Learning about stocks and ETFs

windywalks wrote: ↑ Hello Investors,

Basically I’m in my 30s and looking for long term or short term investments. You can say retirement planning , for kids, etc.

I wanted to know what you people did when you were first timer like stock analysis(NO), companies balance sheet (NO), BNN news (DEFINITELY NO!!), index (YES), ongoing source of knowledge (lot's of books, blogs, podcasts, this forum), and so on. Basically before buying stocks, what you see ?

Please share your experiences !!

Don't buy stocks.

What a useless reply ?

Thalo wrote: ↑ Don't buy stocks.

Everyone have different risks and preferences. I would suggest looking into Canadian Couch Potato method of investing to get more familiar and comfortable about investing.

https://canadiancouchpotato.com/

This method is typically considered safer than buying individual stocks. Best of luck.

Investors should learn about investing basics and portfolio design before delving into stock analysis.

This is a free ebook that covers the basics and has suggestions for further reading:
https://www.etf.com/docs/IfYouCan.pdf

Finiki, the Canadian Financial Wiki is a great source for Canadian investors:
https://www.finiki.org/wiki/Getting_started
https://www.finiki.org/wiki/Portfolio_d ... nstruction

Stocks are pieces of businesses. Every time that you buy a stock, you become a shareholder of a business. I like to say that you own a small portion of that business, and therefore, the stock performance will be a function of how the business performs.

But it takes time to learn how to evaluate a business. That's important if you want to pick individual stocks. But it's not important if you choose a basket of stocks (ETFs) where the fund will take care to buy and sell those stocks for you (called rebalance), to meet the criteria of the fund. That's how indexing work, it's a basket of stocks sorted by market cap. It's a passive investing strategy because it takes zero effort to buy it and call it a day. Different ETFs focus on different goals and have different fees and tax treatment but typically it's a great way to start because it gives you exposure to equities, which is how I think you can grow your money with the current low interest rates.

Meanwhile, it becomes your decision if you want to learn more about how to evaluate a business and develop a business owner mindset to own individual stocks. It takes time and effort, but the advantage is that you can tailor your portfolio to your goals, whatever they are - focusing on income growth (like dividend growth investing) or focusing on capital appreciation (growth stocks). Total return is always provided by both distributions + capital appreciation, but you can have a strategy focused to one of those components specifically or a combination of them.

There are pros and cons to every strategy, so understand what they are about so you can make an informed decision to build your portfolio tailored to your goals.

My primary goal is to live of perpetual growth income and never sell any stocks, including when I achieve financial independence / retirement. This way I don't care about market fluctuations because the businesses I am invested on will continue to provide me with a growing income regardless of market conditions and diversification protects to a specific businesses that might have challenges and potentially being unable to deliver that growth. So having a diversified portfolio built a company at the time, taking valuation and quality into account, provides me with a mechanism to stay invested at all times and have a growth income above inflation, which is what I care. This is just one strategy. Another strategy I have is on growth stocks where I try to maximize capital gains (I use that for my kids RESP, where the goal is to maximize that account value). See that the goal for dividend growth is not to maximize account value, it's too maximize income growth because ideally I will never sell to lock that capital gains growth. Different strategies for different objectives.

So you can keep indexing and doing other passive strategies until you understand what it entails to invest in individual companies, their pros and cons, and then make a decision if you want to switch, or use both, or keep indexing. Individual stocks require more time and effort, but since you tailor your portfolio your way, you are not limited to market returns.

So one strategy is not better than another. They are different ways to build wealth. What you need is to figure out what is the best for you.

Understand the different investing vehicles out there. Indexing is convenient, but I personally prefer to invest in individual stocks because my goals when investing are oriented towards safety, income, and consistency. Many companies from the index fail to meet this criteria. Therefore, I don’t do index investing, because I don’t want to be invested in these companies. The other factor is valuation – when purchasing the index, I cannot choose to buy a company at or below its intrinsic value. I need to buy the whole package paying market price for all companies, which will contain overvalued ones too. Buying any business when overvalued drags return. Plus there’s MER that compounds every year. BUT, investing in individual companies is not for everyone, it takes a lot of time and research, so if you don’t enjoy the process you will be better off indexing. Understand what each type entails to so you can make an informed decision that suits your style, goals and risk tolerance.

Temperament is the most critical skill. Emotions (greed and fear) is what destroy any wealth, at any age, even if one decides to simply invest in SP500 ETF. If at year 9 we have another 2001 or 2008 or 1929 or even 1987, Mr Smart might become Mr Risky in no time. Meanwhile, someone with proper temperament can indeed benefit from what is perceived as Mr Risky, provided that proper controls to mitigate risks (validating that fundamentals are disconnected from stock price) are in place. Anyone can learn it if they put time and effort into it.

If you do choose the route to invest in individual stocks…. then I would give the following additional advice:


Investing is a business. Therefore, treat it as a business. No room for emotional decisions. The more you think business like, the better you develop the required temperament.


Have a diversified portfolio. Nobody knew that GE or C would be so adversely affected to the point that it comprises fundamentals. Like Buffett says, “buy a company so solid that any idiot can run it, because eventually, one will “. My diversification strategy is about having exposure to 10 sectors, and buy the leaders on those sectors.


It’s a business partnership. You don’t measure results in a week or a month or a year. You will know in 5 years from now if you made a good decision, which is about what a business cycle lasts. Track earnings and cash flow yearly, read their earnings transcript and annual reports, become familiar with the industry and business they operate on. When I am investing in a business, I am buying the company’s future earnings power and dividend growth potential. Companies report results 4 times a year only. Hence investing is for the long term, it takes time for stock price to follow earnings. Fundamentals cannot change as fast as the stock quotes, so the daily price quote is just a distraction that needs to be filtered out.


Start small. You can always scale up later.
Stick to your plan. Have it figured out before you buy anything. You should know what to buy, when to buy and when to sell (as a strategy) before you begin. Follow it strictly. One of the primary reasons why investors often make bad investment decisions is because their judgment is usually based only on price movement. Price movements alone can be very misleading. A rising stock price will often lure an investor to stay calm, creating a false sense of security where they believe that all is well. On the other hand, a falling stock price usually creates anxiety and sometimes leads to outright panic. These feelings can be rational as long as they are justified by sound fundamentals. Knowing the differences between rational and emotional reactions will make all the difference.


Mistakes will be made. It doesn’t mean the strategy is broken. What matters is your consistency, so you only make rational decisions, not emotional ones. As Charlie Munger said once: “As long as you are consistent on how you value business, your degree of inaccuracy, if it’s replicated through consistency, will lead to a great model for a relative valuations. So if your valuation model is not sophisticated, does not take into account six dozen variables, well, as long as you’re applying it the same way to every company and you are looking at a lot of different companies, you will have a useful model for relative valuation which can lead to very superior investment returns.”


Investing is a business, and like every business, there will be period of locking losses. However, a diversified portfolio built consistently seeking quality and valuation will always deliver superior results, with winners higher and more often than losers. The big risk of total loss associated with equities (on a diversified portfolio built with quality and valuation in mind) is quite rare, and more fear-based than fact-based. Furthermore, the risk associated with a falling stock price, especially when the underlying business remains strong, is more related to investor action than pure loss. In other words, the greatest risk of a falling stock price is how the investor reacts to it.


You don’t lose one cent until you sell. There will be bear markets, recessions, negative market sentiment. Separate the erratic moods of Mr. Market from the financial health of each business. Hence investing is for long term, you need time to find out how management will react and adapt to continue growing earnings and cash flow. It’s their job to figure it out, not the analysts or yours. Yours is just to allocate capital.


Don’t monitor it daily. Investing in dividend growth stocks makes money while you sleep. Don’t stress over it, give time for fundamentals to reflect on stock price.


Any business public or private, derives its value based on the underlying performance that the business generates. These value drivers include, but are not limited to, operating results such as earnings, cash flows, sales (revenues) and dividends. Common sense tells us that the true value of a large multinational business, or any business for that matter, cannot possibly change as quickly or as much as daily price quotations would indicate. Stock prices in the short run can be driven by strong emotions such as fear and greed. The intrinsic value of a business is driven by fundamentals and can be calculated within a reasonable degree of certainty. Once this calculation is made, sound investing decisions can be made and implemented.


Being a value investor is more about discipline than it is about intelligence. We can’t control price fluctuations, but we can control the quality of the companies we purchase. The higher the quality, the more confident I am that the company will bounce back on any price drops.


Successful investing is about managing risk, not avoiding it. No business is capable of generating perfect long-term operating results. Inevitably, there will be a bad year, a bad quarter, or even a few bad years or bad quarters. However, a weak quarter or year does not necessarily imply that a sound business model is no longer valid. Businesses are competitive, economies are cyclical, and good managements respond and adapt. That’s why I wait at least 4 or 5 years of declining earnings and estimates that continue to decline before I decide to sell (what I call “ceasing the partnership with that business”).


Read The Intelligent Investor by Benjamin Graham and Common Stocks and Uncommon Profits by Philip Fisher the annual letters to shareholder from Berkshire Hathaway. Tons of consistent wisdom there, like this quote from 1988 letter: “In any sort of a contest – financial, mental, or physical – it’s an enormous advantage to have opponents who have been taught that it’s useless to even try”. Or this quote from 2014 letter: “Stock prices will always be far more volatile than cash-equivalent holdings. Over the long term, however, currency-denominated instruments are riskier investments – far riskier investments – than widely-diversified stock portfolios that are bought over time and that are owned in a manner invoking only token fees and commissions. That lesson has not customarily been taught in business schools, where volatility is almost universally used as a proxy for risk. Though this pedagogic assumption makes for easy teaching, it is dead wrong: Volatility is far from synonymous with risk. Popular formulas that equate the two terms lead students, investors and CEOs astray.”


Most importantly: have fun. Investing is a journey, never a final destination, so enjoy the process while you learn and get better at it. It never ends.


To learn about different investing strategies:

The Intelligent Investor – Benjamin Graham
One Up on Wall Street – Peter Lynch
Common Stocks and Uncommon Profits and Other Writings – Philip A. Fisher
Stocks for the Long Run – Jeremy Siegel
The Little Book that Still Beats the Market – Joel Greenblatt
How to Make Money in Stocks – William O’Neil
Excess Returns: A comparative study of the methods of the world’s greatest investors – Frederik Vanhaverbeke
What’s Behind the Numbers? – John Del Vecchio and Tom Jacobs
Investment Valuation – Aswath Damodaran
What Works on Wall Street – James O’Shaughnessy


To learn about temperament and discipline when investing:
Investing Psychology – Tim Richards
Berkshire Hathaway Shareholder letters– Warren Buffett
Behavioral Portfolio Management – C. Thomas Howard – or his book


Rod

windywalks wrote: ↑ What a useless reply ?

It wasn't useless. He summed up what you should be doing in 3 words

Before you do anything it may be a good idea to think about having an emergency fund, if you don't already have one.

The other thing is, if you can't save, it's no use even thinking about investing.

There's nothing wrong with having both index funds/ETF's and individual equities in a portfolio, if that's your preference. I do, and I don't spend a lot of time on either method.

As a small investor I would suggest passive investing with Exchange Traded Funds (ETFs) in a diversified portfolio. As suggested by @nathan, CanadianCouchPotato.com is a great place to start.

There are way too many variables you need to really understand in order to pick individual stocks and unless you're a professional you will neither have the time or the experience to research individual companies and keep up with the markets. A lot of stories you hear about how someone made a lot of money investing in X stocks are based on "survivor bias". ie. you only hear about somebody's winners and not their losers or else it was just plain dumb luck. In hindsight I coulda shoulda had my money in Apple, Google, Facebook, NetFlix.... but I had my money in other "hot" stocks that didn't do so well.

I think either is a good strategy and I personally do both.

I think for US stocks its hard to beat the index. I've had a good year with my US picks but I question if I can beat the S&P 500 in the long run.

For Canadian Stocks I like stock picking a lot more. If you focus on the highest quality companies in industries that are Oligopolies with the largest moats I think its possible to beat the TSX. Try to not to chase yield, don't invest to much in cyclical industries/companies, avoid energy E&P and buy at decent valuations will also help. Just to be clear, I don't always follow that myself . @rodbarc thread is a good place to start to read about Canadian stocks.

SkimGuy wrote: ↑ It wasn't useless. He summed up what you should be doing in 3 words

Best advice everyone new to stock trading needs. It'll save the OP countless in capital losses.

Forget about trading stocks completely. This is gambling, not investing. Read Jack Bogle's Simple Book on Common Sense Investing.

reddit.com/r/wallstreetbets/

faken wrote: ↑ reddit.com/r/wallstreetbets/

Exactly. Just like this -

Hello Everyone,

I didn't want to start a new thread for this but I am looking for some guidance --

Since I am not comfortable to DIY in ETF, can someone suggest me any financial institution that can guide me through buying ETFs ?

I saw Just Wealth was recommended by someone in forums.Anyone invested through them and made some profits ??

TIA

windywalks wrote: ↑ Hello Everyone,

I didn't want to start a new thread for this but I am looking for some guidance --

Since I am not comfortable to DIY in ETF, can someone suggest me any financial institution that can guide me through buying ETFs ?

I saw Just Wealth was recommended by someone in forums.Anyone invested through them and made some profits ??

TIA

Just follow this

couch-potato-investing-last-14-years-tr ... s-1489988/

rodbarc wrote: ↑ Stocks are pieces of businesses.
...
Rod

Thank you Rod, for taking the time to write that very detailed answer. Lots of useful info for us newbies.

Easiest is open a Questrade or Wealthsimple Trade account and start buying XGRO or XEQT depending on age. In your 30's start with XEQT and start adding a bond etf in your 40's. This is if you plan to retire at a normal age(60s)

Will do better than most investors over a long period of time with this strategy.

windywalks wrote: ↑ Hello Everyone,

I didn't want to start a new thread for this but I am looking for some guidance --

Since I am not comfortable to DIY in ETF, can someone suggest me any financial institution that can guide me through buying ETFs ?

I saw Just Wealth was recommended by someone in forums.Anyone invested through them and made some profits ??

TIA

Maybe consider a Roboadvisor to start off with? But in the longer term, you should get comfortable to at DIY with ETFs. It's easier than you think, don't have to read a lot of books to learn how to do it well, and the time you put into acquiring the knowledge pays off plenty down the road once your investment portfolio grows to a decent size.

As a newbie, I have a lot of questions before I chime in and I really appreciate the responses. Few questions --

1. Anyone has an experience with a Roboadvisor ? Does it involve human advise as well or just online ? ​Which company is recommended to start with like Just wealth, wealthsimple, etc ?

2. What is the trigger point to sell ETFs that you buy ? Like profit gain, bad news about something, etc.

3. Do you normally have to be involved in the market all day long or this is something you can buy and forget for couple of years ? Just monitor it once in a month or so ??

4. What journals/news do you follow for ETFs like bnn,cnn, analysts advises, etc ?

TIA

2 and 3 completely depend on your risk tolerance and approach. Normally when I buy a stock, it is for 5-10 years at least so my trigger point to sell will be my retirement (I am 51), this means that I do not have to track the market all day. I do read WSJ every day and post here so I follow it for fun and to research new positions to deploy. I also sell when I occasionally rebalance my portfolio.

If you are trading more frequently then stop target prices on the downside (exit strategy on the upside is just as important) and risk management should be integral to your trading and the time spent on it will be much more than a boring buy and hold guy like myself. Potential returns are higher but many fail to beat the market.

Start by understanding the various portfolio strategies at roboadvisors (what is the difference between a Wealthsimple risk 1 portfolio (100% fixed income) vs risk 10 (90% equity) and the potential risk/return for each) and you should start getting a feel for your investing style. They are set it and forget it (no human involvement).