has hundreds of millions of dollars in leverage and much better insider knowledge make the specific decisions. The other key is to look abroad, especially in emerging markets right now. That, and Chinese infrastructure (i.e., airports).

Nwallins 18y ago
> Without insider knowledge > Try finding a fund that provides good returns Based on what, exactly?

jwilliams 18y ago

This is advice that people rarely take, and I'd probably ignore... but I'd recommend investing with a fake portfolio to start (there are "fantasy" investment sites that make this easy). Making money is important - but I'd also recommend that you invest in things you believe in.

frisco 18y ago
"Past returns are not an indicator of future performance." It would be very easy to be caught in an upswing in some market you're investing in--be it US technology in 2000 / 2006, or Czech railroads in 2009, or whatever--and be stunned when they dive when you start playing for real money. Investing in things one believes in is dangerous advice. Believing is important in many things in hacker culture; investing in public companies can't be one of them. You need more solid evidence, not just faith.
- jwilliams 18y ago
  and be stunned when they dive when you start playing for real money So you're saying practice makes you less prepared to invest for real? Don't follow this logic at all. What it is good for is understanding the mechanics of the market. There is a lot more to it than buy/sell - even for simple investors are reporting periods, dividends, options, funds, exchange rates, interest rates, etc. Practice lets you get a feel for those events and how they drive the market and your investing. You need more solid evidence, not just faith. When I say believe in, I mean something that fits your world view... Not that you (simply) believe will make money. If you want to invest purely to make money, that's fine too - I find I'm more successful when I invest in areas that are closer to my own interests/world-view/whatever you want to call it.
  - frisco 18y ago
    I'm saying that "practice" doesn't affect your preparedness for something that's either intrinsically random (and I mean true-random), or affected by knowledge you don't have but others with tons of capital will. You can fool yourself into thinking you're better prepared, but you're not. "Getting good" in fantasy stocks is the equivalent of flipping a coin a hundred times, and getting some heads streaks towards the end.
    - jwilliams 18y ago
      "Getting good" in fantasy stocks is the equivalent of flipping a coin a hundred times, and getting some heads streaks towards the end. So using real money instead mitigates this random process in some way? That doesn't follow. I'm not going to get into your characterisation of the market. If you believe it random, then I'll let that influence your own investing... However, investing is still has a lot of technical aspects, and practice does improve your understanding of this.

jwb119 18y ago

I would absolutely recommend reading "A Random Walk Down Wall Street" by Burton Malkiel. Its a great introduction to the theory of efficient markets.

Prrometheus 18y ago
Also, "Fooled by Randomness"
- jaydub 18y ago
  Also by Taleb "The Black Swan"
  - oakmac 18y ago
    The most important book I ever read.
    - yan 18y ago
      I can't recommend Taleb enough
bokonist 18y ago
How can you believe the efficient market theory after the events of October 2008? The stock market may be unpredictable, but it is far from rational. IMHO, the analysis "A Random Walk Down Wall St" does not really understand the nature of the modern stock market (although reading it is better than listening to Jim Cramer).
- jwb119 18y ago
  Just for the sake of clarity, my post didn't go so far as to endorse the efficient market hypothesis as 100% valid. I do however think it is fundamental to have an understanding of the basic precepts before diving in the market.
- steveplace 18y ago

seregine 18y ago

For me, Warren Buffett and Charlie Munger's investment advice resonates the most. You could start here: http://ycombinator.com/munger.html http://ycombinator.com/munger.html Also, before buying mutual funds, read this: http://www.sanfranmag.com/story/best-investment-advice-youll-never-get#story_top http://www.sanfranmag.com/story/best-investment-advice-youll...

tialys 18y ago

http://news.ycombinator.com/item?id=248469 http://news.ycombinator.com/item?id=248469 Some good stuff here.

mixmax 18y ago

The market isn't irrational - people are. Learn about psychology, sociology ad behavioral economics and you'll have an edge. Here's a nobel prize lecture on behavioral economics to get you started: http://nobelprize.org/nobel_prizes/economics/laureates/2002/ http://nobelprize.org/nobel_prizes/economics/laureates/2002/ And another really important tip: Make sure you can afford to lose all the money you put in.

ctkrohn 18y ago

Expect to lose your $2000. I'm not trying to dissuade you -- investing is a skill, and if it only costs $2000 to learn it, you've done great. If you're not afraid to lose your capital, you'll be much better positioned to take calculated risks. Be aware of commissions. If you have only $2000, you will have to engage in fewer, more profitable trades -- otherwise commissions will completely erode your profits. Let's say it costs $10 to make a round-trip buy/sell trade. That's already 0.5% of your capital right there. If you do 10 trades a year, you're starting off with an annual return of -5%. Traditional stock picking really isn't my thing. It's nearly impossible to have an informational advantage. The professionals can barely beat their benchmark on a regular basis. It just doesn't make sense to play the stock picking game unless you have a credible reason to believe that you have an edge over the competition. A great place to hang out is www.nuclearphynance.com. It's the best message board for quant finance. Lurk there for a while and learn about the computational and quantitative side of finance. Traditional stock picking isn't really related to hacking, but there are sides of finance that are.

kyro 18y ago
Well, as far as informational advantage, all company related information seems to be public - balance sheets, conference calls, etc. Are you referring to information that deals with the second to second fluctuations of stock prices due to sell-offs and fund activity? Are there any services that help to narrow the informational gap between common investors and professional managers?
- aswanson 18y ago
  If there are, everyone has access to the information, neutralizing it's utility to you. A few things you might want to read: http://www.wallstreetselfdefensemanual.com/the_wall_street_selfdefen/2007/02/7_meet_your_com.html http://www.wallstreetselfdefensemanual.com/the_wall_street_s... http://www.sanfranmag.com/story/best-investment-advice-youll-never-get http://www.sanfranmag.com/story/best-investment-advice-youll...
- Retric 18y ago
  The only real advantage open to you is a better understanding of the industry than most investors. EX: Buying dell in 1995, the market is booming and they have a good reputation so you do the math and think they are undervalued.

arebop 18y ago

Benjamin Graham's The Intelligent Investor is a classic you should probably read. Burton Malkiel's Random Walk Down Wall Street was also interesting. I hear that Hull's Options Futures and Other Derivatives is a good intro to the more mathematically sophisticated instruments, but I haven't read it myself.

ojbyrne 18y ago

http://www.amazon.com/Wall-Street-Self-defense-Manual-Intelligent/dp/0977743322 http://www.amazon.com/Wall-Street-Self-defense-Manual-Intell... Summary - buy index funds, keep your costs low, invest for the long term.

fizx 18y ago

The best advice I've heard about trading is poker advice. "There's a sucker at every table. If you can't spot him, it's you." Cycles like the one we're going through really illustrate this. Look at all the suckers who bought 2nd homes in Stockton as an "investment." If you realized this, you bet against that trend, and made money.

thorax 18y ago
The sad truth is that there's often a lot of suckers at the table. Spotting the sucker doesn't mean you're not one.
- fizx 18y ago
  True, but identifying the other sucker means that you know why the other guy is a sucker. If you can constrain your betting to betting against suckers, into their weak spot, its hard not to win. The hard part is being patient enough to avoid competing with the unknowns at the table.
captainobvious 18y ago
But if your bet was placed as a CDS with Lehman, you actually may not have made money.

teuobk 18y ago

Index funds. As a broad generalization, index funds are superior to managed funds due to higher long-term returns and far lower fees. As another broad generalization, you can have higher returns than index funds (aka the market) only at the cost of increased risk.

Devilboy 18y ago
I recall reading somewhere that most pro traders can't even beat the common index funds.
- pj 18y ago
  Well, I think about 75% of mutual funds underperform market index funds that charge fractions of the fees. And those are managed by pros with years and years of training and experience. It's a tough world for the individual. Yes, the risk is higher, but the reward is also higher. One of the first things to learn is your own risk tolerance. That's key.
zackola 18y ago
+1 I'd recommend reading The Boglehead's Guide to Investing. And checking out the forums over here: http://www.bogleheads.org/ http://www.bogleheads.org/ Amazingly intelligent discussion going on.

Rod 18y ago

As someone who once worked for a hedge fund, please allow me to give you some words of advice: - what advantage do you think you will have over others? Unless you have friends in high places and plan to do insider trading (which is very illegal), you will be one more amateur playing against the professionals in the banks and hedge funds. The pros work at least 12 hours a day and have years of experience. They are also better connected than you. So... what advantage do you think you have? If you can't answer this simple question, I advise you to choose a game where you have an advantage. - if you think I am being too pessimistic and defeatist, do read Prof. Larry Harris' paper The Winners and Losers of the Zero-Sum Game: The Origins of Trading Profits, Price Efficiency and Market Liquidity at http://www-rcf.usc.edu/~lharris/ABSTRACT/Zerosum.htm http://www-rcf.usc.edu/~lharris/ABSTRACT/Zerosum.htm - be ready to lose your $2000 (like someone else mentioned before) and accept it as a "price" to pay to learn something about investing. - brokers are crooks. All of them. They will "rape" you whenever they have a chance. - don't invest in stocks, invest in yourself. If you are on HN, I assume you like to write code. Investing $2000 in an idea you might have will likely yield better dividends in the long term. I am not trying to be pedantic or anything. I am only trying to put things in perspective. Everybody would like to make money in the stock market, but few manage to do it... and the ones who do manage to make money consistently over the years (and within the law) most likely have years and years of experience and hard work under their belts.

Retric 18y ago
I agree with what you say, but at some point it's a good idea to buy stocks. 1) If you buy a range of dividend stocks you have vary good odds of making money over the long term. Just not a lot of money. 2) Always trade at least 1k or the transaction costs are going to kill you. 3) Time is on your side. 2,000 * 1.05 ^ (65 - 21) = 17,000, but paying taxes on this every year is going to bite you. 4) Mutual funds have a worse return than just buying stocks, but the transaction costs are less harsh so if your just in the market for a few years go with an index fund.
- steveplace 18y ago
  If you buy a range of dividend stocks you have vary good odds of making money over the long term. Just not a lot of money. That's nice until they cut their dividend. Which should be happening in the next 6 months in weak sectors.

Prrometheus 18y ago

Save your money and spend it on something useful instead. Or buy a newspaper stock section blown up to wall-size, a monkey, and some darts. But seriously, Google "survivorship bias". The ones selling advice are doing so because they were the ones lucky enough to survive and smart enough to realize that selling advice is more predictably profitable than playing the market.

steveplace 18y ago
The ones selling advice are doing so because they were the ones lucky enough to survive and smart enough to realize that selling advice is more predictably profitable than playing the market. Don't be so quick to judge. There are plenty of guys out there that trade their own money as well as have services on the side. The investment service field is lucrative to proven traders because it is much less volatile and risky than their current proffestion. Brian Shannon is one example (alphatrends.net). He sells books and seminars but he also sticks his neck out there and actually admits when he's wrong.

vlad 18y ago

Do not "play the stocks game" if you think it's a game. The point of investing is to make money. Don't invest in any company unless you have valid reasons to believe the company will go up in value in whatever time frame you're looking for results. And this should be true every week, or you should sell when you don't feel comfortable with the stock any longer. Because the way you feel, so will other investors, and if for whatever reason they don't feel comfortable, they will pull their money, so you might as well react on that feeling first. If the stock continues its devaluation, then it was a good call by you, if the stock actually gets more valuable, then you still might feel good about leaving it since it might now be even more likely to drop now at its higher price. Don't invest in stock simply because you don't know what else to do with the money. And don't invest money you might need in the next six months; the point is to keep money but make logical bets from time to time on companies when you feel you have a much larger informational advantage than most everybody else, using money you won't need in the near future. The point is not to lose money, though if you do lose a bit, it won't be tomorrow's mortgage payment. The most important thing to realize is that the best thing you could with the money is to put it in a savings account and try to release lots of software or web apps for feedback and practice in running a business. Your salary and job opportunities will increase, as well as give you a chance to make money on the side, as well, pay for retirement, and a small runway for you to go full time if you want to take your ideas further. Because with stocks, you're buying companies, not pieces of paper, and finding a company that returns 2x or 3x the investment will be hard to do at the scale of companies listed on NASDAQ, and a micro-cap company where you have enough knowledge or control would be hard to find either. But if you invest your time towards creating things, you'll raise the worth of your skills (or at least, remain competitive and diversified), get "free" business lessons from your experience, and may be able to make thousands of dollars on the side per year or month, on top of that, as a bonus. This is almost a guaranteed investment. And if you could use some of the money you saved up to start a company and figure out the accounting behind it, so the only thing you have to worry about is creating stuff, then you'll be basically set for life. Why? Because as someone trying to run a business, as well as someone who follows the latest in technology, you'll be in a better position than almost any other investor regarding knowing when to invest in tech companies. On top of that, I can imagine that at some point you could even be a seed investor in companies that are not even on the stock exchange. You will also be the go-to guy at your company. Finally, your company might even become profitable enough for you to go full-time or worth enough to somebody that they'll pay you five, six, or maybe even seven figures for it. Investing is not gambling. And you're paying $7-14 a trade, so it's probably better to stick with 5 companies or so, which helps to diversify, and if you have to sell your whole position to buy a better one, you can sell all of it for just that fee, instead of trying to sell a bunch of different ones for $7-14 each. Don't invest in companies you wouldn't buy from. Invest in companies that seem well run and on the upward trend, that at the same time, you feel that other people, once they find out how good it is in the next few months, will invest in as well, and therefore you would make your money back and then some, based on lots of new people learning about the company and buying their product and increasing their earnings, as well as the influx of buyers of their stock, sending the price of it up by way of more means than one. Finally, the trends of the last 40 years are irrelevant to what will happen in the next 40. This is 100% true. Investing is not a tax, and you should not treat it as such (i.e. it leaves your bank account, and if it comes back to help you in any way, then that's great! No, it's not how this works.)

bokonist 18y ago

My favorite posts and sites: Mark Cuban's post on stocks: http://blogmaverick.com/2008/09/08/talking-stocks-and-money/ http://blogmaverick.com/2008/09/08/talking-stocks-and-money/ A blog of a hedge fund trader in Japan: http://nihoncassandra.blogspot.com http://nihoncassandra.blogspot.com A blog of a hedge fund trader in London: http://macro-man.blogspot.com/ http://macro-man.blogspot.com/ Reminices of a stock operator - written in the 1920's, everything he says still applies today. If you really want to understand both the economy and stocks, try doing this search in google: site:blogs.cfr.org/setser/ mencius moldbug and read every comment by Mencius. Finally, I recommend a short comment I made about stocks and investing here: http://www.newmogul.com/item?id=2587 http://www.newmogul.com/item?id=2587 I was a huge fan of the book "A Random Walk Down Wall St" when I first read it. But now I believe that it is seriously misguided. The stock market is a far different beast than it was in 1970.

apinstein 18y ago

Today there are so many ways you can "practice" trading I'd recommend using a stock market game before jumping in. You will make many mistakes in trading; might as well make them on a simulator. http://vse.marketwatch.com/Game/Homepage.aspx http://vse.marketwatch.com/Game/Homepage.aspx The people saying "be prepared to lose it all" are crazy. You only need to be prepared to loose it all if you're undertaking a really risky strategy. Of course this depends on your goals. If you're just picking individual stocks based on thin information with little industry knowledge and hopes to make a quick buck, then, yeah be prepared to lose it all. If you are trying to enter the market for the first time with a long-term portfolio strategy, you're doing it wrong if you must also prepare to lose it all.

apinstein 18y ago
One more thing... +1 for the people suggesting to read stuff by Warren Buffet and doing index funds. Long-term, buy-and-hold, diversified investing is the best way to go.

pj 18y ago

First of all, ignore Jim Cramer!! Stay as far away from him as possible. The little bits of truth he speaks are not worth wading through the coin tosses, just stay away. Next, when you're trying to figure out which stocks to buy, forget about the stocks. Don't look to PE's, and all the other ratios to figure out where the market is going. Look at the world around you. Look at where the /world/ is going. Which things are going to be hot 20 years from now? Those are the things that are going to be your biggest wins. You only need one or two or three really big winners to set you for life and you have many years to find them. Don't look at the latest headlines to decide where to put your money. You may make money trading stocks, buying at $22 and selling at $26, it is possible and that is very likely to happen. But that is not the goal. Four dollars is not the goal. Four million dollars is the goal and that takes years and years. So, take your time. Don't invest any real dollars for a year. Take the dollars you would invest and put them into books and education and paper trading. I know it sounds lame and where's the fun in that, but if fun is what you are looking for, go to vegas. Poker is more exciting and easier to figure out how to win and you can make a lot of money with a $2,000 bank roll if you play your cards right. If you are just absolutely itching to put that money into the market, look in to index funds. Index funds are easily managed funds that don't cost a lot of money to keep running but are still diversified. Put your money into one of those, like buy the QQQQ or something -- IT MAY CRASH right after you buy it, the point isn't to make money, the point is to pay attention. Pay attention to the short term swings in the market, but don't buy or sell based on them. Look at the fundamentals of the entire market to decide when to make big moves. Make little moves on little time frames, big moves on big time frames. For example, you could have looked at the markets a couple years back and known that the future didn't look so hot. You probably didn't know when everything was going to collapse, but you knew the fundamentals weren't looking very good. Okay, so then you might want to tend toward market underweight. Anyway, lots of useless advice summed up in a couple words: Don't get trigger happy. Use your head. Practice makes perfect. Stocks are not a get rich quick scheme.

brk 18y ago

$2000 really isn't enough to "play the market". As the other comments have suggested there is too much stacked against you. If you really want to try your hand, I'd pick 1 moderately risky stock with a shot at long-term (5-7 years) surprise growth. There is a high probably your $2000 will become $200, but that probability exists almost universally. Personally, if I was going to bet a $2000 chunk, I would throw it at Ford stock today (F). This is based on the fact that I used to work there (FSIC), still know several people in the company, and have a belief that they have a solid long-term strategy. There is a high probability that they'll run out of money before they can fully enact that strategy, but if they do, that $2.50 stock will easily be $25 in 7 years. Or $0. That's the fun of trying to make money on individual stock trades :) In 5 years, you'll either have a decent chunk of money, or nothing. Neither outcome is life-changing anyway.

apsurd 18y ago

I've never invested a penny in stocks, but my friend has and has his ups and downs..but is currently down..about $13,000 (he is your age). I highly recommend you do as others have mentioned and INVEST IN YOURSELF, not someone elses business. But if you insist.. I recommend you NOT be like every other "average investor" and have a read at what tim sykes has to say about it all ... http://timothysykes.com/ http://timothysykes.com/

xenophanes 18y ago

Buy AAPL long.

jhp 18y ago

Here are some things to keep in mind: - I think that it is best to invest directly in securities (only resorting to index funds if you really must outsource your thinking). You'll learn the most if you make the big decisions. - Learn how to analyze the public information available. Cash flows. Balance sheets. Income statements. Get an accounting book! Learn about the types of securities and alternatives to equity investing (especially the various kinds of bonds). - Market prices are based on combination of innumerable emotional and rational reactions to the real value of the companies behind the shares. Only over the long term will the price reflect the real value of these businesses. At any point, the price can be completely outside of reason, so beware of and be ready to take advantage of the stupidity of crowds. - Invest in types of businesses that you can understand, or plan on spending lots of time researching "in the field". Really focus on a few. When I was buying shares of Nabisco, I was spending late nights in the cookie aisle at Vons. When I started buying Apple, I spent serious time at their first toe-hold at CompUSA and later at their stores. I recently spent time at the Crocs stand at the mall to evaluate this company. - Learn the different investment mental models and build one for yourself. Graham. Buffett. Munger. Lynch. Fisher. - Learn about related fields. Psychology. Macroeconomics. Patent law. Whatever is important to industries that you are going to focus on. - Keep investing. When you are 40 or 50 years old you might be half-good at it.

steveplace 18y ago

I run a stock options website (investingwithoptions.com) and am known as one of the better options guys out there. 2k won't get you far in terms of trading. You should probably look into passive investing. You will get much larger returns investing in yourself than trying to speculate on the market. If you do want to speculate, you might want to look into index verticals. They limit your risk (50-150 loss max ) and have less comission vs trading stock ($3 vs $10). You'll at least lose money more slowly. And your delta risk initially isn't a lot so you can unwind a position with much less loss early than if you were to get into futures/stock. Me personally I trade options using technical and sentimental analysis, which is heresy around these "effecient market" places. Oh, and don't listen to Cramer or CNBC. They're asshats. I've got a pretty decent blogroll built up on my site with bloggers that risk their own money for a living, so that's a good place to start.

nas 18y ago

Read "The Intelligent Investor". It was written many years ago and is still relevant today (it's actually scary how history seems to repeat itself). Regarding fees, note that commissions are not the only costs to transactions. Remember the bid/ask spread and that as a small investor you will be taken advantage of. Long term is the way to go, IMHO. It is nearly impossible to predict short term price movements. Also, forget the efficient market hypotheses; if the SP500 can go up 5% one day and down 5% the next it's obviously bogus. You can count on the average stock owner to be either overly optimistic or overly pessimistic (and not just a little bit). Do you homework first and keep your head. Find companies with business models you can understand: how are they making revenue, what are their costs, what are their risks? Use discounted cash flows (i.e. NPV) to find a fair market price (P/E is good rough estimate). Be very conservative when doing this, especially with regards to expected EPS and growth. Double digit growth cannot be maintained and generally high growth companies are overvalued. Most libraries have S&P reports that you can study for free (good for EPS data although take it with a grain of salt). Some discount brokers also offer stock reports. Note that analysis recommendations are usually bogus but it doesn't hurt to take note. Index funds are a good way to diversity but watch out for fees (I like Vanguard, especially their ETFs) and too much portfolio turnover (some are just badly designed). However, it's my opinion that you can do better than the indexes with a little common sense (see above) and if you can stomach the extra risk. Stick to large cap stocks because they are more liquid and less susceptible to insider information. It doesn't hurt to look at insider activity (although note the effects of stock options). $2000 is not much money, probably not enough to start messing with individual stocks. I would stick it low fee, value ETF and forget about it. $10,000 is probably a more reasonable starting amount, say 25% in high-grade bonds, 25% in a index fund, and 50% in individual stocks of your choosing (say 2 or 3).

tocomment 18y ago

I'm reading so many negative comments. If he's smart and interested in stocks, perhaps he can make money. What if Warren Buffet had posted an ask-HN before starting his career?

Shamiq 18y ago
Counter factuals are experiments we all wish we could run.
eru 18y ago
There was advice to read the "Intelligent Investor" written by Ben Graham, Buffet's mentor.

axiom 18y ago

To all the naysayers: remember that holding cash is holding a depreciating asset. That 2k is not going to be worth 2k in a year's time. So really by not investing you're taking a guaranteed loss of 3%-15% a year (depending on how pessimistic you are about future inflation) instead of some other possible loss that depends on how risky your make your portfolio. For what it's worth my suggestion is to put your money in gold (GLD or DGP) or oil (USO, DXO or their variants.) Edit: oh and of course go with an online discount broker instead of a major bank. You'd have to be insane to do otherwise. I'm in Canada so I use Questrade, and they are phenomenal.

eru 18y ago
As if gold was an investment with a rate of return.. And he isn't going to hide that 2k$ under his pillow.
- axiom 18y ago
  DGP = 2x gold earnings

deleted 18y ago

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comatose_kid 18y ago

Lots of good advice in this thread. In addition, understand risk management. You don't have enough cash to diversify across stocks (and time, buying in stages) to really be effective. An index fund is probably your best bet. That said, if you want to take a lot of risk, look into options trading. Deep in the money calls are a relatively low risk way to succeed. But the learning curve for options is steep.

tom_rath 18y ago

With $2,000, the best investment you can make is purchasing quality, non-perishable dry goods in bulk as you spot them on sale. That's not sarcasm. You'll be eating and wearing out your stuff one way or another and buying a year's worth of rice, grass seed, socks, underwear, cat litter, detergent, toothpaste, etc. when you spot it on sale could shave 20%+ off your living expenses. So, a greater than 20% return. No risk, no taxes, and no commission paid. You really can't do better than that to put an extra $500 in your pocket two years from now.

eru 18y ago
Risk of theft, fire and cost of storage. (Might still be a good idea.)
- tom_rath 18y ago
  You get a gold star for pedantry but if those risks aren't already covered by your home/apartment insurance, that should be the first thing you purchase. If you don't have enough space to store extra rice and underwear, you're unlikely to have sufficient assets to invest in the first place.
  - eru 18y ago
    Ok, the most important risk I see in practise is that you will move and it's cumbersome to carry around stuff.
marvin 18y ago
This is an interesting idea..but keep in mind that you're locking yourself into a particular brand of each of the products. If you suddenly find that you hate the rice, toothpaste and underwear, you're out of luck.

diN0bot 18y ago

why all the pessimistic comments? invest that $2000 in a 401 or roth low-risk fund and you will likely get good returns in 50 years.

oakmac 18y ago

step 1) please forget anything you read from Jim Cramer step 2) read The Black Swan by Taleb step 3) make an account at caps.fool.com step 4) get your score above 80 step 5) never invest more than 2% of your capital in any investment step 6) figure out how to profit from your capital given rule #5 step 7) if you've figured out rule #6 you're set for life

drawkbox 18y ago

It will be a great education for you into how markets work. I know it opened my eyes widely when I started playing around the same age. It will completely change you. Couple of quick things. Don't listen to a word Cramer has to say. It is all in volume, earnings per share, FUTURE earnings per share, and ratio. Also, markets can be irrational. And no matter how smart you are there is enough FUD to cloud your decision. Expect to lose a good portion of that to start but it will be one of the best classes you ever paid for. With such low money and bad margins the odds are stacked against you but it is worth it for the awareness that you will gain with market insights. See this: http://www.youtube.com/watch?v=6jwEwlZnSFY http://www.youtube.com/watch?v=6jwEwlZnSFY In the end if you want a good chunk to be completely low fee and almost guaranteed just invest in index funds, now is a perfect time. Wait 5 years and they will be up quite a bit with usually a less than 1% fee.

raamdev 18y ago

You might want to try using the free Stock Market Game UpDown for a few weeks/months to practice investing: http://www.updown.com/?_refer=36311 http://www.updown.com/?_refer=36311 They give you $1 million in play money to invest, but you actually make real money based on your performance (no minimum transfer amount -- I've made a whooping $0.82 so far, but I can withdraw it if I want).

charlesju 18y ago

The only way to win in stocks is to invest in value and hold long. I would suggest just going in on a leveraged index ETF and just forget about for 5 years. I bet you'll get around a 20% return.

dc2k08 18y ago

Seems to be a lot of people here who have a sound and rational knowledge of this game as the OP imagined there would be. I have a question and would be very grateful if someone could answer. I have a good reason to believe that a relatively small Chinese company will be bought over by a massive US company this year. being a total newb, would it be feasible for me to buy shares in this company easily so that I can profit from them when it is bought? someone suggested sharebuilder.com. Anyone ever use them?

tlrobinson 18y ago

I just started reading Andrew Tobias's book, "The Only Investment Guide You'll Ever Need", and so far it looks like it will be good. End of the first chapter: "There are, in fact, very few ways to get rich quick. Fewer sill that are legal. Here's one: Take $5000 (borrow it if you have to), place it on 22 at the nearest roulette table, and win $175,000. Don't laugh. Many complicated schemes, if they were stripped of their trappings and somehow reduced to their underlying odds, would not be much less risky. It's the trappings - the story, the pitch - that obscure the odds and persuade people to ante up the $5000 they'd never dream of betting at roulette." He talks about how the book is about seeing the forest through the trees. You can learn all you want about a certain type of investment, but what you really need to know is whether you should be involved in that investment in the first place. "For example: It is a fact that 90% or more of the people who play the commodities game get burned. I submit that you have now read all you need ever read about commodities."

lallysingh 18y ago

Here, save yourself some money, use it as others have mentioned to invest in yourself. If you're doing it to learn, there's no reason to do it under fire. I'll +1 to the other advice here: go fantasy to learn. They're real numbers, so the educational value is the same. You can think rationally without getting as emotionally attached to the money, so you'll learn better. (Hopefully you won't go with real money until you've learned to keep a clear head) Most importantly, you'll know when you're actually good enough to do well in the market -- when you're doing better than your competition over a long period of time. That will tell you when it's skill instead of luck.

sethg 18y ago

The nickel version of A Random Walk Down Wall Street (which many folks here have recommended) is on Philip Greenspun's site: http://philip.greenspun.com/materialism/money http://philip.greenspun.com/materialism/money I'd like to call out one small part of that essay: "In every office there is at least one sorry loser checking the market every ten minutes, going home at night to read financial reports, running charts, and buying software to manage his complex portfolio. If he were a managing a $10 billion mutual fund, perhaps this effort would be worth it. But to try to beat the index by 2% with a portfolio of $50,000? That's $1,000 extra/year. Even assuming that he can get that extra 2%, he would have earned far more per hour working the night shift at the local 7-Eleven. Your time is valuable. If you must be greedy, then be greedy and smart and take a consulting job. Or enjoy the extra time with your friends and family. Don't waste it trying to beat the market."

snorkel 18y ago

Play on paper first. Pick a stock, pretend you bought N shares at X dollars today. Then see what happens. When you "sell" be sure to subtract transaction fees and short term capital gains tax from the profit. So play on paper for a month or two and see if you really are a market clairvoyant. Anyone can profit in a rising market and claim they have a "system" for doing it. If 500 people go over Niagra Falls in barrells, about 200 survive. Then those 200 go over again, and 80 survive. Then those 80 go over again, then the last 30 survivors write books about how to survive going over Niagra Falls in a barrell. Take their advice with a grain of salt.

cturner 18y ago

Being a complete beginner, what resources would you recommend to help lay the basic foundation? I tried this about four years ago. I started by playing the ASX simulated game to get a feel for it and confirmed that I was rubbish at picking day by day. Then I picked some long-term patterns I was confident with, mentally wrote off my starting money, and started playing with that. Sometimes I feel pulled towards stress by developments but then remind myself that I acknowledged it was gambling to start with and wrote off the money. Despite the downwards trend of the markets, I've only done somewhat badly and if I liquidated now would have still three quarters of the amount I started with. Experience aside, I would have been far better off keeping the money in cash and investing the time in my career. (On the other hand, the significant part of my position is anticipation of the world seeing significant uncertainty in paper currency and this has acted as a hedge against a career with a finance focus.) The major thing I've learnt is the value of cash in terms of its flexibility. I now think about cash as being analogous to having a flexible option, whereas if you're locked into a self-imposed rule where you only sell on certain sorts of gain (e.g. purchase price plus 20%) then you lose flexibility that is valuable. Definitely on the bright side - at the time my family and accountant were advising me to buy a house and a get a huge mortgage. I'm in a far strong position than I would have been if I'd done that. I think that it is a poor decision for young, unattached people to buy houses to live in on mortgage because it limits their options to follow career opportunities and locks them into significant debt.

czcar 18y ago

Unless you want to do this full time, put it in a index fund.

MaysonL 18y ago

Read this: http://ycombinator.com/munger.html http://ycombinator.com/munger.html as well as the rest of the yc library (click on the library link at the bottom right of the front page).