Hey ERE community! It's my first post here, though I am a vivid reader from Germany and deep into the topic and general life learning in general for a long, long time. My background: I am a software developer, 29 years old and freelancing. I also have a second income stream as a writer for tech magazines.
Since I am freelancing, I want (and have) to plan my retirement by myself. I am pretty good with money management and general life lessons. I did an apprenticeship as an electricians and worked as small, medium and large size companies from all different areas. So I would say my life skills are pretty decent.
I am reading now the Financial Times, The Economist and other, more conservative german finance news. I bought my first stocks, they did poorly, so I switched to ETFs. Then I've read more about stocks and companies but quickly realised how BIG this whole universe is and that I won't be able to filter the signal from the noise.
Therefore I've read Munger, Buffet, Graham and other finance/life books. Afterwards I focussed on my circle of competence and now my hand picked stocks are doing better then my ETFs (at the moment).
Now there was a little hickup in the market yesterday and I had NO idea what's going on (as probably nobody really, just assumptions I guess). I pay to be part of this german company who is giving advice/news on financial situations and they were always on point. But I don't want to rely solely on this news source, I want to make up my own mind.
Before I get to the questions, one last thing: I am good in tech and have a good sense of whats happening. So every time I read tech stories in the newspapers, no matter which, I roll my eyes about 95% of the stories. Because they are short sighted or plain wrong. Now I rely on those newspapers for my financial advice and this makes me worried.
Questions:
- How to I build a deep foundation? I read a lot but feel like floating in mid air with all the information.
- What are the steps or courses to take to build a good, solid foundation without all the noise?
I've read Jacobs book several times now and this helped me a lot (I was already thinking like that for years and finally somebody put it out in written words). So any ideas of how to get competent in the financial sector? In my understanding it's 50% understanding finance and company books, and 50% world and market understanding.
Which tactics did you use to get competent, what was your journey?
Strategy to "learn" investing?
Re: Strategy to "learn" investing?
Since you mention being able to see all the issues with popular tech articles, you will probably be better than the average person in your ability to figure out which investing ideas are better than others. Being able to filter out the noise (or the poorly thought out ideas) is a skill like any other that can be built up over the years. You have already started building up that skill in the tech world and that way of thinking can quickly be applied to the new investing ideas you come across. I believe my investing strength is mainly my ability to see which ideas are best when encountering different (often conflicting) investing strategies.
You are right to suspect that sticking to a newspaper may not be the best way to learn. You would be limiting yourself to a "bubble" of viewpoints which are also limited in depth. Instead, stick to books by authors who are free to fully express their unfiltered thoughts. When someone is free to express ideas they care deeply about, it can become easier to see how right or wrong they are, as long as you can see past their passionate rhetoric in order to analyze the validity of their statements.
Read through books of investment ideas/strategies from many different investors (written by the investors; biographies are less useful). Start with ones that sound most interesting rather than ones that appear at the top of "great investment books" lists, as you will get through the most interesting ones the fastest. Then naturally you will start to realize what's more important to focus on and what to ignore.
This is a long process over the course of years and in the near term you are probably best off with the standard advice of holding a diversified portfolio of low-fee funds, rebalanced annually.
You are right to suspect that sticking to a newspaper may not be the best way to learn. You would be limiting yourself to a "bubble" of viewpoints which are also limited in depth. Instead, stick to books by authors who are free to fully express their unfiltered thoughts. When someone is free to express ideas they care deeply about, it can become easier to see how right or wrong they are, as long as you can see past their passionate rhetoric in order to analyze the validity of their statements.
Read through books of investment ideas/strategies from many different investors (written by the investors; biographies are less useful). Start with ones that sound most interesting rather than ones that appear at the top of "great investment books" lists, as you will get through the most interesting ones the fastest. Then naturally you will start to realize what's more important to focus on and what to ignore.
This is a long process over the course of years and in the near term you are probably best off with the standard advice of holding a diversified portfolio of low-fee funds, rebalanced annually.
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Mister Imperceptible
- Posts: 1669
- Joined: Fri Nov 10, 2017 4:18 pm
Re: Strategy to "learn" investing?
I'm 33 and started saving in 2012. I wanted to save for retirement and downpayment on my first house. I've studied economics and worked as an accountant, which is great knowledge to have when starting to invest. I've also been married to a kenyan and travelled alot to Kenya. You can make your situation, background and personality work in your favour as an investor.Which tactics did you use to get competent, what was your journey?
In 2013 I started looking into the real estate market. I googled for ways on how to make money off of it and realized that renting was cheaper than owning at the time. I decided to save up for a rental apartment and live in a small rental myself to save money.
In the beginning 2014 I bought my first rental. I had a good experience with it. It generated positive cash flow and I got some experience dealing with tenants and banks. I started allocating my savings toward paying down student debt, building up a savings account and looking into stocks.
In 2015 I found several really good deals in the real estate market and bought a 2nd rental. I started making personal accounts on all my expenses, paid off my remaining student debt and tracked my real estate investments more carefully and detailed. The total yield on my investments was 25% that year, thanks to house value appreciation and leverage supported by positive cash flow.
In 2016 I created a small stock portfolio (individual stocks) and still kept my rentals. My total yield was 28% that year, again thanks to appreciation and leverage. I read the ERE book that year, along with "The Dividend Mantra Way".
In 2017 I bought some land in Kenya, kept my rentals and continued building my stock portfolio. I made 15% yield. I didn't read any investing books, but started following daily financial news, podcasts, forums etc.
Realizing that everything seems to have appreciated, 2018 has been the year I've decided to sell one of the rentals and increase my cash awaiting market corrections and possibly a crash. I've read The Intelligent Investor and plan to read more books in the future. I've identified myself as mostly a value investor but I'm not shy to invest in growth stocks as well.
Important thing is to feel like you know what you're doing and have a curious mind. You need to do something, because you will learn from the experience. You will also realize that your psychology is important to factor in. Try swingtrading, try value investing, try growth investing, read about real estate investing. Maybe you already have an idea on what will work for you? You never know until you try.
Re: Strategy to "learn" investing?
I was in your shoes 15-18 years ago, but i think since you mention Buffet and Graham you are already lightyears ahead of me at that time. (Btw. I am also a self employed software engineer in germany)
My path:
1.) 2000->2003 Mindless daytrading with Knockout-options using chart techniques like Fibonaccis and Elliottwave, learned about derivatives like options etc.
2.) 2004->2005 killed 2 or 3 test accounts with trading Futures
3.) 2000->2008 The majority of my savings were in bank accounts which at that time gave 4-5% interest
4.) end of 2008/2009 started buying stocks using technical patterns, which was a waste of time. Simple ETF investing would have been better, but hey my timing was not that bad!
5.) 2011 Lost all the winnings in stocks from the timeframe 2008/2009 because i had a home bias and invested only in german stocks.
6.) 2012 Discovered ERE/MMM
7.) 2013 Started using permanent portfolio asset allocation (of course at the worst time to start this)
8.) 2014 Learned about value investing and started building portfolios based on "good businesses" at fair prices.
9.) 2015-2017 Successfully learned about Net current asset strategy and used it to get really good results.
10.) 2017 Started building quantitative strategies using portfolio123.com, reached financial independence
11.) 2017/2018 learned about currencies, because in 2017 currencies fucked my results up. Never again!
11.) 2018 NCAV approach stops working (normal in early innings of a bear market, and the market has really dried up in these stocks), so i switched to dividend growth investing in defensive sectors (Healthcare/Consumer goods/Utilities/Energy/REITs) while being hedged with put options. This is my strategy for the coming bear market until i find enough NCAV stocks again. (But since dividends now provide my income, maybe i only use a portion of my money for that again.) I posted 53 defensive stocks (viewtopic.php?f=3&t=6752&p=162797&hilit=AMNF#p162797) to invest in 6 months ago using a strategy based on FCF yield and expected return which has beaten the market by 5.5% over the past 6 months. (The list itself is useless going forward, so ignore the stocks and build a watchlist on your own if you choose to use this method)
12.) Also since january 2018: Full circle back to 2000->2005 i started trading futures again using technical analysis on the side. This time with a strategy and very disciplined. It worked and the money made from this was more than enough to cover all my expenses for this year. Maybe i needed also the other stuff to get good at this.
I always got to the next level when something didn`t work out as expected, so i would advice you to make as many mistakes as you can while you are still young and you don`t have as much money. You will find out what works for you and what doesn`t. Its important to find your own way.
My path:
1.) 2000->2003 Mindless daytrading with Knockout-options using chart techniques like Fibonaccis and Elliottwave, learned about derivatives like options etc.
2.) 2004->2005 killed 2 or 3 test accounts with trading Futures
3.) 2000->2008 The majority of my savings were in bank accounts which at that time gave 4-5% interest
4.) end of 2008/2009 started buying stocks using technical patterns, which was a waste of time. Simple ETF investing would have been better, but hey my timing was not that bad!
5.) 2011 Lost all the winnings in stocks from the timeframe 2008/2009 because i had a home bias and invested only in german stocks.
6.) 2012 Discovered ERE/MMM
7.) 2013 Started using permanent portfolio asset allocation (of course at the worst time to start this)
8.) 2014 Learned about value investing and started building portfolios based on "good businesses" at fair prices.
9.) 2015-2017 Successfully learned about Net current asset strategy and used it to get really good results.
10.) 2017 Started building quantitative strategies using portfolio123.com, reached financial independence
11.) 2017/2018 learned about currencies, because in 2017 currencies fucked my results up. Never again!
11.) 2018 NCAV approach stops working (normal in early innings of a bear market, and the market has really dried up in these stocks), so i switched to dividend growth investing in defensive sectors (Healthcare/Consumer goods/Utilities/Energy/REITs) while being hedged with put options. This is my strategy for the coming bear market until i find enough NCAV stocks again. (But since dividends now provide my income, maybe i only use a portion of my money for that again.) I posted 53 defensive stocks (viewtopic.php?f=3&t=6752&p=162797&hilit=AMNF#p162797) to invest in 6 months ago using a strategy based on FCF yield and expected return which has beaten the market by 5.5% over the past 6 months. (The list itself is useless going forward, so ignore the stocks and build a watchlist on your own if you choose to use this method)
12.) Also since january 2018: Full circle back to 2000->2005 i started trading futures again using technical analysis on the side. This time with a strategy and very disciplined. It worked and the money made from this was more than enough to cover all my expenses for this year. Maybe i needed also the other stuff to get good at this.
I always got to the next level when something didn`t work out as expected, so i would advice you to make as many mistakes as you can while you are still young and you don`t have as much money. You will find out what works for you and what doesn`t. Its important to find your own way.