

Ask HN: playin' the stocks game - kyro

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.<p>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.<p>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?<p>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.<p>So, everything from suggested investment methods to tools you use to keep track of what's happening.<p>Thanks all.
======
pj
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.

------
ctkrohn
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
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
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_s...](http://www.wallstreetselfdefensemanual.com/the_wall_street_selfdefen/2007/02/7_meet_your_com.html)
[http://www.sanfranmag.com/story/best-investment-advice-
youll...](http://www.sanfranmag.com/story/best-investment-advice-youll-never-
get)

------
tom_rath
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
Risk of theft, fire and cost of storage.

(Might still be a good idea.)

~~~
tom_rath
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
Ok, the most important risk I see in practise is that you will move and it's
cumbersome to carry around stuff.

------
bokonist
My favorite posts and sites:

Mark Cuban's post on stocks: <http://blogmaverick.com/2008/09/08/talking-
stocks-and-money/>

A blog of a hedge fund trader in Japan: <http://nihoncassandra.blogspot.com>

A blog of a hedge fund trader in London: <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>

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.

------
teuobk
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
I recall reading somewhere that most pro traders can't even beat the common
index funds.

~~~
pj
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.

------
jwb119
I would absolutely recommend reading "A Random Walk Down Wall Street" by
Burton Malkiel. Its a great introduction to the theory of efficient markets.

~~~
bokonist
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).

~~~
nandemo
The efficient market hypothesis says that you cannot predict stock returns
using past prices and indicators; future price movements are due to news.
Since news are unpredictable (by definition), returns are random.

In October 2008 there were some pretty shocking news and the market went down.
I don't see how that invalidates the hypothesis.

EMH might have its weaknesses, and it might be even seriously flawed. But it's
not invalidated because there was a crash or because people do "irrational"
things, unless this irrationality is predictable.

(I believe the definition of "news" must be a bit wide for the hypothesis to
work. If a big investor changes his mind about his risk tolerance and decides
to sell a big chunk of stock, this is "news".)

~~~
bokonist
It's not the crash that invalidates it, it's the extreme variance. At one
point, the S&P had _two swings of 10% in one day_. These kinds of swings were
common, and they often happened without any shocking news arriving in between
the swings.

Since the mid-1980's, stocks have traded as collectibles, not as cash flows.
Thus the price of stocks is not based on fundamentals, but on game theory. The
stock market is a coordination game with massive feedback loops in it.

------
nas
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).

------
seregine
For me, Warren Buffett and Charlie Munger's investment advice resonates the
most. You could start here:

<http://ycombinator.com/munger.html>

Also, before buying mutual funds, read this:

[http://www.sanfranmag.com/story/best-investment-advice-
youll...](http://www.sanfranmag.com/story/best-investment-advice-youll-never-
get#story_top)

------
arebop
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.

------
Prrometheus
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
_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.

------
sethg
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>

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."

------
frisco
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
> Without insider knowledge

> Try finding a fund that provides good returns

Based on what, exactly?

------
vlad
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.)

~~~
pj
Oh, it's a game all right. The points are dollars. You want to make as many
dollars as possible by playing the game right. The hard part is figuring out
the rules. Because a lot of people don't know and they still get paid a lot of
money to tell the world the wrong ones.

~~~
vlad
>> Oh, it's a game all right. You want to make as many dollars as possible by
playing the game right.

No, you don't. You want to make as many dollars as possible regardless of what
you're doing, be it trading stocks or otherwise. But with trading, you're
risking what you already have, so you want to invest, and not confuse the word
investing with gambling. And with that, it's entirely possible that not
investing in the stock market whatsoever may be your best option throughout
your whole life, if you're a software developer. If you're not one, then try
to run a business in a different area to learn about the way things work,
while saving your money to make a very reasonable bet on a few bets, not
feeling like you have to have your money tied in the stock markets just
because other people do.

Now, if we knew that the stock market in general would go up 5-15% on average
every year for the next 40 years, that would be different, and I would buy an
index fund at the very minimum. But we do not know what will happen, nor can
we even slightly base our financial decisions on what happened before. That
would not be investing, that would be time machine traveling or being hopeful
things will work out. And as software developers, we have more control over
more things such that running one's own tech business while learning about new
developments will put us in the right mindset to understand and evaluate the
rare great buys in the stock market correctly, as well as how consumers think
based on having first hand experience running a company oneself.

And true investing is not just putting money into "the stock market" void
every month, but actually following developments and researching every week
for at least an hour a week per stock (this is actually Cramer's advice.) And
you want to have 5 stocks to diversify (Cramer's advice.) So with those 5
hours a week, could you not create and maintain a web app, or two or three?
Have fun reading Hacker News like you normally might do, sure, whether you
invest in stock or not. But just take the time you would spend researching and
discussing the companies you hold (as well as new companies you might be
interested in) and take that time to actually develop software. In either
case, you might only make a few hundred or thousand dollars a year profit.
That alone shows you might as well be investing in yourself. But that's not
all!

With creating your own software, you learned new skills, kept current ones
sharp, created a portfolio, became confident in yourself, and all of this may
raise your salary by $20,000-$50,000 a year and work the same amount of hours,
be confident in pursuing contracting opportunities based on the evidence you
can create stuff, sell off various web apps you created, even for just a few
thousand, and establish a reputation. So those hundred to thousand dollars a
year, or any money made, or even a loss of $200-$500 a year due to web hosting
and such and zero profit, can easily return ten, twenty, or thirty thousand
dollars for a 21 year old, more than anything else, in just one year.

But with "investing" as a 21 year old, making a hundred or thousand dollars a
year is about the best you could do. In fact, it is possible to lose the
entire investment, as well. So the net return might be negative (e.g. you'd be
better off not putting money in the stock market.) Subtract account fees as
well. And now, subtract all that research you did, and how many hours you
spent on it, at let's say $10-$30 an hour. And subtract the lost opportunity
cost of being able to have used that time to create anything, anything at all
for experience and other reasons I mentioned previously! Subtract the stress
and worry!

Let's go nuts here. Even if you were guaranteed not to lose money you invest
in the stock market, and you turn your $2,000 into $4,000, and let's say you
did it by luck so you spent zero hours researching anything and just left your
money in the account, investing the time and money towards furthering your own
education is just a much better use of resources for a 21 year old, even in
the best case scenario here.

And, as he mentioned he has debts, he should just try to pay them off. If the
debt is at 7% for college, 15% credit card, and other, pay those off first!

~~~
pj
Definitely go straight for the debt, that's sure money!

I agree with you, definitely on the same page. I wish I could say more right
now, but I gotta run. Anyway, point being, education first.

Yes, go build a software system to help you manage a lifetime of trading. It's
a life long job, not something you go do for 5 years. You may get so good at
it you want to take that software and sell it and make tons of money so you
can make tons of tons of more money when you return to the market in 3 years
or 5 years or whenever you want to return focus to it.

Money is a life long game. Not a sort term game. There's a lot more money to
be made in other facets of life than there is to be made in stocks over the
short term. Right now, I wouldn't even bother with stocks to be honest. I have
some random index funds, fairly diversified and some retirement money, but
other than that I'm all cash.

And I'm not recommending that for anyone, just saying that's where I am, just
to be on the up and up.

But 100% cash isn't right for everyone right now and it may turn out to be the
wrong decision, everyone has to decide for him or herself where their money
should be to maintain a certain level of happiness and vision toward the
future.

A long lived low stress life has a value too.

------
apinstein
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>

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
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.

------
raamdev
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>

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).

------
steveplace
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.

------
brk
$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.

------
mixmax
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/>

And another really important tip: Make sure you can afford to lose all the
money you put in.

------
jwilliams
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
"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
_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
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
_"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.

~~~
frisco
Of course real money doesn't "mitigate the random process in some way." You're
just more likely to switch to real money if you seem to be doing well as
opposed to poorly, and I'm saying that the appearance of doing well is
misplaced.

------
fizx
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
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
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.

------
ojbyrne
[http://www.amazon.com/Wall-Street-Self-defense-Manual-
Intell...](http://www.amazon.com/Wall-Street-Self-defense-Manual-
Intelligent/dp/0977743322)

Summary - buy index funds, keep your costs low, invest for the long term.

------
tialys
<http://news.ycombinator.com/item?id=248469>

Some good stuff here.

------
axiom
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
As if gold was an investment with a rate of return.. And he isn't going to
hide that 2k$ under his pillow.

~~~
axiom
DGP = 2x gold earnings

------
cturner

        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.

------
jhp
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.

------
tlrobinson
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."_

------
drawkbox
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>

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.

------
oakmac
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

------
lallysingh
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.

------
snorkel
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.

------
MaysonL
Read this: <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).

------
dc2k08
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?

------
apsurd
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/>

------
comatose_kid
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.

------
charlesju
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.

------
tocomment
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?

~~~
eru
There was advice to read the "Intelligent Investor" written by Ben Graham,
Buffet's mentor.

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

------
diN0bot
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.

------
Rod
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>

\- 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.

~~~
volida
\- I agree you don't have any advantage. On the other hand the meltdown has
already happened, so the prices have been corrected already.

\- On the other hand, using the stock-market by investing for the long-term is
the biggest crap someone can sell you. There are better ways to invest for the
long term, assuming you have more money.

\- $2000 may be a lot to you, but it's not a lot of money. So assuming you are
a fast learner, want high returns and you have the risk gene, I would
recommend learn forex instead. You will learn a lot more in 6 months than what
you will learn investing for the stock-market. You will probably lost at least
50% of your capital but you can't learn if you don't burn real money.

~~~
captainobvious
>\- I agree you don't have any advantage. On the other hand the meltdown has
already happened, so the prices have been corrected already.

A couple of summers ago someone could just have easily said: "on the other
hand, house prices have ballooned, so the massive undervaluations in the
housing market have been corrected already"

You are arbitrarily calling a bottom without any justification other than an
efficient market hypothesis, which, given recent volatility, is hard to put
forward.

~~~
volida
I am not in position to compare the two. But, the housing market was growing
globally and so fast that the it was obvious it is artificial.

However, if you said that, yeah that's the answer you actually got.

"arbitrarily calling a bottom without any justification other than an
efficient market hypothesis"

the deal is that you should not make predictions on what the outcome you need
to be. Rather, correct you predictions and adjust your investments.

~~~
trapper
As I remember, there was only one major player who realised it. I think this
is the definition of non-obvious.

If it was so obvious that is was artificial, then you would have taken the
bet.

------
xenophanes
Buy AAPL long.

