ValuePickr Forum

What Should A First Time Investor Do? Where to Start?

Post: Realization of One’s Abilities

I have not learnt investing the hard way. Fortunately, so many good people have helped me and I have been profitable from the word go.

First, lets discuss a basic logic. You will need this to be very very clear in your head. Till you can remember this even in your sleep, don’t go to post number 2.

-Would you allow your best friend to do heart surgery on yourself?***
-Would you allow your office boy to fly an aircraft with you in it?
-Would you give your building security guard your life’s savings to invest in the stock market?
-Would you allow yourself to invest your life’s savings in the stock market with no formal training?

Well, there you have the answer :slight_smile:

The result in all the situations above will be disaster.

***(Yes it’s ok if your best friend is a heart surgeon :slight_smile: )

So, first off, please know only knowledge and experience can save you from financial harakiri.

So Rule 1: Knowledge and Experience is very Important. Get real and get rid of all your confidence in your superpower abilities that you can beat millions of market participants. Then the real study can start when you understand that if you don’t have superpowers, what should you do?

-Next post to follow.

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Post: How To Start Investing. Buying the First Stocks

Finding good stocks is the work of very very experienced players. Attempting it when you start out is injurious to your financial health.

I personally would recommend investing some money on 1 & 2 and time on 3 and 4.

  1. http://www.moneylife.in/ - Paid
    Moneylife has 3 different stock recommendation stock letters. If possible subscribe to all 3.

  2. http://www.stalwartvalue.com/ - Paid
    Very skilled stock pickers. Highly recommend.

  3. Follow the top contributors on ValuePickr - Free
    The stocks they dig up are pure gold.

  4. https://dolly-bestpicks.blogspot.ae/ - Free
    The blog is under a fake name but the analyst is pure gold.

  5. EDIT: Forgot to add: https://www.prosperotree.com - Free
    Pure Gold

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Post: Position Sizing

Now that the simple basics are out of the way; before you invest a frank advise can be that initially don’t bet based on your conviction, even of the advisor websites above.

Bet only 1% of portfolio on each stock.

Do not get carried away. Conviction comes with experience and knowledge, not on the day one saunters into the stock market.

With 1% bets even if some stock goes to zero you will be totally fine.

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Post: Let the Education Begin

Now, Imagine that you walk into an investment firm and ask them for a job as a fund manager. Will you get the job of a fund manager?

Why? Why not?

So if they won’t offer you the job of a fund manager that means you don’t have the skills yet and should not be deciding which is a good stock right?

You will have to invest in some books to learn about investing and crowd behavior. That’s how you get the job of a fund manager for your family. Look at the faces of your wife and children. Can they trust you to manage their futures with your investment decisions? Are you willing to invest some money on some books and willing to invest some time everyday to study?

I am sharing my library. Read and read and read some more… you will have to go back to school, the investment learning school and it is going to take 2-3 years.

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Post: Trick to Follow VP Top Contributors

Here is the list of all top contributors: http://forum.valuepickr.com/badges/100/top-contributor

I don’t remember who but someone pointed this out on the forum; so here is a way for example to follow Hitesh.

Download a RSS Reader.

Here’s the link for Hitesh’s activity page: http://forum.valuepickr.com/u/hitesh2710/activity

So in a RSS reader you would enter the url and add .rss at the end. Example: http://forum.valuepickr.com/u/hitesh2710/activity.rss and lo and behold you will get a link for every new post made by Hitesh :slight_smile: on any page in the forum.

Now, what starts to happen is you follow the posts of many smart investors on VP. Reading their posts gives you a broad overview of so many subjects that one could not force themselves to not learn. You will start becoming smarter day by day, everyday.

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Post: Other Daily Reading Material - Knowledge & Information

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Post: Dont Lose Money.

Warren Buffett Said It. We all know it. Very few understand it.

Rule Number 1: Don’t Lose Money.
Rule Number 2: Never Forget Rule Number 1.

Most people buy a stock to make money. That is correct but most are so focused on getting rich on stocks that they forget that apart from upside, stocks also have downside.

Dont worry about the upside. Worry about the downside.

How much a stock will go up is not important. Buy at a price that offers a good margin of safety; basically better odds that a stock may not go down much further from that price. It is still not a guarantee but it helps.

If instead of thinking about getting rich you think about preservation of your capital, you will do better than most people who have lost money in the stock market.

Many lose only because they bet hard and use margin.

You should not bet hard initially till you at least understand things like ROE, ROCE, Debt to Equity etc… till then spread your bets with a wide and equal spread.

Margin is not your friend. It is your enemy. Don’t feed it. Never ever buy stocks on margin. Get rich slowly.

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Good effort, please keep it up. But I do disagree with your position sizing. If you have high conviction about a bet, you can increase the position size. If we bet 1% on every stock we found, there is very low probability we will be able to outperform the market consistently. To invest all our money, we have to invest in dozens and dozens of stock, which would be hard to track. For me, its around 5%.

I believe acquisition price is of paramount importance. Every stock (except those that may face solvency issues) is worth at a price and worthless at another (Personal opinion, may be wrong, but has stood the test of time for me).

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Post: The Myth of Warren Buffett

Warren Buffett is not one of the richest people in the world because he is a fabulous investor (which is a fact).

He is one of the richest people in the world because he got a part of the profit of the investments of many many thousands of people.

We have all read that every 1000 Dollars invested with WB would be worth 13-15 Milion USD today. That is over 50 years of compounding later.

Here is a chart (slightly dated) on what would have been the returns for someone over last 10 / 20 / 30 years.

If only with his own money Warren would maybe not even have had 300 Million. Which would have been amazing in itself but not billionaire stuff.

The most important way to get financially stable is saving from what you earn. Then the return on that saved money wether 10% per annum or 30 % per annum will both get you to being financially comfortable.

To understand money, I would highly recommend a very easy to read book called “The Richest Man in Babylon”. You will do yourself a favor if you read it. I promise. It explains how you work for money today, and how you can make money work for you.

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I agree. My posts are more geared towards the very new investors who are becoming attracted to the market as we hit new highs and not to VP masters :). Thats why I said 1% to start with as one learns position sizing and betting bigger on conviction which can come only with a deeper understanding of the characteristics of the stocks they own and why one should be more allocation and the other lesser etc…

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With my limited knowledge on equity market , I suggest below for first time investors:

  1. Do not go for any paid Re-commendation until you spend some good time and understand Fundamentals of the stocks.
  2. Go to screener.in and analyse few Cos.
  3. Read about different stock discussions in valuepickr and other blogs.
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@Chanrdrab It is the new investor who does not understand very well the fundamentals of stocks or how to use screener and not the experienced stock picker :slight_smile:. The new investor should not take the above advise on 1 & 2. Number 3 is the best thing a new investor could do. High five that.

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Hi,

Following the posts of seasoned investors on VP is indeed a good idea. I follow this plan and it has increased my knowledge in a significant way. However, before acting please apprise yourself with their investment styles their styles are very different and suited to their own unique temperaments.

You could be attracted to a style only to realise you are not temperamentaly suited to employ that style.

For knowledge purposes however its great to follow them regularly as i do.

Best
Bheeshma

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This is the magic sauce. Figure out what is your temperament. Every new investor will find it with experiments.

Once you know yourself, everything good follows.

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Edited and added to original post but mentioning:

  1. https://www.prosperotree.com
    Pure Gold
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for e.g on one end of the spectrum we have @dd1474 a super conservative while on the other end we have @hitesh2710 - who specializes in techno-funda.

Hitesh bhai looks at charts and spots patterns and uses this knowledge in combination with fundamental triggers to decide. His decisions are very fast and he doesnt spend too much time on checklists and minute accounting details. @dd1474 is a forensics professional and can dissect financial statements at a granular level. Something that most of us cannot do or understand. Both are savvy investors but with different temperaments as reflected in their stock selections. Along this spectrum lie various combinations of skillsets & temperaments and its important to figure out where you stand. ( pls note - this is my reading of their investment styles based on following them so i could be wrong )

My sole purpose of highlighting this is that you could lose a lot of money due to a temperamental mismatch. Not just on VP but also by following other individuals outside.

Best
Bheeshma

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@bheeshma
Thanks for your compliment. I am honoured when you compare me with Hiteshbhai. Personally, I believe he is one the smartest investor I know, however, more important, he is a real jewel of person.

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Post: Books; Which One’s First.

Get these and best read in this order.

  1. The Richest Man in Babylon (Money & Compounding) - Around 280 Rupees
  2. One Up On Wall Street (Stock Picking the Uncomplicated Way) - Around 470 Rupees
  3. The Intelligent Investor (Slightly deeper and explains types of Investment styles) - Around 410 Rupees
  4. Common Stocks & Uncommon Profits (To de-grahamize you) - Around 650 Rupees
  5. A Random Walk Down Wall Street (You will need to understand not only stocks but the market as well) - Around 950 Rupees

Total investment in yourself on these books should be less than 3000 rupees. I think that is a requirement before you spend lacs on buying stocks. If you don’t have them available in your city Amazon will deliver them to you :slight_smile:

Before you fly the airplane, read the manual at least :stuck_out_tongue:

With these books under your belt you will start to look at money and stocks very differently and they will start making more sense than “lets buy because it is going to go up” :slight_smile:

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On a lighter note both have a very evolved and encyclopaedic music sense in old hindi songs. So maybe knowledge of hindi songs is in some strange way related to stock picking. I have been listening to old bollywood music in the hope that i improve my investing skills! Lataji ke gaane seem to be a better bet than acquiring DCF knowledge

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Post: Stop Loss as a Strategy

Stop Loss is not a strategy. Its real name is Stop Profit.

It does not shake you out of a stock on fundamentals but on volatility (prices randomly moving up and down)

Before you put a stop loss think; if you are putting a stop loss that means you think the price will fall. Then why would you buy a stock that you would sell if the price fell. You should actually become excited and buy more if you get the stock even cheaper right?

Dont stop profits.

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